US CHINA TRADE WAR–TRUMP, APPOINTMENTS, TRADE POLICY, TAA FOR COMPANIES, CHINA NME AT WTO, SOLAR CELLS, HARDWOOD PLYWOOD, CYBERHACKING, TRADE CASES IN CHINA, CANADA AND MEXICO

US Capital Pennsylvania Avenue After the Snow Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR DECEMBER 19, 2016

Dear Friends,

This newsletter contains several articles about trade and Trump after his victory on November 8th.  As mentioned in my last blog post, the Trump victory will have a significant impact on trade policy.  The TPP is dead.

But the next question is how will Trump help revive manufacturing in the United States and help the Rust Belt states, Wisconsin, Michigan, Pennsylvania and Ohio, which put him in the White House?

Will there be a trade war with China and other countries?  Trump’s tough talk on the One China policy indicates a trade war, but his appointments to the US Ambassador to China and to the Commerce Department Secretary indicate the contrary.  Trump, however, may be trying to use uncertainty to create leverage and a deal with the Chinese government on trade and other issues.

Will Trump use taxes to give US manufacturing an advantage at the detriment of imports?

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 without damaging US downstream production.

In addition, this blog post describes the recent WTO complaint China filed against the United States and the EC for failing to give it market economy status under the US and EC antidumping and countervailing duty laws.  The newsletter also gives the upcoming deadlines under the Solar Cells and Hardwood Plywood cases against China.

Under the Universal Trade War theme, under China is an article on ways in which the Chinese government can retaliate against US companies in the trade war and newsletters from a Chinese law firm.  In addition, under Canada attached is an article from Dan Kiselbach, a Canadian trade lawyer, about whether the Trump Administration can truly get out of NAFTA and also information about the recent Softwood Lumber Case against Canada.  Finally, from Mexico there is information about a recent Carbon Steel Pipe and Tube case filed against imports from Korea, India, Spain and Ukraine, along with a brief description of Mexican antidumping law.

Finally, there is an announcement from the Justice Department about the accomplishments in the recent US/China meetings on Computer Hacking and also 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@harrisbricken.com.

Best regards,

Bill Perry

TRADE AND TRADE POLICY

TRUMP AND TRADE – A BULL IN A CHINA SHOP OR A SAVVY NEGOTIGATOR?

On December 2, 2016, President-elect Donald Trump took a phone call from President Ing Wen Tsai of Taiwan.  Trump’s decision to take the phone call from the Taiwan President created a fire storm as commentators questioned whether the United States would stick to the “one China” policy that implies that Taiwan is a part of China and that the long term relationship between China and the US would change.

In response, many commentators wrote articles suggesting that Trump was a “Bull in a China shop”, a clumsy inexperienced person taking actions without thinking about consequences.  Chinese media called Trump “an ignorant child.”

It has since come out that the specific phone call with President Tsai had been discussed for several months and set up by former Republican Congressional leader Bob Dole.  In fact, in addition to taking the call from President Tsai, President-elect, Trump met with Henry Kissinger, who is serving as a liaison for the Chinese government.

Instead of a Bull in China Shop, what President-Elect Donald Trump may have been trying to do with China is create a perception of strength and set up a sense of uncertainty.  What is Trump going to do?

President Ronald Reagan was a master at playing a similar game.  Projecting strength and also a feeling of uncertainty.  What is Reagan going to do?  Reagan’s projection of strength and uncertainty created agreements with Russia that led to the collapse of the Soviet Union.

A projection of strength and a sense of uncertainty gives Trump something Reagan had—leverage, which makes it easier to negotiate better deals.

On December 11. 2016, Trump stated on Fox News:

“I fully understand the ‘one China’ policy, but I don’t know why we have to be bound by a One China policy unless we make a deal with China having to do with other things, including trade.”

Companies and countries should not make the mistake that many in the mainstream US media have made.  Do not underestimate Donald Trump.  He is not an ignorant child and many of his advisors are very knowledgeable about China.  Trump wants a deal with China and he will not give something for nothing.

TRUMP’S APPOINTMENTS DO NOT INDICATE A TRADE WAR WITH CHINA

BRANSTAD TO BE AMBASSADOR TO CHINA

Through his appointments, Trump is indicating that he realizes how important the relationship is with China and he intends to appoint experts that understand China.  On December 7th at a “Thank You” rally in Iowa, President-elect Trump announced that six term Iowa Governor Terry Branstad will be his pick for Ambassador to China.  Governor Branstad has personally known Chinese President Xi Jinping since 1985 when Branstad was governor of Iowa and Xi was an agricultural official in northern China. For two weeks, Xi stayed with a family in the town of Muscatine, Iowa, an experience he likes to recall when visiting the State.  Subsequently he met with Gov. Branstad in 2012 as vice chairman of the Chinese government.

Chinese foreign ministry spokesman Lu Kang welcomed Branstad as an “old friend of the Chinese people” playing “a bigger role in China–U.S. relations”.

Branstad is also a friend of Trump, working actively on Trump’s campaign.  During the general election, his son, Eric Branstad, managed Trump’s campaign in the state. Trump then won in Iowa, 51% of the vote to 42% for Clinton.

This appointment may be a signal that President-elect Trump does not want a trade war with China because Iowa has $2.3 billion in exports to China mostly agricultural exports, including corn and soybeans.  Trump’s selection of Branstad for the most important diplomatic position to China suggests that the president-elect wants to keep negotiating channels open with Beijing, rather than adopt a knee jerk confrontational attitude

On December 8, 2016, at a speech in Iowa, which can be found at https://www.youtube.com/watch?v=-rPh9YG3AmY, Trump stated:

“One of the most important relationships we must improve and we have to improve is our relationship with China.  The nation of China is responsible for almost of half of America’s trade deficit.

China is not a market economy they got a lot of help and that is why we designate them as being them as a nonmarket economy.  Big thing.”

Trump went on to state, that the Chinese government has not “played by the rules, and they know it’s time that they’re going to start.” Trump went on to cite that China was responsible for “massive theft of intellectual property,” “putting unfair taxes on our companies,” “massive devaluation of their currency” and “product dumping”.

Trump further stated that the Ambassador he was going to appoint to China has “lots of friends there”.  According to Trump, Branstad requested that Trump not speak ill of China because in Iowa “we do well with China”.

Trump also stated that he is looking to work on the relationship between China and the US and that Governor Branstad “knows China and likes China” and “knows how to deliver results.”  Trump went on to state that Governor Branstad is highly respected by Chinese officials and a great friend of mine.

Donald Trump finished by stating “We’re going to have mutual respect, and China is going to benefit and we’re going to benefit. And Terry is going to lead the way.”

As the phone call with President Tsai of Taiwan indicates and his statement to Fox News, Trump is no push over.  There is a new strong President in town so do not try and bully him.  This President has options.

On the other hand, during the Primary and even after the election, well-respected conservative newspapers and commentators have stated that President Trump has to be careful not to create a trade war, especially with China.  As recently as November 30, 2016, in Investors Business Daily, the one newspaper that projected a Trump victory prior to the election, two commentators, Congressman David Mcintosh and Scott Linicome in an article entitled “Trump Should Tread Softly On His New Trade Agenda” stated:

“exploiting ambiguities in the current web of U.S. trade laws to enact the President’s trade priorities by executive fiat could engender opposition from Congress, the U.S. business community and U.S. trading partners, thus leading to court challenges similar to those fled by the Republican Congress against President Obama’s executive actions on immigration.

The crucial difference, however, is that the months of uncertainty surrounding the trade challenges would imperil trillions of dollars’ worth of goods and services, especially if the courts refused to enjoin the executive branch from acting while any such litigation is pending.”

WILBUR ROSS—NEXT COMMERCE DEPARTMENT SECRETARY

In addition, as explained in more detail below, Trump has decided to appoint billionaire private equity investor Wilbur Ross, a Warren Buffet type, to be the next Commerce Department Secretary.  Trump’s decision to appoint Ross, a brilliant investor, industry expert and deal maker, indicates a decision to put trade/business professionals at the highest level in his Administration, who are very experienced with regard to business, international competition and China.

Ross was one of the important creators of Trump’s economic plan, which the campaign claimed will increase federal revenues by $1.7 trillion.  With regards to Tariffs, Ross has specifically stated:

“Tariffs will be used not as an end game but rather as a negotiating tool to encourage our trading partners to cease cheating.  If, however, the cheating does not stop, Trump will impose appropriate defensive tariffs to level the playing field.”

In this video interview with the Epoch Times, Wilbur Ross himself shows a great knowledge of the US relationship with China, http://www.theepochtimes.com/n3/1751796-billionaire-investor-wilbur-ross-china-still-lags-us-in-innovation/.  In the video, Ross acknowledges that although China has made progress, the US is the most innovative country in the World.  Ross also states that in 2003 when he spoke out against China he was acquiring the majority interest in Bethlehem Steel and he was against Chinese companies’ product dumping:

“namely selling products for less in a foreign market than their true price in your domestic market.

That’s the kind of activity that we think should be protected against. We are generally free market people but what was happening back in the early 2000s with steel and what is starting to happen again, is that product was actually being sold in this country for less than the total cost of manufacturing it.

That’s not legitimate competition. If someone can make things more inexpensively in their country and sell it here that’s fine with me. But it shouldn’t be that they have one price in their country and a lower price outside.”

In the video Ross further states that the reason China was dumping is:

“they had a period of overcapacity and because China is so much about jobs as opposed to profits, it was very important for the government to maintain jobs. So to maintain jobs they had to maintain production, even though there was not enough demand for it. The way they tried to solve the problem was by dumping it outside.”

Ross is correct that with its large overcapacity, most Chinese steel companies were dumping and probably at very high rates.  But as indicated below, since the Commerce Department continues to treat China as a nonmarket economy and refuses to look at actual costs and prices in China, no one knows for certain which Chinese companies are truly dumping and what the real dumping rate of the Chinese companies is.

With regard to Chinese innovation, Ross indicates that he is very knowledgeable about China stating:

“China is coming along in terms of innovation. They now have the world’s biggest and fastest computer. That would have been unimaginable a decade ago. They’ve launched spaceships into outer space. They have not yet gotten to be as innovative as the United States is, nobody has been as innovative. Year after year the United States gets more patents than any other country by a wide margin. Interestingly, it’s Japan that comes in second.”

As to why China lags the US in innovation, Ross states:

“The United States is basically a free market economy and their entrepreneurship has been highly prized here for centuries and centuries so there’s a real tradition of risk-taking. Innovation involves a lot of risk-taking.

A state-owned enterprise is much less likely to be a big risk-taker then private capital. Since China had been so dominated by the state-owned enterprises it’s hard in a big bureaucratic system to be innovative. Look at the U.S. government itself, what interesting innovations have they come up with?”

Being a Warren Buffet type and very involved in the US Stock market, Wilbur Ross also has very educated views about the problems with the China Stock Market:

We think that China has two separate problems right now. One is the market itself, the equity market, and that got completely out of control. . . .

I think what then happened, the government seemed to have panicked and made lots and lots of very panicky moves. They first raised the margin requirement then they lowered it. They threw hundreds of billions of dollars into the market. Now they’re prosecuting people who spread negative stories about the market.

I think the difficulty with all that is, when a government shows signs of panic, particularly a government that historically has been able to control what happens pretty well, when that government shows panic it makes people more frightened, not less frightened.

Like many China experts, Ross believes that China’s growth numbers are not accurate:

The Chinese economy clearly is not growing at anything like 7 percent. We have felt for a couple of years that those figures were very, very generous. If you look at physical indicators—electricity consumption, natural gas consumption, oil consumption, cement consumption, steel consumption, telecom consumption, retails sales—if you look at all those indicators, none of them were growing at a rate that was equal to 7 percent and neither were the exports.

With regard to economic reform in China, Ross states:

I think what they’re trying to do is several things all at once and that makes it very challenging.

They’re trying to become more of a consumer-driven economy, but the reality is that their largest driver is capital investment. It’s hard to make that transition because capital investment is still about 44 percent of the economy.

They’re trying to make the transition, but meanwhile they’re doing the very- much-needed anti-corruption drive and that in a strange way has hurt consumer spending.  . . .

I think they’ll get there, just that the transition is a hard one. Meanwhile there is super-imposed upon it, the economic issues in the rest of the world. Combined with China’s rising labor costs and the very strong currency, make it very difficult to be an exporter.

These responses along with the video indicate that Ross is not a knee-jerk protectionist and has a deep knowledge of China, which does not indicate a trade war any time soon.

COULD TAXES BE THE WAY TRUMP MAKES US INDUSTRY GREAT AGAIN

On the other hand, Trump and Republicans in Congress may be creating an alternative to tariffs to spur US manufacturing and that is taxes.  In the Congress, one proposal in the House Republicans’ tax-reform plan is to give American-made products a big tax advantage over their foreign competitors.  Although some commentators have pointed to a potential trade war, Ways and Means Chairman Kevin Brady stated, “We are now in the process of designing all aspects of our ‘Build for Growth’ tax plan to withstand any WTO challenge. We’re confident we can win any case.”

The key issue is a plan to fundamentally remake the tax system by taxing US companies based on where they sell their goods, not where the business happens to be located. As part of that, Republican tax legislators want to include what experts call “border adjustments” — new taxes on imports as well as tax rebates on exports.  This plan would replace the current corporate tax code with something known among experts as a “border-adjustable, destination-based” tax system.  Under their proposal, imports would be charged the same 20 percent tax that domestic companies would face. Exports would be excused from taxes.  It would amount to a fundamental change, with the government taxing companies based on where they sell their wares, rather than where the business is located.

According to tax experts, this new tax plan would offset inversions and other types of international tax avoidance because companies would have less incentive to go to other countries looking for tax savings. The proposal would also finance a huge chunk of the Republicans’ overall tax plan — the Tax Policy Center estimates border adjustments would raise $1.2 trillion, making it the third-largest pay-for in the plan.

The proposal is already controversial because it threatens big tax increases to many large retailers, such as Walmart and Home Depot and other companies, which heavily rely on imports.

But critics say it would also violate free-trade agreements by favoring American-made goods over imports. That’s because, while they would all be subject to the same 20 percent tax, U.S. companies would be able to deduct the cost of workers’ pay when calculating their tax bills. Imports would not be given the same treatment and the difference could be dramatic.

If a U.S. company sold a product for $100 and it spent $70 on its workers’ pay, under the Republican plan the remaining $30 would be subject to the 20% tax. That would produce a $6 tax bill. An imported version of the same product would be forced to pay the 20% tax on the entire $100 sale, producing a $20 tax bill.

On December 7, 2016, Koch Industries came out against the Border Adjustment provision of the new tax overhaul with Philip Ellender, the head of government affairs at Koch Companies Public Sector LLC, stating that the so-called border adjustment proposal currently being considered by Republican lawmakers:

“would adversely impact American consumers by forcing them to pay higher prices on products produced in and goods imported to the U.S. that they use every single day.  While companies like Koch who manufacture and produce many products domestically would greatly benefit in the short-term, the long term consequences to the economy and the American consumer could be devastating.”

Another problem is the World Trade Organization (“WTO”) allows border adjustments for so-called indirect taxes on transactions, such as value-added taxes, but not on direct taxes, such as income taxes. The Republican plan is a hybrid, raising questions about how the WTO would categorize it.

Any change in US tax treatment could be challenged by other countries in the WTO as a violation of the WTO Agreement of most favored nation, which requires imports to be treated the same as domestically produced products.  If a WTO tribunal were to rule against the United States, the prevailing countries could be allowed to retaliate against US exports to account for the injury to their exports, which could be as high at $1.2 trillion.

But any challenge in the WTO will take years to litigate.  A good example of this is the Byrd Amendment.  The Byrd Amendment allowed US petitioner companies to get the dumping and countervailing duties collected by Customs.  The Byrd Amendment passed in 2000 and after WTO litigation resulting in possible retaliation by other countries against the United States, the Congress repealed the Byrd Amendment in December 2005 on 51 to 50 vote in the Senate with Vice President Cheney breaking the tie.  But for five years US petitioners collected the duties.

So instead of a direct protectionism using tariffs, any protectionism may be indirect, but it will have the same effect.  Give US companies a major incentive to produce their products in the US, rather than rely on imports.

But the real problem with the tax plan is international trade/globalization victimhood which will lead the companies not to make the changes they need to make to be competitive.  Just like the steel industry, US companies would continue to hunker down behind protectionist walls and never modernize their production to meet competition.  That is the problem.  As President Reagan himself observed, protectionism makes companies weaker not stronger and in the end does not save the companies and industries that are being protected.

On December 13th in a letter to Congress more than 50 retail and manufacturing associations urged Congress to abandon border tax adjustments saying the proposal to increase taxes on all imports could hurt domestic industry.  Although the retail groups argue that border tax adjustments could raise consumer prices, as the letter states the real problem is the impact of higher raw material costs on downstream US production:

“Companies that rely on global supply chains would face huge business challenges caused by increased taxes and increased cost of goods, which would in turn likely result in reductions in employment, reduced capital investments and higher prices for consumers.”

Congress does not care if prices for consumer products go up a few dollars at Walmart, but what happens when US downstream producers in Congressional districts are forced to close down because of higher raw material costs.  As one friend, who represented a major steel producer for years, told me, the total employment in the entire Steel industry is less than one high tech company and yet we want to protect the Steel industry at the expense of downstream high value added US production?

TRUMP APPOINTS WILBUR ROSS A PRAGMATIST TO BE COMMERCE DEPARTMENT SECRETARY

As indicated above, President Elect Donald Trump has announced that he will appoint billionaire investor Wilbur Ross as the next Secretary of Commerce.  Ross is a pragmatist, not an ideologue, who understands and values the problems of the working class more than other capitalists.  As Ross states in the following video http://www.theepochtimes.com/n3/1750905-billionaire-investor-wilbur-ross-on-the-people-factor-in-investing/:

“That man who has stood behind a machine for 15 or 20 years, he knows better than the people who built it, how to get more productivity out of it. So you need   to create an environment where he feels someone will pay attention if he makes a suggestion, and if it turns out to be a good suggestion, that he’ll be rewarded for it.”

Ross, worth $2.9 billion according to Forbes, has made his name in distressed assets investments and rose to fame turning around Bethlehem Steel for a short time as well as Burlington Industries.  Ross also worked closely with labor unions, stating:

“There’s a big misconception in management–labor relations throughout the industrial world; too often management and labor view each other as adversaries. We truly view labor as our partner because they only have one company they’re working with and we only have one group of workers.

So we think it’s very important that we have a good, functional relationship. We don’t negotiate with unions having a big battalion of lawyers and accountants and human relations people. We tend to negotiate mano-a-mano with the union leadership. Once we’ve worked out the essence of the deal, we then turn it over.”

Ross probably knows the Rust Belt better than any politician, one of the reasons why President-elect Trump picked him.   In the early 2000s he combined Acme Steel, LTV Steel, and Bethlehem Steel saving all of them from bankruptcy for a short period of time and returning the employees to the job but under new work rules and with 401(k)s instead of pensions.

Meanwhile, in early 2000, China suddenly had an insatiable demand for steel, combined with the U.S. automakers’ zero-percent financing push.  American steel was suddenly red hot. The price per ton of rolled steel soared and Ross took the new entity, ISG, public in December 2003.  Ross then sold ISG combined entity to Indian steel giant Mittal in 2005 for $4.5 billion.  As Ross stated:

“It’s nice being the chairman of a huge company in a vital industry. But it’s nicer to make fourteen times your initial investment in just two years.”

Eventually, however, Bethlehem Steel fell into bankruptcy.

OPEN LETTER TO NEW COMMERCE DEPARTMENT SECRETARY WILBUR ROSS— ONLY TRADE REMEDY PROGRAMS THAT SAVE US COMPANIES—TAA FOR FIRMS/COMPANIES AND MEP

The Honorable Wilbur Ross

New Commerce Department Secretary Trump Administration

Re: Trade Adjustment Assistance for Firms/Companies and MEP– Only Trade Remedy Programs That Save US Companies

Dear Secretary Ross,

The Press reports that President-elect Donald Trump has nominated you to be the next Commerce Department secretary.  Your expertise in working with bankrupt US companies, such as Bethlehem Steel, gives the United States a unique chance to make its industry great again.

In the 1980s during the Reagan Administration, I worked at the Commerce Department and before that at the US International Trade Commission.  Since the 1980s, I have represented many US importers/foreign producers in international trade cases, including metal, chemical and steel products, and am now on the Board of Directors of the Northwest Trade Adjustment Assistance Center in Seattle, Washington, which provides assistance to US companies injured by imports.

In my experience, ultimately these unfair trade cases do not work.  Although they provide a breathing space, they do not save the companies and the jobs that go with them.  Importers simply switch to a new country.  Both of us have experience with Bethlehem Steel, which had 40 years of trade protection from steel imports through various antidumping and other trade orders.  Where is Bethlehem Steel today? Green fields.

But trade cases also create enormous collateral damage in downstream industries that need competitive raw material inputs.  Many US companies may use the cases to hide behind protectionist walls.  The “hunker down” mindset is not in America’s DNA.  Instead, this nation’s manufacturing businesses need to regain the competitive dynamism they once possessed. We need a new aggressive US manufacturing policy unleashing American global competitiveness to make companies strong enough to not only survive, but thrive in the US market.

A starting point would be for the Commerce Department to build upon two existing programs that have proven track records of success in this area that can be quickly ramped up and can have an immediate and tangible impact on the 250,000 small and medium manufacturing companies which serve as the bases of our supply chain: EDA’s Trade Adjustment Assistance for Firms /Companies (“TAAF”) and NIST’s Manufacturing Extension Partnership Program (“MEP”) (inexplicably, these programs have been marginalized by the Obama Administration).  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.

No federal funds go to any companies in the program. In fact, companies are required to pay into the program by matching any federal monies on a dollar-for-dollar basis. This sharing of costs between Uncle Sam and the companies creates a pool of seed dollars subsequently used to hire outside professionals. These professionals create a series of knowledge-based projects aimed at permanently upgrading key business processes over the span of several years. Here’s the kicker – the program does not block imports in any way.

Does it work? Yes it does. 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, 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.

NIST’s MEP program provides high quality management and technical assistance to the nation’s small manufacturers through independent Centers in every State and Puerto Rico, staffed by non-federal advanced manufacturing experts and is one of the remedies suggested by TAAF.  MEP reaches nearly 30,000 firms each year, and works intensively (think “McKinsey for manufacturers”) with nearly 10,000 of them.  As a consequence of a just completed nation-wide reinvention and reform of the program, MEP is positioned to assist even more companies.  Currently funded at $130 million, a commitment of $100 million over four years would serve an additional 8400 firms.  These funds could be targeted to those small and medium enterprises that are the base of our domestic supply chain, critical to your overall reshoring agenda.  Like the TAAF program, no MEP funds go directly to the companies, which instead are required to cost share the cost of expert consultants.  They have “skin in the game”.

Increasing funding will allow the TAA for Firms/Companies and the MEP programs to expand their bandwidth and provide relief to larger enterprises, including possibly even steel producers.  If companies that use steel can be saved, why can’t those who produce it?

Attached is a longer proposal on how to expand TAA for Firms/Companies and the MEP Program to make US companies more competitive again.

I wish you great success in your new appointment.  It gives me a level of confidence for the future of America’s manufacturing base that hasn’t been felt for quite some time.

I hope that the above has been of some interest. I would consider it an honor to expand on it in person if you think it appropriate.

Very truly yours,

William Perry

CHINA SUES US AND EC IN WTO FOR FAILURE TO GIVE CHINA MARKET ECONOMY STATUS IN AD AND CVD CASES ON DECEMBER 11, 2016

As indicated in past blog posts, pursuant to the China WTO Accession Agreement, from the Chinese point of view December 11, 2016 is the date when countries can no longer treat China as a nonmarket economy country under their antidumping (“AD”) and countervailing duty (“CVD”) law.  Neither the United States nor the EC declared China a market economy country on December 11th so predictably China has filed a WTO complaint against the US and EC over their price comparison methodologies used in their AD and CVD laws.

On December 12, 2016, in the attached notice, wto-2016-news-items-china-files-wto-complaint-against-us-eu-over-price-comp, the WTO announced:

“China notified the WTO Secretariat that it had requested dispute consultations with the United States and the European Union regarding special calculation methodologies used by the US and EU in anti-dumping proceedings.”

Pursuant to US antidumping law, since China is a nonmarket economy country, Commerce refuses to use actual prices and costs in China to determine whether a Chinese company is dumping.  Instead Commerce constructs a cost for the Chinese company using consumption factor information from China and “surrogate” values from import statistics in 5 to 10 different surrogate countries. In its proceedings, the Commerce Department can choose value data from different countries between a preliminary and final determination and between initial investigation to review investigation.   Because of the numerous surrogate values from many different surrogate countries, it is impossible for the Chinese company, never mind the US importer, to know whether the Chinese company is dumping.

As former USTR General Counsel Warren Maruyama recently stated:

“The nonmarket economy methodology tends to generate extremely high margins and a lot of Chinese companies have basically concluded that it’s futile to defend NME cases, so this is a dispute with extremely high stakes for both sides.”

The controversy surrounds Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, which 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 us a nonmarket economy methodology in Article 15 (a)(ii) “shall expire 15 years after the date of accession”.  China acceded to the WTO on December 11, 2001 so Section 15(d) should have taken effect on December 11, 2016, but did not.

But where did the 15 years come from?  It came from a demand by the United States in the 2000 US China WTO negotiations and the resulting US-China WTO Accession Agreement. In fact, several years ago, former USTR Charlene Barshefsky, who negotiated the US China WTO Agreement, was asked at a conference in Beijing where the 15 years came from.  Her response was that she knew what she needed to get from the Chinese government to get the Agreement through Congress.  A USTR negotiator once told me that, in fact, this was “nonnegotiable demand” from the US government.  So you would think that the US government would follow the Agreement it negotiated with China and the demand that it made of the Chinese government.  Not so fast.

The United States’ apparent position is that although the 15 years was demanded by the US, since the 15 years is in not in a Treaty approved by Congress, the US does not have to follow the provision because it is not in the US Antidumping and Countervailing Duty law.

Iran has market economy status and has always been considered a market economy country.  Although once classified as nonmarket economy countries, Russia and Ukraine have market economy status under the US antidumping law.  Why and how did they become market economy countries?

For Russia, it was 911.  As a result, of the 911 attack the US government wanted Russian bases to attack Afghanistan.  President Putin told the United States Government make Russia a market economy country under the US antidumping law.  Secretary Evans of Commerce flew into Russia and said looks like a market economy to me.  See http://news.bbc.co.uk/2/hi/business/2032498.stm; http://www.themoscowtimes.com/business/article/washington-mulls-status-of-russias-economy/247431.html; http://www.russialist.org/archives/5545-4.php.

As CBS news stated about the announcement:

The Russian leader has aggressively pursued closer ties with the West since the Sept. 11 terrorist attacks, and many analysts had predicted the United States would grant Russia market economy status and help in its WTO bid in exchange for Putin’s strong support for the U.S.-led campaign in Afghanistan.

http://www.cbsnews.com/news/russia-joins-club-capitalism/

Sources in China reported that when he learned about the decision then Premier Zhu Rongyi in China was extremely angry, stating how could Russia get market economy before China?  The answer—politics and the Chinese know it.

What about Ukraine?  How did it get market economy?  Orange Revolution.  On February 17, 2006, Commerce determined that Ukraine is a market economy country.  See http://www.trade.gov/press/press_releases/2006/ukraine_021706.asp; 71 Fed. Reg. 9520 (February 24, 2006).

Regarding China’s challenged in the WTO, Nicholas R. Lardy, a senior fellow at the Peterson Institute for International Economics, recently stated:

“I think this is potentially far more significant than most trade disputes … because the Chinese believe, with some justification, that they were promised something both verbally and in writing back at the time when they were negotiating their accession and now both Europe and the United States are walking away from it.”

SOLAR CELLS FROM CHINA PRELIMINARY DETERMINATION

On December 19, 2016, the Commerce Department issued the attached preliminary determination, 2014-2015-solar-cells-from-china-preliminary-determination, in the 2014-2015 antidumping revivew investigation on Solar Cells from China.  Trina received an antidumping rate of 7.72%, Canadian Solar 30.42% and separate rate companies received a rate of 13.97%, the weighted average of Trina and Canadian Solar’s dumping rates.  These are just preliminary rates and those rates can change in six months in a preliminary determination.

SOLAR CELLS FROM CHINA REVIEW INVESTIGATION STARTS THIS MONTH

As indicated in the attached Commerce Department review notice, december-2016-commerce-opportunity-to-request-reviews, this is the month to request review investigations in the Solar Cells ( formal name “Crystalline Silicon Photovoltaic Cells”) from China case.  Requests for review investigation must be filed at the Commerce Department by December 31st.

There has been much confusion about the difference between the Solar Cells case and the Solar Products (formal name “Crystalline Silicon Photovoltaic Products”) case.

The Solar Cells from China case covers exports and imports of Chinese Solar Panels with Chinese produced solar cells in them. The anniversary month is December to request a review investigation and the review period will cover imports and sales of Solar Cells to the United States during the period December 1, 2015 to December 31, 2016.

The Solar Products from China case covers exports and imports of Chinese Solar Panels with foreign produced solar cells in them. The anniversary month is February to request a review investigation and the review period will cover imports and sales of Solar Products to the United States during the period February 1, 2016 to January 31, 2017.

NEW HARDWOOD PLYWOOD AD AND CVD CASE AGAINST CHINA

On November 18th, the Coalition for Fair Trade in Hardwood Plywood and its individual members: Columbia Forest Products (Greensboro, NC), Commonwealth Plywood Inc. (Whitehall, NY), Murphy Plywood (Eugene, OR), Roseburg Forest Products Co. (Roseburg, OR), States Industries, Inc. (Eugene, OR), and Timber Products Company (Springfield, OR) filed an AD and CVD case against imports of hardwood plywood from China.

On December 9, 2016, in the attached factsheet, factsheet-prc-hardwood-plywood-products-ad-cvd-initiation-120916, the Commerce Department initiated the AD and CVD cases.  To get a separate antidumping rate in the AD case, Chinese companies must submit a quantity and value questionnaire by December 22, 2016 and a separate rates application by January 13, 2017.

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

STEEL TRADE CASES

On November 30, 2016, in the attached factsheet, factsheet-multiple-clt-plate-ad-final-113016, Commerce announced its affirmative final determinations in the AD investigations of imports of certain carbon and alloy steel cut-to-length plate from Brazil, South Africa, and Turkey.  The Brazil AD rate is 74.52%.  The South African rate ranges from 87.72% to 94.14%.  The Turkey rate ranges from 42.02% to 50%.

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 AD and CVD cases, countries around the World, such as EC, Canada, Mexico, Brazil, Argentina, India, Turkey, Ukraine, Russia, China, Indonesia, Malaysia, Korea, Japan, Taiwan, Australia, Thailand, South Africa, and Vietnam, all are filing antidumping and countervailing duty cases against each other and the United States.  These countries have adopted the US law which finds dumping in 90% of the cases.  The US and the EC have created a Frankenstein in the antidumping law and the whole World has adopted it.

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

Because of this situation, this part of the newsletter will concentrate on trade cases in other countries and how other countries see the trade problem with the United States.

CHINA

HOW THE CHINESE GOVERNMENT CAN RETALIATE

What Happens When Trump Starts a Trade War with China

By Adams Lee, Partner, Harris Bricken

During the campaign, Donald Trump said “we can’t continue to allow China to rape our country” and vowed to aggressively fight back against China’s unfair trade practices. Trump promised his trade agenda would:

(1) declare China to be a currency manipulator,

(2) impose a 45 percent tariff on all Chinese imports into the U.S.,

(3) abandon/ renegotiate “bad” trade agreements such as the Trans-Pacific Partnership (TPP), and

4) use the full arsenal of US trade laws against Chinese unfair trade practices.

President-elect Trump’s trade actions likely will raise many legal and policy questions.  Can he really do that? Should he do that? Will those actions achieve anything? Pundits, academics, lawyers, and ultimately U.S. judges will weigh in on these questions, but it is fair to assume China will not wait for the resolution of these questions.  Instead China likely will retaliate with its own actions. This post looks at three possible ways China could respond to any attempts under the Trump administration to get tough against China.

  • China’s AD/ CVD Actions

Unbeknownst to many, China has initiated many of its own antidumping (AD) and countervailing duty (CVD) actions against the United States and other countries.  Having been on the receiving end of the most number of AD/CVD actions worldwide, China has incorporated into its own AD/CVD procedures some of the most effective techniques and practices from the AD/CVD investigations conducted by the U.S., EU, and other jurisdictions. For example, China’s AD questionnaires have burdensome and comprehensive sales and cost data requests, similar to, and even exceeding US practice. China’s AD/CVD margin calculation methodologies are as non-transparent as the EU’s margin calculations. China has even copied many of the annoying administrative practices of the US and EU such as giving only limited extensions, disregarding national holidays, or insisting on burdensome filing requirements (e.g., all documents of all filings must be fully translated into Chinese).

To date, China’s AD/CVD actions have largely been symbolic and timed to be initiated after specific U.S. actions against China.  Although many of China’s AD/CVD cases have involved well-known companies (e.g., Corning, Dupont, Tyson Foods, Cadillac), most of these cases have had only limited economic impact. For example, in 2010, China imposed AD/CVD duties against U.S. chicken broiler products after the U.S. imposed special safeguard duties against Chinese tires in 2009. Most of the U.S. exports to China were of chicken feet, which had limited demand in the U.S., other than as a byproduct to make animal feed.

More recent China AD/CVD actions, however, have had greater strategic economic impact.  After the US and EU filed AD/CVD actions against Chinese solar cells and modules in 2011, China retaliated by initiating its own AD/CVD actions against solar-grade polysilicon from the United States, EU and Korea. China’s AD/CVD action effectively closed off the largest export market for US polysilicon producers, and was a significant contributing factor to REC Silicon’s decision to shutter its polysilicon production operations in Washington and Montana.

Even more recently, China in late September announced preliminary AD duties of 33.8% and CVD duties of up to 10.7% against imports of U.S. distillers dried grains (DDGS), an ethanol by-product used as animal feed. The U.S exported $1.6 billion of DDGS to China in 2015.

China apparently already has an AD/CVD action prepared against U.S. soybeans exports to China and is just waiting for the right time to initiate the action. The U.S. is the largest producer and exporter of soybeans and exported over $10 billion of soybeans to China in 2015.  If Trump wants to get tough against China, US soybean producers may well become collateral damage in the latest round of the escalating US-China trade war.

  • China’s Antitrust Enforcement

Another option for China to respond against any anti-China trade actions from the U.S. would be through the enforcement of its antitrust laws.  Although China implemented its anti-monopoly law only in 2008, China has become increasingly active in reviewing mergers and investigating abuse of market dominance. In February 2015, Qualcomm paid $975 million fine to settle Chinese antitrust investigations into its alleged abuse of market dominant position.  In 2016, China’s antitrust authorities have targeted pharmaceuticals, medical devices, vehicle manufacturing, ocean shipping, and smart manufacturing as industries of particular concern.  U.S. companies operating in these industries should be aware of possible dawn raids of its corporate offices in China and other enforcement action by Chinese antitrust authorities. Because these industries are already prioritized for extra scrutiny, China could ramp up its antitrust enforcement actions as an indirect way to retaliate quickly against Trump’s actions against China.

  • China’s Criminal Enforcement

China could also retaliate by simply enforcing its own criminal laws against foreign (i.e., U.S.) company officials while in China. Earlier this month, China detained at least three employees of Crown Resorts, Ltd, an Australian gambling company, and will be pursuing criminal charges because under Chinese law casinos are not allowed to promote gambling in China or organize groups to go to casinos overseas. No one knows where and when the next China anti-corruption effort will occur, but foreign companies doing business in China in important or politically sensitive industries need to be extra cautious.  Company officials need to know which way the wind is blowing in China, particularly when Trump’s enflamed trade rhetoric may trigger Chinese backlash.

So far, although Trump has talked a lot about China, China has taken the high road noting that U.S.-China trade relations are “too big to fail”. China appears to be waiting to see if Trump’s actions will in fact harm China.  For example, Trump’s decision to abandon the Trans-Pacific Partnership actually opens the door for China to step in and fill the TPP void by promoting its own regional trade agreement (RCEP – Regional Comprehensive Economic Partnership).  If, however, Trump does do anything that China considers excessive, it would be naïve to think China will do nothing.  Unlike the U.S.-Japan trade wars from the 1980s, China has a home market that is often the biggest export market for US producers. China has many options under its own laws to directly or indirectly retaliate against U.S. interests.  Anyone wishing to do business in China or with China should consider these risks that they could be targeted for symbolic retaliation in a spiraling US-China trade war.

CHINA AD/CVD NEWSLETTERS

Attached are newsletters teams-newsletter-en-vol-2016-44, teams-newsletter-en-vol-2016-45 teams-newsletter-en-vol-2016-46, from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office.

CANADA

LUMBER FROM CANADA CASE COMES BACK

On November 25, 2016, the Committee Overseeing Action for Lumber International Trade or Negotiations, the domestic lumber companies, filed an antidumping and countervailing petition against softwood lumber products from China.  In the attached notice, factsheet-canada-softwood-lumber-productsad-cvd-initiation-121616, on December 16, 2016, the Commerce Department initiated an antidumping and countervailing duty case on solftwood lumber products from Canada.

THE CANADIAN VIEW

In attached footnoted article, trumpnaftafinal, Dan Kiselbach, a well-known Canadian Trade and Customs lawyer, at Deloitte Tax Law in Vancouver, Canada discusses whether and how Trump can cancel NAFTA.

MEXICO

MEXICAN ANTIDUMPING CASE—CARBON STEEL TUBE FROM KOREA, SPAIN AND UKRAINE.

On December 15, 2016, in the attached notice in Spanish, dof-15-dic-16-resolucion-inicio-investig-antidumping-import-tuberia-de-a, the Mexican Government started up its own antidumping investigation against imports of carbon steel tube from Korea, India, Spain and Ukraine.  A large number of US companies have been named as respondent exporters.  All the exporters are named in pages 7 to 11 of the notice.

In the attached memorandum, carbon-steel-pipe-and-tube-mexicowhich will be attached in full on my blog, www.uschinatradewar.com, David Hurtado Badiola, a well known Mexican Trade and Customs lawyer, at Jauregui y Del Valle, S.C. in Mexico states:

Antidumping investigation on seamless carbon steel pipes, originating in Korea, Spain, India and Ukraine.

Below is a summary of the Initial Antidumping Resolution on seamless carbon steel pipes, produced in Korea, Spain, India and Ukraine, published today on the Federal Official Gazette.

The investigation is initiated today for importations of steel pipes described below, carried out at alleged dumping prices.

The products included in the investigation are seamless carbon steel pipes, with different diameters and thicknesses, classified under the following tariffs are:

Tariff fraction Description
Chapter 73 ARTICLES OF IRON OR STEEL
Heading 7304

Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or Steel.

Line pipe of a kind used for oil or gas pipelines

Subheading 7304.19 Other

Tariff

7304.19.01

Hot-rolled tubes, uncoated or other surface-worked work, including Hot-drawn or lacquered: of an external diameter not exceeding o equal to 114.3 mm and a wall thickness equal to or exceeding 4 mm without exceeding 19.5 mm

Tariff

7304.19.02

Hot-rolled tubes, uncoated or other surface-worked work, including Hot-drawn or lacquered: of an external diameter

exceeding 114.3 mm but not exceeding 406.4 mm and having a wall thickness of 6,35 mm or more but not exceeding 38.1 mm .

Tariff

7304.19.99

The others.
Subheading 7304.39 Others, of circular cross-section, of iron or non-alloy steel:
Others.

Tariff

7304.39.05

Tubes known as “thermal” or “conducting” tubes, uncoated or surface-worked, including pipes called thermal or conducting, lacquered or varnished: of an external diameter not exceeding or equal to 114.3 mm and having a wall thickness equal to or greater than 4 mm, not to exceeding 19.5 mm.

Tariff

7304.39.06

Tubes known as “thermal” or “conducting” tubes, uncoated or surface-worked, including pipes called thermal or conducting, lacquered or varnished: of an external diameter greater than 114.3 mm not exceeding 406.4 mm and having a wall thickness equal to or greater than 6.35 mm, not to exceeding 38.1 mm.

Tariff

7304.39.99

Others.

There are two different periods covered in an antidumping investigation: (i) the investigated period and (ii) the analyzed period.

The investigated period covers importations from April 1, 2015 to March 31, 2016.

The analyzed period is a longer period that covers importations from April 1, 2013 to March 31 2016. This period is used to analyze injury caused by imports at dumping prices.

Every exporter that appears and files the information required is entitled to have its own dumping margin calculated.

Those exporters that do not appear or did not export in the investigated period shall be subject to the “all others rate”, equivalent to the highest duty imposed to the exporters of their country.

The term to file information in the official questionnaire and defense arguments expires on February 9, 2017.

If anyone is interested in participating in the case, please let me know and I will put them in touch with Mexican trade counsel.

COMPUTER HACKING

US AND CHINA MEETING

On December 8, 2016, the Justice Department issued a notice, on the recent high level Joint Dialogue between the United States and China on Cybercrime and Related Issues, which states:

Joint Summary of Outcomes

Yesterday, Attorney General Loretta E. Lynch and Department of Homeland Security Secretary Jeh Johnson, together with Chinese State Councilor and Minister of the Ministry of Public Security Guo Shengkun, co-chaired the third U.S.-China High-Level Joint Dialogue on Cybercrime and Related Issues. The dialogue aims to review the timeliness and quality of responses to requests for information and assistance with respect to cybercrime or other malicious cyber activities and to enhance pragmatic bilateral cooperation with regard to cybercrime, network protection and other related issues.

Both sides endorse the establishment of the dialogue mechanism as beneficial to bilateral communication and enhanced cooperation, and believe that further solidifying, developing and maintaining the dialogue mechanism and continuing to strengthen bilateral cooperation in cybersecurity is beneficial to mutual interests.

The outcomes of the third dialogue are listed as below:

  1. Combatting Cybercrime and Cyber-Enabled Crime. Both sides re-commit to cooperate on the investigation of cyber crimes and malicious cyber activities emanating from China or the United States and to refrain from cyber-enabled theft of intellectual property with the intent of providing competitive advantages to companies or commercial To that end, both sides:
    • Plan to continue the mechanism of the “Status Report on S./China Cybercrime Cases” to evaluate the effectiveness of case cooperation.
    • Affirm that both sides intend to focus cooperation on hacking and cyber-enabled fraud cases, share cybercrime-related leads and information with each other in a timely manner, and determine priority cases for continued law enforcement cooperation. Both sides intend to continue cooperation on cases involving online distribution of child Both sides seek to expand cyber-enabled crime cooperation to counter Darkweb marketplaces’ illicit sale of synthetic drugs and firearms.
    • Seek to provide concrete and timely updates on cases brought within the ambit of the
    • Exchanged views on existing channels of multilateral cooperation, and intend to continue exchanges regarding this
  2. Network Both sides acknowledged the network protection seminar held in August 2016 in China, and believe that enhancing network protection is beneficial to both sides. Both sides suggest holding regular network protection working-level meetings, either remotely or in-person, the next of which should be planned for 2017. Both sides seek to promote the protection of our respective networks through multiple methods. To that end, both sides:
    • Plan to enhance network hygiene by promoting the cleaning and patching of malware infections in our respective networks and promoting best network protection
    • Propose to engage in regular reciprocal sharing of malicious IP addresses, malware samples, analytic products, and other network protection information, and to develop standard operating procedures to guide network protection
    • Seek to assess the effectiveness of information shared and provide substantive feedback to each side regarding the utility of that
    • Plan to provide Principals with regular summaries of network protection
    • Intend to continue discussion on future cooperation concerning cybersecurity of critical infrastructure, and to provide timely assistance on cybersecurity incidents impacting critical
    • Intend to hold, as early as possible in 2017, a S.-China government and technology company roundtable to discuss cybersecurity issues of mutual concern.
  3. Misuse of Technology and Communications to Facilitate Violent Terrorist Activities. Both sides acknowledged the seminar on misuse of technology and communications to facilitate violent acts of terrorism held in November 2016 in China, and decided to continue cooperation on information sharing in countering the use of the Internet for terrorist and other criminal Both sides will consider holding a second seminar in 2017.
  4. Hotline Both sides welcomed the launch of the U.S.-China Cybercrime and Related Issues Hotline Mechanism, and decided to continue to use the hotline in accordance with the Work Plan. Both sides will conduct routine review of the use of the hotline.
  5. Dialogue Both sides recommend that the dialogue continue to be held each year, and that the fourth dialogue occur in 2017.

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

ARROWHEADS WITH ARCUATE BLADES

On December 2, 2016, in the attached ITC notice, arcuate-arrowheads, Flying Arrow Archery, LLC filed a section 337 patent case against Alice, China; Dongguan hong Song hardware alma iao, China; Huntingsky, China; liu, China; Jianfeng Mao, China; In-Sail Sandum Precision Industry (China) Co., Ltd., China; Arthur Sifuentes, Spring, Texas; Taotao (IT60), China; Wanyuxue, China; Wei Ran, China; YanDong, China; and Zhou Yang, China.

LIQUID CRYSTAL eWRITERS AND COMPONENTS THEREOF

On December 8, 2016, in the attached ITC notice, liquid-crystal, Kent Displays, Inc. filed a section 337 patent case against Shenzhen Howshow Technology Co., Ltd., (d/b/a Shenzhen Howshare Technology co., Ltd., d/b/a Howshare), China; and Shenzhen SUNstone Technology Co., Ltd., (d/b/a iQbe, China).

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

Best regards,

Bill Perry

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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

Trade continues to be at the center of the Presidential primary with a possible passage of the Trans Pacific Partnership during the Lame Duck Session.  This blog post contains the sixth, and maybe the most important, article on Trade Adjustment Assistance for Companies of a several part series on how weak free trade arguments have led to the sharp rise of protectionism of Donald Trump and Bernie Sanders and the now possible demise of the Trans Pacific Partner (“TPP”).

The first article outlined the problem and why this is such a sharp attack on the TPP and some of the visceral arguments against free trade.  The second article explored in depth the protectionist arguments and the reason for the rise of Donald Trump and Bernie Sanders.  The third article explored the weak and strong arguments against protectionism.  The fourth article discussed one of the most important arguments for the TPP—National Security.  The fifth article discussed why the Commerce Department’s and the US International Trade Commission’s (ITC) policy in antidumping (“AD”) and countervailing duty (“CVD”) cases has led to a substantial increase in protectionism and national malaise of international trade victimhood.

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

December 2016 will be a very important month for US importers because administrative reviews determine how much US importers actually owe in AD and CVD cases. Generally, the US industry will request a review of all Chinese companies. If a Chinese company does not respond in the Commerce Department’s Administrative Review, its AD and CVD rate could well go to the highest level and for certain imports the US importer will be retroactively liable for the difference plus interest.

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

For those US import companies that imported : Crawfish Tailmeat, Foundry Coke, Kitchen Appliance Shelving and Racks, Lined Paper Products, Magnesia Carbon Bricks, Narrow Woven Ribbons, Off the Road Tires, Flexible Magnets, and Steel Concrete Reinforcing Bars during the antidumping period September 1, 2015-August 31, 2016 or the countervailing duty period of review, calendar year 2015, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE , TAA, 337/IP, ANTITRUST AND SECURITIES

US Capitol South Side Fountain Night Stars Washington DC TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER NOVEMBER 25, 2014

DECEMBER 12, 2014 UPDATE–SOLAR NEGOTIATIONS AND NEW SOLAR ANTIDUMPING AND COUNTERVAILING DUTY CASE IN CANADA

Dear Friends,

On January 21st, I will be speaking at the Brooklyn Law School in New York City on US China Trade Disputes. The invitation to the speech is set forth below.

I look forward to seeing any of my friends at the speech.

Best regards,

Bill Perry

Wednesday, January 21, 2015 * Subotnick Center, 250 Joraelmon Street * Brooklyn Law School

2 FREE CLE credits

Two judges from the US Court of International Trade * partners from two leading law firms handling China trade disputes * professors from four law schools * former chairman of Federal Trade Commission * former congressman focused on US-China trade * former general counsel of MasterCard

REGISTRATION PROGRAM RECEPTION
5:30 PM 6-8 PM 8 PM onward

WELCOME Professor Nicholas W. Allard

Joseph Crea Dean and Professor of Law, Brooklyn Law School

INTRODUCTION

Professor Robin Effron

Co-Director, Dennis J. Block Center for the Study of International Business Law, Brooklyn Law School

FIRST PANEL: PURE TRADE DISPUTES

MODERATOR

Geoffrey Sant, Esq.

Adjunct Professor, Fordham Law School

Special Counsel, Dorsey & Whitney LLP

PANELISTS

The Honorable Donald Pogue

Senior Judge, US Court of International Trade

Professor Bill Kovacic

Global Competition Professor, George Washington Law School

Former Chairman of Federal Trade Commission

  

Bill Perry, Esq.

Partner, Dorsey & Whitney LLP

Formerly in Office of General Counsel, US International Trade Commission; Office of Chief Counsel and Office of Antidumping Investigation, U.S. Department of Commerce

Don Bonker

Executive Director, APCO Worldwide, Inc.

Former US Congressman (D-WA); former Chairman of Subcommittee on International Economic Policy and Trade

SECOND PANEL: DISPUTES BETWEEN TRADE PARTNERS

MODERATOR

  1. Augustine Lo, Esq.

Dosey & Whitney LLP

PANELISTS

Chris Cloutier, Esq.

Partner, King & Spalding LLP

Former Acting Deputy Director of Trade Remedy Compliance, US Department of Commerce (at US Embassy in Beijing, China)

Professor Thomas Lee

Leitner Family Professor of International Law, Fordham Law School

Noah Hanfft, Esq.

President; CEO of International Institute for Conflict Prevention and Resolution

Former General Counsel of MasterCard

Professor Zhao Yun

Director of the Center for Chinese Law, University of Hong Kong

CLOSING REMARKS The Honorable Claire Kelly

Judge, US Court of International Trade

Trustee, Brooklyn Law School

RECEPTION

8 PM onward

THIS EVENT IS FREE, BUT RSVPS ARE REQUIRED

RSVP to events@cblalaw.org

About the Program The United States and China are major trading partners. Trade issues between the two nations take center stage as leaders negotiate new trade treaties and struggle to resolve disputes under existing legal frameworks. Brooklyn Law School and the Chinese Business Lawyers Association present an evening of dialogue among leading practitioners and professors who will examine current issues in trade disputes between the U.S. and China.

Sponsored by the Dennis J. Block Center for International Business Law, Chinese Business Law Association (CBLA), ABA Section of International Law, and the Trade Secrets Institute(TSI).

WE EXPECT ALL SEATS TO BE RSVP’D.  TO ATTEND, PLEASE RSVP AS SOON AS POSSIBLE TO events@cblalaw.org OR TO www.brooklaw.edu/tradedisputes

For directions, please visit: www.brooklaw.edu/directions

Thank you!

Geoffrey Sant, Director

Chinese Business Lawyers Association

This course provides two (2) CLE credits in the State of New York. Partial credit is not available. The credits are transitional and non-transitional and the category is Professional Practice.

US CHINA SOLAR NEGOTIATIONS

Several companies have asked me about a possible US-China settlement in the Solar Cells/Solar Products cases.  Today, December 12th, USTR Michael Froman acknowledged that Washington and Beijing have held talks about the Solar cases for “some time”.  During a conference call with Reporters, Froman stated that a stable environment for trade in solar products and polysilicon would have three components.  The first is to ensure that trade laws are being enforced. The second and third components are to enable the further deployment of clean technology and address issues like climate change, and “to maintain world class industries in both our countries to manufacture these important products.”

But knowledgeable people stated that talks have slowed in recent weeks, following a period of intense engagement prior to President Obama’s state visit to China in November, which ended without an agreement.  A major reason for this failure is because SolarWorld Americas, the petitioner in the U.S. trade remedy cases, stated that it could not accept the parameters that Chinese producers were willing to offer, and the U.S. government was unwilling to push the company to give ground.  In contrast to Europe, Canada, many other countries and even China, the United States does not have a public interest test in its US antidumping and countervailing duty laws and, therefore, the US government has less power to push a settlement.

The deadline for Commerce to accept a potential agreement to suspend the ongoing antidumping (AD) or countervailing duty (CVD) cases against Chinese solar panels has long passed. Thus settling the dispute will require a broader agreement, such as in 2006 U.S.-Canada Softwood Lumber Agreement, under which Canada agreed to impose export taxes and/or quotas on its exports of softwood lumber to the United States, in return for the U.S. government stopping the collection of trade remedy duties on those products.

SolarWorld has stated that it could accept a package that would do away with the various trade cases if four key conditions were met. The first three are that the agreement be enforceable by Commerce, set a floor price on imports of Chinese solar cells, and include a quantitative restriction on the volume of imports. The fourth condition is that the floor price on imports of Chinese solar cells be indexed to the market price for polysilicon.  Knowledgeable sources, however, have said that the floor price is key sticking point.

Commerce Secretary Penny Prtizker also stated that she did not expect the final Solar Products determination to have any impact on the JCCT negotiations, which will soon take place in Chicago.

The bottom line is that the Solar Products case will go to Antidumping and Countervailing Duty order and any deal would have to be extremely unique, such as the US Canadian Lumber Agreement.  The chance of such an agreement is probably small.

CANADA SOLAR CASE

An importer has contacted me about a new Solar Module and Panel Antidumping and Countervailing Duty Petition filed in Canada. On December 5, 2014, the Canadian government initiated the investigation. See the attached petition and announcement of the Canadian government.  CANADIAN SOLAR COMPLAINT CANADIAN SOLAR ANNOUNCEMENT

The Solar Trade War with China is now beginning to follow a similar pattern with other trade wars against Chinese products. An antidumping/countervailing duty case is filed in the US or the EU followed by many, many cases around the World.

In the early 1990s, a US antidumping case was brought against Garlic from China. I represented a number of US importers in the case and tried to represent the Chinese exporters/producers. In a very unusual situation, an official at the Chinese Chamber of Commerce refused to let any Chinese company respond to the US antidumping case and since the Chamber controlled export licenses, the official had the power to stop participation.

As a result, the Commerce Department levied antidumping duties of 376% against Chinese garlic, and that antidumping order is in place today, almost 20 years after the petition was filed.  But that was not the worst part of the case, the Garlic case spread to numerous other countries, including EU, India, Japan, Korea, Brazil, Mexico and other countries. Pretty soon 20 to 30 countries had trade orders against Chinese garlic blocking all exports of Chinese garlic, and Chinese garlic prices dropped like a rock. Garlic was very cheap in Beijing.

Chinese solar cells and panels appear to be on the same trade path as Europe, the US, India and now Canada have brought antidumping and countervailing duty cases against China. Many countries may soon block Chinese solar cells and panels out of their market.

If anyone has any questons about this case or the ongoing US Solar Cells and Solar Products case, please feel free to contact me.

If anyone wants specific help on the Canadian case, please let me know and I will put them in touch with Canadian trade counsel.

NOVEMBER 25, 2014 POST

There have been major developments in the trade politics, trade, trade agreements, trade adjustment assistance, 337/IP, US/Chinese antitrust, and securities areas.

This month the blog post has grown substantially because there have been so many developments in the trade and political area, especially with regards to China.

TRADE POLITICS AND TRADE AGREEMENTS WITH CHINA

THE REPUBLICAN WAVE ELECTION CHANGES THE TRADE POLITICAL LANDSCAPE IN WASHINGTON DC

No matter whether you are a Republican or a Democrat, in looking at trade issues, including the trade laws and the relationship between the US and China, one must deal with political reality in Washington DC. Elections have consequences, and the November 4th Republican wave election will have consequences for years to come.

Not only did the Republicans take the Senate, but no one expected the Republicans to take 8 seats with potentially another coming from Louisiana so Republicans at the end of January 2015 will control the Senate 53 or 54 to 47 or 46.

In the House of Representatives with 5 races still undecided Republicans gained 12 sets. They now hold 245 seats to 187. One can see how the political map has changed in the House by looking at http://www.politico.com/2014-election/results/map/house/. In the House, the United States has turned into a red Republican sea.

As it stands now, this is the largest Republican majority since 1946. If 3 of the 5 outstanding House seats go Republican, it will be the largest Republican majority since the 1930s under Herbert Hoover, before Franklin Delano Roosevelt was President. To say that this election was historic is an understatement.

As Dana Milbank, a Washington Post columnist, who is not viewed as a Republican/conservative partisan, states in his November 14th Washington Post column:

“There are five 2014 House races still to be decided before we can answer the question of historical interest:

Was this the worst election for House Democrats since 1928? Or was it merely their worst since 1946?

Either way, the results do not reflect well on the House Democratic leader, Nancy Pelosi – a conclusion that seems to have escaped Nancy Pelosi.

“I do not believe what happened the other night is a wave”, the former speaker informed Politico. . . . She preferred to describe what happened in the House elections as an “ebb tide.”

If Democrats lose three of the five undecided races, they will have ebbed all the way back to the day Herbert Hoover won the Presidency. To fail to see that as a wave, Pelosi must be far out to sea.”

The 2014 election for Democrats was not a wave. It was a tsunami, and now the political reality has changed dramatically in Washington DC. The most dramatic impact will be in the trade area because that is the one area that Senate and House Republicans can work on together with President Obama.

As indicated below, under the Trade Agreements discussion, President Obama’s problem in the Trade area is not with the Republicans, but with the Democrats. Although many Democrats want to call themselves progressive, because of substantial Union support, a number of powerful Democrats do not want progress on trade. They are opposed to Free Trade Agreements that lower barriers to imports. In fact, several Democrats want to raise barriers to imports.

Most Republicans are not opposed to the Free Trade Agreements because they firmly believe that Free Markets will result in more business and a substantial increase in economic activity for US companies and more jobs for US workers.

On November 5th the day after the election, many former US government officials were predicting that Trade Promotion Authority (“TPA”), which will lead to the Free Trade Agreements, such as the Trans Pacific Partnership (“TPP”), would be one of the first issues taken up by the new Republican majority.   TPA is the centerpiece of the administration’s trade policy, as it will set forth negotiating priorities for the next several years.

While a bipartisan TPA bill emerged earlier this year, Senate Majority Leader Harry Reid, D-Nev refused to introduce the bill on the floor. The change of the majority to the trade-friendly Republicans removes that problem.

According to former United State Trade Representative (“USTR”) Clayton Yeutter, with the Obama administration pushing for a final 12-nation Trans-Pacific Partnership as soon as possible, securing TPA will be the number one objective and will likely rise to the top of the Republican agenda. As former USTR Yeutter stated:

“The challenge will be to get fast-track done as early as possible and I believe that all the folks in congressional leadership positions understand that fully. I would look for it to be one of the very first issues on the Congressional agenda next year.”

Present USTR Michael Froman also expressed optimism, stating:

“I think ultimately this is an area where there’s a lot of bipartisan support for trade. It’s one of the areas that cuts across party lines, one area that we think we can make progress in, and we look forward to working with Congress after the election on Trade Promotion Authority and on our trade agenda more generally, in a way that has broad bipartisan support.”

In addition, the new Chairman of the Senate Finance Committee will be Republican Senator Orrin Hatch of Utah and he has a close working relationship with the present Chairman, Democratic Sen. Ron Wyden of Oregon. As indicated in past newsletters, Senator Hatch has been very open about the need to pass TPA through the Congress and he will be very active on this issue.

The chances of passing a fast-track bill in the upcoming lame-duck session of Congress are slim because the objective according to recent reports is to end the session on December 11th.  In the new Congress, however, TPA will be very important because Republicans have publicly warned the Administration not to conclude the TPP talks before TPA is concluded. As indicated below, without TPA no final deal will be concluded because countries like Japan and Canada will not put their best proposals on the table.  Japanese Prime Minister Shinzo Abe, for example, in particular, will be reluctant to strike a deal if there is a chance it could be altered legislatively at a later date.

As former USTR Yeutter stated:

“It will be exceedingly difficult to wrap up TPP without TPA. Abe and Japan don’t want to have to make tough political decisions twice.”

As a further example, in the attached e-mail, WAYS AND MEANS TRADE A PLUS on November 13, 2014, the House Ways and Means Committee released an article by Bryan Riley from The Hill stating:

Free Trade is a Winner in Recent Elections

By Bryan Riley, The Hill contributor

Riley is the Heritage Foundation’s Jay Van Andel Senior Policy Analyst in Trade Policy.

In Georgia, Iowa, Massachusetts and North Carolina, the midterm elections proved that candidates shouldn’t be afraid to talk about the benefits of trade. They also demonstrated that candidates tempted to employ protectionist scare tactics in their campaigns should think twice.

In Iowa, Republican Senate candidate Joni Ernst’s campaign argued: “Congressman [Bruce] Braley’s Anti-Free Trade Votes are bad for Iowa Farmers.”

According to Politico: Iowa Republicans, in one of the tightest Senate races in the country, are trying to capitalize on Democratic Rep. Bruce Braley’s record of voting against trade agreements to help hand their candidate, Joni Ernst, the victory. Braley, whose state is heavily dependent on farm exports, voted against free trade pacts with South Korea, Colombia and Panama in 2011, even after President Barack Obama’s administration re-negotiated several provisions to round up more Democratic support. “The South Korean trade deal was huge,” Agriculture Secretary Bill Northey told POLITICO in an interview. “Everyone knew it was a clear, clear win for agriculture and it would have been a terrible not to have it. For him to vote against that I just think is a major red flag.”

Ernst defeated Braley, 52.2 percent to 43.7 percent.

In North Carolina’s Senate race, Democratic incumbent Kay Hagan said:

“Unfair trade agreements have contributed to the loss of more than 286,000 North Carolina manufacturing jobs in the last decade — the fourth-largest decline in the nation. It is time we start protecting jobs here at home.” Her campaign spokesman added: “Kay opposed trade agreements that ship North Carolina jobs overseas because she will always put North Carolina jobs first.”

Her Republican opponent, Thom Tillis, disagreed: “As agriculture exports increase, Thom believes we must promote policies that make trade with other nations free and efficient in order to stimulate our economy and allow North Carolina farmers and ranchers to expand their businesses.”

Tillis defeated Hagan, 49.0 percent to 47.3 percent.

In Massachusetts, the Democratic Governors Association released an ad attacking Republican gubernatorial candidate Charlie Baker: “Baker won the Outsourcing Excellence Award at the ‘Oscars of Outsourcing’ for his work destroying jobs here at home.” Baker replied that outsourcing some jobs to India allowed Massachusetts insurer Harvard Pilgrim to save thousands of jobs at home. Former Massachusetts Attorney General Thomas F. Reilly (D) called the outsourcing attacks “exactly the kind of nonsense that drives people away from the political process.”

Baker defeated Democrat Martha Coakley, 48.5 percent to 46.6 percent.

In Georgia, Democratic senatorial hopeful Michelle Nunn attempted to smear her Republican opponent David Perdue for outsourcing jobs to other countries: “David Perdue, he’s not for you,” her ad proclaimed. When a reporter asked Perdue to defend his use of outsourcing, he replied: “Defend it? I’m proud of it. … It’s the lack of understanding of the free enterprise system that I’m running against here.”

Perdue beat Nunn, 53.0 percent to 45.1 percent.

After the Massachusetts and Georgia elections, Computerworld reported:

“Offshore outsourcing fails as election issue: A longtime Democratic bludgeon isn’t enough to move needle.” In contrast, candidates who embraced the benefits of trade, like Joni Ernst and Thom Tillis, emerged victorious.

Promoting free trade is good economics, too. A comparison of trade policy around the world, developed by the Heritage Foundation and The Wall Street Journal in the annual Index of Economic Freedom, shows a strong correlation between trade freedom and prosperity.

Washington Post columnist Steven Pearlstein observed that outsourcing saves U.S. businesses and consumers billions of dollars each year:

“Those savings and those extra profits aren’t put under the mattress. Most of it is spent or invested in the United States in ways that are hard to track but have surely created hundreds of thousands of jobs in other companies and other industries. Those who hold those jobs would have no reason to know that they are beneficiaries of the process of outsourcing and globalization. But in a very real sense, they are.”

Most economists agree that criticizing trade is bad policy. Last week’s election results suggest it may be bad politics, too.

But as also indicated below, that is where Trade Adjustment Assistance for Firms/Companies comes into play.  Trade Agreements are a result of Government action that will change the market, not only around the World but also in the United States. With market barriers dropping in a number of different countries, many US competitive companies will see their exports increase.  Experts predict that the TPP, for example, could increase economic activity by $1 trillion.

But this Government action will also change the US market place, and a number of US companies will face a market that has completely changed, a trade tsunami created by Government action.  Because Government action has created the trade tsunami, the Government has an obligation to help companies adapt to the new marketplace conditions.  When I say companies, I mean not just the management, but the workers in the company too.

As explained more below, the Government has a responsibility to help US companies swim in the new competitive marketplace sea that has been created by the Trade Agreements.

FORMER CONGRESSMAN DON BONKER’S CHINA DAILY ARTICLE ON THE IMPACT OF THE ELECTION ON US CHINA RELATIONS

APCO Executive Director Don Bonker, a former Democratic Congressman and an expert on the political issues in US China Trade Relations, published the following November 7th article in the China Daily on the election, which can be found at http://usa.chinadaily.com.cn/us/2014-11/07/content_18881045.htm.  Don puts the November 4th election into a historical perspective:

Election results a mixed blessing for China

By Don Bonker (China Daily USA)

Republicans exceeded early predictions scoring big time in Tuesday’s election, taking full control of the US Senate, increasing their margin in the House of Representatives along with many victories across the country.  For the next two years, the United States will have a truly divided government with the Republicans claiming a new mandate to push an alternative agenda.

While many factors were in play in the 2014 election (Obama’s poor ratings, huge amounts of campaign spending, etc), the fundamentals in recent history clearly favored the Republican Party.  The party of whoever occupies the White House in mid-term elections suffers nominal loses of Senate and House seats and predictably weakens the President’s political standing. As we are reminded by David Schanzer and Jay Sullivan in the New York Times, “This is a bipartisan phenomenon; Democratic presidents have lost an average of 31 House seats and between 4-5 Senate seats in mid-terms; Republican presidents have lost 20 and 3 seats respectively.”

How will the election results affect the US-China relationship?

Neither Republicans nor Democrats have well-defined or predictable policies toward China. In recent years, a small group in Congress has attacked China on a select number of issues but such actions are not part of either Congressional leader’s agenda.  Existing Federal laws, such a CFIUS, provide opportunities for a single Congressman to go after China, often to lend support to a company in his state.

Republicans, known to be pro-trade and pro-business, taking control of the Senate should be a healthy sign in building closer relations with China, especially since governors in their states are leading trade missions to China, seeking Chinese investments and pursuing markets for their exporting companies.

However, individual Republican Senators have sent letters to CFIUS and other Federal agencies opposing China-related investments and transactions. Many senior Republicans in Congress have expressed skepticism over China due to its government’s Communist Party control, reported human rights concerns, US support of Taiwan and Japan, China’s military build-up, economic espionage and geopolitical or national security threats that could put pressure on the Obama Administration to be more assertive with China.

Several well-positioned Republican Congressmen have caused the biggest headaches for China. The issue, or fear, is rooted in cybersecurity threats and economic espionage that has led to Congressional investigations and legislation that greatly restrict China companies, such as Huawei and ZTE, from having access to telecommunication and related technology markets in the US. The two Congressmen who were responsible for these actions are retiring at the end of this year. The question is whether their replacements will continue such policies.

A related concern is the so-called Tea Party’s growing influence that has put Republican Congressional leaders in a difficult position given the Tea Party’s enduring political base and its extreme views on major issues (education and trade). It will likely affect the China relationship in negative ways, particularly on trade (“protect American jobs”) and on cyber and economic espionage issues.

The Democrats have their own agenda which occasionally proves hostile to China. Several occupy leadership positions on committees that preside over government agencies and assert their political clout to press for higher import tariffs and related trade restrictions. This has more to do with politics than economics, particularly in the election season when labor unions pressure, if not intimidate Democratic candidates to “protect American jobs”. Such protectionist policies are now prompting China to take reciprocal actions that may be placing China and America on the path of a trade war.

Despite the encouraging bilateral discussions on the Bilateral Trade Agreement (BIT), there is no guarantee what happens once it arrives on the doorstep of the US Capitol.

Overall, the newly established Congress preparing for 2015 may be more favorable to China given the departures of some if its Capitol Hill critics, but a great deal of anxiety about China will continue – mistrust, economic and security threats and China’s economy surpassing the US’ in the foreseeable future.

In the Senate, the Republicans taking control will create a different political paradigm but with little indication on how it will play out over the next two years. The new political alignment will offer a narrow window for Congressional Republicans to provide stronger leadership and promote their own agenda and could result in more favorable actions (approval of TPP and TTIP trade pacts).

But that is in the short-term. It is unlikely the Republicans maintain the Senate majority in the 2016 elections, but the House of Representatives will comfortably stay in Republican control (given the shape of Congressional districts) for some time into the future. With a Democrat occupying the White House this will likely guarantee continued gridlock in Washington for the next decade.

The 2016 presidential election may be more favorable to Democrats for the same reasons the Republicans scored well this year. Barack Obama is not on the ballot and the Democrats will be far more unified (under Hillary Clinton) than the Republicans (the party may likely be split).

In 2016, the Republicans will have 23 Senate positions on the ballot compared to 10 for Democrats (also likely retirements/resignations). And the voter turn-out will jump back to 53 percent, which greatly favors Democrats in presidential elections. So whether political history will prevail and the Democrats re-take the Senate in 2016 or Republicans will defy the odds and remain in power is the big question going forward.

BILATERAL US CHINA TRADE AGREEMENTS

APEC AND PRESIDENT OBAMA’S TRIP TO BEIJING

Right after the mid-term elections, President Obama made a major trip to Beijing, China for the Asian Pacific Economic Cooperation (“APEC”) meeting.  As indicated below, President Obama’s Administration had set a target date for completing the Trans Pacific Partnership (“TPP”) talks at the APEC meeting. That did not happen, but there were several historic agreements that did come out of the meetings with the US and Chinese Government.

In the attached White House Statement and Fact Sheet, WHITE HSE STATE CHINA VISIT PRESS CONF CHINA US the US and Chinese governments announced that China will now grant 10 year visas to US businessmen and tourists and that there will be enhanced enforcement against counterfeit goods.

During the attached Joint Press Conference, the two Presidents announced a new Information Technology Agreement (ITA) and an agreement on Climate Change. President Obama stated that a strong, cooperative relationship with China is at the heart of the United States’ policy to Asia, and stated that the United States needs the world’s second-largest economy and the most populous nation on Earth as its partner in order to lead in addressing global challenges. As President Obama stated, “[I]t is a fact that when we work together, it’s good for the United States, it’s good for China, and it is good for the world.”

President Xi Jinping of China made several important points in response to questions, but several of the most important are:

“The strategic significance of China-U.S. relations is on the rise. . . . Both President Obama and I believe that when China and the United States work together, we can become an anchor of world stability and a propeller of world peace. China stands ready to work with the United States to firm up our confidence, exercise our wisdom, and take action to strengthen our coordination and cooperation bilaterally, regionally and globally; and to effectively manage our differences on sensitive issues so that we can make new gains in building the new model of major-country relations between China and the United States, which serves the fundamental interests of our two peoples and the people elsewhere in the world.

China and the United States have different historical and cultural traditions, social systems, and faces of development. So it’s natural that we don’t see eye to eye on every issue. But there have always been more common interests between China and the United States than the differences between us. Both sides respect each other’s core interests and major concerns and manage our differences in a constructive fashion, full dialogue and consultation so as to uphold the overall interests of stable growth of China-U.S. relations. . . .

China and the United States are different countries in the world. It’s perfectly normal for there to be different views expressed about us in the international media. And I don’t think it’s worth fussing over these different views. And I don’t see any of the regional free-trade arrangements as targeting against China. China is committed to open regionalism. And we believe the various regional cooperation initiatives and mechanisms should have positive interaction with each other, and that is the case at the moment.”

On Tuesday November 12th, President Obama’s state visit to China ended with the ITA and Climate agreements, joint pledges to continue talks on a bilateral investment treaty (BIT), a new international deal curbing export credits, and continued dialogue regarding their persisting differences over the use of agricultural biotechnology.

President Obama had planned to press China on several other issues, including alleged discriminatory enforcement of its anti-monopoly law (AML), intellectual property (IP) protections, including cyber theft of IP, and China’s slow approval process for biotechnology traits. Only biotechnology, however, was addressed in a White House fact sheet on U.S.-China economic relations, stating:

“The United States and China reached consensus to intensify science-based agricultural innovation for food security. The United States and China commit to strengthen dialogue to enable the increased use of innovative technologies in agriculture.”

At the Press Conference, President Obama stated that he did address IP, “I stressed the importance of protecting intellectual property as well as trade secrets, especially against cyber-threats.”

The other major announcement that came out of Obama’s visit to China was in the area of climate change. On that issue, the two sides reached an agreement on the targets for the cuts they will make to carbon emissions post-2020.

Last week CSPAN, the US Public Affairs station, did a 45 minute interview with Dorsey Partner, Tom Lorenzen on the US China Climate Change agreement. Until joining Dorsey in 2013, Tom was at the Justice Department from 2004 where he was the Assistant Chief in the U.S. Department of Justice’s Environment and Natural Resources Division (ENRD). During that time, he supervised the federal government’s legal defense of all Environmental Protection Agency rules, regulations and other final actions judicially reviewable under the various federal pollution control statutes. See the video at http://www.c-span.org/video/?322770-3/washington-journal-thomas-lorenzen-uschina-carbon-reduction-deal.

On November 12th, the China Daily stated with regards to the Information Technology Agreement (ITA):

“The two countries reached a breakthrough on Tuesday in Beijing to accelerate the expansion of the World Trade Organization’s Information Technology Agreement (ITA), which could help eliminate $1 trillion in tariffs on high-tech product sales globally. The deal would allow the “swift conclusion” on talks to enlarge the ITA at the WTO meeting in Geneva later this year.”

USTR Michael Froman stated in Beijing that it was good news for US companies that are keen to see global tariffs further cut on products such as medical equipment, GPS devices, video game consoles and next generation semiconductors.  The agreement now covers more than $4 trillion in annual trade.

With regards to ITA, the US government announced on November 10th that it had convinced China to eliminate tariffs on tech goods like advanced semiconductors and medical devices. The Chinese government has agreed to U.S. demands to eventually eliminate tariffs on advanced semiconductors known as MCOs, magnetic resonance imaging (MRI) machines, and high-tech testing equipment, but the deal does not include tariff elimination on flat-panel displays.

But the Agreement between China and the United States in the High Tech area will lead to additional negotiations with other countries at the WTO in Geneva, which are scheduled to resume in December. The ITA negotiations broke down in November 2013, after the U.S. and other participants rejected China’s tariff offer as insufficient. Since then, the U.S. and European Union have been trying to persuade China to come back to the table with a better offer.

The agreement between the U.S. and China does not mean the ITA talks are concluded. The two parties will now have to go back to the more than two-dozen other participants – including the European Union, Japan and South Korea – to negotiate a final ITA package. But sources in Geneva are cautiously optimistic that the deal could move forward. The expanded ITA would also eliminate import duties on a range of additional technology products including high-tech medical devices, video cameras, and an array of high-tech ICT testing instruments.  A White House fact sheet stated that the expansion of the ITA pact would eventually eliminate tariffs on roughly $1 trillion in annual global sales of information technology products and boost the annual global GDP by an estimated $190 billion.

On November 14th it was reported that sources in Geneva predicted that the ITA agreement could result in a final deal this December. Although other countries are not expected to block the deal, other countries will push for changes. EU Trade Commissioner Cecilia Malmstrom stated that she welcomed the U.S.-China understanding and that the EU “[intends] to take all necessary steps to finalize the agreement in the coming weeks.”

If the agreement is completed, it will take very little for the U.S. to implement the lowered tariffs. This is because Congress had already authorized further tariff reductions when it passed the Uruguay Round Agreements Act in 1994. This is in contrast to the TPP and the Transatlantic Trade and Investment Partnership (“TTIP”), which are two new agreements that would require congressional authorization before they went into effect.

On November 12th, President Obama and President Xi also announced an agreement to speed up talks on a comprehensive Bilateral Investment Treaty (“BIT”), which is considered to be the foundation for future United States-China trade agreements. At the Press Conference President Xi announced that “We agreed to accelerate the negotiations of the BIT, and we will make efforts to reach agreement on the core issues and the major articles of the treaty text.” The two countries also agreed to “work together to promote innovation in agriculture and food security.”

Trade pundits were reporting that the Republican victory along with the movement in Beijing will give a much-needed boost to the WTO and Obama’s ambitious trade agenda. This has led to a bullish optimistic attitude about the next two years of trade policy.

As indicated below, this victory in Beijing with the close of the APEC meeting was followed on November 13th by a break through with India on the Trade Facilitation Agreement (“TFA”), which the Indian Government had held up on food security grounds.  On November 13th U.S. and Indian trade officials announced they had reached a deal to end the impasse over the WTO trade facilitation Agreement.  Under the deal, India agreed to drop its opposition to the trade facilitation pact in exchange for a commitment from the U.S. to keep in place a so-called peace clause that would shield developing countries’ food security programs from legal challenges until the WTO agrees on a new set of rules governing those programs.

Numerous observers, including new European Union Trade Commissioner Cecilia Malmstrom, hailed the bilateral agreement as a boost for the WTO, which had been criticized as irrelevant as a forum for global trade talks in light of the trade facilitation breakdown. Commissioner Malmstrom stated, “I am particularly pleased today as the breakthrough gives new momentum to the WTO and restores trust among members and the credibility of multilateral trade negotiations.”

TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND—NO FINAL DEAL AT APEC MEETING IN BEIJING

TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

As mentioned in past newsletters, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP), Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations and the WTO.  The TPP is a free trade agreement being negotiated by officials from the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These trade negotiations could have a major impact on China trade, as trade issues become a focal point in Congress and many Senators and Congressmen become more and more protectionist.

This has been a problem because the protectionism is coming from the Democratic side of the aisle.  Democratic Senators and Congressmen are supported by labor unions.  Although Democratic Congressmen have expressed interest in the TPP, to date, President Obama cannot get one Democratic Congressman in the House of Representatives to support Trade Promotion Authority (“TPA”) in Congress. Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the elections as soft on trade.

As mentioned in prior newsletters, on January 29, 2014, the day after President Obama pushed the TPA in his State of the Union speech in Congress, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

But then came the November 4th Republican wave election changing the Trade Politics dramatically in Washington DC.  Elections have consequences and in 2015 Republicans will take the Senate and increase their numbers in House.

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted in my February post, was introduced into Congress. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

Under the US Constitution, Congress, not the President, has the power to regulate trade with foreign countries. Article 1, Section 8, Clause 3, of the Constitution empowers Congress “to regulate Commerce with foreign nations” Thus to negotiate a trade agreement, the Congress gives the Executive Branch, the Administration/The President and United States Trade Representative (“USTR”), the Power to negotiate trade deals.

Because trade deals are negotiated with the foreign countries, the only way to make the system work is that under the TPA law when the Trade Agreement is negotiated, the Congress will agree to have an up or down vote on the entire Agreement and no amendments to the Agreement that has already been negotiated will be allowed.

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track.  But to date no details have been given about exactly what Smart Track will mean, and the Republican victory on November 4th probably means that Smart Track will be washed away by the Republican wave.

On July 17th, all Republican members of the House Ways and Means Committee sent the attahed letter to USTR Froman, HOUSE REPS WAYS MEANS, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Now the story continues . . . .

On October 15th in Tokyo, acting Deputy U.S. Trade Representative Wendy Cutler emerged from four days of meetings in Tokyo stating that both sides are working “as hard and creatively as possible” to resolve their bilateral issues. She went on to state:

“We were encouraged by the progress we made this week during our negotiations, but we need to underscore that the issues before us are tough. The issues range from achieving meaningful market access across all agricultural products to establishing a strong and effective dispute settlement mechanism in the auto sector.”

The difficult negotiating areas include five agricultural categories—rice, wheat and barley, beef and pork, dairy products and sugar—as well as autos and auto parts.

After ending the talks with his counterpart, Japanese negotiator Hiroshi Oe added, however, that both sides have “mountains of work to do. We are far from saying, ‘We did it.’ We still have the most difficult areas that have yet to be resolved.”

The U.S.-Japan meetings closed just a day after Mexico’s top trade official, Mexican Economy Minister Ildefonso Guajardo, speaking in Washington, D.C. made clear that the rest of the TPP countries view the US Japan negotiations as a critical step toward progress in the full negotiations,  “It is clear for anybody that knows about trade negotiations that if these two big trading partners, Japan and the U.S. do not come to an agreement, it has domino consequences on the rest of the 12 countries.”

But then came Sidney and then Beijing with no breakthrough in part because of no TPA Agreement.

Meanwhile, on October 16th, according to analysis of the document by Public Citizen, it was reported that a leaked draft of the TPP Intellectual Property Chapter obtained by WikiLeaks could lead to delayed access to pharmaceutical drugs in a dozen countries, including the U.S., and would contradict White House policies aimed at cutting Medicare and Medicaid costs. According to Public Citizen, at issue in the draft is a U.S. proposal to give an advantage to the pharmaceutical industry and “provide long automatic monopolies for biotech drugs or biologics” contradicting the pledge included in past White House budgets to shorten the same monopoly periods to reduce cost burdens on Medicare and Medicaid.

Public Citizen said it remains concerned that these provisions would give large brand-name drug firms a way to “impose rules” on Pacific Rim economies that “will raise prices on medicine purchases for consumers and governments. If the TPP is ratified with this U.S.-proposed provision included, Congress would be unable to reduce monopoly periods without risking significant penalties and investor-state arbitration.”

In Sidney the leaked IP draft resulted in a number of civil society organizations and Australian lawmakers voicing opposition to the deal citing many trouble spots.  A group of Australian politicians along with public health and copyright experts convened at Australia’s Parliament house lawn to condemn possible TPP trade-offs as talks resumed in Canberra.  Australian green party Sen. Peter Whish-Wilson stated that “the leaked documents indicate that the government is on course to hand over protections for human rights, public health, the environment and Internet freedom.”

On October 24th, in a letter six Congressmen, including Sens. Ron Wyden, D-Ore., Orrin Hatch, R-Utah, Jay Rockefeller, D-W.V., and John Thune, R-S.D., the ranking members of the Senate Finance and Commerce committees, stated that USTR Michael Froman should oppose any proposals in the TPP negotiations that would needlessly limit internet traffic, including the cross-border transfer, storage or processing of data, and protect the unfettered transfer of commercial data and digital trade.  According to the letter, eight countries, including TPP members Mexico and Vietnam, have or are considering policies to limit their Internet traffic.

As a result of all these concerns, Rep. Sander Levin, D-Mich, ranking Democratic Congressman on the House Ways and Means Committee, traveled to Sydney, Australia, to closely observe the status of the TPP talks. Levin took the unusual step of arranging meetings with trade ministers from the TPP nations during their Oct. 25-27 session in an effort to gather more information about TPP’s more contentious unsettled areas. Levin, who is from Detroit, has long been an advocate of the U.S. automotive industry, which has been blocked out of the Japanese market for decades. More broadly, Levin also called for the final TPP to bind its member countries to upholding the highest possible environmental, labor and human rights protections.

On October 27th in Sidney, Australia trade ministers for countries negotiating the TPP hailed “significant progress” in the talks during their three-day meeting in Australia, but stopped short of announcing a breakthrough.  Opening the meeting, USTR Michael Froman stressed that the outstanding TPP issues are among the most contentious in the agreement, but that negotiators have taken efforts to ensure that they are resolved as smoothly as possible.  President Obama had targeted the APEC meeting in Beijing on November 10th as a “deadline” to conclude the negotiations, but critical to the conclusion of the 12-nation TPP talks are the bilateral deliberations between the U.S. and Japan, which also continued in Australia.

After returning from Sidney, Congressman Levin expressed his concern about the current status of the TPP talks in Australia calling for more transparency in negotiations and an increased focus on its details.  Levin stated that “it is “vital to have an open door for a broad understanding and involvement on how they should be resolved, with increased transparency.”

Levin said that although a compromise he helped negotiate, referred to as the “May 10 agreement,” had significantly improved the TPP in the realms of workers’ rights, environmental protections and access to medicines, it is “vital that TPP build on them, not weaken them.” Levin noted the opportunities and challenges inherent with the diversity of economies represented within the TPP membership, pointing out Malaysia’s and Vietnam’s “very different” economies from the U.S.

On October 27th, following the negotiations in Sidney, the Ministers and Heads of Delegation for the TPP countries issued the attached statement, TPP ACTUAL JOINT STATEMENT AUSTRALIA, which provides in part:

“We consider that the shape of an ambitious, comprehensive, high standard and balanced deal is crystallizing. We will continue to focus our efforts, and those of our negotiating teams, to consult widely at home and work intensely with each other to resolve outstanding issues in order to provide significant economic and strategic benefits for each of us. We now pass the baton back to Chief Negotiators to carry out instructions we have given.”

On October 30, 2014, despite a push from numerous business groups, it was reported that it would be very difficult to pass TPA in the lame duck session, which is the time between the election on November 4th and the inauguration of the new Congress in January 2015.

On October 31st, USTR Mike Froman made clear that the 12 nations negotiating the TPP deal did not expect a final deal at the Asia-Pacific Economic Cooperation (“APEC”) conference in Beijing. As Froman stated:

“No, we do not expect to have a final agreement on TPP at APEC. All the TPP leaders will be present, so it will be a good opportunity to have conversations with each other about TPP, about whatever outstanding issues are left … and to give more political impetus to getting it done.”

Froman said that negotiators are still at work on the deal:

“We are making very good progress in closing out issues, narrowing the differences on remaining issues but we still have a ways to go and we are going to continue to work. We think the substance of the negotiation ought to drive the timetable. We’re not going to live by an arbitrary deadline but we are all focused on getting it done as soon as possible.”

On November 6th, after the election, business Leaders announced that they were increasing pressure to take up the TPA during the lame duck, but Mike Dolan, Teamsters’ legislative representative, said that fast track “won’t go anywhere during Lame Duck.” A broad coalition of labor, consumer groups sent over half a million petition signatures to Congress opposing TPA for the pending TPP.

In response to a question about the chance for a vote in the remaining weeks of the current Congress, Senate Finance Committee ranking Republican Orrin Hatch (R-Utah) stated, “Whether that happens during the lame duck is ultimately up to Democratic leadership.” Senator Hatch also stated that he believes there would be strong support to pass trade promotion authority in the “lame duck” session of Congress if Senate Democratic leaders decide to allow a vote. Senator Hatch, the new Chairman of the Senate Finance Committee, introduced the TPA bill along with former Senate Finance Chairman Max Baucus, now the U.S. ambassador to China, and House Ways and Means Chairman Dave Camp, R-Mich.

On November 10th in Beijing President Barack Obama and the leaders of the other 11 countries negotiating the TPP stated that a final agreement is now “coming into focus,” but declined to set a firm deadline for the completion of the talks. The 12 leaders, meeting on the sidelines of the APEC summit in Beijing, issued a joint statement commending the progress made by their negotiating teams over the past several weeks and kept up the pressure to finalize the TPP in the near future. The leaders stated:

“With the end coming into focus, we have instructed our ministers and negotiators to make concluding this agreement a top priority so that our businesses, workers, farmers and consumers can start to reap the real and substantial benefits of the TPP agreement as soon as possible.”

On November 11th, John Ivison, a Canadian reporter, issued an opinion piece in the National Post of Canada stating that any “‘significant progress’ made on the Trans-Pacific Partnership trade deal is pure bureaucratic BS.” See http://fullcomment.nationalpost.com/2014/11/11/john-ivison-any-significant-progress-made-on-the-trans-pacific-partnership-trade-deal-is-pure-bureaucratic-bs/.

As Ivison stated:

Trade sources suggest two major problems with negotiations that run contrary to the sunny optimism of the official statement.

One is that the Americans have approached the talks on a bilateral basis, preferring to hammer out deals country by country. “This is a typical U.S. approach, trying to run it like a hub-and-spoke negotiation,” said Mr. Clark.

Without knowing the outcome of talks between the two largest TPP participants — the U.S. and Japan — no one else has tabled a serious offer.

“Things are no closer than they were six months ago. No country will make an offer setting the starting point for ‘level of ambition’ without knowing the ambition levels of the U.S. and Japan.  You only give further from your first offer,” said one person with knowledge of the negotiations.

The second impediment to real progress is lack of Trade Promotion Authority — fast-track — on the part of President Barack Obama. No one wants to strike a deal that then becomes a bargaining chip in the internecine politics between the president and Congress.

There have been some suggestions that the newly empowered Republicans in the Senate might offer fast-track authority, in return for the president giving the Keystone XL pipeline the green light. But for now, President Obama cannot sign off on a deal using his executive authority.

Canada’s intransigence on supply management of poultry and dairy is likely to become a problem at some point.

In Beijing, TPP trade ministers highlighted the four areas where issues remain unresolved in the proposed deal: intellectual property, state-owned enterprises, the environment and investment. The ministers called intellectual property “one of the most complex and challenging areas of the agreement.”

On November 13th, over 200 business groups sent a letter to leaders of both the House and Senate, urging them to pass a new fast-track trade bill during the lame-duck legislative session this year. Specifically, the Trade Benefits America Coalition sent the letter urging passage of bipartisan Trade Promotion Authority (TPA) legislation to House Speaker John Boehner, R-Ohio, Senate Majority Leader Harry Reid, D-Nev., House Majority Leader Nancy Pelosi, D-Calif., and Senate Minority Leader Mitch McConnell, R-Ky., on behalf of more than 200 U.S. associations and companies including the American Farm Bureau, National Foreign Trade Council and National Association of Manufacturers.  The letter concluded, “With 95 percent of potential customers outside the United States and more than one in five American jobs supported by trade, we need to seize on opportunities — such as ongoing and future U.S. trade agreements — to expand U.S. commerce with other countries.”

On November 15th President Obama vowed to continue pushing toward a swift TPP deal, which he said has the potential to yield a “historic” trade deal. At the G20 meeting Obama stated:

“It is our chance to put in place new, high standards for trade in the 21st century that uphold our values. It’s about a future where instead of being dependent on a single market, countries integrate their economies so they’re innovating and growing together. That’s what TPP does. That’s why it would be a historic achievement.”

On November 18th, Prime Minister Abe in Japan called a snap election on December 14th to seek a mandate for his economic decisions, but this too will complicate the TPP negotiations.

On November 18th Deputy USTR Robert Holleyman stated that the U.S. is seeking provisions in the TPP requiring civil and criminal responses to the theft of trade secrets. As Holleyman stated:

“Many in this room have certainly paid attention to the damage that’s being caused by the theft of valuable trade secrets in foreign marketplaces. And in the TPP agreement, we’re seeking both civil and criminal responses to this problem, including to the issue around the growing problem of cyber-theft of trade secrets.”

TTP FOR CHINA??

But what about China? Could it eventually join the TPP?

On October 15th, the Peterson Institute for International Economic (”IIE”) released a study touting the benefits of a theoretical free trade agreement between China and the United States, including increased income and export gains, while also acknowledging that such an agreement could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span.

There are clear signs that China is interested in joining TPP. Citing an unnamed high-ranking U.S. official, Bergsten of IIE said “not a week goes by” that the administration does not receive an inquiry from China about TPP. But China has not officially sought entry into the initiative because it believes it would be denied at this stage in the negotiations. U.S. officials have made clear they want to close the deal with the current 12 participants.

The study predicts that a comprehensive agreement between China and the U.S. would create income gains for the U.S. of up to $130 billion while creating $330 billion in income gains for China. Under the agreement, the U.S. is projected to achieve export gains of $373 billion, and China — $472 billion. Similarly, U.S. exports to China would increase 108 percent and Chinese exports to the U.S. would increase 40 percent, according to the study.

But the study also finds that if a bilateral agreement is reached, the U.S. would suffer “adjustment costs” in the magnitude of 50,000 to 100,000 U.S. workers losing their jobs each year over a 10-year period. In other words, the deal could cost the U.S. economy up to a million job losses over a decade.

That is where Trade Adjustment Assistance for Companies comes into play. The Peterson study contends that because the economic benefits equate to roughly $1.25 million in national income gains per job lost, the U.S. should consider policy alternatives to offset job loss rather than simply abandon an FTA with China. Such alternatives could include a bolstered trade adjustment assistance program, lengthy phase-ins of the liberalization of sensitive sectors, and larger wage-loss insurance and training and relocation programs.

Over the past year, China has undergone a radical shift in its stance on TPP because Beijing realizes it stands to suffer financial losses if it is not a member of the agreement, according to the authors of the study. The study claims that if TPP is concluded, China would lose $82 billion in gross domestic product and $108 billion in export revenue due to diverted trade flows.

CHINA AUSTRALIA FTA

To add more fuel to the fire, on November 17th, Australia and China signed a free trade agreement to allow greater Australian agricultural exports and greater investment in China and increased Chinese exports to Australia. According to the Australian Prime Minister, the Agreement is predicted to add billions to the Australian economy create jobs and drive higher living standards.

Prime Minister Tony Abbott stated:

“It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment. Australian households and businesses will also reap the benefits of cheaper goods and components from China, such as vehicles, household goods, electronics and clothing, placing downward pressure on the cost of living and the cost of doing business.”

When the deal takes effect, more than 85 percent of Australian goods exports will be tariff free and that number will climb to 95 percent. Those goods were previously saddled with tariffs of up to 40 percent. US companies that attempt to export products to China can face very high tariffs, some in the 40 to 60 plus percent range.

China, meanwhile, will face less scrutiny in its investments in Australia per the deal. The Chinese government told Australia it estimates it will spend $1.3 trillion over the next decade in investments in Australia.

TTIP FTA WITH EUROPE

Meanwhile the TTIP FTA with Europe moves forward on November 16th with President Obama and prominent EU leaders ordering their respective negotiating teams to continue negotiations. A Joint Statement provides:

“We remain committed, as we were when we launched these negotiations in June 2013, to build upon the strong foundation of our six decades of economic partnership to promote stronger, sustainable and balanced growth, to support the creation of more jobs on both sides of the Atlantic and to increase our international competitiveness.”

But former USTR Clayton Yeutter predicted that despite the problems, the negotiations would likely finish up after Obama leaves office in early 2017. As Yeutter stated:

“There were a lot of miscalculations as to how long TTIP was going to take. This is not a negotiation that’s going to conclude anytime soon. In my view there is no practical chance of doing it during the Obama presidency.”

On November 18th the new EU Trade Commissioner Cecilia Malmstrom responded to criticisms that the TTIP will only serve the interests of large multinational Corporations by stating that the Agreement must benefit consumers:

“Trade agreements can lower prices, widen choice and create high-quality jobs. TTIP must do exactly that.”

Malmstrom also called for the negotiations to be more transparent, stating that the agreement needed input from “the whole range of civil society groups: trade unions, business associations, environmental organizations and, of course, consumers.”

INDIA BILATERAL DEAL WITH THE US MOVES TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI FORWARD

Many World Trade Organization (“WTO”) and US officials have warned that India’s decision to block the implementation of the Trade Facilitation Agreement (“TFA”) negotiated in Bali has had a “freezing effect” on the WTO’s work in a number of different areas. But after substantial pressure from the APEC countries, India and the US announced a breakthrough in the negotiations over the Agreement.

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India as a result of food security initiatives.

On September 30th, in his first meeting with President Obama, although indicating that a solution should come soon, Indian Prime Minister Modi reaffirmed his government’s position linking the WTO Trade Facilitation Agreement with support for the deal to act on food security issues.

On October 16, WTO Director-General Roberto Azevêdo reported to the Trade Negotiations Committee:

As a result we missed the deadline for the adoption of the protocol of amendment on the Trade Facilitation Agreement, which was the first deadline that Ministers set us in Bali. I said at the time that I feared there would be serious consequences. . . . as I feared, this situation has had a major impact on several areas of our negotiations. It appears to me that there is now a growing distrust which is having a paralyzing effect on our work across the board. . . .

it is my feeling that a continuation of the current paralysis would serve only to degrade the institution — particularly the negotiating function. . . . This could be the most serious situation that this organization has ever faced. I have warned of potentially dangerous situations before, and urged Members to take the necessary steps to avoid them. I am not warning you today about a potentially dangerous situation — I am saying that we are in it right now.

At the Trade Negotiations Committee meeting, Deputy USTR and U.S. ambassador to the WTO Michael Punke slammed India and the other opponents of the TFA protocol for perpetuating an “unnecessary and counterproductive crisis.” Those members’ inability to concede their position on food security has “significantly undermined” the entire Bali package and may doom any prospects for a “fully multilateral agreement.”

Although some of the trade pundits were suggesting that India be dropped off the back of the bus and the TFA move forward without India, others indicated that the real role of the TFA was symbolic—a way to get the WTO negotiating function going again.

On October 31st, Director-General Roberto Azevêdo reported to heads of delegations that there had been progress, and on November 10th, Azevedo asked APEC members, who were meeting in Beijing, to help push the TFA Agreement through. On that same day trade ministers for the 21 APEC countries, including China, vowed to throw their full weight behind resolving the current stalemate in the World Trade Organization surrounding the implementation of a trade facilitation agreement and the expansion of a tariff-cutting pact. In the attached statement released in Beijing, APEC ANNOUNCEMENT BALI TPP, the APEC Ministers stated:

2014 APEC Ministerial Meeting

  1. We, the Asia-Pacific Economic Cooperation (APEC) Ministers, met on 7-8 November 2014, in Beijing, China. The meeting was co-chaired by H.E. Wang Yi, Minister of Foreign Affairs of the People’s Republic of China, and H.E. Gao Hucheng, Minister of Commerce of the People’s Republic of China. . . .
  1. We welcome the participation in the meeting of the Director General of the WTO . . . .
  1. We reaffirm our confidence in the value of the multilateral trading system and stand firmly to strengthen the rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system as embodied in the WTO.
  1. We highly commend the Bali Package achieved at the 9th Ministerial Conference (MC9) in Bali, Indonesia. We express our grave concern regarding the impasse in the implementation of the Trade Facilitation Agreement (TFA) which has resulted in stalemate and uncertainties over other Bali decisions. These developments have affected the credibility of the WTO negotiating function. In finding solutions to the implementation of the Bali decisions, APEC will exert creative leadership and energy together with all WTO members in unlocking this impasse, putting all Bali decisions back on track, and proceeding with the formulation of Post-Bali Work Program, as a key stepping stone to concluding the Doha Round.
  1. Bearing in mind that open markets are vital for economic growth, job creation and sustainable development, we reaffirm our commitment and recommend that our Leaders extend a standstill until the end of 2018, and roll back protectionist and trade-distorting measures. We remain committed to exercising maximum restraint in implementing measures that may be consistent with WTO provisions but have a significant protectionist effect and to promptly rectifying such measures, where implemented. In this context, we support the work of the WTO and other international organizations in monitoring protectionism.

Emphasis added.

Significantly, India is not a member of APEC, and the ministers’ statement made clear that they would exhaust all resources in order to convince New Delhi to change its stance and enable the WTO to carry on with its more substantive work.

On November 12th, in Beijing President Obama expressed optimism saying that he was “actually confident that there’s an opportunity for us to resolve them fairly soon.”

On November 13th, the US and India announced that they had reached an agreement to move the TFA forward. Under the bilateral deal, India agreed to drop its opposition to the TFA to streamline international customs procedures while the U.S. agreed to leave a so-called peace clause shielding India’s food stockpiling measures from legal challenges in place until the WTO crafts a permanent solution on that issue.

On November 14th Azevedo predicted that the implementation of a deal streamlining global customs procedures would earn quick approval from the WTO members within two weeks following the Indian government’s move to drop its opposition to the pact.

On November 16, the G-20 leaders in Australia welcomed “the breakthrough” between the U.S. and India that would allow for the “full and prompt” implementation of the TFA. The leaders also pledged to implement other agreements in Bali and swiftly define “a WTO work program on the remaining issues of the Doha Development Agenda to get negotiations back on track,” which it said would “be important to restore trust and confidence in the multilateral trading system.”

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL—RESPONSE TO OPPOSING ARGUMENTS

As stated in my last newsletter and in my October blog post, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which is presently funded at $16 million nationwide. With only a relatively small part of that low budget, the Northwest Trade Adjustment Assistance Center (“NWTAAC”) has been able to save 80 percent of the companies that participated in the program since 1984.

In my last newsletter and my blog, I also argued that President Reagan himself indirectly approved of the TAA for Firms/Companies (“TAAF”) program because it does not interfere with the market in any ways and yet has been able to save a number of US companies. In fact, the TAA programs could be funded by the over $1 billion collected every year by the US government in antidumping and countervailing duties.

But there are two programs. The first program is the $500 million to $1 billion program of TAA for workers and then there is the $16 million TAAF program for companies. Congress should consider reworking the two programs to accomplish the objective of saving the jobs and the companies that are hurt by trade liberalization. There needs to be more coordination between the two programs.

One way to adjust the programs is put the TAAF for Companies program first and give it more funding so it can help larger companies, such as Steel and Tire Companies, where more jobs are located. TAAF for Companies could be used to create a program where the best of technologies and advisory services could be brought to bear to help US companies challenged by globalization and trade liberalization. The Worker program then comes afterwards, after the jobs have been lost. Data that is needed for the Worker program can be supplied as part of the Company program.

But several questions have been raised that need to be answered.

  1. Isn’t TAAF for Companies crony capitalism?

Many opponents might argue that TAAF for Companies is simply crony capitalism. Under the TAAF program, however, very little money actually goes to the companies. Most of the money goes to business consultants that can help the company change its business model or change its marketing strategy.

In fact, as it stands now, the Program only provides $75,000 in matching funds, which means the Company itself must put in the matching $75,000. Although relatively small, the Federal money has been critical in helping US companies develop a strategy to deal with the new import competition in the market place and adjust to market conditions.

The TAAF program also cannot provide hard assets to the company, just business strategy advice and help on soft projects, such as help designing a marketing website, developing software for the company in its production process or designing a dam for an Idaho sheep farm. This is not corporate welfare because the company has to put much of its own assets in both money and labor into the assistance.

WTO also does not consider this a subsidy. No money or assets go to the company. The amount is low and does not harm international trade.

Although the TAAF program could be strengthened so that it could provide TAA for larger companies, such as Steel and Tire companies, the matching funds provision and the limitation on providing only soft projects and consulting is important so that the program cannot be targeted as simply another government subsidy.

TAAF for companies is not another Solyndra program.

  1. Isn’t TAA for Firms/Companies picking winners and losers in the market?

Any company that has been injured by imports/is being impacted by trade competition can apply to enter the program. At its core, the TAAF for companies program provides advice to the company on how to swim in the newly competitive marketplace from business experts, who know how to turn a company around.

In addition, the initial write up of the application is done by experts at TAA Centers around the country, who work with the companies at the local level on a one to one basis to develop a plan to fit the specific needs of the company. Because the program is implemented at the local level by neutral officials, there is no picking winners and losers. Although the final adjustment plan must be approved at Commerce, by that time the politics has been bled out of the situation and the question is can the company meet the criteria in the statute.

  1. Why shouldn’t TAA money go to workers and not companies?

TAA for firms/companies is not TAA for management. The company includes both the management and the workers. If you talk to workers, which have been hit by trade competition, they would rather have their job then just take assistance from the Federal Government.

Although Unions have pushed unfair trade cases, in fact, many of these unfair trade cases do not work. They do not protect the companies, and more importantly the workers from import competition. It is impossible to bring antidumping and countervailing duty cases against every country in the World.

I have met workers at a company that has been saved by the TAA for Firms/Companies program, which helped the company adjust its business plan to compete in the new trade impacted market. The worker in question had been at the factory for over 30 years and was very grateful that the program had saved his job.

In fact, the split between workers and management may be one of the problems that should be addressed by TAA. Often with the small companies, however, the employees and management have been together for years and look upon each other as one in the same. They are all in the company boat together.

Also TAA for Firms/Companies is not an entitlement, a net flow out of the US government. The TAAF program keeps the company alive and keeps the taxes from the company and the company’s management and workers flowing to the US and State Treasuries, which is money going into the US and State treasuries. That is real bank for the buck.

  1. Why can’t Private Investment/Equity funds pick up the slack and thus there is no need for TAA for Firms/Companies?

Private investment companies are often targeting short term profits so if the company cannot achieve short term profits, the company is closed and the assets are sold. Mitt Romney’s company, Bain Capital LLC, invested substantial money into GS Industries, the parent company of Georgetown Steel.  Although Bain made money, it did so by cutting more than 1,750 jobs, closing a division that had been around for 100 years and eventually Georgetown Steel sank into bankruptcy.

TAAF for companies is working long term to save the company and the jobs that go with that company. This is the only long term assistance program in the US government. So the short term profitability of the company is not the issue. The issue is can the company be turned around so that it can become profitable and very profitable in the long term.

Private Equity Firms and TAAF have very different objectives.

  1. What makes TAA for Firms/Companies different from other Economic Assistance to US companies?

TAAF for companies is a trade program, not just a Government assistance program. Trade problems for companies often happen because Government action has changed the US market, be it a free trade agreement, such as the TPP, or a change in government regulations, which has exposed the US companies to import competition.

Since the Government has created the problem in the short term by its own action, it has a responsibility to help US companies and workers that have been impacted by this Government action.

Under the Constitution Congress controls trade, not the President. TAAF is a program that was started to allow Congress and the Administration to negotiate international trade deals, which help the US economy as a whole, but have the effect of creating winners and losers in the US market.

To help building public support for these Free Trade Agreements, TAA has been provided to companies and workers to help them adjust to increased import competition. Although over time, the TAAF for companies program has declined in funding, with the new trade agreements, such as the TPP and the TTIP, the program needs to be built up again to help companies that have been hurt by changes in the US trade laws, which encourage US exports, but also imports from other countries. As stated at the top of this newsletter, trade is a two way street.

In addition, the TAAF program is the only long term assistance program in the US, and it monitors the companies to make sure they implement the plans that they have agreed to.

  1. The TAAF Program Is Too Small To Be Effective

The $16 million TAAF program may be small, but it is very effective.  Since 1984, NWTAAC has been able to save 80% of the companies in the program.

The 2013 NWTAAC report from Commerce points out that all the companies that entered the program since 2011 are still alive today.

In fact, TAAF should be expanded so it can help larger companies, such as Steel and Tire companies, deal with increased competition in the US market as trade agreements reduce barriers to imports.

  1. Why help old line US industries and companies that technology and changing trade patterns have left behind and should die a natural death?

This is the basic creative destructionism argument from famous Harvard economist, Joseph Schumpeter, and it is true if companies do not change with changing market conditions, they will die a natural death.

But TAAF for companies gives companies the opportunity to change and adapt to the changing market conditions. Many TAAF employees that have been working at the Centers for years firmly believe that any company that enters the program can be helped. It may be a new marketing strategy or a change in company equipment, or improvements in their business strategy.  The staff has seen too many success stories to not believe in the power of the program.

In Seattle we had a company making ceramic flowerpots that was being injured by imports of flower pots from Mexico. The company came into the program and as a result started producing ceramic molds for titanium parts for Boeing.  Changing the business plan is one of the best strategies to keep the company alive and the jobs that go with that company.

TAA REAUTHORIZATION NEEDED BY DECEMBER 31ST

On November 20th, in the attached announcements CONGRESS E-MAIL Reauthorize Trade Adjustment Assistance Before It Expires on December 31 REAUTHORIZATION SEAL, House and Senate Democrats urged Congress to reauthorize TAA before it expires December 31st. Although the emphasis is on the TAA for Workers program, the Reauthorization would also apply to TAA for firms/companies. As it stands now, as of January 1, 2015, TAA will no longer be able to provide trade adjustment assistance to new companies that want to enter the program. If TAA for Companies is not reauthorized by June 1, 2015, all the TAAC centers around the country will close their doors and the program will cease to exist.

As indicated below, funding TAA is the essence of compassionate conservatism.

CONGRESSIONAL E-MAIL NOTICES

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

From: The Honorable Adam Smith Sent By: Mina.Garcia@mail.house.gov Bill: H.R. 4163 Date: 11/20/2014

November 20, 2014

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

Dear Colleague,

We write to draw to your attention to five stories that illustrate the importance of reauthorizing the Trade Adjustment Assistance (TAA) program. TAA provides financial support and re-employment training for workers whose jobs are lost due to trade. It also provides assistance to U.S. companies that have been injured by imports so they can continue to remain competitive and not resort to mass lay-offs or closures.  Funding for service workers expired at the end of 2013. Funding for the remainder of the program – which supports manufacturing workers, farmers, ranchers, fishermen, and firms – will expire on December 31 unless we act to renew it.

In 2013, 100,000 workers qualified for TAA and the results prove the program’s success.  More than 75% of workers who completed the program found jobs within six months, and of those, 90% were still employed a year later.  More than 75% of workers who completed training in 2013 received a degree or industry-recognized credential.   Here are five TAA success stories:

  •  A 74 year-old Seattle die forging firm experienced trade impact and entered the Trade Adjustment Assistance for Firms program (TAAF) in the mid 2000’s. With the assistance of the Northwest Trade Adjustment Assistance Center (NWTAAC), the firm implemented a strategy of adopting certain innovations to develop capabilities in advance of competitors worldwide. NWTAAC assisted the firm in three ways that relied heavily on outside expertise: implementation of a data management system; commercialization of a new alloy; and a revision of the Firm’s website. Two years after completing TAAF, the Firm has increased employment by 11% and sales by 141%.
  •  Rodney Cox worked for 13 years on machinery, most recently at a local hospital in rural Oregon.  He was laid off in September 2010 and could not find another job.  With only a GED, he realized he would need more education to make the wage he had earned as a millwright.  Working with a TAA case manager, he opted to attend a community college that offered an Associate’s degree in Biomedics.  His TAA benefits allowed him to live, temporarily, near the training facility 177 miles away from his home (and family).  Rodney earned his degree and accepted a position as a Bio-Medical Equipment Technician.  He is earning a wage higher than what he earned when he was a millwright.  Of TAA, Rodney said, “Things couldn’t have worked out better for me.  My case managers helped me every step of the way.  I was hired two days after I moved back home with my family.”
  •  Kim Franklin is a single mother with two children.  She worked for a manufacturing company.  When she was laid off, she could not find a similar job.  She realized she needed to consider a new career and to get new skills. Through TAA, she completed Medical Assistance training.  She is now employed as a medical assistant at a health clinic in her community.
  •  Juan Bustamante worked as a machine operator in California for over 11 years making aluminum rims for cars.  When the nearby car facility moved operations out of the country, Juan – and 300 of his colleagues – lost their jobs.  Through TAA, Juan was able to obtain remedial education in English, Math, and Speech at the Los Angeles Valley College Job Training Center.  After completing the coursework, Juan qualified for the Transportation Metro Bus Operator Bridge Training Program.  After completing that program, he received a position with LA Metro and has full benefits.
  •  Judith Fischer worked for a publishing firm in New York and lost her job.  Through TAA, she explored career options and decided to pursue occupational therapy, concentrating on the psychological effects of diminished quality of life issues.  She earned an Associate’s Degree and received a job as a Community Rehabilitation Instructor and Case Manager, working with the developmentally disabled.  Judith plans to pursue a Master of Science in Social Work.  Of her new career, Judith said that it is “rewarding in every way, especially being able to connect with these children and I feel all the love they have to give.”

These examples demonstrate that TAA helps workers find new jobs and firms stay in business when they face new competition from abroad. We urge you to extend the program before it expires on December 31.

/s/                                                                             /s/ SANDER LEVIN                                                         ADAM  SMITH Member of Congress                                                   Member of Congress

/s/                                                                             /s/ CHARLES B. RANGEL                                               DEREK KILMER Member of Congress                                                   Member of Congress

/s/ RON KIND Member of Congress

 United States Congress

SECOND CONGRESSIONAL NOTICE

FOR IMMEDIATE RELEASE

Thursday, November 20, 2014

Contact: Rep. Smith- Ben Halle, (202) 570-2771

            Rep. Levin- Caroline Behringer, (202) 226-1007

            Rep. Kilmer- Jason Phelps  (202)-225-3459

            Rep. Rangel- Hannah Kim, (202)-225-4365

House Dems Urge Congress to Reauthorize TAA Before it Expires December 31st

Washington, D.C.- Today, Senator Sherrod Brown introduced a Senate companion bill to the Trade Adjustment Assistance (TAA) Act of 2014, introduced by Representatives Adam Smith (D-WA), Sander Levin (D-MI), Derek Kilmer (D-WA), and Charles B. Rangel (D-MI). These bills would renew TAA, which is set to expire on December 31, 2014. Reps. Smith, Levin, Rangel, and Kilmer released the following statement calling for the immediate passage of the TAA:

“It is critical that Congress pass Trade Adjustment Assistance legislation before it expires at the end of the year. Both the House and Senate TAA bills provide critical work training, income support, and health care to help dislocated American workers transition and learn new skills for new careers in competitive industries.  This vital assistance helps American workers and businesses adapt and compete in a rapidly evolving world economy.”

Background: Congress created the TAA program in 1962 in response to the loss of jobs among hard-working Americans as a result of increasing global competition, as well as to promote American competitiveness.  TAA benefits have several components: training assistance, income support while in training, and job search and relocation assistance.  The program assists workers dislocated by the elimination of tariffs and other barriers to trade.  Additional programs assist farmers, fishermen, and firms with the development and implementation of business plans to enable them to regain a competitive foothold. Click here for the full text of the Trade Adjustment Assistance (TAA) Act of 2014.

TAA by the numbers:

  • 2,192,910:  The number of workers served by TAA since it was created in 1974
  • 104,158:  The number of workers eligible to apply for TAA in 2013
  • 50:  The number of states with workers eligible for TAA benefits in 2013
  • 75%: The percentage of TAA workers who got a job within six months of finishing the program
  • 90%: The percentage of those TAA workers who remained employed at the end of the year

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

THE MAGNESIUM CASE — WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US PRODUCERS

As stated in numerous past newsletters, market economy for China is important for US end user production companies. The importance of market economy for the United States is illustrated by the Magnesium from China antidumping case. Recently a large Western company came to me because they were thinking of exporting Chinese magnesium to the United States to help the US magnesium die casting industry. But after discussions, at least in the short term, the company gave up because there is no longer a viable magnesium die casting industry in the United States. The Antidumping Order on Magnesium from China has killed the downstream industry.

In antidumping cases Commerce does not use actual prices and costs in China to determine whether a company is dumping. Dumping is defined as selling at prices in the United States below prices in the home market or below the fully allocated cost of production.

As mentioned before, however, in contrast to Japan, Korea, India, Iran and almost every other country in the World, China is not considered a market economy country in antidumping cases. Commerce, therefore, refuses to look at actual prices and costs in China to determine whether a Chinese company is dumping. Instead Commerce constructs a cost for the Chinese company by taking consumption factors from the Chinese producer for all inputs used to produce the product in question, including raw materials, energy, and labor, and then goes to a Third Surrogate Country to get Surrogate Values often from Import Statistics in the surrogate country to value those consumption factors.

In the past Commerce looked for surrogate values in only one country, India, but recently Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and those countries and import values can change from annual review investigation to annual review investigation.

Thus, it is impossible for the Chinese company to know whether it is dumping because it cannot know which surrogate value that Commerce will pick to value the consumption factors and thus the US importer cannot know whether the Chinese company is dumping.

In the Magnesium from China antidumping case, one of the key inputs is electricity. Electricity from hydro power in China, where many of the Chinese companies are located, can be as low as 3 cents a kilowatt hour. The average electricity cost in the US is 6 cents a kilowatt hour. What price did Commerce use as a surrogate value for electricity in the recent Magnesium review investigation? 7 cents a kilowatt hour.

This is very important because as of February 2014, there were 121 Antidumping and Countervailing Duty orders. 75 of those orders are for raw material products, such as metals, chemicals and steel, which go into downstream US production.

The Commerce Department has broad discretion to determine surrogate countries and values and their choices can change from annual review investigation to annual review investigation, exposing US importers to millions of dollars in retroactive liability based on a process, which is inherently arbitrary, because Commerce does not look at actual prices and costs in China.

Not only is there a problem with retroactive liability for US importers, US end user companies are often blocked from using the competitive Chinese raw material input, which, in turn, exposes the US downstream producers, such as foundries, automobile and chemical producers, to competition from Chinese companies and foreign companies that do have access to the lower cost raw materials. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

One example of the devastating impact of the US Antidumping Law is the impact of the US Magnesium from China antidumping case on the US Magnesium Die Casters. As the North American Die Casting Association stated in June 2010:

North American Die Casting Association

June 7, 2010 ·

NADCA Supports Magnesium Die Casters with a Filing to Help Lift Tariffs

May 27, 2010 by NADCA in NADCA News Wheeling, IL

NADCA recently filed a response to the International Trade Commission (ITC) in hopes to help lift ITC’s tariffs on imported magnesium alloy. Since many die casters have been harmed by the excessive prices being charged by the sole magnesium alloy producer in the U.S., NADCA has filed this response in regards to the Sunset Review of this particular ITC tariff. . . .

NADCA is concerned about magnesium die casters having access to alloy magnesium in the U.S. at globally competitive prices. The antidumping duty orders effectively bar Russian and Chinese alloy magnesium from the U.S. market. Prices for alloy magnesium are higher in the U.S. than elsewhere due to the antidumping duty orders currently in place in the U.S. but not in other major consumer markets.

The lack of effective competition in the U.S. market ― there is only one significant U.S. producer of alloy magnesium, US Magnesium LLC ― has harmed die casters since the imposition of the antidumping duty orders in 2005. NADCA estimates that as many as 1,675 direct jobs and 8,000 supporting jobs have been lost in the die casting industry due to the imposition of these orders.

US Magnesium has not made significant efforts to maintain or increase its sales of alloy magnesium in the U.S. since the imposition of the antidumping duty orders. For example, US Magnesium has not joined in efforts initiated by magnesium end-users to develop new uses of magnesium.

Thus an antidumping order to protect more than 450 production jobs in Utah has resulted in the loss of 9,657 jobs in the downstream market.

What did the ITC do in the face of this argument?

Left the antidumping order against magnesium from China in place for another five years.

Now in 2014, what has been the effect of the ITC’s decision to leave the Antidumping Order on Chinese Magnesium in place—more closed companies and more lost jobs. In 2004-2005 43 US companies sold magnesium die castings in the US market.   According to NADCA, less than 12 US companies now produce magnesium die castings in the United States.

NADCA estimates that 31 US companies have ceased pouring magnesium in the United States because of the antidumping order against magnesium from China.  US companies, such as Lunt in Illinois, simply went out of business because of the Magnesium from China Antidumping order. In 2010, when NADCA did the survey, it estimated a job loss of 1,675 direct jobs. Now the jobs loss has swelled to over 2,000 and closer to 10,000 supporting jobs.

12 companies have survived because they fall into two categories. The major market for magnesium die casting is auto parts. The first set of companies use the magnesium die castings that they produce ( i.e. Honda).

The second set of US companies are those strong in other metals, such as aluminum, and have shifted from producing magnesium die castings to aluminum die castings.

Where did the magnesium jobs and companies go? Many companies and projects simply moved to Mexico or Canada.

Many OEM magnesium auto parts manufacturers moved all their production to Mexico. Five Tier 1 steering wheel manufacturers, for example, have magnesium die casting and wheel assembly plants in Mexico, including TRW, AutoLiv, Takata, Key Safety Systems and Neaton.

The other impact of the antidumping order on Magnesium from China has been to push North American car companies away from magnesium auto parts, necessary for light weight cars, especially powertrain, mainly because of the supply uncertainty.   Lack of access to 80% of the world’s production of magnesium in China and not having globally priced metal inputs is a huge risk to car companies. Magnesium powertrain die casters, such as Spartan, have simply switched to aluminum further reducing magnesium die casting capacity and expertise in the US.

This further diminishes US auto makers acceptance of magnesium auto parts.  This US situation greatly contrasts with Europe where magnesium powertrain components are more than 50% of the magnesium auto applications. EU OEMs are much more advanced at building lighter cars now than their US peers.

Now NADCA has given up because it is “simply too difficult to fight city hall”. My potential client also told me that it was just not worth it to fight the Magnesium antidumping order because the downstream market for the product had simply died in the United States.

The Antidumping law in truth is a jobs destroyer, not a jobs creator.

THE WOODEN BEDROOM FURNITURE ANTIDUMPING CASE—NO HELP TO THE DOMESTIC INDUSTRY BUT 100S OF MILLIONS OF DOLLARS IN RETROATIVE LIABILITY FOR US IMPORTERS AND BANKRUPTCIES

On November 18, 2014, in Mark David, a Division of: Baker, Knapp & Tubbs, Inc. et al v. United States, CIT MAOJI, the Court of International Trade (“CIT”) affirmed a Commerce Department decision of a 216% rate for Maoji, a major Chinese exporter, in the Wooden Bedroom Furniture case creating probably 10s of millions of dollars in retroactive liability for US importers.

In that decision, Judge Tsoucalis stated:

“Maoji does not dispute that they failed to participate fully in the review, and that they therefor can be subjected to an AFA rate. The issue before the court is instead whether Commerce’s application of the 216.01% PRC-wide AFA rate to Maoji was reasonable. Plaintiff argues that the 216.01% PRC-wide AFA rate was neither reliable nor relevant. . . . According to Plaintiff, Commerce applied an “outdated” and “unsupported” margin that did not reflect Maoji’s commercial reality. . . .

Plaintiff does not appear to dispute Commerce’s finding that Maoji failed to rebut the presumption of government control in the Final Results. During the review Maoji notified Commerce that it was not practicable for it to provide a response to the Section D questionnaire or the supplemental Section A questionnaire. . . . Commerce determined that Maoji was a part of the PRC-wide entity. . . . Because Maoji failed to respond to Commerce’s questionnaires regarding its separate rate eligibility during the review, Commerce reasonably concluded that Maoji failed to demonstrate its absence of government control. . . .

Unlike Orient in Lifestyle I, here, Maoji failed to qualify for separate rate status. As a result it received the PRC-wide AFA rate. Because Maoji was part of the PRC-wide entity, Commerce was not required to calculate a separate AFA rate relevant to Maoji’s commercial reality. . . . Commerce was only required to corroborate the rate to the PRC-wide entity. . . . Therefore, Plaintiff’s reliance on Lifestyle I is misplaced. Lifestyle I does not call into question the PRC-wide rate as applied to the PRC-wide entity, rather it only discredits its application to Orient, which successfully established the absence of both de jure and de facto government control.”

Several years ago, an importer asked me to meet with Maoji in Shanghai and talk to them about the Wooden Bedroom Furniture case. From talking to the importer, I knew that Maoji was exporting a lot of furniture from different Chinese manufacturers and asked the Manager from Maoji, what would happen if Commerce picked Maoji as a mandatory respondent in the review investigation and it had to report factors of production/consumption factors from all Maoji’s suppliers? Instead of replying, the Manager got mad and started yelling at me, “Who told you we would have to supply production information for all our suppliers?” End of conversation.

In this case, apparently Maoji could not supply its response to Section D of the questionnaire because it was not practicable. Section D of the questionnaire requires the exporters to report consumption factors for its wooden bedroom furniture suppliers/producers. Too many producers apparently did not want to cooperate with Maoji and supply their production information.

But now all the importers that imported from Maoji are exposed to retroactive liability of 216% on imports. Based on my past experience, this means that importers will owe millions and possibly 10s of millions of dollars on these imports.

A month ago while in Beijing during a meeting with the Chamber of Light Industrial Products, a Chinese Chamber official told me that he regarded the Wooden Bedroom Furniture case as a victory for Chinese companies. My response was that this same case has created retroactive liability of close to, if not more than, $1 billion for US importers. Last year, exports of furniture from Vietnam went by exports of furniture from China. So if the Wooden Bedroom Furniture case was a victory, I would hate to see a loss. In fact, this case has been a disaster.

But this case along with the comments of the Chamber official indicate that Chinese companies simply do not understand the impact of these cases on US importers and in some cases, simply do not care. I have met with company owners in High Point, North Carolina, who have seen their entire $50 million dollar blow up because they had the temerity to import Chinese wooden bedroom furniture from China under an antidumping order.

The irony of the Wooden Bedroom Furniture case is illustrated by the December 2010 ITC determination in the Wooden Bedroom Furniture from China Sunset Review investigation, where ITC Commissioner Pearson stated the antidumping order has not helped the US industry:

this investigation . . . raises some troubling questions. . . . This industry would have faced difficulties during the period of review under any circumstances, given the depth of the recession and its extensive effects on the housing market. But even before the recession began, the industry was not apparently gaining much benefit from the imposition of the order. The domestic industry’s market share continued to decline after the order, as did production, capacity utilization, and employment. In the long run the domestic industry might have been expected to struggle to retain any benefits from this order as importers and retailers sought supply in other, lower-cost markets outside China. But the record here suggests that the domestic industry gained little even before those adjustments began to be made. . . .

I am mindful that the law does not require that an antidumping order or countervailing duty order be shown to benefit the domestic industry in order to reach an affirmative finding in a five-year review. . . .In this particular investigation, additional costs and distortions have been added by the use of the administrative review and settlement process, with little evidence that these distortions have yielded any benefits to the industry overall, the U.S. consumer, or the U.S. taxpayer.

So if the antidumping order does not benefit the US industry, why doesn’t the US industry simply lift the order? Two reasons, first the US industry and the lawyers representing the industry have made money from private settlements with Chinese companies and US importers. Second, although the AD order may not have helped the US industry directly, it has had the effect of eliminating a number of the US industry’s direct competitors, which are US importers forcing them into bankruptcy because they imported furniture under an antidumping order against China.

IMPORT ALLIANCE FOR AMERICA

This is why the Import Alliance for America is so important for US importers, US end user companies and also Chinese companies. As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the antidumping and countervailing duty laws against China for the benefit of US companies.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

Recently, the Import Alliance established its own website. See http://www.importallianceforamerica.com.

We will be targeting two major issues—Working for market economy treatment for China in 2016 as provided in the US China WTO Agreement and working against retroactive liability for US importers. The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for the Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226. The PowerPoint we used to describe the Import Alliance, the specific provisions in the US China WTO Agreement and the Trade War in general is attached FINAL BEIJING IMPORT ALLIANCE POWERPOINT.

TRADE

SOLAR CASES—POSSIBLE SCOPE EXPANSION TO INCLUDE PANELS PRODUCED IN CHINA AND TAIWAN FROM THIRD COUNTRY SOLAR CELLS AND SEPARATE RATES PROBLEM

SOLAR PRODUCTS

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%. On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

Posted on my October blog post are the Commerce Department’s Factsheet, Federal Register notice, Issues and Decision memo from the Antidumping Preliminary Determination along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, which will help importers understand what products are covered by this case. Also attached to the October blog post is the ITC scheduling notice for its final injury investigation in the Solar Products case. The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce, which is posted on my blog, expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department. Although some preliminary discussions have been held, no Agreement has been released for comment as required by the Antidumping and Countervailing Duty law.

Meanwhile, the case moves on and expands. In an October 3, 2014 memo, which is posted in my October post, on its own motion Commerce has proposed to expand the scope of the Solar Panels case to cover all panels produced in Taiwan and China from third country solar cells.

On October 16, 2014, on behalf of two importers that import solar panels with third country solar cells in it, we filed a brief to argue that a change this late in the Solar Products investigation expanding the products subject to investigation violates due process because of the lack of notice to US importers and Chinese exporter and producers. The problem with changing the scope this late in the antidumping and countervailing investigation is that Commerce Department’s record is now closed and those Chinese companies that exported solar panels with third country solar cells in them along with the US companies that import those products have no opportunity to prove that the Chinese companies are separate and independent from the Chinese government. The Chinese companies, therefore, will automatically get an antidumping rate of 167%.

Moreover, the entire antidumping and countervailing duty proceedings at Commerce as well as the injury investigation at the US International Trade Commission (“ITC”) are based on the premise that the products covered by this investigation are solely those solar panels that have solar cells wholly or partially produced in the subject countries, Taiwan or China. If Commerce accepts the proposal, that will no longer be the case. The Solar Products cases will cover Chinese and Taiwan solar panels with third country solar cells in them when there is no specific determination at the Commerce Department that those Chinese and Taiwan solar panels with third country solar cells, in fact, were dumped or that the Chinese companies producing those panels received subsidies and no determination at the ITC that the solar panels with third country solar cells in them caused injury to the US industry.

One reason that Commerce may have decided to expand the scope is because the AD and CVD orders will be difficult to administer and enforce. It will be difficult for Customs officials at the border to determine where the components of a solar cell in a particular panel from China or Taiwan originated. But that is a problem with the scope in Solar World’s initial petition that it filed in this case. Substantially changing the game at this stage in the proceedings raises enormous due process questions in this proceeding.

We now await the Commerce Department’s final determination on December 16th.

SOLAR CELLS—THE SEPARATE RATES ISSUE

On November 20, 2014, in the attached Jiangsu Jiansheng Photovoltaic Technology Co., Ltd. v. United States decision, CIT JIANGSU SEPARATE RATES, the Court of International Trade (“CIT”) granted the Commerce Department’s request to take another look at the separate rates issue regarding certain “state-owned” Chinese companies. In doing so the Court stated that even though there was a possibility of government influence that was not enough to deny a Chinese company separate rates. As indicated below, this decision seems to be at odds with the Diamond Sawblades case and the Tetrafluoroethane case.  As the Court stated:

“Specifically, SolarWorld argues that Commerce gave insufficient weight to evidence that Chinese laws permit the government to intervene in Chinese companies’ operations in a variety of ways. But by definition, the laws of an NME country will generally permit the government of such country to intervene in the operations of its companies. Thus to require NME companies to prove complete legal autonomy would introduce an internal inconsistency into the analysis. Instead, as Commerce explained in this case, the agency determines whether the legal possibility exists to permit the company in question to operate as an autonomous market participant, notwithstanding any residual authority for potential governmental intervention, and if so, whether that company should be exempted from the NME system-wide analysis because it in fact managed its production, pricing, and profits as an autonomous market participant. Here, Commerce first determined that, as a matter of de jure possibility, the respondents in question could have acted as sufficiently autonomous market participants to deserve separate rates; then, having made this threshold determination, Commerce determined that the evidence in the record reasonably supported the conclusion that these respondents in fact did act sufficiently autonomously in terms of managing production and profit and setting prices during the POI.

Commerce requests and is granted permission to reconsider the record evidence regarding whether certain respondents were sufficiently autonomous from the Chinese government in the conduct of their export activities as to qualify for rates separate from the PRC-wide entity. In doing so, Commerce need not require proof of complete freedom from any mere legal possibility of government control. . . .

Commerce has determined that the weight of the evidence suggests the contrary conclusion, and SolarWorld has not pointed to any specific nonspeculative evidence to cast doubt upon this determination. Accordingly, because Commerce has considered and relied upon sufficient evidence to reasonably support the agency’s conclusion that the respondents in question were sufficiently autonomous from government control over their export activities to qualify for a separate rate, and because SolarWorld presents no specific evidence to impugn these reasonable determinations Commerce’s findings with regard to these separate-rate recipients are supported by substantial evidence.. . . ,

SolarWorld also argues that Commerce’s decision to grant separate-rate status to these respondents was arbitrary because, in the past, Commerce has denied such status to respondents who submitted ownership evidence that was later contradicted at verification. But the issue presented here is not analogous to the prior decisions on which SolarWorld relies because the respondents in those cases had submitted ownership information that was contradicted at verification, whereas here there was no similar impeachment of any of the evidence submitted by the challenged separate-rate recipients . . . .

Essentially, SolarWorld believes that the potential for governmental control through such managers or board directors categorically precludes a finding that such companies in fact acted autonomously in conducting their own export activities. The core of SolarWorld’s argument is that these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI.

Fundamentally, SolarWorld’s arguments regarding the de facto autonomy of the challenged separate-rate recipients suffer from the same analytical defect as its arguments regarding de jure autonomy – namely that, in an NME country, there will usually be state involvement and authority to intervene in these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI. . . .

But this fact alone does not necessarily lead to the conclusion that all NME producers and exporters should be categorically treated as in fact setting their prices according to some centralized strategy. Here, each of the challenged separate-rate recipients submitted evidence that “(1) [t]heir [export prices] are not set by, and are not subject to, the approval of a governmental agency; (2) they have authority to negotiate and sign contracts and other agreements; (3) they have autonomy from the government in making decisions regarding the selection of management; and (4) they retain the proceeds of their export sales and make independent decisions regarding the disposition of profits or financing of losses.” Moreover, “[a]ll of the separate rate respondents at issue reported that neither SASAC nor the government was involved in the activities of the board of directors.”

Footnotes omitted, emphasis added.

TETRAFLUORETHANE CASE—COMMERCE FINDS VERY HIGH ANTIDUMPING MARGINS, BUT ITC SAYS NO INJURY AND DISMISSES THE ENTIRE CASE

On October 15, 2014 in the attached fact sheetfactsheet-prc-1112-Tetrafluoroethane-ad-cvd-final-101514, Commerce found dumping and countervailable subsidization of Imports of 1,1,1,2-Tetrafluoroethane from the People’s Republic of China with antidumping rates for all of China of 280%, in part, by refusing to give Chinese state-owned companies their own antidumping rates. Such a high antidumping rate meant that all 1,1,1,2-tetrafluoroethane from China would be excluded from the US market.

On November 12, 2014, however, the US International Trade Commission based on a 4-2 vote in the attached fact sheet, ITC NO INJURY VOTE TETRFLUORETHANE, determined that the US industry was not injured by reason of imports of 1,1,1,2-Tetrafluorethane from China. The case, therefore, is dismissed and no antidumping and countervailing duty orders will be issued.

CAFC SAWBLADES CASE—NO SEPARATE ANTIDUMPING RATES FOR CHINESE STATE OWNED COMPANIES

On October 24th, in the attached one-sentence opinion, DIAMOND SAWBLADES CAFC DECISION, the Court of Appeals for the Federal Circuit (“CAFC”) in Advanced Technology & Materials Co. v. United States affirmed a decision by the CIT that found Chinese diamond saw blade companies had not done enough to show their independence from China’s government to deserve their own anti-dumping order rates, overturning 20 years of past cases by the Commerce Department. The CAFC affirmed the Commerce Department’s determination to provide Advanced Technology a 164.1 percent margin as the China-wide rate, not the 2.82 percent rate that had been assigned to them separately.

As stated in the September newsletter, in response to the CIT decisions in the Diamond Sawblades case, which are attached to my September blog post, Commerce is making it more difficult for Chinese state owned companies that are under the supervision of the PRC’s State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) to get their own separate antidumping rate. Commerce continued that position in the 1,1,1, 2 Tetrafluoroethane from China case, but ITC threw out the case for no injury.

TIRES FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE

Although Senator Kay Hagan sent a letter to Commerce regarding the Tires case, she lost her reelection fight in North Carolina to Republican Tom Tillis apparently, in part, because of her position on trade issue. But there will still be substantial political heat on the Commerce Department over the Tires case.

On November 22, 2014, Commerce announced its preliminary determination in the Tires countervailing duty investigation.  Attached are the Federal Register notice and Commerce Department factsheet  factsheet-prd-passenger-vehicle-light-truck-tires-cvd-prelim-112414 Tires PRC CVD Prelim FR as signed (3). The CVD rates ranged from moderate to very high, with the average rate being moderate.  GITI Tire (Fujian) Co., Ltd. and certain cross-owned companies received 17.69%; Cooper Kunshan Tire Co., Ltd and certain cross-owned companies 12.50%; Shandong Yongsheng Rubber Group Co., Ltd. 81.29% and all other Chinese exporters receiving a rate of 15.69%.

Commerce has found critical circumstances applying countervailing duties to imports 90 days prior to the preliminary determination to cover imports as early as late August.  As it stands now, imports since late August will now be covered by the Countervailing Duty case exposing importers to millions of dollars in retroactive liability.

ALUMINUM EXTRUSIONS

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On the other hand Senator Mitch McConnell sent a May 8th letter about circumvention of the aluminum extrusions antidumping order followed by a letter from Senator Orrin Hatch. Senator Mitch McConnell in January will be the Senate Majority leader as the ranking Republican in the Senate, and Senator Orrin Hatch will be the new Chairman of the Senate Finance Committee. So both Senators will have enormous influence in the new Congress.

On September 4, 2014, Assistant Secretary for Enforcement and Compliance Paul Piquado in a letter posted on my October blog post assured the lawmakers that the agency is “committed to the robust enforcement of the trade remedy laws” to help provide U.S. firms and workers the opportunity to “compete on a level playing field.”

CARBON AND ALLOY STEEL WIRE ROD FROM CHINA FINAL ANTIDUMPING DETERMINATION

On September 2, 2014, in a factual statement, which is posted on my September blog post, the Department of Commerce (Commerce) announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of carbon and certain alloy steel wire rod from the People’s Republic of China (China).  Since the Chinese companies failed to respond to the Commerce Department’s questionnaire, they received a preliminary dumping margin of 110.25 percent with the separate rate steel companies receiving a preliminary dumping rate of 106.19 percent.

Because no Chinese companies participated in the initial investigation, on November 13, 2014, in the attached fact sheet, factsheet-prc-carbon-certain-alloy-steel-wire-rod-ad-cvd-final-111314, Commerce announced its final determination finding dumping and Countervailable Subsidization of Imports of Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China. Commerce handed out 110.25 percent “adverse facts available” anti-dumping duty rates, countervailable subsidies ranging from 178.46 percent for Hebei Iron & Steel to 193.31 percent for Benxi Steel. All other Chinese producers not named were assessed a CVD rate of 185.89.

The agency found critical circumstances that warranted remedial, retroactive duties to be paid by US importers for imports of carbon steel wire rod three months prior to the Commerce Department’s preliminary determination from all Chinese companies in the CVD investigation and all but three Chinese exporters in the AD investigation.

ITC AFFIRMATIVE FINAL INJURY DETERMINATION MONOSODIUM GLUTAMATE FROM CHINA

On November 17, 2014, in the attached Federal Register notice, ITC MONOSODIUM Glutamate, the ITC determined that the US industry was materially injured by reason of imports of monosodium glutamate from China and Indonesia and antidumping and countervailing duty orders will be issued in that case.

COMMERCE DEPARTMENT AFFIRMATIVE PRELIMINARY ANTIDUMPING DETERMINATION—DOMESTIC DRY SEA CONTAINERS FROM CHINA

On November 20, 2014, in the attached fact sheet, factsheet-prc-53ft-domestic-dry-containers-ad-prelim-112014, Commerce announced its affirmative preliminary antidumping determination in the 53-foot domestic dry containers (domestic dry containers) from China case finding dumping margins ranging from 24.27% to 153.24%.

NOVEMBER ANTIDUMPING ADMINISTRATIVE. REVIEWS

On November 3, 2014, Commerce published in the Federal Register the attached notice, NOV REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Certain Cut-to-Length Carbon Steel Plate, Certain Hot-Rolled Carbon Steel Flat Products, Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Diamond Sawblades and Parts Thereof, Fresh Garlic, Lightweight Thermal Paper, Paper Clips, Polyethylene Terephthalate Film, Sheet and Strip, Pure Magnesium in Granular Form, Refined Brown Aluminum Oxide, Seamless Carbon and Alloy Steel Standard Line, and Pressure Pipe, Seamless Refined Copper Pipe and Tube.

The specific countervailing duty cases are:

Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Lightweight Thermal Paper, Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe.

For those US import companies that imported Carbon Steel Plate, Coated Paper, Diamond Sawblades, Garlic and the other products listed above from China during the antidumping period November 1, 2013-October 31, 2014 or during the countervailing duty review period of 2013 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. Recently in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

On October 30, 2014, in the attached notice, OCT REVEW INVESTIGATIONS, based on requests in September, Commerce initiated several review investigations against a substantial number of Chinese companies in the Lined Paper Products, Kitchen Appliance Shelving and Racks, Certain New Pneumatic Off-The-Road Tires, Freshwaters Crawfish Tailmeat, and Narrow Woven Ribbons with Woven Selvedge cases.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST MELAMINE FROM CHINA

On November 12, 2014, Cornerstone Chemical Company filed a new antidumping and countervailing duty petition against Melamine from China and Trinidad and Tobago.  The petition alleges antidumping rates of 263.76 to 374.14 on imports of Chinese melamine.

Melamine is “a fine, white crystalline powder that is used primarily to manufacture amino resins, the major end uses of which include surface coatings, laminates, molding compounds, paper treatment, adhesives, and textile-treatment applications in the automotive, appliance, dinnerware, furniture, fabric, and wood paneling industries.

Attached are  a short version of the petition along with an Extract which includes a list of the Chinese companies and US Import Companies that are the targets of this case,  Petition on Melamine from PRC & Trinidad and Tobago ExtractPage1. The targeted Chinese companies are listed below.

Allied Chemicals Inc. China, Anhui Garments Shoes & Caps Industrial Group Co. China, Anhui Jinhe Industrial Co., Ltd., Anhui Sunson Chemical Group Co., Ltd., ChemChina, China Haohua (Group) Corp., Chengdu Yulong Chemical Co., Ltd., CNPC Urumqi Petrochemical General Factory, CNSG Anhui Hong Sifang Co., Ltd., Dalian Rion Chen Intl. Trade Co. Ltd. China, Dezhou Defeng Chemical Co., Ltd., Far-Reaching Chemical Co., Ltd. China, Forwarder Chinese, Fujian Sangang (Group), Full Shine Group Co., Ltd. China, Future Foam Asia Inc. China, Hebei Jinglong Fengli Chemical Co., Ltd., Hefei Tianfeng Import & Export Co Ltd China, Henan Jinshan Chemical Group Co., Ltd., Henan Yuhua Fine Chemical Co., Ltd., Henan Zhongyuan Dahua Group Co., Ltd., Holitech Technology Co., Ltd. China, Hubei Huaqiang Chemical Group Co., Ltd., JianFeng Chemicals, Jiangsu Heyou Group Co., Ltd., Jiangsu Sanmu Group Corporation, Kaiwei Investment Group, Kingboard (Panyu Nansha) Petrochemical Co., Ltd., M And A Chemicals Corp China, Nanjing Deju Trading Co Ltd China, Nanjing Jinxing Petrochemical Enterprise, Nantong Zixin Industrial Co., Ltd., OCI Trading (Shanghai) Co., Ltd. China, Panjin Zhongrun Chemical Co., Ltd., Puyang San’an Chemical Co., Ltd., Qingdao Shida Chemical Co., Ltd. China, Shandong Jinmei Mingshui Chemical Co., Ltd., Shandong Liaherd Chemical Industry Co. Ltd., Shandong Luxi Chemical Co., Ltd., Shandong Sanhe Chemical Co., Ltd., Shandong Shuntian Chemical Group Co. China, Shandong Xintai Liaherd Chemical Co., Ltd., Shandong Yixing Melamine Co., Ltd., Shanxi Fenghe Melamine Co., Ltd., Shanxi Tianze Coal Chemical Group Co., Ltd., Sichuan Chemical Works Group Ltd., Sichuan Golden-Elephant Sincerity Chemical Co., Ltd., Sichuan Meifeng Group Co., Ltd., Sichuan Jade Elephant Melamine Scientific and Technological Co., Ltd., Sinopec Jinling Petrochemical Co., Ltd., Well Hope Enterprises Limited, Xinji Jiuyuan Chemical Co. Ltd. China, Zhejiang Fuyang Yongxing Chemical Co., Ltd., Zhejiang Medicines & Health Product Imp. & Exp. Co. Ltd. China, Zhongyuan Dahua Group Company Ltd China, Zhucheng Liangfeng Chemical Co., Ltd.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached are a copy of the powerpoint for the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE

There is a great deal of confusion and uncertainty surrounding business with Russian companies. As sanctions continue to expand against Russia, any company interested in doing business with Russia must constantly check the regulations and hire legal counsel. Every single transaction with Russian entities is a potential target of the sanctions, and, therefore, any US company interested in doing business with Russia must be extremely vigilant. The US regulations mirror regulations in Canada and the EU, but there are differences.

There are two groups of US regulations. The most powerful regulations are administered by Treasury—Office of Foreign Assets Control (“OFAC”). A second group of regulations have been issued by the Commerce Department’s Bureau of Industry and Security (BIS) blocking exports of certain energy-sector technologies.

With regards to the sanctions administered by OFAC, US Presidential Executive Orders 13660, 13661, and 13662 define how U.S. Government will identify targets of sanctions (e.g., financial services, energy, metals and mining, engineering, and defense sectors and government agencies and officials). The specific OFAC regulations regarding Ukraine are set forth in 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting transactions with specific persons and entities. The regulations have been posted on my blog, but they do change as the sanctions evolve.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). A US person must also block the property or interest in property of SDNs that they hold or that is located in the United States. The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank.

On July 29, 2014, OFAC issued a new “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions. See: www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx. U.S. persons are prohibited from engaging in certain transactions with persons and entities on the SSI List, but are not required to “freeze” or “block” property or interests in property of such persons and entities as if they were SDNs.

Thus companies or persons on the SSI list may become named SDNs in the future. SSI and SDN Lists are not static but evolving. Lists will likely expand and have expanded based on Russian behavior in Ukraine. Everything could change overnight. Do not rely on a dated list. Keep checking. www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx

On September 11, 2014, the US and the European Union announced new restrictions on Russian access to capital market. The new sanctions target Russian financial, energy and defense companies and make it more difficult to make loans to the five Russian state-owned banks, by tightening debt financing restrictions by reducing the maturity period of the new debt issued by those institutions from 90 days to 30 days. The companies targeted in the new round of OFAC sanctions include OAO Gazprom, Roseneft, Lukoil OAO, pipeline operator, Transneft, and Rostec, a Russian institution dealing in industrial technology products, along with the nation’s largest financial institution, Sberbank of Russia.

OFAC also added another set of Commerce export restrictions on certain oil development technologies by broadening the scope of the items that are banned and adding Gazprom, Lukoil and three other energy firms to the list of specifically banned export destinations.

On November 11, 2014, the White House indicated that the latest fighting between the Ukraine, which has been triggered by Russian aid to the separatists, is likely to trigger another round of sanctions. Deputy National Security Adviser Ben Rhodes stated, “What Russia will find is, if they continue to do that, it’s a recipe for isolation from a broad swath of the international community.”

Putin’s isolation was indicated by his presence at the G20 talks in Australia, where he was given a very “frosty” reception, which, in part, led to a decision to leave the talks early.

CUSTOMS

We have observed many instances where Customs is cracking down on imports of Chinese solar panels with third country solar cells in them. Customs forces the company to provide extensive documentation to prove that the third country solar cells are actually in the Chines solar panels. Many importers are not able to comply and face antidumping rates as high as 250% on imports.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

SUPREMA CASE—INDUCED PATENT INFRINGEMENT 337 CASES

On October 15th, the ITC filed the attached brief, ITC COMMISSION BRIEF, at the Court of Appeals for the Federal Circuit (“CAFC”) in the En Banc appeal in the Suprema Inc. V. US International Trade Commission case. In the prior panel decision, the CAFC held that the ITC could not use induced patent infringement to issue an exclusion order because at the time of the infringement, the imported products did not directly infringe the patents in question. The imported products infringed the patent only after arriving in the United States and being combined with other products in the United States. The ITC asked the entire CAFC to review the panel determination, and the CAFC agreed to an en banc proceeding before all the CAFC judges.

In the brief the ITC argues that the case will have “significant implications for patent holders that rely on inducement liability for protection of their inventions, especially those that hold claims to inventive methods and those that operate industries in the United States.”

The Commission went on to state in the brief:

“Appellants contend that when Congress prohibited the importation of “articles that—infringe” a patent under section 337, Congress meant to excuse the importation of articles intended to induce patent infringement. There is absolutely no support in the language of the statute or the legislative history of section 337 for Appellants’ construction. The importation of “articles that—infringe” via inducement under § 271(b) of the Patent Act is no less prohibited by section 337 than the importation of “articles that—infringe” directly under § 271(a).

The legislative history of the Tariff Act makes clear that it was intended to prevent “every type and form of unfair practice” in the importation of goods. . . . From the beginning, courts understood inducement of patent infringement to be an unfair practice within the scope of the Act. . . .

The only way the Court could adopt Appellants’ interpretation of section 337 would be to ignore the Patent Act, the language of section 337, the intent of Congress, and decades of established practice. This the Court should not do.

To prove the importation of “articles that—infringe” via inducement under section 337 requires proof of three essential elements: (1) importation of an article that is the means of infringement; (2) an intent that the imported article be used to infringe a patent, or willful blindness to infringement; and (3) an act of direct infringement involving the article. . . . The record on review contains substantial evidence of each element. . . .”

The US Government through the Justice Department filed the attched Amicus Brief, US GOVERNMENT SUPREMA BRIEF, which states in part:

Congress charged the International Trade Commission (“Commission” or “ITC”) with the responsibility to exclude from the United States “articles that . . . infringe a valid and enforceable United States patent.” 19 U.S.C. § 1337(a)(1)(B)(i). The Commission reasonably interprets that statutory command to prohibit the importation not merely of fully assembled patented inventions, but of all articles for which infringement liability may be imposed under the Patent Act. No one disputes that, in an ordinary civil action for infringement in district court, a person who imports articles in an intentional scheme to induce infringement of a patent within the United States “shall be liable as an infringer.” 35 U.S.C. § 271(b). The Commission sensibly construes Section 337 in pari materia with that undisputed interpretation of the Patent Act, treating the articles imported in such an infringing scheme as “articles that . . . infringe.”

The Commission acted well within its discretion in adopting that construction of the Tariff Act. The Commission has no choice but to exercise interpretative judgment in applying Section 337(a)(1)(B)(i). As appellants recognize . . ., nothing in the Tariff Act defines the phrase “articles that . . . infringe.” Nor do the patent laws speak in terms of infringing “articles.” Under the Patent Act, persons infringe, not things.  The article by itself cannot literally “infringe” under Section 271 any more than a tract of land can trespass. Thus, in enacting Section 337(a)(1)(B)(i), Congress necessarily expected and intended that the Commission would interpret “articles that . . . infringe” in a manner that appropriately translates the domestic in personam liability provisions of the Patent Act into the in rem framework of exclusion proceedings under the Tariff Act.

The Commission’s construction of Section 337 reasonably resolves that conceptual dilemma by construing the phrase “articles that . . . infringe” to encompass any article whose importation would support infringement liability under the Patent Act, including articles imported for the purpose of inducing patent infringement. That interpretation is consistent with the plain language of both Section 337 and Section 271(b) and with the underlying policies and purposes of the trade laws.

And it has the significant benefit of preventing importers from evading the prohibitions of the Tariff Act through “the most common and least sophisticated form of circumvention, importation of the article in a disassembled state.”

There is little doubt, moreover, that the Commission’s interpretation best effectuates Congress’s intent in 1988 when it enacted Section 337(a)(1)(B)(i). . . . In an uncodified portion of the 1988 legislation, Congress expressly found that Section 337 “has not provided United States owners of intellectual property rights with adequate protection against foreign companies violating such rights,” and declared that the purpose of the 1988 legislation was “to make [Section 337] a more effective remedy for the protection of United States intellectual property rights.”. . . .

That statutory declaration of purpose is impossible to reconcile with the panel’s view that Congress intended to render the Commission “powerless to remedy acts of induced infringement.” . . . By the time of the 1988 amendments, the Commission had for many years construed Section 337 to prohibit, as an unfair trade practice, the active inducement of patent infringement in the United States. It is difficult to imagine why a Congress seeking to enhance the protection of intellectual property rights in Commission proceedings would simultaneously have acted to strip the Commission of its power to redress such infringement.

And it is even more doubtful that Congress would have done so silently and obliquely, without any explanation or even acknowledgment in the legislative history. Congress does not, as the Supreme Court has observed, “hide elephants in mouseholes.” . . . .

In sum, the Commission construes Section 337 to provide remedies against the same forms of infringement at the border that district courts are empowered to redress through in personam infringement actions within the United States. Because that interpretation is reasonable and consistent with “the language, policies and legislative history” of the Tariff Act, it is entitled to deference. . . .

In addition, the atthached briefs were filed by ITC Trial Lawyers Association and Nokia in support of the ITC, ITC TLA Suprema BRIEF Nokia Suprema BRIEF.

SECTION 337 COMPLAINTS

NEW 337 COMPLAINT AGAINST FOOTWARE PRODUCTS FROM CHINA

On October 14th, Converse Inc. filed a new 337 IP case against footwear products/sneakers from China for infringement of Converse’s registered and common law trademarks. Relevant parts of the petition are posted on my October blog post along with the ITC notice. The respondent companies are set forth below:

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 Footwear Products . The proposed respondents are: Skechers U.S.A., Inc., Manhattan Beach, CA; Wal-Mart Stores, Inc., Bentonville, AR; A-List, Inc., d/b/a Kitson, Los Angeles, CA; Aldo Group, Canada; Brian Lichtenberg, LLC, Los Angeles, CA; Cmerit USA, Inc., d/b/a Gotta Flurt, Chino, CA; Dioniso SRL, Italy; Edamame Kids, Inc., Canada; Esquire Footwear, LLC, New York, NY; FILA U.S.A., Inc., Sparks, MD; Fortune Dynamic, Inc., City of Industry, CA; Gina Group, LLC, New York, NY; H & M Hennes & Mauritz LP, New York, NY; Highline United LLC d/b/a Ash Footwear USA, New York, NY; Hitch Enterprises Pty Ltd d/b/a Skeanie Unit 3, Australia; Iconix Brand Group, Inc., d/b/a Ed Hardy, New York, NY; Kmart Corporation, Hoffman Estates, IL; Mamiye Imports LLC d/b/a Lilly of New York, Brooklyn, NY; Nowhere Co., Ltd. d/b/a Bape, Japan; OPPO Original Corp., City of Industry, CA; Orange Clubwear, Inc., d/b/a Demonia Deviant, Westminster, CA; Ositos Shoes, Inc., d/b/a Collection’O, South El Monte,CA; PW Shoes Inc., Maspeth, NY; Ralph Lauren Corporation, New York, NY; Shenzhen Foreversun Industrial Co., Ltd (a/k/a Shenzhen Foreversun Shoes Co., Ltd), China; Shoe Shox., Seattle, Washington; Tory Burch LLC, New York, NY; Zulily, Inc., Seattle, Washington; Fujian Xinya I & E Trading Co., Ltd., China; Zhejiang Ouhai International Trade Co., Ltd., China; and Wenzhou Cereals Oils & Foodstuffs Foreign Trade Co., Ltd., China.

On November 12, 2014, the ITC in the attached notice instituted the 337 case against Footwear from China, ITC INSTITUTION CONVERSE CASE. Chinese companies must respond to the complaint in about 30 days. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

On the same day that Converse filed the section 337 case, it also filed a trademark complaint for damages in the Federal District Court in Brooklyn, which is attached to my October blog post.

NEW 337 CASE AGAINST SEMICONDUCTOR CHIPS FROM TAIWAN AND HONG KONG

On November 21, 2014, Samsung Electronics Co., Ltd. and Samsung Austin Semiconductor,LLC filed a section 337 case against Graphics Processing Chips, Systems on a Chip. The respondent companies are listed below:

NVIDIA Corporation, Santa Clara, California; Biostar Microtech International Corp.. Taiwan; Biostar Microtech (U.S.A.) Corp., City of Industry, California; Elitegroup Computer Systems Co. Ltd., Taiwan; Elitegroup Computer Systems, Inc., Newark, California; EVGA Corp., Brea, California; Fuhu, Inc., El Segundo, California; Jaton Corp., Fremont, California; Mad Catz, Inc., San Diego, California; OUYA, Inc., Santa Monica, California; Sparkle Computer Co., Ltd., Taiwan; Toradex, Inc., Seattle, Washington; Wikipad, Inc., Westlake Village, California; ZOTAC International (MCO) Ltd., Hong Kong; ZOTAC USA, Inc., Chino, California.

PATENT AND IP CASES IN GENERAL

INTERDIGITAL WINS JURY CASE AGAINST ZTE

On October 28, 2014, in the attached jury form, ZTE Verdict, a Delaware federal jury determined that smartphones made by Chinese company, ZTE, infringed three patents of InterDigital Communications. The Jurors also determined that ZTE failed to prove the patents obvious. This jury verdict came after a series of setbacks for InterDigital, which lost a series of cases, including a 337 case at the ITC.

InterDigital creates revenue by licensing thousands of patents it develops to various high tech companies and filing cases against companies, such as ZTE and Nokia, that refuse to pay licensing fees.

MADE IN THE USA—FTC AND CALIFORNIA FALSE ADVERTISING PROBLEM

Recently cases involving the Made in US requirement have increased because of stricter requirements by the State of California. FTC guidelines state that an unqualified “Made in USA” label can go on any goods that are “all or virtually all” made domestically in the United States, but the words “virtually all” are open to interpretation based on the specific facts of the case.

But California has stricter guidelines than the FTC requiring the entire product to be made in the US. If even one small part of a product is foreign, California state law says calling the product “Made in the USA” amounts to false advertising. This law has provoked a number of consumer/class action lawsuits filed in California against US manufacturers and retailers.

The California law was passed in 1961 to shield domestic producers from competitors who might get a pricing edge by using large amounts of cheap imported parts to manufacture goods labeled “Made in USA.” The problem is that it has become increasingly difficult to avoid using at least some imported content in a US product.

COURT REFUSES TO DISMISS JEANS CASE AGAINST NORDTROM AND MADE IN USA JEANS

On October 27th, in the attached David Paz v. AG Adriano Goldschmeid Inc. et al, JEANS COURT ORDER, a California Federal Judge refused to dismiss a case for falsely marketing jeans as Made in USA, which they actually contain foreign parts. The Judge stated:

“Although the laws set out different standards for the use of “Made in U.S.A.” labels, it would not be impossible for Defendants to comply with both laws. Outside California, Defendants could use the “Made in U.S.A.” labels, but inside California, they could not. This may be burdensome for Defendants, but it is not impossible for them to do so.” . . .

LAND’S END

On October 29th in the Elaine Oxina v. Lands’ End Inc. case, Elaine Oxina  filed a new Made in USA class action case against clothing retailer Lands’ End Inc. accusing the company of labeling foreign-made apparel as produced in the U.S., a tactic that a California consumer alleges has allowed the business to sell items at a higher price. The complaint alleges:

“Consumers generally believe that ‘Made in USA’ products are of higher quality than their foreign-manufactured counterparts. Due to Defendants’ scheme to defraud the market, members of the general public were fraudulently induced to purchase Defendant’s products at inflated prices.”

The complaint says that Oxina purchased a necktie from Lands’ End’s online store under the assumption that the product was produced domestically. The necktie “was described using the ‘Made in U.S.A.’ country of origin designation, when the product actually was made and/or contained component parts made outside of the United States.”

The complaint also states that an inspection of a fabric tag attached to the necktie revealed that the item “is wholly made” in China. The complaint asserts claims against Lands’ End for false advertising and violations of California’s business code, adding that the alleged damages are in excess of $5 million.

Many retailers are now facing class actions over California’s tough “Made in the USA” labeling law. Retailers are allegedly selling apparel marketed as being American-made, but including foreign-made fabrics, zippers, buttons, rivets and other components.

The lawsuits also illustrate why California differs from the Federal Trade Commission, which also oversees product labeling but has a more relaxed position that is followed by other states. Unlike California, which says every component must be domestic, the FTC allows for some flexibility, saying a “Made in the USA” label can be used if “all or virtually all” of a specific product is made domestically. Getting every component of a piece of clothing from the U.S. has become increasingly difficult as business supply chains have become global.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE AND TAIWAN COMPANIES

On October 22, 2014, in the attached complaint, CHINA COY SUES US COY PATENT INFRINGE, a Chinese company sued Dongguan Prestige Sporting Products Co., Ltd. V. Merits Co. Ltd., a Chinese company, and Merits Health Product Inc., a Florida corporation, for patent infringement of a folding seat rack.

On October 30, 2014, in the attached compliant, CHINA TRADEMARK CASE, Samsung Techwin America, Inc. filed a grey market trademark case against Xtreme Micro LLC and Zhangzhou Peiyu Jinhe Trading Co., Ltd.

On November 5, 2014, Robert Bosch filed the attached patent case, NINGBO WINDSHIELD WIPER CASE, for wiper blades against Ningbo Xinhai Aiduo Automobile Wiper Blade Manufactory Co., Ltd.

On November 7, 2014, Aztrazeneca Pharmaceuticals LP and Astrazeneca UK Ltd. filed the attached pharmaceutical patent case, TAIWAN PHARMA COMPLAINT, against a Taiwan company, Pharmadax USA, Inc., Pharmadax Inc., and Pharmadax Guangzhou Inc.

On November 10, 2013 Dura-Lite Heat Transfer Products Ltd., a Canadian corp., Glacier Radiator Manufacturing Ltd., and Philip Lesage filed the attached patent case, ZHEJIANG MACHINERY, against Zhejiang Yinlun Machinery Co., Ltd. and Yinlun USA, Inc.

On November 14, 2014, the attached complaint, CHANGZHOU KAIDI, was filed by Linak A/S and Linak U.S., Inc. v. Changzhou Kaidi Electrical Co. and Kaidi LLC for patent infringement of innovative electric linear actuator systems for use in many product sectors, including hospital and healthcare equipment.

On November 17, 2014, Tenax SPA filed the attached trademark case, WUHAN TRADEMARK against Wuhan Keda Marble Protective Materials Co., Ltd. for imports of adhesive resins.

PRODUCTS LIABILITY

On October 17, 2014, Joan Kazkevicius filed the attached products liability case, CHINA PRESSURE COOKER CASE, regarding pressure cookers against HSN, Inc., HSNI LLC, W.P. Appliances, Inc., Wolfgang Puck Worldwide, Inc., W.P. Productions, Inc., Zhanjiang Hallsmart Electrical Appliances Co., Ltd., and Guangdong Chuang Sheng Stainless Steel Products Co., Ltd.

FOOD AND FDA RESTRICTIONS

US LIFTS RESTRICTIONS ON CHICKEN AND CITRUS IMPORTS

Despite objections from public consumer groups, on November 5th, the U.S. Department of Agriculture’s Food Safety and Inspection Service stated that it had certified four Chinese poultry product producers to export processed chicken products to the U.S. The USDA accepted the certification of the facilities to export chicken products as long as they are heat-treated or cooked and made from birds originally slaughtered in the U.S. or another approved country such as Canada. The facilities still must be certified for this purpose by Chinese authorities.

The irony is that the Chinese government continues to block US chicken using its antidumping law.

Despite objections from US citrus growers, the U.S. Department of Agriculture (USDA) has proposed to open the continental United States to imports of citrus fruits from China. US citrus companies argue that the Chinese imports could introduce devastating pests to U.S. orchards and invite heavy economic competition from subsidized Chinese farmers.

SEAFOOD

On November 12th, the FDA announced that it may decrease port-of-entry inspections of farm-raised seafood from China and increasingly entrust Chinese authorities with verifying that the country’s aquaculture exports are free of illegal animal drug residues.

CHINESE RESTRICTIONS ON US FOOD PRODUCTS

On Aug. 22, 2014, Agriculture Secretary Tom Vilsack announced that California citrus farmers will be able to resume exports to China this season. A series of scientific exchanges between the USDA’s Animal and Plant Health Inspection Service (APHIS) and China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) resulted in an agreement for California citrus to again be exported to China. APHIS and USDA’s Foreign Agricultural Service worked closely with the U.S. citrus industry to ensure the successful outcome.

In April 2013, California-origin citrus was suspended from entering the Chinese market due to interceptions of brown rot (Phytophthora syringae), a soil fungus that affects stored fruit. Over the next year, USDA worked with China to address China’s plant health concerns and reopen the market for California citrus exports.

In a statement following the USDA announcement, Western Growers Association Executive Vice President Matt McInerney said China was the third-largest market for California citrus exports before the ban. The USDA release said California citrus exports have a total annual value of $30 million.

On September 15th, it was announced that USDA and USTR officials were in Beijing to discuss the implementation of the Trade Facilitation Agreement (TFA) and in particular a meeting of the sanitary and phytosanitary (SPS) working group of the U.S.-China Joint Commission on Commerce Trade (JCCT), where the agenda will likely touch upon issues like China’s ban on U.S. beef and its regulatory process for approving biotechnology traits. China closed its beef market to U.S. exports due to a 2003 outbreak of bovine spongiform encelopathy (BSE) – or “mad cow” disease — and has since set a number of preconditions for opening it, including a U.S. livestock traceability system.

CHINA LIFTS RESTRICTIONS ON WASHINGTON APPLES

On October 31, 2014, in the attached statement from Washington State, CHINA LIFTS WASHINGTON APPLE SUSPENSION, Agriculture Secretary Tom Vilsack announced that China is lifting its suspension of red and golden delicious apple imports from Washington State. The Chinese market for Washington apples was valued at $6.5 million in calendar year 2011.

In 2012, China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) suspended access for Washington red and golden delicious apples due to the repeated interception of three apple pests AQSIQ considers significant: speck rot, bull’s-eye rot, and Sphaeropsis rot. To lift this suspension, USDA’s Animal and Plant Health Inspection Service (APHIS) worked with the U.S. apple industry to develop additional safeguarding measures that address China’s concerns about these pests. Some of these new measures include cold storage of apples and visual inspection of apples prior to shipping to ensure there is no evidence of disease.

CHINESE INVESTMENT AND PRODUCTION IN UNITED STATES

See the very powerful video about Chinese investment in the US creating 70 to 80,000 US Production Jobs. The investment is in the billions and includes textiles.

http://money.cnn.com/video/news/economy/2014/10/23/we-the-economy-made-by-china-in-america.cnnmoney/index.html?iid=HP_River

ANTITRUST—SOLAR AND MAGNESITE

There have been major developments in the antitrust area both in the United States and in China.

SOLAR ANTITRUST CASE DISMISSED

On November 3, 2014, a Federal Judge in Michigan, in the attached opinion, ACTUAL ORDER DISMISS CHINESE SOLAR ANTITRUST CASE, dismissed a $950 million antitrust lawsuit accusing several Chinese solar panel producers of participating in a price-fixing scheme by finding that the US company have failed to establish standing. The US Judge ruled that the Chinese companies did not have the power to set up barriers to entry into the solar panels market and therefore could not eventually charge supracompetitive prices to recoup losses from selling solar panels at below cost in order to gain market share. As the Judge stated: “The court finds that plaintiff has failed to allege a dangerous probability of recoupment and, therefore, has failed [to] allege antitrust standing.”

On November 17th, in the attached complaint, RECONSIDERATION SOLAR CHINA PRICE FIX, Energy Conversion Devices Inc. urged a Michigan federal judge on Friday to reconsider his decision. ECD accused the Chinese companies of orchestrating a complex price-fixing scheme to sell inferior solar panels in the U.S. at artificially low prices by dumping their products in the US and thereby achieve market domination. The Judge’s original dismissal opinion had found that below-cost pricing alone is not enough to prove antitrust injury.

NEW MAGNESIUM ANTITRUST COMPLAINT

In response to the Court order dismissing the Magnesium Antitrust case, with options to amend the complaint, which is attached to my last blog post, on November 3, 2014, Animal Science Products, Inc., Resco Products, Inc., and S&S Refractories filed the attached new antitrust complaint, NEW MAGNESIUM COMPLAINT. The complaint, which will be attached to my blog, is against Chinese magnesium companies, Xiyang Fireproof Material, Co., Ltd., Sinosteel Corp., Sinosteel Trading Co., Liaoning Jiayimetals & Minerals Co., Ltd., Liaoning Foreign Trade General Corp., Liaoning Jinding Mangnesite Group., Dalian Golden Sun Import & Export Corp., Haicheng Houying Corp., Ltd., and Haicheng Huayu Group Import & Export Co., Ltd, Haicheng Pailou Magnesite Ore Co., Ltd. and Yingkou Huachen (Group) Co., Ltd.

AUTO NEWS — CONFESSIONS OF A PRICE FIXER

On November 16, 2014 Auto News published an interesting article “Confessions of a Price Fixer”. See http://www.autonews.com/article/20141116/OEM10/311179961/confessions-of-a-price-fixer

The article described how a Japanese executive used to the comfortable expat life, was one of dozens of white collar criminals arrested and jailed for what has become the largest price fixing antitrust case brought by the US Justice Department. The article goes on to state that the Japanese executive’s guilty plea and prison time came with a special offer from the Japanese company for which he fixed the prices. You get to keep your job after you leave prison and the company “will support me for the rest of my life.”

Today, the Japanese executive has spent his time in prison, but is now back at work at the company. But that situation is not unusual, the unwritten rule in Japanese culture is that the Japanese executive gets rewarded for not spilling the beans and cooperating with the Government’s investigation.

In America, the case has already made history with record fines more than $2.4 billion. 31 auto parts suppliers, mostly Japanese, have pled guilty to prices for parts from wire harnesses to wiper switches. Forty-six individuals, almost exclusively Japanese, have been charged. No one has challenged the charges in court; 26 individuals agreed to prison instead. Another 20 have yet to enter pleas or are otherwise ignoring their indictments.

But most the executives are still employed by their companies, even though the executives were indicted by the U.S. government on felony charges, which carry a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.

The corporate leniency has become a major international issue as U.S. Assistant Attorney General William Baer warned that his antitrust division would consider probation and corporate monitors for companies harboring sensitively placed executives who have not answered the charges against them.  As one Justice Department official stated, “A U.S. company would never keep employing those individuals. In the United States, the first thing they would want to do is fire everybody. But that’s not the instinct at Japanese companies.”

The Japanese company did play tough pressuring the Japanese executive to plead guilty because a company can expect lower fines if it cooperates promptly.

In exchange, the company would take care of his family while he was in jail and find a position for him after he was freed.

Price fixing in Japan is an administrative crime and there is no real enforcement in the criminal area, but Japanese companies and executives have become very afraid. Now the Japanese companies are facing private triple damage actions brought by angry consumers.

CHINA ANTI-MONOPOLY CASES

Although this issue was raised by President Obama at the meetings with the Chinese government officials in Beijing, nothing of substance was reported

T&D MICROSOFT ARTICLE

In the October 2014 report on Chinese antitrust law by the Chinese T&D Law Firm, T&D Monthly Antitrust Report of September 2014, Chinese antitrust lawyer John Ren had this to say about the allegation that the Chinese Anti-Monopoly law discriminates against foreign companies:

NDRC Responded to the Query about Unfair Anti-Monopoly Practices: All People Are Equal before Law

October 30, 2014

The Anti-Monopoly Law has been effective since 2008 and was reinforced with respect to law enforcement in 2013, and then several significant anti-monopoly actions caused great sensations this year. Throughout this period, all circles have increasingly focused on ruling markets by law, breaking down monopoly privilege, and ensuring fair competition among market players. In the meantime, law enforcement with regard to anti-monopoly has drawn great attention.

Recently, several foreign-funded enterprises and foreign brands have been under investigation, and some wonder “whether China’s anti-monopoly undertaking only focuses on foreign-funded companies and is thus unfair”. Concerning this situation, Li Pumin, Secretary General of NDRC (National Development and Reform Commission), stressed in today’s “NDRC with regard to Acceleration of Building Rule of Law Authorities” press conference that all people are equal before the law, and anyone violating Chinese law shall be punished, whether they are foreign-funded or domestic companies.

He pointed out that China’s anti-monopoly law enforcement was not just targeting foreign-funded enterprises; NDRC, in line with the Anti-Monopoly Law, enforced the law with regard to those enterprises and actions restraining fair competition, which involved not only domestic enterprises but also foreign-funded enterprises.

”The Anti-Monopoly system has been rigorously designed. A vast number of large enterprises are involved, various market players are concerned about the system, and NDRC has been promoting the system, as well. In the past few years, NDRC kept summing up and exploring, and has enacted regulations on anti-price monopolies and procedure of administrative execution regarding anti-price monopoly” said Li Kang, the Chief in Laws and Regulations Department of NDRC, in regard to the work that NDRC has done in improving anti-monopoly law enforcement.

Li Kang pointed out that anti-monopoly law enforcement shall be quantified, standardized, and elaborated upon, aiming at ensuring fair, just and open anti-price monopoly enforcement. He stated further that NDRC will expand the anti-monopoly law in both substantive and procedural aspects to raise its enforceability, and in the meantime will confine and normalize NDRC’s law enforcement activities. . . .

SECURITIES

CHINESE COMPANY PUDA COAL DEFAULTS IN SECURITIES CASE

On November 18, 2014, in In re: Puda Coal Inc., a Federal District Court entered the attached default judgment, DEFAULT JUDGMENT PUDA COAL. against Chinese company Puda Coal Securities Inc., which had been sued by an investor class, for selling its sole asset to a private equity firm without telling investors for months and lying about in its IPO plans.

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

DORSEY ANTICORRUPTION DIGEST 0CTOBER 2014

The attached Dorsey’s October 2014 Anticorruption Digest, Anti_Corruption_Digest_Oct2014, had this to say about China:

“National Development and Reform Commission

According to reports, Liu Tienan, former deputy of the National Development and Reform Commission, confessed in court to taking bribes from various companies, including a Toyota Motor Corporation joint venture. The court said that: “The oral representation made by the defendants Liu Tienan on the allegations is: I have taken the initiative to confess to these facts of the allegations.”

He and his son, Liu Decheng, were reportedly charged with taking $5.8 million in bribes. Reports indicated that Mr. Decheng collected most of the bribe money. The allegations indicate that between 2002 and 2011, Mr. Tienan took bribes to facilitate project approvals and filings for a number of companies such as Nanshan Group, Ningbo Zhongjin Petrochemical Co Ltd, Guangzhou Automobile Group, Guangzhou Toyota Motor Co Ltd and Zhejiang Hengyi Group. Mr. Tienan also reportedly aided in the approval procedures for several projects from Guangzhou Automobile Group, which in return hired his son as a special Beijing representative for one of the Group’s subsidiaries.

Mr. Tienan could face life imprisonment. However, reports indicated that he is more likely to receive a lesser sentence as a result of his confession.

Reports indicate that Mr. Tienan was fired from the National Development and Reform Commission after Caijing magazine’s deputy editor Luo Changping accused him of corruption, loan fraud and counterfeiting his degree.

Pharmaceutical sector

Last month, GSK was fined $489 million in China for corruption there. Further to the Changsha Intermediate People’s Court in Hunan province’s verdict, GSK’s Chief Executive, Sir Andrew Witty, reportedly said that: “Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people. GSK fully accepts the fact and evidence of the investigation, and the verdict of the Chinese judicial authorities. Furthermore, GSK sincerely apologizes to the Chinese patients, doctors and hospitals and to the Chinese government and the Chinese people. GSK deeply regrets the damage caused.”

In the wake of the Chinese case, other major drugmakers have also been under increased review. It has been reported that Sanofi, the French drugmaker, informed US authorities that it was investigating allegations of employees paying bribes to healthcare professionals in the Middle East and East Africa to persuade them to prescribe its drugs.”

APEC RESOLUTION

At the end of the APEC meeting in Beijing, the APEC members issued the following resolutions about foreign corrupt practices:

“Anti-Corruption

  1. We resolve to strengthen pragmatic anti-corruption cooperation, especially in key areas such as denying safe haven, extraditing or repatriating corrupt officials, enhancing asset recovery efforts, and protecting market order and integrity.
  1. We endorse the Beijing Declaration on Fighting Corruption (Annex H), the APEC Principles on the Prevention of Bribery and Enforcement of Anti-bribery Laws, and the APEC General Elements of Effective Corporate Compliance Programs.
  1. We welcome the establishment of the APEC Network of Anti-Corruption and Law Enforcement Agencies (ACT-NET) with the finalization of its Terms of Reference. We expect to deepen international cooperation, information and intelligence exchange and experience sharing among anticorruption and law enforcement practitioners from APEC member economies through the ACT-NET and other platforms.
  1. We appreciate the efforts of the Anti-Corruption and Transparency Working Group in collaborating with other APEC fora to improve transparency in this region.”

JUSTICE DEPARTMENT SPEECH ON FCPA

On November 19, 2014 Assistant Attorney General Leslie R. Caldwell in the attached speech, DOJ FCPA STATEMENT, spoke about the Foreign Corrupt Practices Act:

“At the Criminal Division, we are stepping up our efforts in the battle against corruption, at home and abroad. . . .

More relevant to this audience, we are also deeply committed to fighting corruption abroad. Now, more than ever, we are bringing to justice individuals and corporations who use foreign bribery as a way to gain a business advantage. In part, we are doing this using the tools and methods that have made our past enforcement efforts so successful – FCPA prosecutions and penalties. . . .

And now we also are prosecuting the bribe takers, using our money laundering and other laws. And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities. . . .

We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.

Another big change – one that has been building for years but now has really developed momentum – is that we increasingly find ourselves shoulder-to-shoulder with law enforcement and regulatory authorities in other countries. Every day, more countries join in the battle against transnational bribery. And this includes not just our long-time partners, but countries in all corners of the globe.

Together with our foreign law enforcement and regulatory partners we are taking a truly global approach to rooting out international corruption. And make no mistake, this international approach has dramatically advanced our efforts to uncover, punish and deter foreign corruption. . . .

Since 2009, we have convicted more than 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against more than 50 companies with penalties and forfeiture of approximately $3 billion. Twenty-five of the cases involving individuals have come since 2013 alone. And those are just the cases that are now public. . . .

Fighting corruption is not a choice we have made. It is, increasingly, a global imperative. Given the critical nature of this mission, we are bringing more resources to bear than ever before – and we will continue doing so. We have achieved significant successes using our traditional FCPA enforcement tools. We are building on those successes and continuing to evolve our enforcement efforts. Especially with the power of so many countries now standing by our side, we are determined to use every lawful means available to hold the perpetrators of corruption to account. . . .”

SECURITIES COMPLAINTS

In the attached complaint on October 28, 2014, Dragon State International Inc. filed a class action securities case against Keyuan Petrochemicals, Inc., Chenfeng Tao, and Aichun Li.  KEYUAN PETROCHEMICAL

In the attached complaint, PINGYUAN FISHING, on November 24, 2014, Tyler Warriner fled  a class action securities case against Pingtan Marine Enterprise Ltd., Xinrong Zhou, Roy Yu, Jin Shi, and Xuesong Song.

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE, IP, ANTITRUST AND SECURITIES

Qianmen Zhengyang Gate Wide Tiananmen Square Beijing China Night“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—JULY 23, 2014

Dear Friends,

My monthly blog post on the US China Trade War will be issued later this month. There have been some recent developments of interest, however.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

BEIJING ORGANIZATIONAL MEETING

As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the antidumping and countervailing duty laws against China for the benefit of US companies.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

We will be targeting two major issues—Working for market economy treatment for China in 2016 as provided in the US China WTO Agreement and working against retroactive liability for US importers. The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases. The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

As indicated above, at the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food and the Steel, Wood Products and Hydraulics Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general.  Introductory videos for Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226 along with the powerpoint FINAL WEB BEIJING IMPORT ALLIANCE POWERPOINT we used to describe the Import Alliance, the specific provision in the US China WTO Agreement and the Trade War in general.

TRADE

SOLAR CASES—POSSIBLE SETTLEMENT??

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%. The Antidumping Preliminary determinations against China and Taiwan are not due to come out until July 24th.

On July 25th, the Commerce Department announced its preliminary determination in Chinese solar products case levying, in effect, 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.  See AD Prelim Factsheet Below.

On August 8th, the Commerce Department gave the Chinese government until today August 15th to propose a settlement agreement.  As I understand it, today, August 15th, the Chinese government did file a letter at Commerce expressing interest in a suspension agreement, but no proposed formal agreement has been filed with the Department.

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

On August 1, 2014, Commerce published in the Federal Register the attached notice REVIEW REQUEST NOTICE AUGUST that will be posted on my blog regarding antidumping and countervailing duty cases for which reviews can be requested in the month of August. The specific antidumping cases against China are:

Floor-Standing, Metal-Top Ironing Tables and Parts Thereof, Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, Tow-Behind Lawn Groomers and Parts Thereof, and Woven Electric Blankets.

The specific countervailing duty cases are:

Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Sodium Nitrite, and Tow-Behind Lawn Groomers and Parts Thereof.

For those US import companies that imported Ironing Tables, Laminated Woven Sacks, Retail Carrier Bags, Steel Nails, Sulfanilic Acid, Lawn Groomers, and Electric Blankets and the other products listed above from China during the antidumping period August 1, 2013-July 31, 2014 or during the countervailing duty review period of 2013 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

In the recent final determination in the Wood Flooring Case, for example, although the rates were very low for many Chinese exporters, only 5%, 20 Chinese exporters had their rates go to 58% because they did not participate in the review investigation and did not file a no shipment certification, separate rate application or separate rate certification at the Commerce Department.

CHINA TRADE WAR EXPANDS IN LAST FEW DAYS

The US China Trade War in the last several days expanded dramatically.

Today July 29 China time, the Chinese government conducted a dawn raid of Microsoft offices in China, apparently because of antitrust concerns.  Last week the Chinese government’s NDRC declared US company Qualcomm to be a monopoly. Rumors are that the Qualcomm antitrust investigation in China could end at the end of next month with a potential penalty of $1 billion.

On Friday, July 25th, the Commerce Department announced its preliminary determination in Chinese solar products case levying, in effect, 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

See the attached articles about the antitrust investigations and the factsheet issued by the Commerce Department on Friday in the Solar Products case.  microsoft-china-antitrust-invest us-qualcomm-china-idU Solar Products AD Prelim Fact Sheet 072514 (1)

More information on these cases will be set out in my next blog post.

YES READER WE HAVE A TRADE WAR WITH CHINA

In talking with a number of US government officials, it has become clear that they do not realize that the United States has a trade war with China and guns are being fired on both sides.  These US government officials point to the $4 billion in “dumped” Solar Cells coming from China, but the same government officials do not realize that the Chinese Government through antidumping and countervailing duties have wiped out $2 billion in exports of US produced polysilicon going into those Chinese solar cells. This Chinese government action has resulted in REC Silicon deferring a $1 billion investment into Moses Lake, Washington.

US Government officials have also stated that Chinese companies have to come to the US because the United States has the largest market in the World. What many US government officials do not understand is that with a population of 1.6 billion and a middle/upper class of at least 500 million, China’s market is now larger than the United States. The best-selling car in China is the Ford Fusion. It used to be the Buick. Many officials do not realize that the US Qualcomm company, an American semiconductor company, is making $24 billion a year and $12 billion is from China.  On July 24th, the Chinese government NDRC declared Qualcomm to be a monopoly and there are rumors that the  Chinese government NDRC will fine Qualcomm up to $1 billion for violations of China’s antimonopoly law.

Although the US government has taken China to the WTO for violations of the WTO antidumping and countervailing agreement with regards to imports of chicken from the US and crows about its victories against China, on July 8th in response to the WTO decision China lowered its antidumping duties on broiler chicken products from the U.S. to between 46.6 and 73.8 percent. The high 46.6 to 73.8% rates mean that $1 billion in US chicken exports will continue to be kept out of the Chinese market.

China, however, is just taking its lead from the US Commerce Department, which when facing Chinese victories in the WTO, grudgingly moves antidumping and countervailing duty rates by only small amounts and has had antidumping orders against China excluding certain products from the US market for as long as 30 years.

But as indicated below in the comments of the US Senators and the testimony of Leo Gerard, International President of the United Steel Workers, and Mario Longhi, President of the United States Steel Corporation, in the June 25th Senate Finance Committee hearing, many Washington DC politicians want to be tough on China under intense pressure from US manufacturing companies and unions.  In fact, the US Steel Industry has had a massive impact on the trade policy of the United States, when the employment of the US Steel Industry is lower than one US high tech company.

In a July 7th report, however, Commerce announced that 796,000 US jobs are tied to exports of goods and services to China. What does that give the Chinese government when dealing with the United States on trade issues? What does the Chinese government get when many US companies want to get into the Chinese market?  Leverage.

As one former WTO official stated at a recent Washington DC trade conference, all of WTO law is built on reciprocity. What one country can do under the trade laws can be done back to that same country. When the US government throws trade stones at China, the Chinese government can throw trade stones back and those stones will hurt.

The problem with this trade war, however, is that it is expanding, and when trade wars expand, all sides loose not only economically.  In extreme situations, trade wars can provide a tinder box that can explode into military conflict.  Hopefully, cooler heads will prevail in both the United States and China and call off this trade war and create trade peace before a lot of companies and people in both countries get burned.

SENATE FINANCE COMMITTEE HEARING—ENFORCEMENT OF US ANTIDUMPING AND COUNTERVAILING DUTY LAWS—TRADE WAR GOES ON

Set forth below is a link to the June 25, 2014 hearing of the Senate Finance Committee in Washington DC.  The Senate Finance Committee is the most powerful trade committee in the US Congress.

This hearing will give you an idea of the political situation in Washington DC with regard to China. Move the buffering slider to minute 41 when the hearing starts. There is a recess in the hearing so you need to move the buffering slider to 1 hour 47 minutes when the hearing resumes.

http://www.finance.senate.gov/hearings/hearing/?id=e2227102-5056-a032-5262-9d177c5f753f

During the Senate Finance Committee, Senators asked for aggressive trade enforcement in antidumping and countervailing duty cases, including Steel and in particular Oil Country Tubular Goods (“OCTG”), and against China. The Senators described the importance of the legislation they have introduced to stop transshipment and make sure that antidumping and countervailing duty laws are enforced.

The witnesses were US Steel, the Steel Union, the US Chicken and Soybean industries and Eli Lilly, a pharmaceutical producer. The two most prominent witnesses at the Senate Finance Committee, however, were Leo Gerard, International President of the United Steel Workers (“USW”), and Mario Longhi, President of the United States Steel Corporation.  The USW has brought the OCTG antidumping and countervailing duty cases, started the Solar Cells/Clean Energy Antidumping and Countervailing Duty Cases, and brought the recent $2 billion antidumping and countervailing duty cases against Tires from China.  Mr. Gerard would proudly claim that the USW has brought antidumping and countervailing duty cases blocking billions of dollars in imports from China.

The hearing was stacked with US producers and a union complaining about China and other countries.  No US importers were allowed to testify and present the other side of the argument.  When Congress decides to listen to only one side of the trade argument and when there is no fair and balanced portrayal of the US China Trade Problems, the trade war simply gets worse and everyone loses.

The Witness for the US Soybean industry testified that the major world buyer for US soybeans and corn is China. The US Chicken industry pointed to the problem of the Chinese antidumping and countervailing duty cases against US Chicken exports.  Although the US Government “won” the Chicken AD and CVD cases in the WTO, as indicated below, the victory has resulted in antidumping rates falling only to 40%, still blocking $1 billion in US Chicken exports to China.

Senator Wyden, Chairman of the Senate Finance Committee, opened the Senate Finance Committee hearing by stating in the attached statement 06132014 Wyden Statement on the Need for Strong Trade Enforcement:

“Much of the recent debate in Congress over international trade has focused on agreements currently in the works, including the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership. Not enough time is spent on the trade agreements already in place – have they created American jobs, have they boosted our economy, are they being effectively enforced?

While I intend for the Finance Committee to examine all aspects of U.S. trade policy, today it will focus on enforcement. Without strong enforcement, no trade deal – old or new – is able to live up to its potential for jobs and economic growth. And it becomes extraordinarily difficult to build support for new agreements. Foreign nations will continue locking American goods and services out of their markets.

And foreign companies that get unfair backing from their own governments will continue undercutting our manufacturers, farmers and ranchers, driving hard-working Americans out of businesses and out of their jobs. The latest tactics used by foreign nations and companies to skirt our trade rules seem like they’re ripped from the pages of crime and spy novels. They hide paper trails to make it harder to build cases in trade courts.

They intimidate witnesses, forcing American businesses to relocate factories or surrender intellectual property and threatening retaliation if they speak out against unlawful behavior. They even spy on our trade enforcers and companies to undermine efforts at holding them to the rules.  And after they’ve been caught breaking the rules, they engage in outright fraud to avoid punishment.  They play cat and mouse with customs authorities, using shell companies and fraudulent records to exploit weaknesses in our system.

The global economy is more interconnected than ever, which means there’s more at stake for American workers and businesses.  China, India, Brazil – the list of critical markets with serious enforcement challenges has grown.  As that process has played out, for example, currency manipulation has hit American workers and businesses harder than it did in previous decades – particularly when it comes to China.  Currency manipulation makes any product manufactured in the U.S. – any product – artificially expensive.  In effect, it’s a way for China to keep a finger planted on the scale, costing the U.S. jobs and making it harder to recover further from the Great Recession. . . .

The challenges of the modern, global economy simply do not always fit neatly within our aging enforcement system.  American trade enforcement needs to be brought into the 21st century.  For example, when the Chinese government gives its domestic solar companies massive subsidies, the U.S. needs to respond quickly and with all available resources.  In practice, the response took years, and was too little and too late to protect thousands of American jobs and home-grown technologies.  The Chinese solar companies had already crippled their American competitors.

That’s why a more effective enforcement authority is needed.  Better enforcement tools would identify and stop a problem more quickly before it costs American jobs.

The same goes for enforcement at our borders.  When fake tennis shoes or counterfeit computer chips arrive in the U.S., Customs often appears too focused on security rather than its trade mission.  This is especially damaging since foreign companies and governments are finding new ways to mask where products come from before they show up at our doorstep.  For example, Chinese companies avoid anti-dumping duties by routing merchandise through a place like Singapore before it heads to the U.S.  The schemes are becoming even more complex, sometimes involving shell companies that appear one day and disappear the next without leaving any paper trail.

The ENFORCE Act, bipartisan legislation I first introduced 2011, would mount a stronger defense against those practices.  It would set up a standardized process to move investigations forward, and it would establish better lines of communication between agencies to get information in the right hands.  It would also refocus Customs so that its trade mission doesn’t get short shrift.

Proper trade enforcement is an increasingly difficult job.  It takes time, and the fact is that it’s impossible to stand up a trade case in a single day.  But it’s essential for enforcement agencies to have the resources needed to do their jobs effectively.  Too often, when these cases lag, American workers are losing their jobs and businesses are closing their doors.  Succeeding in the global economy is already challenging enough; the U.S. cannot add to the difficulty by underfunding its enforcement efforts. . . .”

Republican Senator Hatch, the ranking member of the Senate Finance Committee, stated in the attached statement, 6.25.2014 Hatch State at Finance Committee Hearing on Trade Enforcement2:

“. . . .Some of the most important trade enforcement tools we have are U.S. safeguard, anti-dumping, and countervailing duty laws. For companies like U.S. Magnesium, which operates in Salt Lake City and Rowley, Utah, our trade laws are essential to their ability to compete against imports that unfairly benefit from foreign government interference in the market.

I want to ensure that these laws remain effective tools in our international trade arsenal.

That is one reason the Bipartisan Congressional Trade Priorities Act which I introduced with former Senator Baucus in January includes – as a principle negotiating objective – a directive to preserve the ability of the United States to rigorously enforce our trade laws.

I also want effective trade enforcement at the border. That’s why I worked with Chairman Wyden to craft a version of the ENFORCE Act that gained unanimous bipartisan support in the Finance Committee. This bill provides new tools to help stop circumvention of our trade remedy laws. . . .

Senator Portman, when he was the U.S. Trade Representative, brought the first WTO dispute against China in which China was found to have breached its WTO commitments. Before that case, China was imposing restrictions on imports of U.S. auto parts that were harming U.S. companies and workers. By effectively employing the WTO dispute settlement system, we were able to get China to reverse course and remove those restrictions. As you can see, we have a system that works. . . .”

Leo W. Gerard, International President, United Steelworkers (“USW”), stated in the attached statement, GERARD 14 06 25 Testimony – Trade Enforcement Challenges and Opportunities2:

“USW members and non-union workers alike know firsthand the pain inflicted by foreign predatory, protectionist and unfair trade practices. In industry after industry, they have seen other nations target the U.S. market to fuel their own economic policies, to create jobs for their people and capture the dollars of our consumers. These practices have increasingly resulted in the downsizing of manufacturing and the loss of good family supportive jobs, as companies have offshored and outsourced their production.

The USW has been as successful as it can be in its efforts to counter unfair trade, but it’s a losing game. Indeed, the only way we win is by losing. Lost profits, lost jobs, closed factories, hollowed out communities – that is the price the trade laws demand to show sufficient injury to provide relief.  In the year or more it takes to bring a trade case and obtain relief, foreign companies can continue to flood the market.  By the time that relief may be provided, the industry is often a shadow of its former self, too many workers have lost their jobs and their families and the communities in which they live have paid a heavy, and often irrevocable, price. . . .

Today, more and more, we find that the USW has to go it alone. Our government should be taking more of the lead. While we appreciate what they are doing, it is far from sufficient.  And, let’s recognize that some of the most successful efforts, like the Section 421 case on tires, were because the USW initially brought the case. We’d vastly prefer that government do its job so our members can do their jobs. . . . This Administration has done more to improve our nation’s trade enforcement efforts since any Administration since the Reagan years. . . .

First, as many of the Members of the Committee know, the USW is fighting to ensure that the Department of Commerce carefully review the facts in the Oil Country Tubular Goods (OCTG) case in which they issued a preliminary finding that imports from South Korea would not be subject to dumping margins. We believe this preliminary finding is flawed.  Indeed, Senators sent a letter to the Administration asking for a careful review and that effort was mirrored by more than one-third of the House joining in that call. . . .

The second issue, and a critical one, is the issue of currency manipulation.  China is the worst culprit, but other nations are following their lead.  China has been able to essentially subsidize its exports and tax imports into its market through currency cheating.  Everyone knows it. Every six months the Treasury Department issues a report saying that China isn’t doing the right thing, it’s not based on market principles but stops short of making the critical finding that would only require consultation.  This Administration and the last said that dialogue and engagement were the appropriate course to pursue. Some say that China is taking steps to bring its currency into equilibrium. They point to a widening of the trading bands.  Well, China’s currency is still dramatically undervalued and is a tool China uses to fuel its export-led growth strategy and limit imports into its market.

China makes small changes when political pressure rises here but then goes right back to business as usual. Some experts opine that asking China to do more will only destabilize its economy.  Well, I’m sick and tired of American workers and domestic industries having to pay the price for China’s trade and economic policies.  The time for talk is over.  If the Administration won’t act, Congress must prioritize passing legislation to give private parties the power to seek relief from China’s currency manipulation, or that of any other country.  Congress must not leave town for campaign season before passing this critical legislation.  If it can act earlier, great, but, at election time, this Congress will be judged by our members on whether they stood by their sides, or continued to allow China and others to cheat them out of their jobs and their futures. . . .

The USW is proud of its efforts in this area and has been public in commending the Administration for doing more than any previous Administration in making enforcement more important.  There have been real successes, like in the Section 421 case on Chinese tires.  But, much, much, much more needs to be done.  And, we can never let up.  Right after relief ended under the Section 421, China resumed flooding our market with tires – dumped and subsidized tires.  Just a few weeks ago, the USW filed an AD/CVD case against Chinese tires which have increased from about 24 million units to more than 50 million.  Their market share has doubled.  During that period, domestic production has gone down as China captured all of the market growth, and then some. . . .

Just eliminating the data or changing how it’s reported doesn’t change the facts, no matter how hard people try. Too much of our production is being offshored or outsourced and our trade laws aren’t doing enough to ensure that the rules are fair.

Another critical issue is simply using the words and actions of our trading partners to identify what they’re up to. Sometimes, of course, it’s difficult to discern or identify what they’re up to. But, in many cases, they are quite open about it. China is way ahead of others on this point.  It has published its 12th Five Year Plan which clearly indicates what its priorities are and what it intends to do. It announced that it will spend $1.5 trillion to achieve those goals.  It has developed lists of national champions and strategic sectors that it will support. It has many other open source documents identifying technological roadmaps, performance stands, export credits in violation of OECD standards and countless other programs.

Why don’t we take them at their word? Why aren’t we taking those lists and determining what our interests are.

A perfect example was identified by the New York Times just last week. In the past several years, the U.S. has indicated that it wants to phase-out the use of incandescent lighting in the U.S. and move towards more energy-efficient technologies like LEDs. China has taken this technology, developed by the U.S., and created a mammoth production base to try and fill their own needs, and those of others around the globe. They are building up extensive capacity and can soon be expected to flood the U.S. and world markets with these products that will probably be sold at dumped and subsidized prices.

Yet, no one acts. Isn’t it time we took trade seriously and did more to build public confidence that trade agreements are in their interest rather than just pathways for companies to outsource and offshore production?

ENFORCEMENT

There’s a reason that trade agreements and topics like fast track are viewed so negatively by the public. Trade isn’t working for them.

The Steelworkers have taken action where we can and are proud that we have been the single-leading force in seeking to have trade rules properly enforced and that the terms of trade are fair.  Since 2000, we have filed or supported dozens of cases. Among them are:

Section 201 safeguard action on steel.

Coated free sheet paper cases.

Section 301 action against Chinese currency manipulation.

Section 301 action on Chinese workers’ rights violations.

Section 301 case on Chinese protectionist and predatory actions on green technology.

Identification of Chinese predatory trade practices in the auto parts sector.

Section 421 case on Chinese tires.

Oil Country Tubular Goods antidumping case.

We do not look at filing trade cases as a sign of success: Far from it. Under our trade laws, there has to be injury, often significant injury or threat of injury, before any relief might be offered.  In essence, we win by losing.

A perfect example of this is the coated free sheet paper trade problem.  The USW filed a case and, while dumping was found, the injury was determined not to be significant enough for relief.  Several years later, we filed essentially the same case but, by that time, more than 7,000 workers had lost their jobs, capacity was shut down and companies were on the brink.

Relief was provided and many of the remaining workers have their jobs as a result.  But, a substantial portion of the industry will never come back.

These cases are difficult to bring and expensive to pursue.  There are countless issues that must be addressed and, these days, many companies refuse to participate.  Some refuse because they have offshored their production, abandoning the U.S. market and want to protect the subsidized and dumped products they now sell in the U.S. that they use to make here.

Other companies are worried about retaliation.  Several years ago, in a sector that will remain nameless, an antidumping/subsidy case was being prepared that the Chinese found out about. The Chinese government called in the managers of foreign-invested enterprises operating in China in the sector and indicated that, if a case went forward, those companies’ operating permits would be revoked.  None of those companies, of course, dared come forward.

Under our trade laws, if a company refuses to provide data, it may be tough to develop the information needed to pass the injury test.  So, as companies become more globalized, the workers, families and communities who are at risk from foreign predatory and protectionist trade practices may find that they have no recourse.

Those standards underlying how a trade enforcement case can be brought, who has standing, and other intricacies of the law need to be updated. For example, state and local governments should be given standing under our trade laws as participants. Often, the only entity that has standing under the trade law that actually cares about jobs in America are workers and their representatives. That’s why the USW is the lead on so many cases.

But, state and local governments also care whether their local plants are being victimized by unfair trade. They should have the ability to be petitioners in trade cases. And certainly, necessary information must be made available to injured parties and not kept secret behind corporate walls.

There are many other issues which the trade bar is working on deserving serious consideration by this Committee and the Congress. It’s time to update our laws as they haven’t been seriously reviewed in more than 25 years. And, it’s vital that Congress recognize the damage that unfairly priced and traded imports have had all across this country.

Importers don’t care whether America makes anything, they only care about the profits they can make from the products they sell. It’s important to view all of these changes by asking the question: “Whose side are you on?” . . .

Unfortunately, too many companies scour the globe looking for the cheapest place to produce, even it means despoiling the environment or trampling on workers’ rights. Proper enforcement of workers’ rights helps create opportunity, helps ensure a growing middle class, helps reduce the economic divide and, indeed, promotes greater trade.”

Mario Longhi President, United States Steel Corporation stated in the attached statement, US STEEL CORP Longhi Testimony – Senate Finance Committee – 06.23.141:

“The approach and manner in which foreign companies are dumping thousands of tons of products into the U.S. market leads business leaders such as me to conclude that American steel companies are being targeted for elimination. . . .

Mr. Chairman, your leadership in introducing the ENFORCElegislation is most welcomed. We concur that the Customs and Border Protection Agency should be empowered and strengthened to take swift action when dumping or countervailing duty orders are evaded through transshipment, misclassification, misreporting, or outright falsification of import documents. This should be one of many tools in our trade toolbox. . . .Unfortunately Mr. Chairman, this is not the world in which we operate.

According to the United States Trade Representative, there are currently 56 pending antidumping (AD) and countervailing (CVD) cases, of which 73% involve steel products. There are 117 existing AD and CVD cases, of which 40% involve steel related products. . . . At any given time, our industry is pursuing over 30 active anti-dumping and countervailing duty cases against an ever-growing list of foreign competitors who are supported – tacitly or openly – by their own governments. . . .

In 2013, almost 150,000 jobs were directly attributed to the steel industry. Within the value chain, it is estimated that more than 1 million jobs are steel-related jobs.  So when our industry is harmed, so too are the local vendors, markets, restaurants, dry cleaners, and other local service providers, schools and community organizations.

Let me illustrate for you how this harm occurs. . . . A year ago, U. S. Steel and other domestic Oil Country Tubular Goods (OCTG) producers filed a trade case against nine countries based on the enormous 113-percent increase of imported OCTG products into this market between 2010-2012. Primarily South Korean companies are the main violators, but companies from India, Vietnam, Turkey and several other countries also dump very significant volumes. . . .

China tried to do the same thing in 2008. We fought and won an OCTG dumping case in 2009, but not before many facilities were idled, thousands of steelworkers lost their jobs, and our communities and our families sustained significant and long-lasting injury.  After we won the case, Chinese producers essentially abandoned the U.S. OCTG market, a clear sign that they could not compete when the playing field was leveled.

As the American economy and our energy demands rebounded, American steel companies spent billions of dollars to improve OCTG facilities across the country. In the past 5 years, U. S. Steel spent more than $2.1 billion across our facilities, $200 million on new facilities at our Lorain Tubular Operations in the last two years alone. However, the respite for the OCTG industry from illegally dumped products was short-lived.  Foreign producers quickly seized this opportunity and began flooding our market.

The only difference between 2009 and today is that South Korean and other foreign OCTG producers are cleverer.  South Korean companies are effectively targeting our market since they do not sell this product in their own home market or (in substantial volumes) to other nation.  Over 98% of what is produced in South Korea is exported directly to the U.S.

Earlier this year, the Department of Commerce issued disappointing preliminary findings that failed to recognize and punish illegally dumped South Korean products. After decades of dumping practice, it appears that these companies have learned to circumvent our trade laws and illegally dump massive amounts of steel products in this market with ease and agility.

So it is not surprising that in advance of the impending final decision by the Department of Commerce, last month, the total OCTG imports hit a high of 431,866 net tons, a 77.4% percent change year/year. The South Koreans exported to the U.S. nearly 214,000 net tons of OCTG in May, an increase from the monthly average of 27,000 net tons in the prior 12 months. They are trying to dump as much product as they can before the final ruling.  The South Korean gamesmanship of our system of laws is disquieting. Their efforts are unchecked and repugnantly effective. . . .”

Kevin J. Brosch, the National Chicken Council in the attached statement, NCC Senate Finance Testimony 062514:

“. . . .The U.S. is the most efficient producer of poultry products in the world. U.S. production value in 2013 was $30.7 billion. We are the world’s second largest exporter, only narrowly behind Brazil, and in 2013 we exported nearly 20% of our total volume of production, with an export value of more than $4.7 billion. U.S. poultry is our 6th most important agricultural export, with product being exported to nearly 100 countries each year. It has also been an important growth sector for U.S. agriculture with exports increasing from 5.2% of production volume in 1990, to nearly 20% in 2013. . . .

In specifically addressing the issue of enforcement, I should begin by thanking the Obama Administration for a very significant and recent success. China is the best example we can point to of vigorous and timely trade enforcement.  In 2009, China imposed antidumping duties on U.S. chicken using the so-called “weight-based cost of production” theory. . . . Immediately after China announced its decision to impose antidumping duties, the Obama Administration requested dispute settlement, and aggressively litigated the case before the WTO. Last summer a WTO panel ruled in our favor. China elected not to appeal that decision and we are currently awaiting China’s announcement of how it will change its antidumping decision to come into compliance with WTO rules. Hopefully, China will act in good faith and honor its WTO commitments, but there are no assurances.  . . . .

(Even with USTR’s efforts, the China case cost U.S. industry millions of dollars in legal fees to pursue). China represented a 700,000 MT market for U.S. poultry at the time the antidumping duties were imposed, and is potentially an even larger market for our products in the future. We have been out of the market now for several years, and hope that China will lift its restrictions now that an international legal panel has ruled against it.  In our view, the prosecution of the China antidumping case before the WTO represents U.S. trade policy at its best; enforcing those trade rights we have already negotiated for. . . .”

Richard Wilkins, Treasurer of the American Soybean Association, stated in the attached statement, Statement on Trade Enforcement for Biotech Exports:

“I would like to return to my earlier comment on the importance of China as a market for U.S. biotech commodities and products. China is by far the largest buyer of U.S. soybeans, importing over one-fourth of our annual production. The Department of Agriculture forecasts that China will also become the world’s largest corn importer by 2020. U.S. agriculture is a long-term committed partner in working with China to meet its food security needs. . . .

It is critically important for the Administration to engage the Government of China at the highest level to reach a mutually beneficial understanding on trade in biotech commodities.”

TRADE DEFICIT DECLINES AS US EXPORTS INCREASE AND US JOBS SUPPORTED BY US EXPORTS TO CHINA RISE TO 796,000

As the Congress continues to bash China and listen to the Steel Union and US Steel, statistics show a much different story. On July 7, 2014, the Commerce Department announced the US trade deficit had dropped to $44 billion “bolstered by record high exports of a broad swath of consumer goods and services such as telecommunications, car parts and travel”. In effect, the trade deficit had dropped 5.6 percent drop from a $47 billion gap in April as US exports hit a record $195.5 billion.

U.S. Secretary of Commerce Penny Pritzker said that the numbers show the economy is growing healthier because “Today’s strong export numbers are yet another sign that more American businesses are seizing the opportunity to sell their world-class products and services to the 95 percent of consumers who live outside the United States.”

Where are those exports going? China.  According to the attached July 7th Report issued by the Commerce “ Jobs Supported by Export Destination 2013”, COMMERCE TRADE JOBS China is number 3 for US export destinations behind Canada and Mexico. The US jobs created by US exports of goods to China are 796, 000 (588,000 goods and 207,000 services) with Japan at 605,000 and United Kingdom at 587,000.

Although many Government officials apparently do not seem to understand this simple fact, the premise of this blog is that Trade is a two way street. Although many officials and political leaders at the Washington DC level want to continually criticize China, many local US government officials want the US companies to continue exporting to China and want Chinese investment in their towns, cities and states.

WTO RULES AGAINST THE US IN COUNTERVAILING DUTY CASES AGAINST CHINA

On July 14, 2014, in the attached decision and summary, PANEL REPORT SUMMARY the WTO upheld China’s claims that certain US countervailing duty cases against China were inconsistent with the WTO Agreement. The dispute involves 17 Commerce Department countervailing duty investigations against China on approximately $7.2 billion dollars of imported products, such as solar panels; wind towers; thermal paper; coated paper; tow-behind lawn groomers; kitchen shelving; steel sinks; citric acid; magnesia carbon bricks; pressure pipe; line pipe; seamless pipe; steel cylinders; drill pipe; oil country tubular goods; wire strand; and aluminum extrusions.

The WTO decision states that with regard to 12 countervailing duty investigations that the United States acted inconsistently because it found that certain state-owned enterprises were public bodies or government entities and thus the sales of certain raw material inputs by these companies, in effect, were subsidized by the Chinese government. The WTO recommended that the US bring its decisions in line with the WTO Agreement. The WTO ruled for China in certain cases and against China in certain cases so it is something of a mixed result.

Also the WTO determined that Commerce “improperly found that the alleged provision of goods for less than adequate remuneration conferred a benefit upon the recipient, and improperly calculated the amount of any benefit allegedly conferred, including. . . its erroneous findings that prevailing market conditions in China were “distorted” as the basis for rejecting actual transaction prices in China as benchmarks in certain investigations.”

Since China is considered a nonmarket economy country, Commerce in countervailing duty cases against China refuses to look at free market bench markets for interest rates or other prices in China. In one case, which was overturned in part by the WTO, to value dirty factory land in Shandong, China Commerce used the value of land for a shopping center in Thailand.

As a result, the WTO Panel recommended that the United States should bring its measures into conformity with its obligations under the WTO Agreement. What does the WTO decision mean and what impact will it have on future countervailing duty cases against China. The answer is not much.

Just like the response of the Chinese government to the WTO’s decision in the Chicken case, Commerce will make a few changes to its methodology and explain its decision more, but there will be no real change to past or future countervailing duty cases against China.

Also the impact of this WTO decision on US methodology in future Countervailing duty (“CVD”) cases against China is not clear yet because this panel decision will be reviewed by the WTO Appellate Body, which has frequently overturned panel decisions in trade remedy cases. Just like the Chinese chicken case, any change in methodology still means that the US government will issue CVD rates against China. Those rates will just decline a little.

On July 18, 2014, in the attached statement, MOFCOM STATE MOFCOM Minister Hucheng Gao stated in response to the WTO decision on US CVD cases:

“The United States abusive use of trade remedy measures severely impaired the legitimate rights and interests of Chinese enterprises. . . .I strongly urge the United States to confront its long-standing systematic violations of the WTO rules through its trade remedy related legislations and practices, to implement the rulings of the WTO Dispute Settlement Body in good faith, to correct its abusive use of the trade remedy rules in a timely and complete fashion, and to strive to become a role model who abides by the rules strictly, rather than a negative influence who breaches the rules . . . .

The economic and trade relations between China and the United States are the ballast stone and engine of overall China-U.S. ties.”

SOLAR CASES

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice are attached to the last post on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%. The Antidumping Preliminary determinations against China and Taiwan are not due to come out until July 24th.

The Scope issue, what specific products are covered by this decision, is simply not clear yet. On May 30, 2014, two US senators sent the attached letter to Commerce, SENATOR LETTER, specifically requesting that Commerce come up with the correct “scope” determination and not to change past definitions. In other words, the two Senators request the Department to “preserve” the existing country of origin standard, which means that the country of origin of the solar cell would determine the country of origin of the module and panel. The Commerce Department’s July 3rd response, however, was noncommittal.

In the letter, however, the two Senators acknowledged, “While we hope that: a negotiated settlement can be reached between the affected parties, the Chinese government, and our government, that is not a likely outcome at this point.” Under the US Antidumping and Countervailing Duty Law, since there is no public interest test, the petitioner, SolarWorld, would ultimately have to agree to any settlement/suspension agreement reached between the U.S. and China.

Thus on June 24th in a letter to 23 Congressmen, Solar World pushed back on Congressional efforts to obtain a settlement agreement and responded to a May 28 letter by 23 House members to President Obama urging him to broker a unified position among elements of the solar industry that “remove existing trade restrictions.”

One route to settling a trade remedy case is a suspension agreement, but SolarWorld said that there is no active discussion of that option now.  On July 1st Solar World filed a letter at Commerce urging it to probe the trade implications of alleged cyber espionage by the Chinese military involving the company. So this case is not going to Agreement any time soon.

OCTG

As stated in prior newsletters and above, US Steel Corp along with the Steel Union have brought follow up cases against Steel Oil Country Tubular Goods (“OCTG”), Steel Pipes used in oil wells from a number of different countries. US Steel and the Steel Union first attacked China and were able to drive them out of the US market with 47% dumping rate, not based on actual prices and costs in China. Instead, Commerce used values from Indian import statistics to throw the Chinese out of the US market.

In the Chinese antidumping case on US Chicken, the US government complained that China used a “weight based cost of production” theory to calculate US antidumping rates.  But at least the Chinese government used actual prices and costs in the United States to calculate US antiduping rates, not like the US Commerce Department, which refuses to even use actual prices and costs in China to calculate antidumping rates for Chinese companies.

But as indicated above in the testimony of Mr. Gerrard of the USW Workers, China was replaced by imports from Korea, Taiwan, India and many other countries. So USW and US Steel filed antidumping and countervailing duty cases against those countries. But in the preliminary dumping determination against Korea and other countries, when Commerce had to use actual prices and costs in Korea and other countries to calculate antidumping and countervailing duty rates, what antidumping rates did Commerce come up with? 0s for Korea, 0 to 2.65 for Taiwan, 0 for one producer in India, 2.92% for Saudi Arabia and 8.9% for Philippines.

As indicated above, however, the USW and US Steel through the Congress put immense political pressure on Commerce to change its preliminary determination, especially with regards to Korea. With regards to OCTG, however, one should understand that the first OCTG cases were filed in the early 1980s against Korea and other countries followed by additional cases in the mid-1990s. Since Korea has been a target of OCTG cases in the past and since Commerce must use actual prices and costs in Korea to determine whether the companies are dumping, one can expect that Korean OCTG producers will monitor their prices and costs very closely to make sure that they are not dumping. When foreign companies are in market economy countries, where Commerce must use actual prices and costs in those countries to determine dumping, foreign companies can use computer programs to make sure that they are not dumping.

Thus it is not surprising that Commerce calculated 0% dumping rates for Korea in the OCTG preliminary determination. But with very substantial Congressional pressure on the Commerce Department, as suspected, Commerce came out with an affirmative antidumping determination in the Korea case.

On July 11, 2014, in the attached decision, factsheet-multiple-OCTG-ad-cvd-final-071114, Commerce issued its final determination pushing Korea’s AD rate to 9.89 to 15.75%, Taiwan 0 to2.52%, Saudi Arabia 2.69%, Philippines 9.88%, Ukraine 6.73% and an India CVD rate from 5 to 19%.

The point, however, is that these are not shut out rates, and in contrast to China, all of these countries will continue to export OCTG steel products to the United States in substantial quantities.

On July 15th at the US International Trade Commission’s (“ITC”) injury hearing, 4 US Senators testified about the importance of the ITC reaching an affirmative injury determination in the case.

TIRES

As mentioned in my last newsletter, on June 3, 2014, the USW union filed an antidumping and countervailing duty case aimed at $2 billion in imports of automobile and truck tires from China. The case is specifically described as Certain Passenger Vehicle and Light Truck Tires from the People’s Republic of China. A short form of the petition is attached to my last post on this blog.

At the end of June Commerce postponed the initiation of the case so it could survey the US industry because of standing concerns. But on July 15, 2014, the Commerce initiated the antidumping and countervailing duty investigations. See the attached fact sheet.  DOC Tires Initiation Fact Sheet

With the 20 day postponement, however, fully extended out, the Commerce Department preliminary countervailing duty determination will come out as soon as November 20, 2014, exposing the US importers to liability for Chinese tire imports, followed by the antidumping preliminary determination on January 19, 2015.

On July 16, 2014, the Commerce Department issued the the quantity and value questionnaire for Chinese companies, which is due August 1, 2014 at Commerce.  prc-qvq-tires-071614.  See also the attached separate rate application for Chinese companies.  prc-sr-app-20140429

On July 22, 2014, the ITC issued a preliminary injury determination in the case. See the attached announcement. ITC AFFIRMATIVE PRELIMINARY. The ITC will issue its formal determination and opinions to Commerce on August 1, 2014.

ACTIVATED CARBON

On June 24, 2014, in the attached decision, Jacobi Carbons et al. v. United States, the Court of International Trade affirmed the Commerce Department in the Activated Carbon fourth administrative review investigation.  ACTIVATED CARBON CIT

WOODFLOORING

In the Woodflooring case, there have been two Court decisions, not favorable to the respondents.

On July 14, 2014, in the attached decision, Changzhou Hawd Flooring Co. v. United States, the Court of International Trade rejected an attempt by a number of Chinese separate rate companies to participate in the appeal of the initial investigation. During the appeal, it became apparent that the Chinese separate rate companies might have an opportunity to obtain a 0% dumping rate and be completely excluded from the case.  CHANGQHOU HAWD FLOORING

On July 16, 2014, in attached decision, Swiff Train v. United States, the Court of International Trade affirmed the International Trade Commission in its injury determination stating that it had made a “but for” determination in the injury remand determination.  SWIFF TRAIN

TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND DOHA ROUND

As mentioned in past newsletters, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations.  These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

This is particularly a problem because the protectionism is coming from the Democratic side of the aisle. Democratic Senators and Congressmen are supported by labor unions. To date, President Obama cannot get one Democratic Congressman to support Trade Promotion Authority (“TPA”) in Congress. Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the mid-term elections as soft on trade.

As mentioned in prior newsletters, on January 29th, the day after President Obama pushed the TPA in the State of the Union, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted on my February blog post, was introduced into Congress. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

Under the US Constitution, Congress, not the President has the power to regulate trade with foreign countries. Article 1, Section 8, Clause 3, of the Constitution empowers Congress “to regulate Commerce with foreign nations” Thus to negotiate a trade agreement, the Congress gives the Executive Branch, the Administration/The President and United States Trade Representative (“USTR”), the Power to negotiate trade deals.

Because trade deals are negotiated with the foreign countries, the only way to make the system work is that under the TPA law when the Trade Agreement is negotiated, the Congress will agree to have an up or down vote on the entire Agreement and no amendments to the Agreement that has already been negotiated will be allowed.

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track. But to date no details have been given about exactly what Smart Track will mean, other than more oversight by Congress and input by the Public in the trade negotiations.

Now the story continues . . . .

On June 27, 2014, it was reported that there were still many tough issues outstanding in the TPP talks, including Agriculture, especially with Japan. Japan’s commitment to full tariff elimination in the agricultural sector appears to be very weak. Questions remain whether Japan will ever fully open its sensitive food sectors such as beef, pork, wheat, rice and dairy. There are warnings that the bilateral struggles between the U.S. and Japan have had ripple effects with other TPP partners using the impasse to hold off on tabling their best market access offers, not only for agriculture but also for other areas as well. In addition, the failure to pass the TPA has made it more difficult for the US trade negotiators to get a better deal.

Apparently the gaps between the US and Japanese negotiators on agricultural products are very wide. The U.S. had demanded that Japan’s beef and pork tariffs be lowered as close to zero as possible, and as a trade-off to accept low tariff rates. Japan has floated the idea of allowing it to activate safeguard measures that would trigger sharply higher tariffs for an extended period when import quantities reach certain thresholds, while the US position remains the same.

On July 9th seven House Democratic Congressmen, Rep. George Miller (D.-Calif.), Reps. Rosa DeLauro (Conn.), Louise Slaughter (N.Y.), Loretta Sanchez (Calif.), Mark Pocan (Wis.), Donna Edwards (Md.) and Peter DeFazio (Ore.) questioned whether Congress should grant the administration trade promotion authority (TPA)—particularly in light of what they called a lack of transparency during the talks.

The Democrats argued that an Administration deadline to conclude the TPP talks by the Nov APEC meeting was simply unrealistic because there are too many issues that must be resolved before a TPP agreement would win congressional approval.

On July 15th it was reported that Japan and the US had been able to narrow the gaps in negotiations on agricultural products, specifically rice, beef and pork, dairy, wheat and sugar—as well as safeguards.

On July 16th, it was reported that Deputy USTR Mike Punke spoke at a hearing of the House Ways and Means stating: “We agree with those who say that TPA needs to be updated and we look forward to working with this committee and Congress as a whole to secure a TPA that has as broad bipartisan support as possible.” Punke also stated: “We are very committed to getting TPA. I think Ambassador Froman has practically camped up here over the course of the last six weeks in terms of the outreach that he’s done personally.”

On July 17, 2014, at a Senate Finance Committee hearing about Technology and Trade, http://www.finance.senate.gov/hearings/hearing/?id=565ec6a8-5056-a032-526e-77a13f9f56e5, Republican Senator Orin Hatch, the Ranking Member, spoke about the importance of the TPA and the Enforce Act.

On July 17th, all Republican members of the House Ways and Means Committee sent the attached letter, HOUSE REPS WAYS MEANS, to USTR Froman urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law. In the letter, the Members stated:

“We are strong supporters of the Trans-Pacific Partnership (TPP) negotiations. . . .While progress has been made in the TPP negotiations, there is a long way to go to finalize an acceptable deal. Therefore, we were surprised when the President recently announced an ambitious timeline for completing the TPP negotiations, potentially by November, without mentioning how he would ensure the enactment into law of Trade Promotion Authority (TPA) before concluding TPP negotiations. TPA must be enacted into law before the President completes TPP for two important reasons.

First, TPA shows our trading partners that the U.S. government speaks with one voice. Without TPA, the Administration simply is not in the strongest position in its negotiations with our trading partners. That means that any agreement reached cannot be the best agreement obtainable for American workers, farmers, and businesses. The positions that many of our trading partners are taking in the negotiations are unacceptable, demonstrating that the Administration has not yet been able to achieve the necessary market access and rules outcomes to ensure a successful TPP negotiation. We believe that if the Administration were negotiating with the authority of TPA, it would be able to achieve a stronger agreement worthy of Congressional support.

Second, the Administration negotiates trade agreements under a delegation of authority from the Congress. TPA is the process by which Congress gives the Administration that authority and sets out negotiating objectives, strengthening and reinforcing the consultative relationship between Congress and the Administration. Concluding TPP or any major trade agreement without TPA undermines the Constitutional role of Congress over trade policy. Only Administrations that work closely with Congress and make it an equal partner in the negotiations are successful in passing and implementing trade deals.

Because of the critical importance of TPA in ensuring a successful outcome in the TPP negotiations, we will not support TPP if the agreement, even an agreement in principle, is completed before TPA is enacted. Once TPA is enacted, we will have laid the necessary groundwork to bring to conclusion a solid TPP agreement that will pass Congressional muster, and we will work with you to achieve this goal. Congress will not approve a TPP agreement that does not meet the objectives Congress first establishes through TPA. Therefore, TPA is the key to achieving the outcome we all want to see.

We call on the Administration to continue to push our trading partners to improve upon their current offers in the TPP negotiations. At the same time, we call for the entire Administration, including the President, to immediately and fully engage with the House, the Senate, and stakeholders to achieve enactment of the Bipartisan Congressional Trade Priorities Act (H.R. 3830) well before the end of 2014. Progress should continue with our TPP partners even as we work domestically with you and the President now to build support for- and ultimately pass TPA.”

CHINA ANTIDUMPING

CHICKEN

On July 8, 2014, the Chinese Ministry of Commerce (“MOFCOM”) announced that as a result of a WTO decision it would lower anti-dumping and countervailing duties on U.S. chicken imports to between 46.6 and 73.8 percent for producers like Tyson Foods Inc. and Butterfield Foods Co.

Under the previous anti-dumping duty orders, MOFCOM levied rates ranging from 50.3 to 53.4 percent for U.S. producers who responded to its investigation, while assigning an “all others” duty rate of 105.4 percent.

As for countervailing duties, MOFCOM said it would lower CVD rates between 4 and 4.2 percent from 4 to 12.5 percent with an “all others” rate of 30.3 percent

The duties were imposed in 2010 and two years later, in August 2013, a WTO panel sided with the US.

Although MOFCOM lowered the rates, the rates will still shut out most US chicken from China. As a result of the MOFCOM decisions on US chicken, U.S. exports of chicken to China have fallen 90 percent over the past four years, costing US chicken exporters an estimated $1 billion after China imposed the high antidumping duties in 2010.

PATENT/IP AND 337 CASES

337 CASES

LOOM KITS

On July 1, 2014 Choon’s Design Inc. filed a section 337 patent case against imports of certain loom kits for creating linked articles against China respondents:. Wangying of China, Yiwu Mengwang Craft & Art Factory of China; Shenzhen Xuncent Technology Co., Ltd of China; Hong Kong Haoguan Plastic Hardware Co., and Itcoolnomore of China.  See the attached ITC notice.  LOOM KITS

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

On June 26, 2014, Orlando Communications filed the attached complaint for patent infringement against Huawei Technologies Co., Ltd., Huawei Technologies USA, Inc., Huawei Device USA, Inc. and T-Mobile US, Inc.ORLANDO HUAWEI

On July 9, 2014, Charles C. Freeny III, Bryan E. Freeny and James P. Freeny filed the attached complaint for patent infringement against ZTE (USA) Inc.  Freeney ZTE complaint

On July 9, 2014, Charles C. Freeny III, Bryan E. Freeny and James P. Freeny filed the attached complaint against Huawei Device USA, Inc. for patent infringement.  Freeny v Huawei complaint

PRODUCTS LIABILITY–DRYWALL

On July 17, 2014 in the attached Drywall Products liability case, 7-17-14 Taishan contempt In Re: Chinese Manufactured Drywall Products Liability Litigation, US Federal Judge Eldon E. Fallon in Louisiana barred a Chinese manufacturer from doing business in the U.S. until it shows up in court to answer questions about its failure to pay a $2.7 million default judgment in multidistrict litigation over defective drywall, holding the company in both civil and criminal contempt.  Taishan Gypsum Co. Ltd. must also cover $15,000 in attorneys’ fees for the plaintiffs in the case and pay a $40,000 fine, and should the company defy the injunction, it will get hit with another penalty equaling 25 percent of its annual profits.

As Judge Fallon states in the attached order:

“From 2005 to 2008 a housing boom coincided with the destruction caused by Hurricanes Katrina and Rita to sharply increase the demand for construction materials in the Gulf South and East Coast.  In response, Chinese companies manufactured, and sold to homeowners throughout the United States, considerable quantities of gypsum wallboard which came to be known as “Chinese drywall.” Homeowners experienced problems with the drywall. Specifically, the drywall emits various sulfide gases, damages structural mechanical and plumbing systems of the home, and damages other appliances in the home. The affected parties sued the entities involved in the manufacturing, importing, and installing the Chinese drywall. The cases multiplied and the Judicial Panel on Multidistrict Litigation (“MDL”), declared the matter an MDL and transferred the cases to this Court. After a period of discovery, it became clear that there were two principal manufacturers, (1) the Knauf Entities, and (2) the Taishan Entities. There are four cases in particular in which Taishan Entities have been served (via international means at the Hague, costing at least $100,000 per service of process).  . . . Defendant. Taishan refused to participate in any of these proceedings.   . . .so such judgment has become final and enforceable.  In order to execute the judgment, Plaintiffs moved for a Judgment Debtor Examination. The Court ordered Taishan to appear in open court on the morning of July 17 . . .Taishan failed to appear . . . has refused to appear in open court for the Examination.

As a consequence of Taishan’s refusal to appear at this Judgement Debtor Examination, in direct, willful violation of this Court’s June 20, 2014 order, the Court holds Taishan in contempt of court, both criminally and civilly. This refusal to appear is a direct contemptuous act occurring in open court after actual notice of the proceedings. Such disobedience of the Court’s order harms both the many other parties in this case and the decorum of the Court. Due to the “affront to the Court’s dignity [that] is[] widely observed,” it is necessary to summarily punish Taishan’s contempt. . . .

In punishing Taishan’s contempt, the Court “has broad discretion in assessing sanctions to protect the sanctity of its decrees and the legal process.” . . . In this massive suit, the harm from Taishan’s noncompliance is high and requires strong sanctions to coerce compliance and restore integrity to these proceedings. . . .

IT IS FURTHER ORDERED that Taishan, and any of its affiliates or subsidiaries, is hereby ENJOINED from conducting any business in the United States until or unless it participates in this judicial process. If Taishan violates this injunction, it must pay a further penalty of 25% of the profits earned by the company or its affililates who violate the order, for the year of the violation. . . .”

Lead counsel for the plaintiffs vowed to trace the company’s funds through its banks and make sure that the 4,000 homeowners involved in the litigation receive money to remediate their houses, which he said will cost between $200,000 and $300,000 per home. Levin added that the plaintiffs will also go after Taishan’s parent corporations, one of which, CNBM Group, is allegedly controlled by the Chinese government.

COMPLAINTS

On July 15, 2014, Vincent Dondson filed the attached products liability case against Beijing Capital Tire Company, Ltd. and World Wide Distribution Inc.  BEIJING TIRES CASE

CFIUS—CHINESE INVESTMENT IN THE US

On July 15, 2014, the Federal DC Circuit Court of Appeals in the attached Ralls Corp. v. Committee on Foreign Investments (“CFIUS”), RALLS VS CFIUS issued a very surprising decision reversing the Presidential/CFIUS decision to invalidate Ralls and a Chinese company’s attempt to acquire four Oregon wind firms that were close to a US military base on national security grounds.

There is a presumption that Presidential decisions with regard to foreign policy are given deference by the court, so it is unusual for the Court to overturn a Presidential decision, such as this decision by CFIUS. The president was first granted the authority to block proposed deals in the name of national security by the Exon-Florio Amendment in 1988.

The DC Circuit overturned the CFIUS decision on due process procedural grounds:

“In sum, we conclude that the Presidential Order deprived Ralls of constitutionally protected property interests without due process of law. We remand to the district court with instructions that Ralls be provided the requisite process set forth herein, which should include access to the unclassified evidence on which the President relied and an opportunity to respond thereto. . . . Should disputes arise on remand––such as an executive privilege claim––the district court is well-positioned to resolve them.”

Appeal is likely, either through a petition for en banc review or a petition to the U.S. Supreme Court.

The CFIUS review process, however, has been described as a black box into which foreign investors feed information, only to get out a yes or no answer with no way of appealing the decision. The DC Circuit’s decision, however, will require the President and CFIUS at a minimum to explain why the decision was made and grant the company respondent access to the unclassified evidence used to come to that decision and give the company an opportunity to rebut the evidence.

GENERAL LITIGATION–CONTRACT

On July 18, 2014, in the attached complaint Saint Jean Industries Inc. filed a breach of contract case against ZF Chassis Components LLC, ZF Lemforder and ZF Lemforder Shanghai Chassistech Co.  ZF CHASSIS SHANGHAI

ANTITRUST

VITAMIN C AND AUO OPTRONICS

On July 8, 2014 the Plaintiffs, US Purchasers of Vitamin C products, filed the attached brief, VITAMIN C PLAINTIFFS BRIEF 2ND CIRCUIT, urging the Second Circuit to reject the arguments in their briefs by the two Chinese companies and the Ministry of Commerce to overturn the $153 million jury award against them over price-fixing claims. Plaintiffs argued that the Chinese companies lack any evidence they were compelled to fix prices by the Chinese government. The purchasers argued that no Chinese law required any alleged co-conspirator to fix prices at high levels for vitamin C imported into the U.S.

As the Brief states:

“Regardless of the proper interpretation of Chinese law in this case, the facts as determined by the jury. . . showed that no entity, governmental or not governmental, acted to compel the conduct at issue here; rather, the jury found Appellants liable for their own voluntary conduct. . . .

The district court afforded deference to statements by the Ministry, and properly determined that Appellants did not meet their burden to prove the Chinese government compelled them to violate the Sherman Act as a matter of law. The jury had an ample evidentiary basis to conclude that the Chinese government did not compel Appellants’ cartel agreements as a factual matter. . . .

NCPG is liable for participating in the price-fixing conspiracy. The district court properly exercised personal jurisdiction over NCPG because NCPG participated in the vitamin C conspiracy targeting the United States. The “effect” of NCPG’s participating in price-fixing meetings in China, which caused buyers in the U.S. to purchase vitamin C at inflated prices, is sufficient to establish minimum contacts with New York. And the district court properly held that Appellees presented sufficient evidence for the jury to conclude that NCPG participated in the cartel.

The litigation dates back to 2005 and 2006, when the vitamin C purchasers began accusing Chinese manufacturers and their affiliates of taking part in an illegal cartel to fix prices and limit supply for exports. In March 2013 a jury determined that NCPG and HeBei met with competitors between December 2001 and June 2006 to coordinate pricing in China’s vitamin C industry, awarding the plaintiffs $54.1 million. Judge Cogan later trebled the damages, pushing the companies’ liability to $162.3 million.”

U.S. District Court Judge Brian Cogan refused to throw out the case based on MOFCOM’s argument of the so-called foreign sovereign compulsion defense that the Chinese government compelled the Chinese companies to set the export price.  In MOFCOM’s April brief to the 2nd Circuit, which was posted on my May blog post, the Ministry argued that the District Court’s decision should be thrown out because of the failure to defer to the Chinese government’s interpretation of Chinese law.

In the attached brief, the Plaintiffs responded:

“The Ministry and Appellants ask this Court to find Appellants immune from antitrust liability, despite a trial on the merits, because the Ministry says so. But no matter what level of deference is accorded to the Ministry’s statements concerning Chinese law, under Rule 44.1 this Court must determine itself whether that law provides a defense to claims of damages under the Sherman Act. . . .

The extent of deference sought by the Ministry in this case is breathtaking. The deference is not limited to how a regulation should be read, but seeks to include what factually happened, i.e., whether the Ministry or the Chamber actually exercised any compulsion.

For its current position, the Ministry ignores the contrary positions that the Chinese government has taken with the WTO, namely that in 2002 it gave up “export administration . . . of vitamin C. . . . .

The predicate for application of the act of state doctrine only exists when the suit “requires the Court to declare invalid . . . the official act of a foreign sovereign.” . . . . This Court need not declare invalid any official act of the Chinese government because (as the district court and the jury found) there was no official act of the Chinese government compelling Appellants’ actions. As the district court explained: “Chinese laws themselves were not placed on trial. Rather, the jury was only required to determine whether the Chinese government acted, not the propriety of its actions. . . .

Defendants that engage in antitrust conspiracies that affect a forum state have established the requisite “minimum contacts” for purposes of due process. . . .”

On July 15, 2014, the 9th Circuit Court of Appeals in the attached decision United States v. Hsiung and Au Optronics Corp. (“AUO”), AUO OPTRONICS, affirmed the convictions of all defendants, in a criminal antitrust case that stems from an international conspiracy between Taiwanese and Korean electronics manufacturers to fix prices for Liquid Crystal Display panels known as TFT-LCDs in violation of the Sherman Act. The Court also affirmed the $500 million fine imposed on AUO.

On July 16, 2014, the Plaintiffs argued that the recent 9th Circuit ruling in the AUO case supports their claims in the Vitamin C case against the Chinese companies. In particular, the 9th Circuit’s interpretation of the Foreign Trade Antitrust Improvements Act supports their argument that the FTAIA does not bar claims from vitamin C buyers who purchased the product directly for delivery in the U.S.

COMPLAINTS

HONG KONG EXCHANGE

In a series of antitrust cases that have been posted on my blog, companies are suing banks, including the Hong Kong Exchanges & Clearing Ltd, for triple damages under Section 1 and Section 2 of the Sherman act for conspiring to drive up prices of aluminum and zinc through the London Metal Exchange.  On July 8, 2014, the attached new antitrust complaint was filed by Galvanizers Company against the London Metal Exchange and number of other Metal Exchange companies, including the Hong Kong Exchanges & Clearing Ltd.  HONG KONG EXCHANGE

FOX CONN

On July 9, 2014, the attached new antitrust complaint was filed by Joseph Lai dba Ultra Tek against USB-Implementers Forum, Inc, Hon Hia Precision Industry Co., Ltd. and Foxconn International Holdings Ltd., including Foxconn (Kunshan) Computer Connect.  HON HAI FOX CONN ANTITRUST

CHINA ANTITRUST CASES

MOFCOM–SHIPPING DISAPPROVAL

As US antitrust cases have been on the rise in the United States, they are also rising in China. On June 17, 2014, in direct contrast to the US and EC, which had approved the merger, China’s Merger Office in the Ministry of Commerce known as MOFCOM blocked a proposed alliance among Danish shipping giant A.P. Moller-Maersk A/S and two of its partners to pool ships used on Eurasian trade routes.

MOFCOM declared that the merger agreement violated China’s anti-monopoly law because it excludes the effect of restricting competition in the European container liner shipping routes services market. As a result, Maersk and its partners agreed to stop work on the merger.

On June 20, 2014, MOFCOM issued the attached announcement,SHIPPING DISAPPROVAL, stating:

“On June 17, Ministry of Commerce announced its disapproval after the anti-monopoly investigation in the concentration of undertakings of Maersk, Mediterranean Shipping Company S.A. and CMA CGM establishing an Internet center. The large-scale collaboration of the three largest shipping companies in the world will bring profound influence to global shipping industry, and attract high attention from all circles. A leading official of Anti-monopoly Bureau of Ministry of Commerce made an explanation about the case.

The official said Ministry of Commerce has no objection to enterprises gaining advantageous market position through its competitiveness. For those enterprises who have already possessed certain market prowess and want to further strengthen the forces and achieve dominant market position through the concentration of undertakings, the impact on market competition should be analyzed seriously. After assessment of related market share, market control, market access and industrial features, Ministry of Commerce believes that after the concentration, the three companies will form a tight combination, and their share of transport capacity of Asia-Europe container liner transportation will reach 47%, with remarkable increase of market concentration.

The official said that during the investigation, Ministry of Commerce stated to the declarer that the concentration of undertakings may have the impact of competition elimination and restriction, and had several consultations on how to reduce the adverse impact of the concentration of undertakings to competition. The declarer submitted several remedy plans. After evaluation, Ministry of Commerce considered that there were no legal basis and convincing evidence to support the remedy plans, and it cannot be proved that the concentration of undertakings has more positive effect than adverse effect or accord with public interests. Therefore, according to the Antimonopoly Law of People’s Republic of China, Ministry of Commerce decided to forbid this concentration of undertakings.”

SED TALKS–CHINESE COMPETITION POLICY

On July 3, 2014, it was reported that US business associations demanded that in the upcoming US-China Strategic & Economic (“S&ED”) talks with China that the US raise the problems US companies are facing with the Chinese anti-monopoly law. The allegation was made that “it has become increasingly clear that the Chinese government has seized on using the AntiMonopoly Law (“AML”) to promote Chinese producer welfare and to advance industrial policies that nurture domestic enterprises.”

On July 12, 2014 at the end of the 6th meeting SED talks, the Treasury Department released the attached fact sheet, TREASURY DEPARTMENT ANNOUNCEMENT, about the outcome. With regards to the Chinese Anti-Monopoly law, the Treasury Department stated:

“Competition Law: In response to concerns of U.S. companies and government officials regarding enforcement of China’s Anti-Monopoly Law, China recognized that the objective of competition policy is to promote consumer welfare and economic efficiency, rather than to promote individual competitors or industries, and that enforcement of its competition law should be fair, objective, transparent, and nondiscriminatory. We are also encouraged by China’s commitment to provide any party under investigation with information about the competition concerns with the conduct or transaction, as well as an effective opportunity to present evidence in its defense.”

SECURITIES

CHINESE COMPANIES STRIKE BACK!—RECENT SECURITIES VICTORY BY DORSEY LAWYERS FOR CHINESE COMPANY

Dorsey lawyers Geoffrey Sant, Kent Schmidt, Bryan McGarry, Ray Liu, and Ted Farris representing Haiting Li and Pacific Bepure had a major victory for Chinese clients.As Mr. Sant states:

“For years, plaintiff law firms in the US have brought a seemingly endless stream of securities lawsuits against Chinese companies that are either listed or traded in the US.

  • In 2010, securities litigations against Chinese companies represented 46.8% of all US securities suits against non-US companies
  • In 2011, securities litigations against Chinese companies represented 59.6% of all US securities suits against non-US companies
  • In 2012, securities litigations against Chinese companies represented 47% of all US securities suits against non-US companies
  • In 2013, securities litigations against Chinese companies represented 45.7% of all US securities suits against non-US companies.

Last week, in what appears to be the first instance of its kind ever, a Chinese company sued under the securities laws in the United States not only achieved a dismissal of the lawsuit brought against it, but also obtained damages from the lawyers who sued the company. Specifically, in the attached Great Dynasty International Financial Holdings Ltd. v. Li order, GREAT DYNASTY Sanctions Order, the Court sanctioned the attorneys who brought a $5 million dollar claim against the company (Pacific Bepure), ordering the plaintiffs’ law firm and its lead attorneys to pay all of the legal expenses of the defendant. Past securities lawsuits against Chinese companies have resulted in many settlements and at least one massive $882 million default judgment. But last week’s ruling is the first time that a Chinese company has succeeded in not only dismissing securities litigation against it, but also obtaining payment from the very plaintiffs’ firm that brought the litigation. This may make plaintiff firms more hesitant or careful when bringing lawsuits against Chinese companies. Dorsey & Whitney represents Pacific Bepure, the company that won the sanctions award against the opposing attorneys.

In the Court’s decision sanctioning the plaintiffs’ law firm and attorneys, the Court stated:

  • Page 12-13.  “The Court finds that there is clear and convincing evidence that GDI’s counsel, Ms. Sally W. Mimms and Mr. John F. Kloecker of Locke Lord, LLP (collectively ‘Counsel’), assertion of federal securities law claims, including violation of section 10(b) and Rule 10b-5 and section 20(a), on behalf of GDI as well as most Assignor Shareholders, was both reckless and frivolous, and amounted to conduct tantamount to bad faith.”

第12-13页。“本院裁定有明确且令人信服的证据证明高汉的法律顾问即美国洛克律师事务所律师Sally W. Mimms女士和John F. Kloecker先生(统称‘法律顾问’)代表高汉以及大多数转让股东提出的联邦证券法索赔主张(包括违反第10(b)条和规则10b-5及第20(a)条的行为)是鲁莽且无法律事实依据的,等同于恶意的行为。”

  • Page 13.  “Counsel’s conduct was reckless and frivolous because a reasonable and competent inquiry into the law would have revealed that GDI and most Assignor Shareholders could not demonstrate (1) standing to assert federal securities fraud claims or (2) a causal connection between the purchase or sale [of] the PBEP securities in reliance on the alleged misrepresentations, and an economic loss.”

第13页。“法律顾问的行为是鲁莽且无法律事实依据的,因为对法律进行合理且合适的调查后将会发现高汉及大多数转让股东不能证明(1)坚持主张联邦证券欺诈索赔或(2)依赖于被指称的不实陈述的宝飘证券的购买或出售与经济损失之间的因果关系。”

  • Page 14.  “Counsel had all necessary facts in their possession of which to evaluate whether the claims could be asserted; although GDI clearly lacked standing and could not demonstrate a causal connection, Counsel asserted the claims.  Such conduct by Counsel was at the very least reckless and frivolous, because the claims had no basis in fact and Counsel failed to make a reasonable and competent inquiry into the law.”

第14页。“法律顾问拥有所有必要的事实来评估是否能提出诉讼请求;尽管高汉明显没有立场并且不能证明因果关系,法律顾问仍旧提出了诉讼请求。法律顾问的这种行为最起码是鲁莽且无依据的,因为索赔没有事实依据并且法律顾问未能对法律进行合理且合适的调查。”

  • Page 19.  “Here, the Court finds Ms. Mimms, Mr. Kloecker, and Locke Lord LLP jointly and severally liable for Defendants’ attorneys’ fees and costs in connection with litigating the frivolous federal securities fraud claims in both the complaint and the FAC.  Such an award would both vindicate the Court’s judicial authority while also mak[ing] Defendants whole for expenses incurred to defend the frivolous claims.”

第19页。“在此,本院裁定,对于被告在就诉状和FAC中的无依据联邦证券欺诈索赔进行诉讼时产生的律师费,Mimms女士、Kloecker先生和美国洛克律师事务所承担连带责任。此项裁决将维护本院的司法权威并同时使被告承担就无依据索赔进行辩护时产生的全部费用。”

This ruling may encourage some Chinese companies to more vigorously defend themselves, and in appropriate circumstances – such as meritless lawsuits – to fight the lawsuit rather than settle or to default. This, in turn, may cause plaintiff law firms to be less eager to bring lawsuits against Chinese companies.”

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

In the attached June edition of the FCPA Digest, Anti_Corruption_Digest_June2014, Dorsey lawyers report on a corruption investigation involving China stating:

“Serious Fraud Office (“SFO”) Investigates GlaxoSmithKline

Further to the April and May Digests which reported GSK investigations in Poland and China, it has been reported that the director of the SFO has opened a criminal investigation into the commercial practices of GlaxoSmithKline plc and its subsidiaries.

The SFO action follows the Chinese police announcement on 14 May that they had charged the former British boss of GSK’s China business and other colleagues with corruption, after an investigation disclosed evidence of a scheme to bribe doctors and hospitals.”

On July 10, 2014, David Richardson and Alesya Tepikina, two Dorsey lawyers, also issued the attached article entitled “Anti-Corruption Campaign in China – Causes of Corruption, and Hope? – Part One,” eu-cm-china-anti-corruption-campaign-brib, about the ongoing bribery and corruption investigations in China. In the Article they state:

” “I have seen corruption boil and bubble Till it o’er-run the stew.” – William Shakespeare, Measure for Measure

Corruption in the People’s Republic of China (“China”) presents a major administrative and financial burden on businesses operating in China and creates an unfavorable business environment (by undermining the operational efficiency of businesses and raising the costs and risks associated with doing business in China). As noted by some researchers, corruption is so widespread in China that it has become a norm, an unwritten law, and a way of living. Corruption threatens the vitality and international credibility of China’s emerging new economy. Out of 2,700 firms surveyed from November 2011 through March 2013, 19.2% reported that they were expected to give gifts to obtain import licenses, 18.8% said they were expected to give gifts to obtain construction permits, 10.9% reported they were expected to give gifts to tax inspectors and 10.7% said they were expected to give gifts to public officials “to get things done”. Bribery incidence (i.e., a percentage of firms that experienced at least one bribe payment request) was 11.6% and bribery depth (i.e., a percentage of public transactions where a gift or informal payment was requested) was 9.9%.

Since President Xi Jinping announced a crackdown on corruption among government officials in China in November 2012, multiple anti-graft and ant-extravagance regulations have been passed by government agencies at the central and local levels. The regulations allowed the Xi administration to single out officials for punishment, starting at the local level and moving up the ranks of party hierarchy.

This eUpdate is the first part in a series of eUpdates on topics related to the present anti-corruption campaign in China. It focuses on the social practices which allow corruption to thrive in China, and on economic reforms (and a developing legal system) which could reign in such corruption.

Extent of corruption

In 2013, the Transparency International’s Corruption Perceptions Index (the “Index”), which ranks countries based on the perception of corruption in their public sector, ranked China at 40.6 placing it in the 80th place out of 175 countries surveyed, on a par with Greece. China was ranked less corrupt than El Salvador, Jamaica, Panama, Russia and Peru, but more corrupt than Brazil and more developed countries. Over the past fourteen years, China’s rank remained at the lower range of the Index. For example, in 2008, China was ranked at 3.6 (on a scale of 0 – 10 used by the Index at that time), placing it in the 70th place out of 163 countries surveyed, and in 2000, China was ranked at 3.1, placing it in the 63rd place out of 90 countries surveyed. China historically ranked less corrupt than India, Russia and Venezuela, but more corrupt than Zambia, Colombia, Mexico, Ghana and South Korea.

As elsewhere, power over transactions and wealth in China appears to lead inevitably to corruption and corrupting behavior, or, in the words of Lord Acton, “power tends to corrupt and absolute power corrupts absolutely”. These words seem to apply perfectly to China, where the Communist Party has had a monopolistic power on politics and economics of the country for a prolonged period of time.

In China, as is often the case elsewhere, corruption is also a consequence of deeper stresses and changes. Underlying corruption is a growing tension between new policies and economic realities on the one hand, and traditional values, customs and established political system on the other, in the context of a political and institutional framework poorly-suited to handle such tension.

Understanding the characteristics and reasons underlying corruption in traditional China is crucial to comprehending the nature of the relationship between politics and economics in contemporary China, and to envisioning the future direction of reforms.

As described by some researchers, “post-reform corruption is a complex mixture of universal, transitional socialist and unique Chinese characteristics in its origins, consequences, as well as definitions.”

Definition and characteristics of corruption

One of the most general definitions of corruption, which seems to apply to China as well, describes it as ultimately “the use of public office for private gain”. It is also commonly understood as “behavior which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains; or violates rules against the exercise of certain types of private regarding behavior”.

Corruption can be characterized by the following features:

Power exploited for personal gain which includes monetary and non-monetary rewards;

An implicit contract concluded via a specific transaction, i.e. the transference of property rights, which because of its illegality is not subject to any officially legitimized institutional executive or sanctioning instance; and

At least two economic subjects interacting in the above transference of property right; this explicitly excludes the theft or embezzlement of state property as well as influencing of the political process to preserve power.

Guanxi networks

Corruption has deep roots and a long history in China. To understand the phenomenon of corruption as it applies to contemporary China, the historical role of patron-client and instrumental-personal ties in traditional China must first be analyzed.

The spread of corruption in traditional China is often connected to the Confucian concept of renzhi, or “government of the people,” as opposed to “government of law.” Chinese social behavior leading to corruption can be partly understood in terms of the hierarchical roles taught by Confucianism. These roles dictate the obligations an individual has in five cardinal relationships.

Among them is the filial responsibility of son toward father, which is the template for other hierarchical relationships in the system of Confucian ethics, such as that of subject-to-emperor and student-to-teacher. This hierarchical system of ethics was transplanted into the workplace, where it became the basis of a pervasive “organized dependency” of society upon the communist state. It evolved into an unofficial method utilized by workers to secure access to scarce goods and services (e.g., food, housing, or admission to schools) which were selectively distributed by shop officials. As benefits and resources were allocated directly by the planning bureaucracy in factories, workers relied on an informal “natural economy” of personal connections based on the exchange of gifts and favors in order to build privileged interactions with the gatekeepers who controlled them: factory officials.

Traditional Confucian values also emphasize consensus, lasting authority and clearly-defined personal relationships, a unity of state and society, and a socially encompassing moral order. These values led to social and cultural practices based on the extended personal-exchange and patron-client relationships encompassed by the term guanxi, which means interpersonal connections in order to secure favors in personal relations.

 Guanxi networks can be seen as institutions that arose centuries ago to secure trade relations in an environment that was only insufficiently covered by the legal system. An individual was able to expand his radius of economic relations, backed up by guanxi networks, to include various networks each with different resources.

A targeted expansion of an individual’s network to a counterparty which was regarded as useful for the pursuit of common interests could also be achieved by the giving of a gift or service. By accepting the gift or service, the counterparty obligated itself to perform an undefined reciprocal service at an unspecified time in the future. In this way, an implicit contract was concluded the fulfillment of which was linked to the particular network.

Guanxi networks can also be seen as clubs that guarantee their members the enforceability of available property rights in an institutionally disorderly environment, thus lowering transaction costs. To a certain extent, guanxi networks through personal connections and cooperation over a long period acted as a substitute for the market and the legal-institutional environment that supported it. At a later stage, connections served as a coordinating mechanism that allowed for a more efficient allocation of shortage goods than that provided by the fissures and fault lines of the communist economy. “This pattern is the result of structural features common to all communist factories: the workers’ economic dependence on the enterprise; political dependence on party and management; and, most important, the wide discretion of shop officials over promotion, pay, direct distributions, and sociopolitical services”.

Developed over centuries, guanxi networks were strongly anchored in traditional China and had an important function not only on an economic, but also on a political and social, level. They are still a factor in numerous areas in contemporary China, and virtually every Chinese person is connected to at least one guanxi network.  As noted by some researchers, guanxi networks stood in an antagonistic relationship to the Western system of legal rights. In the West, Christianity combined with pre-existing institutions to produce clear jurisdictional lines of top-down personalized authority. In the economic sphere, this led to legal definitions of property and ownership. Chinese institutions, however, rested on relationships and not jurisdictions, on obedience to one’s own roles and not on bureaucratic command structures. “Both jurisdictional principles and the autonomous individuals are historically absent in the Chinese worldview, and thus were not incorporated in Chinese institutions. Instead, Chinese society consists of networks of people whose actions are oriented by normative social relationships.”

Guanxi networks and economic reforms in China

With the advent of the “open-door policy” in China in 1978 and the subsequent reform period, guanxi networks underwent a gradual but substantial transformation from vertical relationships between officials and the rank and file to vertical relationships between officials and business. This change was brought about by the introduction of a market economy that was permitted to run in parallel with the old command economic mode. Following the implementation of the dual-track system, old central-administrative mechanisms were abandoned, often without putting in place new market-oriented substitutes capable of governing the transition. In this new hybrid system, the coexistence of guanxi networks and an emerging product market blurred the limits between regular economic transactions and corruption.

To a certain extent, guanxi networks advanced development of division of labor in the economic process and development in Chinese society over the centuries, and existed as complementary and parallel mechanisms for orderly economic interaction.

In the reform period, organization of economic activities by guanxi networks regained importance. Guanxi networks created governance structures that forced contract-honoring behavior of the transaction partners, analogous to vertical integration solutions.

Guanxi networks thus managed to provide an infrastructure in which the transaction partners could safeguard themselves from the ex post opportunism of one side. For some time, guanxi networks appeared to be an efficient and transaction-cost lowering co-ordination mechanism for regulating transactions in an environment characterized by high institutional uncertainty.

The reforms were aimed at the dissolution of established, central-administrative orderly mechanisms and development of the legal system. However, the first contract law did not take effect until July 1982, four years after the reform period had begun. The law was still strongly bound to the old central administrative system and quickly came into contradiction with subsequent laws and decrees, but was not revised until 1993. A comprehensive contract law only came into effect in October 1999. Even more problematic than this delayed enactment of laws was the poor enforcement of the existing laws mainly due to the administrative interventions and insufficient training of the officials enforcing the law.

The continuing liberalization of the Chinese economy requires a developed legal system which would provide a well framed regulatory and institutional framework for regulating financial and commercial transactions, testing them against principles of anti-corruption and offering legal security at a supra-individual level beyond social relationships. Such legal system would remove uncertainty as to enforcement of contractual rights and would therefore eliminate reliance on guanxi networks to safeguard transactions. However, transaction partners would need to regard such legal system as performing more effectively than guanxi networks before they could view it as preferable for regulating transactions. In addition, as noted by some researchers, pressure by political decision-makers would be required in order for the legal system to displace guanxi networks. Thereafter, as transaction costs for corrupt transactions would increase, guanxi networks would gradually lose importance and ultimately disappear, and incidences of corruption would decline.

TO BE CONTINUED”

SECURITIES COMPLAINTS

On June 16, 2014, Roger Artinoff filed the class action securities case against China Ceramics Co., Ltd., Huang Jia Dong, Su Pei Zhi, Hen Man Edmund, Ding Wei Dong, Paul K. Kelly, Cheng Yan Davis, William L. Stulginsky and Su Wei Feng.  CHINA CERAMICS

On June 20, 2014, Darryl Reitan filed a class action securities case against China Mobile Games & Entertainment Group, Ltd., Ken Jian Xiao, Ying Shuling, Credit Suisse Securities USA LLC, Barclays Capital, Inc., Jeffries LLC, Brean Capital LLC, and Nomura Securities International.  CHINA MOBILE

On June 26, 2014 Sophia Chang filed a class action securities case against China Mobile Games & Entertainment Group, Ltd., Ken Jian Xiao, Ying Shuling, Credit Suisse Securities USA LLC, Barclays Capital, Inc., Jeffries LLC, Brean Capital LLC, and Nomura Securities International.  CHINA MOBILE

On June 30, 2014, Michael H. Resh filed a class action securities case against China Agritech Inc., Yu Chan, Yau-Sing Tang, Gene Michael Bennett, Xiao Rong Teng, Ming Fang Zhu, Lun Zhang Dai, Charles Law, and Zheng Anne Wang. CHINA AGRITECH

On July 2, 2014, Richard Finlayson filed a class action securities case against China Ceramics Co., Ltd, Huang Jia Dong, Su Pei Zhu, Hen Man Edmund, Ding Wei Dong, Paul K. Kelly, Cheng Yan Davis, William L. Stulginsky, Su Wei Feng and Jianwei Liu.  CHINA CERAMICS LIU JIANWEI

On July 8, 2014, the SEC sued Child Van Wagoner & Bradshaw PLLC, a Salt Lake City accounting firm, for a substandard audit of Yuhe International, a Chinese chicken producer, which later admitted it lied to investors, resulting in millions of dollars in investor losses.  See the attached order.  SEC COMPLAINT YUHE AUDIT COMPANY

The SEC alleged that there was no evidence that the auditor made any inquiries concerning Yuhe’s internal policies related to the prevention of illegal acts or fraud, despite the resignation of the prior auditor, the existence of prohibited related party loans, numerous suspect accounting entries, a weak or nonexistent control environment and the use of personal bank accounts for Yuhe payments.

On July 15, 2014, Sungw An Yang filed a class action securities case against China XD Plastics Co., Ltd., Jie Han, and Taylor Zhang.  CHINA PLASTICS

On July 16, 2014, Shawn Tompkins filed a class action securities case against China XD Plastics Co., Ltd., Jie Han, and Taylor Zhang. TOMPKINS CHINA PLASTICS

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEFAULT DANGERS, TRANS PACIFIC PARTNERSHIP IN JEOPARDY, TRADE, CUSTOMS ANTITRUST AND SECURITIES

US Capital Pennsylvania Avenue After the Snow Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER

Dear Friends,

There have been some major developments in litigation, including dangers of default judgments, trade, Solar Cells, Chinese Antidumping, patents, US/Chinese antitrust, and securities areas.

January was a very important month for US Trade Policy because of the problems with the Trade Promotion Authority/Fast Track Trade Bill and the Trans Pacific Partnership (“TPP”) and Trans- Atlantic (“TA”) Trade Agreements in Congress.  Literally there have been day to day developments culminating with President Obama’s January 28th State of the Union address followed by the January 29th decision of Senate Majority leader Harry Reid to oppose the Trade Promotion Authority (“TPA”) Bill and the TPP and TA Negotiations.

As described below, Senator Reid’s decision to not allow the TPA bill to be introduced in the Senate may be the day free trade died.  If Senator Reid’s decision becomes final, this will have a dramatic impact on all trade relations, including trade relations with China, as the United States becomes more and more protectionist.

US LITIGATION AGAINST CHINESE COMPANIES—DANGERS OF DEFAULT

Recently through a Chinese law firm a Chinese company approached us because they were facing a US trademark case brought by a competitor in the United States.  The company’s question, why respond?  We are a Chinese company and you cannot catch us and make us pay damages in the United States.

We pointed out that the trademark case in question is a tough case for the Plaintiffs to prove because the trademarks in question are not registered marks and are common law marks.  If the Chinese company fights the case, it would have a good chance of winning the case.  But if the Chinese company defaults, it loses the right to contest the merits of the case.

In antidumping and countervailing duty cases, Chinese companies with US import operations have also told us, “Don’t worry.  We will never pay antidumping and countervailing duties; they cannot catch us in China.”  The times, however, are changing.

In many US cases against Chinese companies in Federal District Court, Plaintiffs are asking for damages, an injunction and punitive damages.  If the Chinese company wants to sell its products in the United States again, it has to fight.  If it does not fight, when the Chinese company sells its products in the United States, those products, including all inventory and accounts receivable, can be attached to satisfy the judgment.

Moreover, when a default judgment is for money damages, the US company is seeking to collect actual damages, interest from the date of the judgment or before, statutory damages, possibly punitive damages and attorney’s fees, which eventually will total millions of dollars.  If the Chinese company has a strong legal argument against the US Plaintiff, when it defaults, the Chinese company loses the right to make those legal arguments.

Moreover, this is no longer the 1990s or even early 2,000s.  Over the last two decades, Chinese companies have grown up and have bank accounts and assets/money and subsidiaries all over the world.  But that means it is easier for US judgment holders to collect money on their default judgments against Chinese companies.

If the Chinese company continues to do business in the US in the face of a default judgment, Plaintiffs can attach the company’s assets.  U.S. Marshalls can show up at a U.S. trade show and take all the company’s trade show materials to satisfy the judgment.  US Marshalls can go to warehouses where the company stores its products and take them.  US plaintiffs can go after the Chinese company’s accounts receivable.  The US Plaintiffs and their US lawyers can attach or garnish the Chinese company’s bank accounts–in the U.S., Hong Kong, the EC, Taiwan and countries all over the World where US judgments are enforceable and also now in China itself.

If the Chinese company banks with a Chinese bank that has a branch in the U.S., such as New York, Plaintiffs will garnish that branch bank and go after the China company’s  assets/bank accounts located in any of the bank’s other branches, wherever located, including China.

In 2010 a US inventor sued Chinese tire companies in Shandong Province for patent infringement and unfair competition in a Federal District Court in Virginia.  The Chinese companies did not fight the case and the Federal District Court entered a default judgment for $26 million.

In September 2013, in the attached complaint TIRES COLLECTION CASE the US law firm and inventor sued the Chinese Industrial and Commercial Bank Branch in New York City, saying give the US Plaintiffs the records and assets of these companies in China to satisfy the US $26 million judgment.  If the Chinese bank branch refuses to pay, the Bank could face fines of $100,000 a day, as an example.

Under the Single Entity Doctrine, US Federal Courts have held that if the Court has jurisdiction over the Chinese bank branch, it has jurisdiction over the bank worldwide.  If a Chinese company has any bank accounts in Chinese banks, such as the Bank of China or the Industrial and Commerce Bank, those banks have branches in New York City and the Chinese company can be attacked through its bank.  We are presently representing a Chinese Bank in a similar case and have 30 lawyers working full time on the case in Guangzhou on discovery.

The point is that Chinese companies can run, but they cannot hide.  If a Chinese company defaults in US litigation, it can be attacked in the US, Hong Kong, Taiwan, EC, Canada and many other countries, and now China through Chinese bank branches in the US.  So when a Chinese company defaults in US litigation, it puts the entire company at risk.

On the other hand, if the Chinese company decides to fight the case and hire a US lawyer, it may be able to pay a small amount of money as compensation or simply change its product or trade dress slightly and settle the entire case.  In many cases, if the Chinese company fights, it may be able to win the entire case and in certain situations get money from the US company bringing the case.

Ignoring US litigation is like picking up the sesame and losing the watermelon.  If the Chinese company does business in the United States and intends to continue to do business in the United States, trying to avoid service or defaulting after service may materially damage its business.  It will certainly materially damage its ability to do business in the United States.  The costs of default may be significant and far greater than that which would be necessary to defend against the US lawsuit.

TRADE

TRADE NEGOTIATIONS—TPP AND BALI/DOHA ROUND

As mentioned in my past newsletter, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA) negotiations with the EC.  Experts have estimated that TPP and TA Agreements could increase global business by several trillion dollars, if they can be concluded and implemented. These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

This is particularly a problem because the protectionism is coming from the Democratic side of the aisle.  Democratic Senators and Congressmen are supported by labor unions.  Although companies see the substantial increase in business from the TPP and TA Trade Agreements, unions only see a loss of US manufacturing jobs.  To date, President Obama cannot get one Democratic Congressman to support Trade Promotion Authority (“TPA”) in Congress.  Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the mid-term elections as soft on trade.

This rising protectionism in Congress directly threatens the TPP and all future trade deals with China and many other countries.

TPP NEGOTIATIONS MAY END AS SENATOR MAJORITY LEADER HARRY REID REFUSES TO LET THE TPA BILL GET TO THE SENATE FLOOR

As the Doha Round chances went up, the chance of TPP and TA Agreements fell down and may have fallen down completely.  As mentioned in my last post, USTR and US government officials were predicting that the TPP negotiations would conclude at the end of the year with an Agreement.  That is not going to happen.  The Congressional problems regarding the TPP have grown larger and larger and, in fact, may now be insurmountable.

Although the TPP does not include China, China is the elephant in the room and so its presence is very much in the mind of all the negotiators and the political powers in the United States.  The public reaction to TPP and the TPA, which is needed to conclude the TPP agreement, in part, is a reaction to trade with China and is a reflection of public and political attitudes in the United States to trade with China.

In January the TPP and Trans-Atlantic Agreements have created high drama on Capitol Hill as there have been literally day to day developments.

TRADE PROMOTION AUTHORITY (“TPA”)

On January 9, 2014, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014. HOUSE FAST TRACK BILL The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

Under the US Constitution, Congress, not the President has the power to regulate trade with foreign countries.  Article 1, Section 8, Clause 3, of the Constitution empowers Congress “to regulate Commerce with foreign nations”  Thus to negotiate a trade agreement, the Congress gives the Executive Branch, the Administration/The President and United States Trade Representative (“USTR”), the Power to negotiate trade deals.

Because trade deals are negotiated with the foreign countries, the only way to make the system work is that under the TPA law when the Trade Agreement is negotiated, the Congress will agree to have an up or down vote on the entire Agreement and no amendments to the Agreement that has already been negotiated will be allowed.

In introducing the new Trade Priorities Act, Senator Baucus stated that “This is our opportunity to tell the Administration – and our trading partners – what Congress’ negotiating priorities are.  TPA legislation is critical to a successful trade agenda. It is critical to boosting U.S. exports and creating jobs. And it’s critical to fueling America’s growing economy.”

According to Senator Hatch, “Every President since FDR has sought trade promotion authority from Congress because of the job-creating benefits of trade. Renewing TPA will help advance a robust trade agenda that will help American businesses, workers, farmers and ranchers by giving them greater access to overseas markets.”

The TPA Bill set out a clear directive on currency manipulation, provided greater transparency and gave Congress greater oversight of the Administration’s trade negotiations.

Both Senators Baucus and Hatch and Congressman Camp called TPA a “vital tool” as the U.S. continues TPP negotiations as well as free trade TA agreement talks with the European Union (EU).   The National Association of Manufacturers and the National Retail Federation quickly got behind the proposal and urged Congress to quickly pass it

As mentioned in past posts, however, the Administration considers the TPP negotiations to be secret and has not released any official negotiating texts.  Thus opposition is growing in Congress.  In November 2013, a group of over 170 lawmakers in the House sent letters to the President saying they opposed fast-track authority because modern trade agreements affect so many policies under Congress’ purview, and it should have much larger role in shaping the terms of the Agreements.

Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, stated that he was developing alternative legislation

On January 10th, it was reported that with opposition growing in Congress and the upcoming midterm elections, President Obama was going to have to mount a very serious lobbying effort to move the TPA legislation through Congress.  The proposed TPA legislation has drawn strong opposition from labor unions, including the AFL-CIO, which vowed to “actively work to block its passage,” and also environmental groups like the Sierra Club and consumer advocacy groups like Public Citizen.  Many Congressmen and Senators, especially on the Republican side of the aisle, stated that moving the TPA bill through Congress would require a strong lobbying effort on the part of the Obama administration, possibly even including remarks about TPA in the 2014 State of the Union address.

Prospects for a fast-track bill moving forward in 2014 are further complicated by the Congressional elections in November.  The TPA Bill is a test of the administration’s influence and clout on Capitol Hill and right now the Administration’s clout on Capitol Hill is very weak.  The TPA fight is a fight over a number of different issues and the extent to which Congress can influence the negotiating process.

Typically multi-national corporations strongly back free-trade agreements. The Chamber of Commerce, which sometimes spends more than $100 million lobbying a year, and the Business Roundtable, were quick to put out statements supporting the legislation. Also weighing in was a coalition called Trade Benefits America, which includes companies ranging from General Electric Corp. to Wal-Mart Stores Inc.

On January 15th it was reported that President Obama could not find one Democratic Congressman in the House of Representatives to co-sponsor the TPA bill. Meanwhile, the bill’s main Democratic backer in the Senate, Finance Committee Chairman Max Baucus, is retiring from the Senate and on his way out to be Ambassador to China, and key senior Democratic Senators on the committee, including Senator Wyden, its incoming chairman, say they either don’t support the bill or want to change it.

Democratic Reps. George Miller of California, Louise Slaughter of New York and Rosa DeLauro of Connecticut said of the proposed TPA Bill: “Our constituents did not send us to Washington to ship their jobs overseas, and Congress will not be a rubber stamp for another flawed trade deal that will hang the middle class out to dry.”

The free-trade push joins a growing list of policies Obama has championed that are unpopular with Democrats.  Both Republican and Democratic Members complained that the Obama administration’s outreach on trade has been disorganized.

Another Democratic complaint is that the negotiations for both trade deals are confidential and too far along for Congress to play a meaningful role in their outcome. Five influential Senate Democrats told U.S. Trade Representative Michael Froman that they won’t support the trade promotion authority bill without assurances that Congress can hold U.S. trade negotiators “more accountable” during the talks, rather than after a deal is finished and lawmakers can only cast up-or-down votes.

For Republicans, Democrats used pro-trade votes to blast GOP presidential candidate Mitt Romney and House Republicans in the Midwest states and elsewhere as supporters of outsourcing jobs.  According to one GOP leader in the House, given Obama’s political problems within his own party, House Republicans are insisting that Democrats deliver at least 50 votes in support of the bill, including at least one from the party’s leadership, before they’ll bring it to the floor.

On January 16, 2013, the Senate Finance Committee held a hearing on the TPA Bill and the TPP and TA negotiations, but USTR refused to send a witness.  Many industry witnesses did appear, however.  See http://www.finance.senate.gov/hearings/hearing/?id=bd99ab08-5056-a032-523f-27ddae65e3d0 for a video of the hearing.  The failure of USTR to show up at the hearing illustrated the difficulty ahead for the TPP.

At the hearing in the attached statement LARRY COHEN TESTIMONY TPP DIFFICULTY Labor Leader Larry Cohen, President of the Communications Workers of America, a union, spoke against the TPP, stating:

 

“Free trade agreements have been devastating for our balance of trade. In 1993, the year before the North American Free Trade Agreement (“NAFTA”), our trade deficit in goods was -$132 billion or -1.9 percent of our GDP. By 2012, our trade deficit ballooned to -$741 billion or -4.6 percent of our GDP. The growth of our trade deficit to such levels has been a strong drag on our economy and especially in terms of jobs and wages.

And specific trade deals have been most at fault for the increased trade deficit. Here are three examples. In 1993, the U.S. had a trade surplus in goods with Mexico of $1.66 billion. By 1995, just one year after NAFTA, this had changed to a $15.8 billion deficit and by 2012 the deficit with Mexico had increased even further to $62 billion.

Allowing China into the WTO also has been disastrous. The U.S. had a trade deficit in goods with China of $83 billion in 2001 when China was admitted to the WTO. This deficit has ballooned to $315 billion in 2012. And for a most recent example, in just one year after the U.S.-Korea trade agreement took effect, our trade deficit in goods with South Korea increased by $5.5 billion or 46%.

Last year, our federal budget deficit was more than $680 billion. But our trade deficit in goods for 2012 was $741 billion. While a lot of attention in Congress and in Washington, DC has focused on the federal deficit, little attention has been focused on our trade deficit and its negative impact on our economy, jobs and wages. If we had trade deals that actually led to balanced trade, our economy would generate more than 3 million more jobs. Unfortunately, our current model for free trade agreements increases our trade deficits and reduces our employment. . . .

In the economy as a whole, average real weekly take home pay for a U.S. worker today is $637 compared to where it was 40 years ago at $731 a week — $100 less.  . . .

Trade agreements have become the new tool in the arsenal for the unfettered corporate attack on collective bargaining rights. With trade agreements, threats to offshore work and actually offshoring the work in highly unionized industries has increased. The result — the share of the private sector workforce protected by a collective bargaining agreement has declined from a high of 35.7 percent to just 6.6 percent today. This is another direct link cited by most economists as a factor in the rising inequality in our country today.  . . .

In telecommunications, we have seen the virtual elimination of telecom manufacturing equipment in the US, the elimination of a U.S. national company, and hundreds of thousands of lost jobs in that supply chain.  . . .

Many groups representing U.S. consumers are especially concerned with how trade agreements can be used to degrade our food safety protections. Allowing for Fast Track consideration of TPP would further jeopardize the safety of the food consumed in the U.S. Seafood standards in particular could be challenged through the TPP. The FDA has detained hundreds of seafood exports from TPP countries because they were contaminated. For example in Fiscal Year 2012, the FDA detained 206 imported seafood products from Vietnam alone because of concerns including salmonella, e-coli, methyl mercury, filth and residues from drugs that are banned in the U.S.  Currently the FDA is only able to inspect between 1-2 percent of our food imports.  The TPP, by greatly expanding our food imports (especially seafood) would result in an even lower percentage of inspections.  . . . .

Trade agreements are no longer just about tariffs and quotas – they are about the food we eat, the air we breathe, the jobs we hold. Congress needs to have an enhanced and enforceable role in this new era when massive trade agreements can cover so many policy issues. We cannot abdicate the legislative and policy formation process to the USTR and non-elected representatives. Or, we would argue that trade policy should commence with the Congress adopting policy priorities and the countries with whom we will negotiate. It’s clear that this is not what has happened.  . . .

For example, we are concerned that Vietnam has been chosen as a trade partner. In Vietnam which has a population of 90 million people, the minimum wage is $0.28 per hour and the average wage is $0.75 an hour. There is no right to free association or expression. Our own Department of Labor has placed garments made in Vietnam on the federal “Do Not Procure” list for documented use of forced child labor in apparel production.  Vietnam’s extremely low wages, non-existent workers’ rights, and extensive roster of human rights violations will only further exacerbate the already strong downward pressure on U.S. wages.  We should not enter into trade agreements with countries with such records. . . .

Shouldn’t this proposition of including countries with such abysmal records like Vietnams be debated? Shouldn’t the U.S. Congress determine if that approach is appropriate? Shouldn’t the US Trade Representative further consult with Congress as negotiations progress?  . . . .”

 

For more details, see also video on CWA website http://action.cwa-union.org/c/1372/p/dia/action3/common/public/?action_KEY=7357

Yet at the same time, Senator Portman of Ohio, who was formerly USTR under President Bush, noted at the Senate Finance hearing that in terms of exports, in ranking of countries the US rates just above Ethiopia and that 40% of US exports were to countries that had signed trade agreements with the US.

After the hearing, Republicans, including House Speaker Boehner, and free trade Democrats urged President Obama to get more involved saying that the President has to become personally involved in pushing the TPA or the new Bill will simply not pass Congress.  As mentioned, in the House, President Obama faces the problem that not one Democratic Congressman is willing to co-sponsor a TPA Bill.

On January 16th, there were also reports that Congressional Democrats were very upset about the draft environmental provisions of the TPP that had been leaked by Wikileaks.  The draft environmental chapter of the TPP agreement and a report by negotiators from the 12 countries involved in the talks, show that the pact would fall short in enforcing the higher environmental standards of other recent U.S. trade deals. Those pacts threaten sanctions against trading partners that violate international agreements to protect endangered species, prevent overfishing and regulate chemicals that deplete the ozone layer.

Immediately, Sen. Bob Casey (D-Pa.), a member of the Senate Finance Committee, which oversees Trade, stated ““It’s of grave concern. It’s as if our negotiators, decade after decade, have to walk into the door and … say, ‘Yes, we have concerns about leveling the playing field on labor and environment protections,’ but by the end of it, we say, don’t worry about it.”

Although the United States is pushing for robust environmental provisions, apparently the 11 other countries are all opposed to more strict environmental standards.  The inability of the U.S. to secure its key environmental demands made it even more difficult for the TPA bill.

According to Rep. Rosa DeLauro (D-Conn.),” As more information about the Trans-Pacific Partnership being negotiated in secret is revealed, the more the public can see how clearly this potential agreement, which is unprecedented in scope, would not only lead to the outsourcing of jobs, but also harm American consumers and the environment.”   All of this did little to help Obama persuade liberal Democrats on the TPA Bill

On January 17, 2013, it was reported that progressive advocacy groups were ramping up efforts to oppose the TPP and TPA legislation urging their members to push their representatives in Congress to fight the trade policies.

The progressive-leaning Democracy for America sent an email to its members saying they should call their local congressional representatives and urge them to vote down a proposal that would grant trade promotion, or “fast-track,” authority to the Obama administration.

On Monday, January 27th, 550 labor, environmental and consumer advocacy groups, including the United Autoworkers, which provided President Obama critical support on previous trade pacts, such as the South Korea FTA, sent a letter to Congress urging them to reject the fast-track bill.

The email campaign comes two days after a dozen Senators, comprised of 11 Democrats and Sen. Bernie Sanders, an independent from Vermont, wrote to Senate Majority Leader Harry Reid, D-Nev., expressing “deep concern” over the chance that trade promotion authority would be renewed.

JANUARY 28 — STATE OF THE UNION

In response to the Republicans call in Congress for the Administration to do more regarding the TPA bill, President Obama responded in his State of the Union pushing the TPA bill and TPP and the TA Agreements.  President Obama stated:

“We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA”.  Look China and Europe aren’t standing on the sidelines.  Neither should we.”

What was very interesting about this point is that in contrast to almost every other point made in the State of the Union, when President Obama spoke about Trade, the Republicans cheered, but the Democrats in President Obama’s own party were silent.

JANUARY 29TH—THE DAY FREE TRADE MAY HAVE DIED

But the next day, Senator Harry Reid, the Senate Majority Leader, the head Democrat in the Senate, came out against TPA, stating:

“Everyone knows how I feel about this.  Senator Baucus knows.  Senator Wyden knows.  The White House knows.  Everyone would be well-advised to not push this right now.”

As Majority Leader, Senator Harry Reid controls the bills that are allowed on the Senate Floor.  With Senator Harry Reid’s opposition, the TPA bill is dead in the Congress, which means that the President’s trade agenda and his push for these agreements are also dead.  In an ironic point, this situation will probably only change if the Republicans take over the Senate in 2014.

The lawmakers opposed to the TPA Bill argue that in light of the top secret nature of the negotiations, multiparty trade deals go far beyond the scope of the smaller, typically single-nation trade accords that were done in the past.  These new multinational deals affect larger portions of the U.S. and global economies and touch on many policies under Congressional jurisdiction.  Congress, therefore, should have a greater say on trade deals beyond the ability to accept or reject them.

On January 29, 2014, David Bonior, a former Michigan Congressman, who voted for NAFTA, in an article entitled Obama’s Free-Trade Conundrum stated:

 

“But Mr. Obama’s desire for fast-track authority on the T.P.P. and other agreements clashes with another priority in his speech: reducing income inequality.

This month is the 20th anniversary of the North American Free Trade Agreement, which significantly eliminated tariffs and other trade barriers across the continent and has been used as a model for the T.P.P.  Anyone looking for evidence on what this new agreement will do to income inequality in America needs to consider Nafta’s 20-year record. . . .

The result is downward pressure on middle-class wages as manufacturing workers are forced to compete with imports made by poorly paid workers abroad. . . .The shift in employment from high-paying manufacturing jobs to low paying service jobs has contributed to overall wage stagnation. The average American wage has grown less than 1 percent annually in real terms since Nafta, even as productivity grew three times faster. . . .

The Nafta data poses a significant challenge for President Obama. As he said on Tuesday, he wants to battle the plague of income inequality and he wants to expand the Nafta model with T.P.P.  But he cannot have it both ways.”

 

In response to Senator Reid’s statement, it was reported that Sen. John Cornyn  (R., Texas.) stated “You can kiss any new trade deals goodbye. . . I think the majority leader’s focus is on the November elections and he doesn’t want to expose his vulnerable members to controversial votes.”

The latest developments come amid growing skepticism in Japan about the U.S.’s commitment to free trade. “It’s up to the resolve of the U.S. government,” Japan’s economy minister, Akira Amari, told reporters in Tokyo. “If the president comes to the negotiating table with a strong enough determination to wrap it up by spring, other countries will follow suit.”

Sen. Chuck Schumer (D., N.Y.) stated “I think there’s a lot of dubiousness in our caucus to fast track, given that every time we sign a free-trade agreement it seems other countries violate the rules and we don’t”.

Unions opposing the trade deals were happy with the outcome.   According to Larry Cohen, head of the Communications Workers of America, “For those of us who want to have a progressive trade agenda, it means that we’re encouraged.”

On January 30th, House Speaker John Boehner spoke out against President Obama suggesting that he needs to push Senate Majority Leader Harry Reid to get the TPA bill through Congress.

On February 3rd, President Obama met with Senate Majority Leader Harry Reid but the President did not bring up the trade issue and made no effort at the meeting to change Senator Reid’s mind on the TPA bill.

On February 4th, it was reported that StopFastTrack.com, a new coalition opposed to the TPA bill and the TPP and TA Trade Agreements is building grassroots support, gathering more than a half a million signatures and making tens of thousands of calls to Senators and Congressmen lawmakers to argue against trade legislation in Congress.

According to the report, unions, environmental groups, and political organizations—working under the umbrella site —have nearly 600,000 supporters  and made more than 40,000 phone calls to Congress, opposing the trade measures.

Another political organization, Democracy for America, has obtained 125,000 electronic signatures on a petition requesting that Nancy Pelosi, top House Democrat, follow Senator Reid’s lead and stop the TPA bill in the House.

Many trade experts believe that Senate Majority Leader Harry Reid’s decision not to bring the TPA bill to the Senate Floor casts substantial doubt over the negotiations for the TPP and the TA deals.  Most commentators are stating that all these Agreements are at risk right now.

White House press secretary Jay Carney stated on Wednesday, January 29th,

“Leader Reid has always been clear on his position on this particular issue.  As the President said in the State of the Union address, he will continue to work to enact bipartisan trade promotion authority to protect our workers and environment and to open markets to new goods stamped ‘Made in the U.S.A.’ And we will not cede this important opportunity for American workers and businesses to our competitors.”

Harry Reid’s decision could be a critical tipping point in US trade policy as the US becomes more and more protectionist.  It took a President Bill Clinton with his tremendous political ability to persuade Democratic Senators and Congressmen “to do the right thing” on NAFTA and enact it into law.  But President Obama is not Bill Clinton.

DOHA ROUND-BALI

As mentioned in the last newsletter, much to the surprise of many Government officials and companies, in December the WTO round in Bali resulted in all the WTO countries agreeing to Trade Facilitation Agreement to modernize customs procedures, as well as provisions on agriculture and economic development.  If there had been no Agreement in Bali, it could very well have meant the end of the multilateral effort to lower trade barriers through negotiations.

On January 7, 2014 WTO Director-General Roberto Azevedo stated:

“Just six weeks ago, the fate of the multilateral trading system hung in the balance. Today, we can talk with confidence about how we can continue to develop and strengthen the system for the future.”

According to Azevedo, the Bali Trade Facilitation Agreement could possibly add as much as $1 trillion to the world’s economy each year.

The question now is what happens in the future.  Most experts believe that the WTO members will in the short term pursue agreements that affect only certain sectors or include only some countries.  Thus, there will probably be sector-by-sector trade negotiations at the WTO.

Agreements affecting trade of environmental goods and services might be one of the likely near-term targets.  But the Trade Facilitation Agreement still must be implemented as the details have to be ironed out, including Customs procedures in developing countries and other issues.  Implementation also means the Agreement must go through Congress and without TPA, it will be difficult for Bali Agreement to get through Congress.

Azevedo himself realizes the problems stating, “The task of strengthening the multilateral system and moving towards delivering on the[Doha Development Agenda] will be difficult, but it is not impossible.”

SOLAR PRODUCTS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN–QUANTITY AND VALUE QUESTIONNAIRE DUE FEBRUARY 13TH AT COMMERCE

Commerce has issued a quantity and value questionnaire in the new Solar Products/Modules/Panels antidumping case/initial investigation against China.  The deadline for the response to the Quantity and Value Questionnaire is February 13, 2014.

Attached are the quantity and value questionnaire and the fact sheet that was issued by Commerce. factsheet-multiple-solar-products-initiation-012313   prc-qv-solar-products-012714

The quantity and value questionnaire requires the Chinese exporter to report all sales during the period April 1, 2013 to September 30, 2013.  Specifically, Commerce is requiring the Chinese exporter to report the total number of modules, panels or laminates during that period, the total number of megawatts, the terms of sale and the total value of sales.

A Chinese exporter/producer must submit a response to this quantity and value questionnaire by February 13th.  If not, it will receive the highest dumping rate of 165%.

SOLAR CELLS REVIEW INVESTIGATION

To further complicate the Solar case, on February 3rd Commerce published in the attached Federal Register notice initiating the first Solar Cells review investigation.  This case will cover imports of Chinese solar cells during the review period.

So to be clear, the Solar Cells Review Investigation covers Chinese solar cells.  The Solar Products new investigation covers imports of Chinese modules and panels with Taiwan and other solar cells in them.

For the first Solar Cells Review Investigation, attached are the notice, in which many Chinese companies are named, and the Quantity and Value questionnaire.  Solar Cells AD CVD Initiation Notice 1st Review (2) SOLAR CELLS REVIEW QV Chinese companies named in the Solar Cells Review investigation need to file the QV questionnaire response on February 19th .   Chinese companies also need to file separate rate applications or certifications on or before April 4, 2014 at Commerce in first review investigation to keep their separate rate from the Solar Cells initial investigation.  Failure to file these documents meand that imports of Chinese solar cells will be assessed a rate of 250%.

Solar Trade problems with China are getting complicated.

SOLAR PRODUCTS INITIAL INVESTIGATION

As mentioned in my last post, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  The Scope of the Merchandise, the specific products covered by the new antidumping and countervailing duty investigations, are described in the attached notice and petition:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

See the injury petition in my last post on this blog.

In the subsequent Commerce Department initiation notice, which is attached, however, in contrast to the petition, solar consumer products are specifically excluded:

“Also excluded from the scope of this investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm2 in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.”

Initiation Notice – Certain Crystalline Silicon Photovoltaic Products 1-24-14

In addition, Commerce reduced the All Others/Facts available rate in the China case from 298% to 165%, but raised the antidumping rate for Taiwan to 75.68% from 39%.  The trade volume is large.  According to Commerce, imports of the subject merchandise from China and Taiwan were valued at $2.1 billion and $513.5 million, respectively.

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days, when the Commerce Department’s preliminary determinations are due on May 30, 2014 (CVD) and July 29, 2014 (AD).  Commerce Department investigations almost always are extended out to the full time.

Chinese companies also must submit their response to the quantity and value questionnaire by February 13th and be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 22nd, the day after the Government was closed, the ITC held a preliminary conference.  The Commission’s preliminary injury determination is due February 14th.

Meanwhile, many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

The Solar Energy Industries Association (SEIA) has announced that it is opposed to the case, calling it an “escalation” of the U.S.-China solar trade conflict.  Experts also stated that the duties could cripple the end user portion of the solar Industry, which is far larger than the domestic production industry.  As the SEIA stated, “From past experiences, we have learned that a conflict within one segment of the solar industry ripples across the entire solar supply chain.”

The market pressure driving solar prices downward is not caused by dumping, but the industry’s efforts to achieve so-called grid parity, where the price for solar power is comparable to that for traditional-source power.  But prices for US oil and natural gas are falling fast.  With falling costs for traditional forms of energy, it is very difficult for solar energy to be competitive.

The effect of this case, however, will be to drive up the costs of solar products,

Although the SEIA and some members of Congress have called for a settlement of the solar trade dispute, Solar World has expressed skepticism about such a deal, making it more difficult to conclude a government to government deal settling the case.  As mentioned in a prior post, there is no public interest standard in US antidumping and countervailing duty law, as compared to EC, Canada and China.  Also End Users have no standing in US antidumping and countervailing duty cases.  Thus it is difficult for the US Government to pressure Solar World to drop its case.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases stating:

 

“The two parties should follow the trend and make efforts to promote cooperation proceeding from the overall interests of clean energy development, so as to ensure the steady development, rather than restricting competition and cooperation by frequently taking trade remedy measures. It is proved that, that U.S. initiated investigations and levy high anti-dumping and countervailing duties in 2011 not only failed to change the situation of poor operation and lacking of competitiveness of its domestic industries, resulting in significant negative impacts on downstream industries including the assembly industry and services sector, but also triggered a worldwide chain reaction of trade disputes on PV products, which caused chaos in the whole industry.  . . .”

 

See attached statement MOFCOM STATEMENT

CURTAIN WALL UNITS ARE COVERED BY THE ALUMINUM EXTRUSIONS CASE

On January 30, 2014, in Shenyang Yuanda Aluminum Industry Engineering Co. v. United States, Judge Eaton in the Court of International Trade affirmed the Commerce Department’s determination that Curtain Wall Units, the sides of buildings, are with the scope of the AD and CVD orders on aluminum extrusions from China.  The Court stated in part;

“Because curtain wall units are “parts for” a finished curtain wall, the court’s primary holding is that curtain wall units and other parts of curtain wall systems fall within the scope of the Orders.”

See the attached decision.  SHENYANG YUANDA

As a result of the Court’s and the Commerce Department’s determination, the sides of buildings from China are now covered by US antidumping and countervailing duty orders with duties as high as over 100 to 300% for certain imports.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

WIRE ROD

On January 31, 2014, a new antidumping and countervailing duty case was filed against carbon steel wire rod from China.  See notice below.

Docket No: 3000

Document Type: 701 & 731 Petition

Filed By: Kathleen Cannon

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: ArceloMittal USA LLC, Charter Steel, Evraz Rocky Mountain Steel, Gerdau Ameristeel US Inc., and Keystone Consolidated Industries Inc, and Nucor Corporation.

Date Received: January 31, 2014

Confidential: Yes

Commodity: Carbon and Certain Alloy Steel Wire Rod

Country: People’s Republic of China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and antidumping duties on Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China.

Status: 701-TA-512 & 731-TA-1248

ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

In February Chinese producers and exporters, US importers and US producers have the opportunity to request an antidumping and/or countervailing duty review investigation of certain outstanding AD and CVD orders by filing a review request at Commerce by the last day of February for the following cases against China :

Period of review ————————————————————————              Antidumping Duty Proceedings

The People’s Republic of China:

Certain Preserved Mushrooms, A-570-851………..     2/1/13-1/31/14

Folding Metal Tables and Chairs \2\, A-570-868…     6/1/12-11/5/12

Frozen Warmwater Shrimp, A-570-893……………     2/1/13-1/31/14

Heavy Forged Hand Tools, With or Without Handles,     2/1/13-1/31/14      A-570-803…………………………………

Small Diameter Graphite Electrodes, A-570-929….     2/1/13-1/31/14

Uncovered Innerspring Units, A-570-928………..     2/1/13-1/31/14

Utility Scale Wind Towers, A-570-981………….    2/13/13-1/31/13

Countervailing Duty Proceedings

The People’s Republic of China:

Utility Scale Wind      2/13/13-12/31/13  Towers, C-570-982.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

As mentioned in prior posts, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

We will be targeting two major issues—Working for market economy treatment for China in 2016 as provided in the US China WTO Agreement and working against retroactive liability for US importers. The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

In forthcoming posts we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

CHINESE ANTIDUMPING CASE

POLYSILICON

On January 20, 2014, China issued final antidumping and countervailing duties against solar-grade polysilicon imported from the U.S.  Under the Chinese polysilicon antidumping duty order, US companies face dumping rates ranging from 53% to 57%.  On the Countervailing Duty side, US companies face rates from 0 to 2.1%.

On January 26, 2014, MOFCOM announced that given “the special market conditions” it has decided not to carry out antidumping and anti-subsidy measures for the moment.  Apparently, MOFCOM is hoping for a negotiated suspension agreement in the new Solar Products case.

FDA—FOOD PROBLEMS

CHINESE CHICKEN

On December 19, 2013, fourteen Congressmen circulated a letter in Congress asking their Congressional colleagues to ensure Chinese-processed chicken is kept out of the school lunch and other child nutrition programs. The letter also states that chicken slaughtered in China should be banned from the US market.  The letter states:

“It is because we are deeply concerned about the safety of the food served to the American people, especially our children, that we write to express our serious apprehension about the Food Safety and Inspection Service (FSIS) recent decision to allow China to process chicken raised in the United States, as well as Canada and Chile, to then export to the United States. Furthermore, we believe FSIS is likely to eventually allow China to export its own raw poultry to the United States.”

CHINA CHICKEN PROBLEM CONG LETTER

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

On December 5th, the Washington State Government reported that on December 3rd the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Washington, Oregon, and northern California. China reported a shipment of geoduck clams tested high in paralytic shellfish poison (PSP) and arsenic.  See my past post on this blog for more on this fight and the attached announcement.

The ban has already devastated shellfish growers in Washington, Alaska, Oregon and Northern California.  It also affects clams, oysters and other shellfish from U.S. waters.

China is the world’s largest importer of geoducks (pronounced “gooey duck”), with more than half of all the harvest from Washington, British Columbia and Alaska getting shipped to China. With China cut off, there are few places for the harvest to go.

Test results showed that, on average, arsenic was present in the geoduck bodies at a level of 0.327 parts per million (ppm), which falls below China’s legal limit of 0.5 ppm. Arsenic in the actual meat of the geoducks registered at 0.063 ppm, eight times lower than the limit.

On January 9th it was reported that Laboratory tests on Washington State’s exports of geoduck clams, found no evidence of unsafe or excessive levels of arsenic.  Although the test results have been sent to China, to date they have not yet received a response, and the ban remains in place.

The problem, however, arises from US export forms for the geoduck shipment.  The form does not allow for more specificity in identifying the source from which the shellfish were harvested.  While the problem shipments of shellfish came from isolated areas in Washington and Alaska, “Area 67″ encompasses all the coastal regions from Northern California through Alaska’s Pacific Coast. As a result, Chinese authorities were forced to ban shellfish from all of Area 67.

National shellfish programs provide forms that set forth specific shippers and harvest locations, which allow the governmental authorities to easily trace shipments back to specific shippers and harvest locations. If there’s a contamination problem domestically, shellfish growers can easily isolate the problem instead of shutting down the entire industry.

The World Health Organization is said to be considering setting safe levels for
inorganic arsenic in food in the .2-.3 ppm range in 2014. The Washington geoduck claims that tested high for inorganic arsenic in China, however, were harvested from a tract of land managed by the Department of Natural Resources that has since been closed. The tract is within the shadow of a copper smelter that was operated near Tacoma for 100 years.   According to Marian Abbett, manager of the Tacoma smelter clean up for the Washington Department of Ecology, “Well we know that arsenic levels are elevated in the surface soils in that area.  Soil samples from the surrounding land show levels of arsenic between 40 and 200 ppm, though that number does not directly equate to levels of arsenic that will end up in the water, or in shellfish.”

The area was closed to all shellfish harvest until 2007, when the Puyallup Tribe petitioned state agencies to reopen the tract for geoduck harvest. At that time the Department of Health conducted tests on geoduck in the area and found levels of .05 ppm. That’s an order of magnitude below the amount found by the Chinese in October of 2013 and well within the safety parameters set by the Chinese.

However, state agencies have not tested for inorganic arsenic or other metals in shellfish from the area since it was reopened in 2007.

Arsenic is a carcinogen that has also been associated with long-term respiratory effects, disruption of immune system function, cardiovascular effects, diabetes and neurodevelopmental problems in kids.

“There’s no safe level, but at some point you’ve crossed the threshold to being really dangerous and we don’t quite know where that threshold is at this point,” Cottingham said.

But the ban is having a real effect on fishermen in Washington State.  Ninety percent of the geoduck harvested in Washington is sold to China and Hong Kong.

The clams can fetch up to $150 per pound in China, but today the Suquamish tribe is losing $20,000 each day that the ban is in place, but the impacts of the ban are being felt well beyond the reservation. John Jones, another Suquamish diver, stated, “My brothers are from Port Gamble and they’re out of work.  They shut down diving everywhere, not just for us but for the state.”

Although British Columbia in Canada is not affected, the Chinese ban impacts all shellfish throughout Puget Sound, Alaska, Oregon and Northern California.  The shellfish industry in Washington is worth $270 million annually, and China is the biggest market for exports.

This is the broadest shellfish ban China has ever put in place, but it’s not the first time China has banned a major import from the U.S.  Beef imports from the U.S. have been banned for the past ten years. More recently, China rejected about half a million tons of U.S. corn because it contained a genetically modified strain.

Chinese officials have been slow to reveal details of their shellfish testing methods. That’s prompted some to raise concerns about political motivations behind the shellfish ban.

Although there is a possibility that the Chinese are retaliating for past problems with food imports in the US, there is strong evidence that the Chinese have a legitimate problem.  The contaminated geoduck clams were harvested near the former site of a copper smelter in Tacoma, which had leached arsenic into the surrounding area.

Again Chinese problems with US shellfish must be kept in context.  As indicated above, US Congressmen want to ban all chicken processed in China.  Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

PATENT/IP AND 337 CASES

INTERDIGITAL SETTLES 337 PATENT CASE WITH HUAWEI

On January 2, 2014, InterDigital Communications Inc. and Huawei Technologies filed a confidential settlement of their 337 patent case over 3G and 4G wireless devices.  Huawei’s antitrust strategy seems to have worked.

CHINESE COMPANY LOOSES 337 RESINS TRADE SECRET CASE

On January 15, 2014, in Certain Rubber Resins and Processes for Manufacturing Same, Investigation No. 337-TA-849, the U.S. International Trade Commission (“ITC”) determined that there was a violation of section 337, 19 USC 1337, because a Chinese chemical maker and other companies had stolen trade secrets covering the recipe for rubber resins held by New York company, Sl Group Inc.  The Commission issued a limited exclusion order for 10-years excluding infringing imports of the Chinese resins into the United States from Sino Legend (Zhangjiagang) Chemical Co. Ltd. and the other named respondent companies in the case.

According to the 337 complaint, although SL Group had closely guarded the formula and the equipment used to create the resin, the manager of Sl Group’s Shanghai chemical plant defected to Sino Legend in 2007 and took the design with him.

The ITC’s ruling is directly contrary to the ruling of a Chinese court, which reached the opposite conclusion and found that there was no misappropriation.  After acquiring the trade secret, Sino Legend has been able to take over about 70% of the Chinese market for the rubber resins in question, which are used in tire production.

In response to the ruling, Sino Legend has stated that the Commission’s ruling will not substantially affect its business because the ITC’s ruling will allow its customers to use all Sino Legend resins in any of their non-U.S. production facilities, and then import those products into the U.S. without restriction.

DUPONT TRADE SECRETS CASE — TITANIUM DIOXIDE

In an ongoing criminal trial in California this month, prosecutors described how an ex-DuPont engineer and two conspirators stole DuPont trade secrets regarding a specific process to produce very high quality titanium dioxide, and sold the designs to Chinese state owned companies earning $28 million.

Chinese-American Walter Liew and his wife, Christina, founded multiple companies in Northern California and hired as a consultant ex-DuPont engineer Robert Maegerle, who knew the process of safely producing massive amounts of titanium dioxide.  Maegerle allegedly shared what he learned building plants for DuPont with the Liews, who used the information to negotiate contracts with Chinese companies, including Pangang Group Co., to build titanium-dioxide-making factories in China. However, both Maegerle and Walter Liew knew Dupont had patented that information and it was confidential.

Titanium dioxide is a white pigment used in everything from iPhone cases to toothpaste.  But it is hot, dirty and dangerous and DuPont figured out a way to make the product commercially viable.  According to the prosecutor, that process is what the Chinese companies wanted.

Maegerle is charged with trade-secrets theft, conspiracy and obstruction of justice.  Christina Liew faces charges of economic espionage, trade-secret theft, and tampering with witnesses and evidence in a separate trial.

Lawyers for the defendants argued that they did not copy DuPont’s factory plans verbatim, but used them as the basis to design around and develop their own production techniques for producing titanium dioxide.

Later in the trial, however, a government expert testified that Dupont fiercely guarded its trade secrets for making high-quality titanium dioxide and that the trade secrets made Dupont the envy of the industry.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On December 31, 2013, Laserdynamics filed a patent case against Haier. HAIER PATENT CASE

On January 7, 2014, Bluebonnet Telecommunications filed patent cases against ZTE and Huawei. BLUEBONNETZTE HUAWEI BLUEBONNET

On January 7, 2014, Toyo Tire and Rubber filed a patent case against South China Tire and Rubber Co. TOYO TIRE CASE

On January 10, 2014, Personal Audio filed a patent case against Huawei and ZTE. PERSONAL AUDIO HUAWEI ZTE

On January 10, 2014, Thomas & Betts filed a trademark, unfair competition, case against Zhejiang Shengyu City Fengfan Electrical Fittings Co. TRADEMARK WRENCH ZHEJIANG

On January 13, 2014, Laerdahl Medical filed a patent case against Shanghai Honglian Medical Instrument Development Co. SHANGHAI MEDICAL

On January 13, 2014, ICON Health and Fitness filed a trademark case against Zhongshan Camry Electronics Co. ZHONGSHAN TRADEMARK

On January 14, 2014, Kee Action Sports filed a patent case against Shyang Huei Industrial Co., a Taiwan company. TAIWAN SUN

On January 14, 2014 Toyo Tire and Rubber filed a patent case against Hong Kong Tri-Ace Tire Co and Doublestar Dong Feng Tyre Co. TOYO DONG FENG

On January 16, 2014, Touchscreen Gestures filed patent cases against Huawei and ZTE. TOUCHSCREEN ZTE TOUCHSCREEN HUAWEI

On January 29, 2014, Standard Fiber filed a trade secret case against Shanghai Tianan Home Co, Teetex, LLC, and Anwen “Alvin” Li. SHANGHAI TRADE SECRET

Complaints are posted above.

ANTITRUST

VITAMIN C CASE

As mentioned in my last post, the Vitamin C antitrust case against Chinese Vitamin C companies is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  In addition, the judgment has increased by $4 million, specifically $4,093,163.35, to $158 million, specifically $158,203,163.35, to pay the Plaintiffs’ legal fees. FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

JUSTICE IS GETTING TOUGHER ON INTERNATIONAL CARTELS DEMANDING JAIL TIME FOR FOREIGN EXECUTIVES

There are reports that in 2013 and now 2014 the Justice Department has ramped up its enforcement in international cartels/price fixing antitrust cases looking for more prison sentences for foreign executives involved in these cartels.

On January 30th, Bill Baer, the Assistant Attorney General for the Antitrust Division gave the attached speech to the New York State Bar Association in which he described in detail international antitrust enforcement, including increased enforcement of antitrust cases against international cartels, and the DOJ’s increased cooperation with Chinese antitrust authorities.  BILL BAER DOJ STATEMENT ANTITRUST ENFORCEMENT The Assistant Attorney General stated:

 

“With those preliminary observations in mind, let me focus on the progress antitrust enforcement has made these last five years. President Obama promised during his first campaign that his administration would vigorously enforce the antitrust laws.  He pledged to “step up review of merger activity,” “take aggressive action to curb the growth of international cartels,” and ‘ensure that the benefits of competition are fully realized by consumers.’

“I think the record shows the Antitrust Division has followed through on the President’s pledge. Criminal enforcement provides an excellent starting point. We continue to vigorously pursue and prosecute international and domestic cartels. Since January 2009, we have filed 339 criminal cases, a more than 60 percent increase over the prior five years. We secured $4.2 billion in criminal fines in that period. . . .

Effective cartel enforcement requires holding accountable both corporations and the senior executives who orchestrate their unlawful conduct. We have charged 109 corporations with criminal antitrust violations since 2009. We have ensured that those corporations have paid appropriate—and stiff—criminal fines, and those 109 corporations together have paid the highest five-year fine total in division history. The division also charged 311 individuals with antitrust crimes during the past five years.

Experience teaches that the threat of prison time is the most effective deterrent against criminal antitrust violations. We seek sentences commensurate with the economic harm caused by the perpetrators. The statistics show that the courts are embracing the effort to hold company executives accountable for their bad behavior. The average prison sentence in our cases has increased from 20 months in the period 2000-09 to 25 months during the years 2010-2013. Of course, we can never know for certain the full deterrent effect of our enforcement efforts. But we do know that self-reporting under our leniency program remains at high levels and that, increasingly, non-U.S. companies are reporting anticompetitive behavior. They are responding to the fact we are prosecuting off-shore conduct with a U.S. impact. In recent years the number of foreign nationals sentenced to U.S. incarceration has increased threefold. The message should be clear: the division will vigorously and successfully prosecute international cartel behavior that harms U.S. consumers regardless of where that conduct takes place. . . .

The division has brought criminal cases in a range of industries over the past several years. One of our most significant ongoing investigations involves the auto parts industry. We are prosecuting price fixing and bid rigging involving a number of parts that were installed in cars sold in the U.S., including wire harnesses, instrument panel clusters, and seatbelts.  . . .

To date, we have charged 24 companies and 26 executives with participating in multiple international conspiracies, and those numbers are sure to grow as the investigation continues.   These charges have resulted in $1.8 billion in criminal fines, including the third-largest criminal antitrust fine ever.   Of the 26 executives charged so far, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements requiring significant sentences.

During the past several years, the division also prosecuted international price-fixing conspiracies involving liquid crystal display panels. These conspiracies hurt U.S. consumers by dramatically inflating prices for computer monitors, notebook computers, and televisions, among other products. In 2012, the division secured convictions of Taiwan-based AU Optronics, its subsidiary, AU Optronics Corp. America, and three former top executives for their participation in such a conspiracy.   The trial against AU Optronics was the first time the division proceeded under the alternative fine statute, 18 U.S.C. § 1571, which allows for fines up to two times the gain or loss resulting from the conduct. The division proved beyond a reasonable doubt to the jury that the combined gains to the participants in the conspiracy were $500 million or more and that the defendants’ conduct accordingly merited a fine exceeding the Sherman Act’s $100 million maximum.   . . .

There is more to come.  . . . There can be little doubt that the division vigorously prosecutes wrongdoers. . . .

During the Obama administration U.S. enforcers have broken new ground in relations with China and India. In the past few years, the division and the FTC have entered into Memoranda of Understanding (MOU) with the Chinese and Indian enforcement agencies.  These MOUs have led to annual bi-lateral meetings between the U.S. antitrust enforcement agencies and agencies from these nations.  Indeed, earlier this month, I attended with Chairwoman Ramirez a bi-lateral meeting with the Chinese authorities in Beijing. We see candid engagement with the Chinese and Indian agencies as important, and we look forward to increased cooperation in the coming years.

Cooperation also plays an important role in our international criminal cartel investigations. Working with competition enforcers in non-U.S. jurisdictions, we share information where we are able; and we can plan coordinated raids around the world, reducing the opportunity for key evidence to go missing or be destroyed. . . .”

 

When foreign corporate executives are found to be guilty of engaging in a cartel to set prices, this is considered a crime of moral turpitude and the foreign executive is barred from entering the US for a minimum of 15 years.  Under a memorandum of understanding between Justice and Immigration and Naturalization Services (“INS”), now Immigration and Customs Enforcement (“ICE”), if the foreign executive pleads guilty and cooperates with authorities, that executive can be exempted from the 15 year exclusion and continue to enter the US.  Antitrust criminal defense attorneys have argued that this exemption is unfair because it places unfair pressure on the foreign executive to forgo their right to trial.

On January 24, 2014, in response to questions from Congress on this issue, Assistant Attorney General Baer stated in the attached response:

 

“In general, moral turpitude has been held to be conduct that is inherently dishonest and contrary to accepted rules of morality and the duties owed between persons or to society in general. Tax fraud, mail fraud, securities fraud, and theft offenses, for example, have been held to be crimes of moral turpitude. Similarly, price-fixing, bid-rigging, and market allocation agreements among companies that hold themselves out to the public as competitors are inherently deceptive and defraud consumers who expect the benefits of competition. Thus, the division’s Memorandum of Understanding (“MOU”) with INS states that INS, now the Department of Homeland Security as successor to INS, considers criminal antitrust offenses to be crimes involving moral turpitude, which may subject an alien defendant to exclusion or deportation.

However, an alien defendant who is convicted of an antitrust offense at trial retains the ability to contest his removability from the United States.

In today’s global marketplace, many culpable executives involved in international cartels affecting U.S. consumers and commerce are foreign nationals. They may live and work outside the U.S., but their cartel conduct affects billions of dollars of U.S. commerce yearly and takes money out of consumers’ pockets. The MOU was drafted in order to allow the Antitrust Division to secure jurisdiction over and cooperation of these foreign nationals in the division’s investigations and prosecutions of international cartels and to hold these foreign nationals accountable for antitrust crimes, just as domestic defendants are held accountable.

The cooperation of defendants receiving immigration relief under the MOU is critical to the division’s ability to investigate and prosecute international cartel activity. A foreign defendant’s willingness to cooperate with the division provides the basis for the waiver of inadmissibility under the MOU, and fulfilling the continuing cooperation requirements with the division is a condition of a defendant’s retention of the waiver. Having cooperating witnesses from multiple companies is essential to fully investigate cartels and to hold responsible individuals at each corporate conspirator accountable.

Moreover, having defendants who have pleaded guilty is important at Antitrust Division trials. Extending the MOU waiver to noncooperating defendants would undermine the incentives provided by the MOU and be unjust to those foreign nationals who are willing to accept responsibility for their criminal conduct, submit to U.S. jurisdiction, cooperate with the division, and serve time in U.S. prison. It would also be unworkable to require pleading foreign defendants to continue their cooperation to maintain the waiver while at the same time giving the MOU waiver to non-pleading defendants who have not accepted responsibility and fully cooperated with the division.”

BAER STATEMENTS TO CONGRESS

CHINA ANTITRUST CASES

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from the NDRC.  China’s National Development and Reform Commission (NDRC) is becoming an increasingly aggressive regulator and is focusing on information technology providers, especially companies that license patent technology for mobile devices and networks.

Apparently, the NDRC is trying to lower domestic costs as China rolls out its faster 4G mobile networks this year.  US -based Qualcomm is scheduled to obtain the vast majority of licensing fees for the chip sets used by handsets in China, the world’s biggest smartphone market in the World.

Under the Chinese antimonopoly law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year.  Qualcomm reportedly earned $12.3 billion in China for its fiscal year ended September 29, or nearly half of its global sales.

Qualcomm is no stranger to substantial fines.  In 2009, South Korea’s Fair Trade Commission fined the company 273 billion won ($252 million), the highest Korean penalty ever against a single company, for abusing its dominant position in CDMA modem chips which were then used in handsets manufactured in Korea.

SECURITIES

SEC DROPS CHINESE AUDIT CASE AGAINST DELOITTE

On January 27th the SEC told the Federal Court that it was dropping its case against Deloitte for failure to turn over audit documents of a Chinese technology company.  The SEC stated that Deloitte was supplying the audit papers to the China Securities Regulatory Commission, which, in turn, was supplying the records to the SEC.

The dismissal of the case, however, will not affect a separate SEC action against the Chinese offices of the Big Four accounting firms for refusing to reveal client documents to the SEC.  An SEC administrative law judge recently ruled that the China based offices are barred from auditing companies that do business in the U.S.

JURY CLEARS CHINESE INVESTMENT ADVISOR SIMING YANG

On January 13th, a jury in the Federal District Court found Chinese investment adviser Siming Yang not guilty on insider trading claims brought by the U.S. Securities and Exchange Commission (“SEC”), but did find Yang guilty for other violations, including making false disclosures to the regulator.

FOREIGN CORRUPT PRACTICE ACT–CORRUPTION ISSUES IN CHINA FOR FOREIGN COMPANIES

On February 4th, Carl Hinze in Dorsey’s Shanghai office published the attached article “Doing business in and with China: Battling a corruption culture by building a compliance culture”.

HINZE ARTICLE FCPA

COMPLAINTS

On January 10, 2014, Deborah Donoghue filed the attached securities case against Secure alert, Short Swing Profits, which are all owned by Sapinda Asia and Lars Windhorst, a Hong Kong Company, for short swing profits. SAPINDA HK

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

Best regards,

Bill Perry

US CHINA TRADE WAR–REAGAN PREDICTED IT, TRADE, CUSTOMS, 337/PATENTS, US CHINA ANTITRUST, AND SECURITIES

Washington Monument After the Snow Washington DCJanuary 3, 2014

“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN , JUNE 28, 1986

Dear Friends,

There have been some major developments in the trade, Customs, patents, US/Chinese antitrust, and securities areas.

In looking at the first posts I wrote on my blog, they were relatively short, but with the US litigation against Chinese companies in the US and the Chinese litigation against US companies growing, the Posts will grow even larger.

As mentioned before, the US China Trade War is expanding into many different areas.  Trade and Customs were simply the first areas of attack.

PRESIDENT RONALD REAGAN PREDICTED TRADE WAR WITH CHINA

My intention was to upload this post to my blog by the end of December.  Unfortunately, did not make it, but while on Christmas break I was at the Ronald Reagan Center in Santa Barbara, California.

In October 1980, I joined the US International Trade Commission (“ITC”) as a staff attorney in the Office of General Counsel and later in the Chief Counsel’s office in the Commerce Department.  During that entire time, Ronald Reagan was President.  During that period, the ITC was also the most free trade Commission in its history as Reagan appointed Commissioner after Commissioner with strong free trade ideologies, such as Susan Liebeler, Anne Brunsdale, and Robert Cass.  From my observation, Ronald Reagan was the most free trade president in my lifetime.  Congress, however, does not like free traders.

While at the Santa Barbara Center, I listened to the attached speech by President Ronald Reagan on international trade and was amazed because he predicted with absolute accuracy the present state of trade relations with China.  REAGAN IT SPEECH  On June 28, 1986 from his California Ranch, President Reagan stated as follows:

 

“Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a  nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.

That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flimflammery in American politics.

But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth. You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start.

We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. They organized the General Agreement on Tariffs and Trade, or GATT, to promote free trade. It hasn’t all been easy going, however. Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively.

And in September, with more GATT talks coining up once again, it’s going to be very important for the United States to make clear our commitment that unfair foreign competition cannot be allowed to put American workers in businesses at an unfair disadvantage. But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.”

 

Several thoughts come to mind when reading this speech.  When President Reagan speaks of a “protected industry” that  “is so listless and its competitive instincts so atrophied that it can’t stand up to the competition”, think the US Steel Industry, which has had antidumping and countervailing duty orders in place against steel imports for more than 40 years.  Is Bethlehem Steel alive today?  No, the orders did not work.

Second, President Reagan mentions the Smoot-Hawley Tariff Act.  The real name of that law is the Tariff Act of 1930, and where are the US antidumping and countervailing duty laws to be found—The Tariff Act of 1930.  Yes, many parts of the Smoot Hawley Tariff Act are alive today.

Finally President Reagan truly predicted the Trade War with China, including the Chinese reaction to the Solar Cells antidumping and countervailing duty cases and the other trade cases against China.  The Solar Cells cases against China has led to the Polysilicon antidumping and countervailing duty cases against the US, wiping out $2 billion in US exports to China.  The Section 421 Tires case described below led to Chinese antidumping and countervailing duty cases against automobiles and chicken from the US.

The Trade War with China truly has become a pie fight in the old Hollywood comedies– “Everything and everybody just gets messier and messier,” but the sad part is that it costs jobs.

TRADE

SOLAR CELLS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN

On December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan with alleged antidumping rates of 298%.

The antidumping and countervailing duty petition covers crystalline silicon photovoltaic products, including solar cells, modules and panels,  from China and Taiwan.  The specific products covered by the new antidumping and countervailing duty investigations are:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

“Also excluded from the scope of this investigation are any products covered by the existing antidumping and countervailing duty orders on crystalline silicon photovoltaic cells, whether or not assembled into modules, from the People’s Republic of China- case numbers A-570-979 and C-570-980.”

Attached is a copy of the injury petition.  AD CVD CASE SOLAR WORLD TAIWAN AND CHINA

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days.  Chinese companies also must be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 3, 2014, the US International Trade Commission issued the attached notice regarding the preliminary injury investigation in the new Solar Cells, Modules and Panels case against China and Taiwan.  USITC Solar Panels PRELIMNARY NOTICE  The ITC’s preliminary conference is scheduled for January 21st in Washington DC.

If anyone is interested in participating in the case at the ITC or the Commerce Department, please feel free to contact me.

FIRST SOLAR CELLS CASE–REVIEW REQUESTS

In the first Solar Cells case, the first annual review investigations have just started up, which will determine the actual liability of US importers for antidumping and countervailing duties on their imports.  On December 31, 2013, Solar World and the other US solar cell producers filed the attached letters requesting that the Chinese companies named in the letters be included in the review investigations. AD SolarWorld Review Request-12-31-13 SolarWorld CVD Review Request-12-31-13

If you are a Chinese producer/exporter and you are named in the letter, you must partcipate in the review investigation or you will lose your 24% antidumping rate and your new rate will be 250%.  If you are an importer of solar cells during the specific review periods and your Chinese suppliers are named in these letters, you must make sure that they participate in the review investigations.  If your suppliers do not participate, the antidumping rate will go from 24% to 250% and you the importer will be retroactively liable for the difference plus interest.

TRADE NEGOTIATIONS—BALI/DOHA ROUND AND TPP

In the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) negotiations.  Both negotiations could have a major impact on China trade.

Attached is an article that I have written together with a Canadian trade and customs lawyer about the impact of the TPP from both the US and Canadian point of view.FINAL ARTICLE TPP US CHINA

DOHA ROUND-BALI

From China’s point of view, the WTO negotiations in the Doha Round are extremely important.  The only way that China can deter many trade actions is to work within the multilateral framework to reduce trade barriers to Chinese products.

Multilateral WTO negotiations are even more important for China because of the ongoing TPP negotiations, which at this moment do not include China.  As indicated in my attached article on the TPP, the US and other countries see the TPP negotiations as one way to offset China’s rise in the trade area.

But multilateral and bilateral trade negotiations are by their nature a give and take.  All countries in the negotiations have to be willing to reduce some of their own trade barriers to persuade other countries to lower their trade barriers.  No country wins or loses on all issues.  By their nature, trade negotiations involve tradeoffs.

So the WTO and TPP trade negotiations are going to be of continued interest to Chinese companies and US importers.

WTO NEGOTIATIONS-BALI

As mentioned in a past post, the United States Trade Representative (“USTR”) pointed to the coming World Trade Organization (“WTO”) multilateral negotiations in Bali on trade facilitation measures, which would streamline customs procedures, as being very important as well as the proposed Trans-Pacific Partnership with 11 other Pacific Rim countries, which were “posed to close”.

On November 27, 2013, however, there were reports that the WTO multilateral negotiations in Bali had broken down, in part over the Trade Facilitation report.  But those statements were premature.

On December 6, 2013, WTO members announced that a Trade Facilitation Agreement had been struck by the member countries.  This would be the first WTO-wide agreement in the organization’s nearly two decade history.  Round-the-clock negotiations at the conference led to the so-called Bali package -the first membership-wide agreement since the WTO was created in 1995.  The Bali Package includes measures on trade facilitation, intended to streamline customs and other procedures that affect the shipment of goods across borders, as well as provisions on agriculture and economic development.

“For the first time in our history: the WTO has truly delivered.” WTO Director-General Roberto Azevedo said in a December 5th statement. “I challenged you all, here in Bali, to show the political will we needed to take us across the finish line. You did that. And I thank you for it.”

The WTO was able to overcome objections from Cuba, Venezuela, Bolivia and Nicaragua because it did not address a U.S. embargo against Cuba, which has been in place for more than 50 years, and other trade embargoes.  The agreement was to add an additional sentence in Bali deal’s text that upheld the “principle of non-discrimination in goods in transit.”

India also raised concerns over part of the package’s agriculture section that dealt with agricultural subsidy programs that some developing countries offer to promote “food security” and combat hunger.

Those concerns, however, appeared to have been largely addressed in the draft text circulated December 3rd, which contained an interim agreement, under which WTO members would refrain from lodging disputes against developing countries that stockpile crops as part of a food security program, as long as the subsidies do not distort trade.

The Peterson Institute for International Economics said an ambitious agreement on trade facilitation could add $960 billion to the world economy.  But the symbolism is more important.  The Bali Agreement is very important for both developed and developing countries.  Many of the FTA agreements, such as the ongoing TPP agreements, could hurt the developing countries the most.  The movement of both the TPP and the Trans- Atlantic Agreement puts more pressure on the WTO countries to reach a deal.

The importance of the Bali Agreement is that it means the WTO can still be an effective forum for truly multilateral trade negotiations.  If no deal had been reached in Bali, this could have led to the collapse of the WTO as a multilateral forum to negotiate reductions of trade barriers.

In a speech in Bali, WTO Director-General Roberto Azevedo stated, “What’s at stake is the cause of multilateralism itself”

TPP NEGOTIATIONS RUN INTO HEADWINDS

The USTR and US government officials were predicting that the Trans Pacific Partnership (“TPP”) negotiations would conclude at the end of the year with an Agreement.  That was simply too optimistic.  Secret negotiations are going to generate controversey.

On December 10th, the Trade Ministers for the 12 countries negotiating the TPP announced in Singapore “substantial progress” in the talks, but there would be no deal by the end of the year.  In a joint statement, the Ministers indicated that they had engaged in productive discussions, identifying potential solutions to a number of outstanding obstacles, but more meetings would be held in 2014.

Rep. Sander Levin, D-Mich., the top Democrat on the Ways and Means Committee of U.S. House of Representatives, indicated that critical work lay ahead, especially the continued closure of Japan’s market to U.S. cars and agricultural products, the implementation of enforceable labor and environmental rules, and strict rules on currency manipulation and state-owned enterprises.

South Korea has indicated interest in the talks, but it is unlikely that any other country would join the agreement while the talks are still ongoing.  Presently, the TPP negotiations include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The two most important countries for the US, however, are Japan and possibly Vietnam.  Japan is important because of decades long problems involving automobiles and agriculture products, and Vietnam because as a non-market economy Communist country, it could be a forerunner to China.

 On December 10th Ways and Means Committee Chairman Dave Camp (R-MI) stated that there had been significant progress in the Singapore Round and countries will continue their work in January.

“The headway achieved so far on TPP is positive, but more work remains. There are longstanding issues that need to be resolved, like access for U.S. automakers and farmers, and we should take the time to get this agreement right. I look forward to consulting with Ambassador Froman when he returns on the next steps. Concluding these negotiations, as well as other trade agreements, will require Congressional passage of Trade Promotion Authority legislation. Given the considerable bipartisan and bicameral progress that has been made on that front, I expect we will be in a position to do so early next year if we have the Administration’s active participation.”

In addition, Congressional leaders announced that they had come to agreement on providing the Administration Trade Promotion Authority or Fast Track Authority.

But the TPP then ran into headwinds.

AGRICULTURE

On December 19, 2013, American Farm Bureau Federation, American Meat Institute, American Soybean Association, International Dairy Foods Association, National Association of Wheat Growers, National Cattlemen’s Beef Association, National Chicken Council, National Corn Growers Association, National Milk Producers Federation, National Oilseed Processors Association, National Pork Producers Council, National Turkey Federation, North American Meat Association, U.S. Dairy Export Council, U.S. Grains Council, U.S. Wheat Associates, USA Rice Federation announced that they would oppose the TPP if a final version did not require Japan to eliminate tariffs on virtually all US agricultural exports.

In the attached letter AG LETTER TO USTR to U.S. Trade Representative Michael Froman, the seventeen agriculture industry groups stated:

“Dear Mr. Ambassador:

We are writing to express our concern with the state of play of the Trans-Pacific Partnership (TPP) negotiations. Each of our organizations has expressed in the past strong support for a comprehensive, high-standard TPP agreement. However, we have watched with growing alarm the unwillingness of Japanese negotiators to present a comprehensive offer on agricultural products, and we now believe this situation is threatening to undermine the negotiations.

In previous negotiations, the United States has demanded and received from developing country trading partners full and comprehensive liberalization in the agricultural sector. Yet in the TPP negotiations, Japan – a rich, developed country – is demanding special treatment for its agricultural sector. We consider an agreement that includes such special treatment for Japan to be unacceptable.

If Japan is allowed to claim exceptions for sensitive products, other TPP partners will inevitably demand the right to do the same. This could quickly lead to the unraveling of the agreement, as other parties pull their offers on sensitive products, or their concessions on sensitive issues, off the table.

However, even if it were possible to prevent the agreement among current parties from unraveling, granting exceptions to Japan, or any other party, would have far-reaching consequences. As the TPP expands to include other countries in the Asia-Pacific region, we can expect other countries with sensitivities in the agricultural sector, such as China, to make similar demands. Moreover, a weak agreement with Japan would inevitably have significant negative implications for our ability to reach an acceptable agreement with the EU in the Transatlantic Trade and Investment Partnership negotiations.

U.S. agriculture has always supported trade agreements and Trade Promotion Authority as the most effective means of eliminating tariff and non-tariff barriers and expanding global trade. However, the market access package you negotiate with Japan has the potential to impact billions in future exports and hundreds of thousands of jobs.

In conclusion, TPP must include comprehensive liberalization in the agricultural sector by all participating countries. If Japan continues to insist on unreasonable protections to a range of agricultural categories, we ask you to consider concluding TPP without Japan. It will ultimately be difficult for our organizations to support a TPP agreement with Japan that does not include comprehensive trade liberalization for all agricultural sectors.”

This is an extremely important development because US agriculture is the primary force pushing for Free Trade Agreements.  If the farmers do not support the TPP, there will be no agreement.

UNIONS

On December 9th, The International Association of Machinists and Aerospace Workers (“IAM”), which represents around 700,000 current and former industrial workers, announced that the TPP would be a job killer, leading to a massive loss of American jobs.  The IAM argued that past trade deals did not create jobs and has lead to a “death sentence” for American workers.

The IAM stated that it is strongly opposed to the revival of “fast-track” authorities that expired in 2007 and “If TPP is implemented, U.S. manufacturing may well find itself on the endangered species list.”

DRUGS AND IP

On December 11, 2013, potential provisions in the TPP on drug patent protections and the length of copyright terms came under fire with Democratic lawmakers, library associations and consumer groups voicing concern over proposals that are currently on the table.

Several Democratic Congressmen urged USTR to reconsider its reported proposals for handling pharmaceutical patents in the TPP. CONG LETTER A number of libraries, digital rights and consumer groups argued against a copyright protection for a term of 70 years after the creator of a particular work dies.

Representative Henry Waxman, D-Calif and Senator Orrin Hatch, R-Utah sent separate letters arguing for and against the proposal of a 12-year market exclusivity period for biologics – drugs developed through biologic processes that can be used to treat diseases like cancer and rheumatoid arthritis.  Waxman argues for 7 years and Hatch is arguing for 12 years.

As Representative Waxman states in the attached letter Waxman TPP Drug IP Letter:

“The United States only recently established its biosimilars pathway when it enacted the Patient Protection and Affordable Care Act (PPACA) (Pub. L. No. 111-148) and the consequences of PPACA’s mandated twelve years of biologics exclusivity are not yet known.

Proposing twelve years of exclusivity in the context of TPP negotiations would conflict with stated Administration policy, as reflected in President Obama’s FY 2014 budget proposal, recommending that the exclusivity period for biologics be reduced to seven years. Were the TPP ultimately to contain a twelve year biologics exclusivity provision, it would impede the ability of Congress to achieve the President’s proposed seven year change because doing so would run afoul of U.S. trade obligations.

As we have discussed before, it is also critical that USTR ensure that developing countries are not left behind in this agreement. The United States must ensure that the TPP does not result in generic medicines becoming available in TPP developing countries later than in the United States. In addition, the patent flexibilities available to developing nations in the Doha Declaration on Public Health should not be denied or weakened in the agreement.”

SECTION 421 SPECIAL SAFEGUARD PROVISION AGAINST CHINA EXPIRED ON DECEMBER 11, 2013

On December 11, 2013, Section 421 of the Trade Act of 1974, a special safeguard law against China, expired as a result of provisions in the US China WTO Agreement.  The safeguard allowed the President to impose higher tariffs and other trade relief if the US International Trade Commission (“ITC”) determined that increased imports from China caused or threatened material injury to a US industry.

Although there were several affirmative ITC Section 421 determinations during the Bush Administration, President Bush refused to provide relief.  The provision resulted in trade restrictions only once, when President Obama approved an ITC determination that the importation of Chinese rubber tires was injuring U.S. tire manufacturers.

Many US tire producers, however, were opposed to the Section 421 case, but the Unions were very much in favor of the relief, which President Obama issued to counter criticism in an election year that he was not tough enough on China.

President Obama’s decision to impose relief in the Tires case, however, resulted in the Chinese government bringing antidumping and countervailing duty cases against the United States on automobiles and chicken.  The Chicken AD and CVD orders in China continue to block approximately $1 billion in the US exports of chicken to China.

SILICA BRICKS

On December 12, 2013, in another surprising decision, the ITC in 6-0 unanimous determination reached a negative injury determination in the antidumping case on silica bricks from China.  ITC NEGATIVE SILICA BRICKS The ITC negative determination followed a Commerce Department affirmative determination issuing Chinese companies antidumping rates ranging from 63.81 to 73.1% on imports of silica bricks.

JANUARY REVIEW INVESTIGATIONS

On January 2, 2014, the Commerce Department issued its monthly notice stating that Chinese companies and US importers that want review investigations in the following investigations should file such a request by the end of the month.  The specific antidumping and countervailing duty investigations at issue are:

Antidumping Investitgations

On THE PEOPLE’S REPUBLIC OF CHINA:
Crepe Paper Products, A-570-895………………    1/1/13-12/31/13
Ferrovanadium, A-570-873…………………….    1/1/13-12/31/13
Folding Gift Boxes, A-570-866………………..    1/1/13-12/31/13
Potassium Permanganate, A-570-001………………..    1/1/13-12/31/13
Wooden Bedroom Furniture, A-570-890………………    1/1/13-12/31/13

Countervailing Duty Proceedings

THE PEOPLE’S REPUBLIC OF CHINA:
Certain Oil Country Tubular Goods, C-570-944…..    1/1/13-12/31/13
Circular Welded Carbon Quality Steel Line Pipe, C-   1/1/13-12/31/13
570-936…………………………………..

SHELLFISH

On December 5th, the Washington State Government reported that on December 3 the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Canada, Washington, Oregon, and northern California.  WASHINGTON SHELLFISH ANNOUNCE

China reported a shipment of geoducks tested high in paralytic shellfish poison (PSP) and arsenic.

The Washington Government has stated that it is working with the U.S. Food and Drug Administration, the National Oceanic and Atmospheric Administration, and its state partners gathering facts, tracing the geoducks to the original harvest area, and closely reviewing its PSP test data.

On December 20th, Washington State and tribal officials closed a 135-acre geoduck-harvesting area outside Federal Way Washington until they could fully investigate the toxicity levels that caused China to ban shellfish imported from the West Coast.

Washington State officials learned that arsenic was the toxin Chinese authorities detected in a shipment of geoduck clams to China from Washington’s Poverty Bay.

That shipment, along with one from Ketchikan, Alaska, led China on Dec. 3 to ban all imports of shellfish harvested in Washington, Alaska, Oregon and Northern California.

The Washington Department of Health traced the shipment back to 385 pounds of geoduck harvested in October by the Puyallup Tribe in Poverty Bay on what the Department of Natural Resources calls the Redondo Tract.

“There are no federal safety standards at all for arsenic in shellfish because it is not something that is typically an issue,” said Tim Church, the health department’s director of communications. “With the tests that we’ve done in the past, we’ve never found levels of arsenic that would be a concern for eating shellfish.”

China has not said when it will lift the ban on West Coast shellfish.

The Chinese government’s decision to ban all shellfish harvested from Northern California to Alaska would appear to be excessive, but that decision must be taken in context.

Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

CHINESE TEXTILE MANUFACTURER MOVES TO—SOUTH CAROLINA

In a bright spot, it has been reported that a Chinese yarn maker has decided it can make more money setting up shop in the US in South Carolina.  Keer Group Co., a yarn spinning factory in Hangzhou, China, has moved to South Carolina.

A number of Asian textile manufacturers have decided to set up production in the U.S. to save money as salaries, energy and other costs rise at home. Keer has invested $218 million to build a factory in Lancaster County, not far from Charlotte, N.C. The new plant will pay half as much as Mr. Zhu does for electricity in China and get local government support, he says.  Keer expects to create at least 500 jobs.

In another benefit, Keer can ship yarn to manufacturers in Central America, which, unlike companies in China, can send finished clothes duty-free to the U.S.

In September, JN Fibers Inc. of China agreed to build a $45 million plant in South Carolina that turns plastic bottles into polyester fibers used to stuff pillows and furniture. That investment is expected to create 318 jobs.

Keer stated costs for industrial land in Hangzhou have increased because China’s textile industry is plagued by overcapacity, which has squeezed profits, and local governments are reluctant to sell land to producers.

The local government in South Carolina, which has 8.1% unemployment, has set an annual fixed fee in lieu of taxes that Keer will pay for 30 years. Sixty percent of that annual fee will be returned to the company each year until it has paid off a $7.7 million bond that the county issued to help buy the land.

MAKING OF A T-SHIRT

The reality of interdependence in our Trade World is illustrated by the attached video from the Colbert Report, which traces the production of a T-shirt sold in the United States from the cotton produced in the US to cloth produced in Indonesia to the T-shirt produced in Bangledesh. http://www.colbertnation.com/the-colbert-report-videos/431141/december-10-2013/alex-blumberg

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

We will be targeting two major issues—Working for market economy treatment for China in 2016 and working against retroactive liability for US importers. The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

CHINESE ANTIDUMPING CASE

CHICKEN

In response to a WTO determination, on December 27, 2013, MOFCOM announced that it would reinvestigate the antidumping and countervailing duties on chicken from the US, specifically against white-feather broiler chicken products from the U.S.

CUSTOMS

INSURANCE COMPANY LIABLE FOR NEW SHIPPER ANTIDUMPING DUTIES IN CRAWFISH CASE

In an antidumping new shipper review investigation on Crawfish from China, a US importer, New Phoenix, posted eight single-transaction bonds issued by Great American to cover seven entries of crawfish tailmeat, with a value of $1,219,458 for each bond or a total of $6,097,290 in liability.  When the importer could not pay, the US Customs Service sued the insurance company for the amount of the bonds plus interest.

In attached decision, the Court of Appeals for the Federal Circuit orders Great American to pay the $6 million plus postjudgment interest.  INSURANCE COMPANIES OWE AD DUTIES

RHINO HORN

On December 19, 2013, the US Justice Department announced that Zhifei Li, the owner of an antique business in China, had pled guilty to being the organizer of an illegal wildlife smuggling conspiracy in which 30 rhinoceros horns and numerous objects made from rhino horn and elephant ivory worth more than $4.5 million were smuggled from the United States to China.  See attached Justice Department notice.  RHINO HORN

Li was arrested in Florida in January 2013 on federal charges brought under seal in New Jersey.  Shortly after arriving in the country, he pled guilty to a total of 11 counts: one count of conspiracy to smuggle and violate the Lacey Act; seven counts of smuggling; one count of illegal wildlife trafficking in violation of the Lacey Act; and two counts of making false wildlife documents.

Li was arrested as part of “Operation Crash” – a nationwide effort led by the USFWS and the Justice Department to investigate and prosecute those involved in the black market trade of rhinoceros horns and other protected species.

Acting Assistant Attorney General Dreher for the Justice Department’s Environment and Natural Resources Division stated:

The take-down of the Li smuggling ring is an important development in our effort to enforce wildlife protection laws. Rhino horn can sell for more than gold and is just as rare, but rhino horn and elephant ivory are more than mere commodities. Each illegally traded horn or tusk represents a dead animal, poaching, bribery, smuggling and organized crime. The Justice Department will continue to vigorously enforce the law designed to protect wildlife. This is a continuing investigation.

In pleading guilty, Li admitted that he sold 30 smuggled, raw rhinoceros horns worth approximately $3 million –approximately $17,500 per pound – to factories in China where raw rhinoceros horns are carved into fake antiques known as Zuo Jiu (which means “to make it as old” in Mandarin).  In China, there is a centuries-old tradition of drinking from an intricately carved “libation cup” made from a rhinoceros horn. Owning or drinking from such a cup is believed by some to bring good health, and true antiques are highly prized by collectors. The escalating value of such items has resulted in an increased demand for rhinoceros horn that has helped fuel a thriving black market, including recently carved fake antiques.

PATENT/IP AND 337 CASES

NO 337 VIOLATION IF IMPORTED PRODUCT ON ENTRY DOES NOT INFRINGE THE PATENT

On December 13, 2013, the Court of Appeals for the Federal Circuit (CAFC) in the attached Suprema, Inc. and Mentalix Inc. vs. ITC held that an exclusion order based on a violation of § 337(a)(1)(B)(i) may not be predicated on a theory of induced infringement where no direct infringement occurs until post-importation.  CAFC Slip Opinion 12-1170 SUPREMA INC – CROSS MATCH v ITC

The patents at issue concern fingerprint machines.  The Suprema fingerprint machines had multiple uses, but after the fingerprint machines were imported into the United States, software from Mentalix was applied to the Suprema fingerprint machines, resulting in infringement of patents held by a US company.  The ITC found that Suprema and Mentalix had violated section 337 based on an induced infringement theory and issued an exclusion order.

The CAFC determined not so fast.  Section 337 is also a trade statute, and the Commission’s authority in section 337 cases is based on its jurisdiction over the imported products.  According to the CAFC, however, the imported products have to infringe the patent at the time the products are imported into the US, especially where the imported product has multiple uses and the only infringing use happens after the product is imported into the US.

As the CAFC stated in its opinion:

“The Commission’s mandate to deal with matters of patent infringement under § 337(a)(1)(B)(i) is thus premised on the “importation,” “sale for importation,” or “sale within the United States after importation” of “articles that . . . infringe.” . . . Thus, the Commission’s authority extends to “articles that . . . infringe a valid and enforceable United States patent.” The focus is on the infringing nature of the articles at the time of importation, not on the intent of the parties with respect to the imported goods.  . . .

Given the nature of the conduct proscribed in § 271(b) and the nature of the authority granted to the Commission in § 337, we hold that the statutory grant of authority in § 337 cannot extend to the conduct proscribed in § 271(b) where the acts of underlying direct infringement occur post-importation. Section 337(a)(1)(B)(i) grants the Commission authority to deal with the “importation,” “sale for importation,” or “sale within the United States after importation” of “articles that . . . infringe a valid and enforceable U.S patent.” The patent laws essentially define articles that infringe in § 271(a) and (c), and those provisions’ standards for infringement (aside from the “United States” requirements, of course) must be met at or before importation in order for the articles to be infringing when imported. Section 271(b) makes unlawful certain conduct (inducing infringement) that becomes tied to an article only through the underlying direct infringement. Prior to the commission of any direct infringement, for purposes of inducement of infringement, there are no “articles that . . . infringe”—a prerequisite to the Commission’s exercise of authority based on § 337(a)(1)(B)(i).

Consequently, we hold that the Commission lacked the authority to enter an exclusion order directed to Suprema’s scanners premised on Suprema’s purported induced infringement of the method claimed in the ’344 patent.”

The key point is that section 337 is not just an intellectual property statute; it is also a trade statute.  Section 337, just like the antidumping and countervailing duty law, regulates imports, and thus the CAFC is stating that since 337 is a trade statute, the product must be infringing at the time of importation.  If the infringement happens after importation, that can be a real problem for the US patent holder in a 337 case.

337 CASE RESULTS IN ANTITRUST RETALIATION IN CHINA

As indicated below, Interdigital has filed a section 337 case against Huawei.  Huawei retaliated by filing an antitrust case in China under Chinese law.  The Chinese government’s antitrust authority, NDRC, is now threatening jail time to Interdigital executives.

What is worse is that on December 20th, in the attached decision the ITC rejected Interdigital’s complaint and found no violation of section 337 so Interdigital lost the section 337 case, but is stuck with a Chinese antitrust case.  ITC NOTICE INTERDIGITAL  Sometimes you bite off more than you can chew.

NEW 337 CASES AGAINST CHINESE COMPANIES

On December 11, 2013, Tyco filed a new 337 case against imports of certain surveillance systems.  One of the respondents is Ningbo Signatronic Technologies, Ltd., China.

The ITC notice is set forth below:

Docket No: 2990

Document Type: 337 Complaint

Filed By: Brian R. Nester, Sidley Austin LLP

Behalf Of: Tyco Fire & Security Gmbh (TFSG), Sensormatic Electronic, LLC

(Sensormatic) and Tyco Integrated Security, LLC (TIS)

Date Received: December 11, 2013

Commodity: Acousto-Magnetic Electronic Article Surveillance Systems

Description: Letter to James R. Holbein, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Acousto-Magnetic Electronic Article Surveillance Systems, Components Thereof, and Products containing same. The proposed respondents are: Ningbo Signatronic Technologies, Ltd., China; All-Tag Security Americas, Inc., Boca Raton, Florida; All-Tag Security Hong Kong Co., Ltd., Hong Kong; All-Tag Europe SPRL; Brussels; All-Tag Security UK Ltd., United Kingdom; Best Security Industries, Delray Beach, FL; and Signatronic Corporation, Boca Raton, FL.

 

On December 18th, Pragmatus filed a section 337 case against ZTE on Wireless Devices.  The notice is below:

Docket No: 2992

Document Type:337 Complaint

Filed By:Anthony Grillo

Firm/Org:Marino and Grillo LLC

Behalf Of:Pragmatus Mobile, LLC

Date Received:December 18, 2013

Commodity:Wireless Devices, including Mobile Phones and Tablets II

Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Wireless Devices, Including Mobile Phones and Tablets II. The proposed respondents are Nokia Corporation (Nokia Oyj), Finland; Nokia, Inc., Sunnyvale, CA; Samsung Electronics Co., Ltd, Korea; Samsung Electronics America, Inc., Ridgefield Park, NJ; Samsung Telecommunications America, L.L.C., richardson, TX; Sony Corporation, Tokyo; Sony Mobile Communications AB, Sweden; Sony Mobile Communications (USA), Inc., Atlanta, GA; ZTE Corporation, China; and ZTE (USA) Inc., Richardson TX.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On December 2, 2013, Chanel filed a major trademark suit against a number of John Doe Unknown companies that were infringing its trademarks.  CHANEL TMK CHINA In the Complaint Chanel states:

“Defendants are partnerships or unincorporated business associations, which operate through domain names registered with registrars in multiple countries, commercial internet e-stores via the third party marketplace website C2Coffer.com, and commercial Internet auction store via the third party marketplace website iOffer.com, and are comprised of individuals and/or business entities of unknown makeup, all of whom, upon information and belief, reside in the People’s Republic of China or other foreign jurisdictions with lax trademark enforcement systems.”

On December 3, 2013, Concinnnitas and George W. Hindman filed patent cases against Huawei Device USA Inc. and ZTE. CONCINNATIS HUAWEI CONCINNATIS ZTE

On December 11, 2013, in addition to the 337 case Tyco sued Ningbo for patent infringement in Federal District court.  NINGBO PATENT

On December 12, 2013, US company Harmonic Drive LLC filed a trademark case against NAC Harmonic Drive, Inc., Harmonic Drive Canada and Beijing CTKM Harmonic Drive Co.  HARMONIC DRIVE

On December 18, 2013 Content Guard Holdings, Inc., filed a patent case against Huawei Device USA and other companies. CONTENT GUARD HUAWEI

On December 17, 2013, Microsoft sued Sichuan Changhong Electric Co., Ltd. for software piracy. MICROSOFT STOLEN SOFTWARE

ANTITRUST

VITAMIN C CASE

As mentioned, the Vitamin C case is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  VITAMIN C FINAL JUDGMENT

On December 30, 2013, the Judge amended the order to add an additional $4,093,163.35 to pay the legal fees of the lawyers bringing the case against the Chinese companies.  See the attached documents.  ATTORNEYS FEES VITAMIN C FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment.

Boies Schiller, the Plaintiffs’ lawyer, also announced on December 11th that it was paying associate bonuses that were as high as $300,000, with the average distribution across the litigation firm’s 133 associates at $85,000.

It pays to sue Chinese companies.

CHINA ANTITRUST CASES

As mentioned in the last post, Qualcomm, a US mobile chip maker, announced that it is the target of an antitrust investigation led by the National Development and Reform Commission (“NDRC”), China’s top economic planning body and antitrust authority.  Also Cisco announced that Chinese companies are reducing their purchases of Cisco equipment in response to the N.S.A. disclosures and the recent US Congressional activity aimed at curtailing purchases of equipment from Huawei and other Chinese companies.

There are three Chinese government entities entrusted with investigating and enforcing the Chinese Anti-Monopoly Law, which was passed in 2007: the State Administration for Industry and Commerce, the Ministry of Commerce, and the NDRC.  The fact that the antitrust investigation is coming from the NDRC, which is in charge of price supervision and inspection, suggests that the government’s objective is to make 4G service more affordable before its introduction next year.

This year, the commission led an inquiry into six foreign dairy companies, including Mead Johnson Nutrition and Groupe Danone, after allegations that they broke anti-monopoly rules and fixed prices.  The investigation resulted in a fine of $109 million, a record for anti-monopoly violations in China.

Now China is using antitrust cases to counterattack 337 patent cases.

INTERDIGITAL—CHINA BRINGS ANTITRUST CASES IN RESPONSE TO 337 CASE

In July 2011, Interdigital filed a section 337 patent case at the US International Trade Commission (“ITC”) against Huawei.  In response, on December 5, 2011, Huawei filed two complaints before the Shenzhen Intermediate People’s Court (the Shenzhen Court) in China, alleging that, by filing the section 337 case and engaging in certain patent practices, InterDigital had (1) abused its dominant market position, contrary to the Anti-Monopoly Law of the People’s Republic of China (AML), and (2) as an owner of several Standard Essential Patents (“SEP”) for 2G, 3G and 4G telecommunications technologies, it had failed to negotiate a fair, reasonable and non-discriminatory license for those patents.

On February 4, 2013, the Shenzhen Court ruled that InterDigital had abused its dominant market position and thus violated the Chinese Anti-Monopoly Law by  tying its standard essential patents with non-standard essential patents during licensing negotiations and seeking injunctive relief against Huawei before the US Federal Court and in the section 337 case before the US ITC while still in negotiations with Huawei to force Huawei to accept unreasonable licensing terms, including excessive royalties.

InterDigital’s requirement that Huawei pay significantly (sometimes even 100 times) higher royalty rates than those required of Apple, Samsung and other companies for the same set of patents, even while Huawei’s global sales were much less than Apple and Samsung, appeared to the Courts to be prima facie evidence of discriminatory treatment. In addition, the Courts noted that InterDigital had also required Huawei to license back all of its global patents on a royalty-free basis (as of 31 December 2010, Huawei owned 31,869 Chinese patents, 8,892 PCT international patent applications and 8,279 overseas patents). To the Court, this appeared contrary to fair or reasonable principles.

The Shenzhen Court ordered InterDigital to cease its unlawful practices and pay Huawei $3.2 million in damages.

On October 28, 2013, there were reports that that the Guangdong Higher People’s Court affirmed most of the rulings of the Shenzhen Court, including the $3.2 million award in damages.

 Unfortunately, the decisions of both the Shenzhen Court and the Guangdong Higher People’s Court have not been publicly disclosed, possibly because of trade secret issues. Thus the following observations are based on media reports and an article by a Chinese attorney.

Apparently, the Chinese Court determined that the owner of a Standard Essentials Patent has a 100 per cent market share in the technology licensing market for that SEP and, therefore, a monopoly, no matter how the market is defined.   If the holder of the Standard Essentials Patent tries to extract supra competitive royalties from industry participants, that is abuse of monopoly power.  In addition, apparently, the Chinese courts determined that by seeking injunctive relief at the ITC under 337 against Huawei, a willing licensee, the conduct constituted an abuse of the Chinese Anti-Monopoly Law.

Both the EC Competition Commission and the FTC have been concerned about the use of standard essential patents to exclude competition.

It should also be noted that the Chinese courts were also concerned that InterDigital’s principal business is patent licensing and that it does not manufacture any product. As a result, Huawei was in a weak bargaining position during licensing negotiations because cross-licensing would not be available, and InterDigital could make use of this advantage to extract more favorable contract terms from Huawei. The Shenzhen Court apparently found that InterDigital had tried to exploit this advantage, by insisting on unreasonably high royalties and requesting Huawei to license back its patents on a royalty-free basis.

There are reports that Qiu Yongqing, a senior judge at the Guangdong Higher People’s Court presiding over the case, is reported to have stated that Huawei “used antitrust law as a weapon to counterattack” monopolization by multinationals in the technology sector, and that other Chinese companies should learn from Huawei.

On December 16, 2013, the dispute between Interdigital and Huawei escalated. In a letter to the NDRC, Interdigital’s CEO announced that it would not send executives to a December 18th meeting with Chinese authorities over China’s monopoly investigation due to threats of possible imprisonment of Interdigital executives, which allegedly included U.S. counsel accompanying the firm to the meeting.

In a statement, CEO William Merritt said:

“To this date, we have cooperated fully with the NDRC’s investigation of our company, and continue to believe that we have done absolutely nothing wrong . . .  However, we are simply unable to comply with any investigation that is accompanied by a threat to the safety of our executives.”

Interdigital’s letter indicated also that the NDRC had informed it that its probe was sparked by InterDigital’s suit in the U.S. International Trade Commission against Chinese firms.

Meanwhile, there are reports out of China that the NDRC will recruit at least 170 new employees for the antitrust law enforcement team to battle price fixing.  The NDRC said its antitrust probes focus on six industries – aerospace, daily chemicals, automobiles, telecommunications, pharmaceuticals and home appliances.

Thus if a US Company brings a 337 IP case at the ITC against Chinese companies, it should be prepared for a possible antitrust case in China.

What goes around, comes around. 

SECURITIES

Attached is a description of Dorsey’s litigation team to handle for Chinese companies US Securities and Exchange Commission (“SEC”) and Class Actions Securities cases.  DORSEY SECURITIES LITIGATION TEAM

CHINESE AUDIT DOCUMENTS TURNED OVER TO SEC

On December 13, 2013, it was reported that Chinese governmental authorities have turned over more audit documents to U.S. regulators regarding U.S.-traded Chinese companies as part of a sweeping U.S. probe of accounting fraud by Chinese companies publicly traded in the US.

Audit documents regarding at least six Chinese companies trading on U.S. exchanges now have been either turned over to U.S. regulators or are “in the pipeline” to be furnished to the Securities and Exchange Commission (“SEC”).

The fight for the audit document resulted from SEC efforts to probe a wave of accounting and disclosure problems at more than 100 U.S.-traded Chinese companies that surfaced starting in 2011. U.S. investors lost billions of dollars when the companies’ stocks plunged once the problems were disclosed. The SEC has filed more than a dozen lawsuits against some of these Chinese companies and their executives and has won settlements in some cases.

But the investigations have been impeded because China-based audit firms, including Chinese affiliates of the Big Four, have refused to hand over audit documents to the SEC out of fear that providing the documents would violate China’s strict state-secrecy rules, which could land their auditors in jail.

Ultimately, that dispute led to the agreement earlier this year, which addressed the audit firms’ concerns by having them give the documents to Chinese regulators, who then would provide them to the U.S.

SERVING CHINESE COMPANIES IN SECURITIES AND OTHER US LITIGATION BY J. JACKSON, DORSEY LITIGATION PARTNER

SERVICE ISSUES IN US LITIGATION AGAINST CHINESE COMPANIES

By

J. Jackson, Partner and Chairman of Dorsey’s China Litigation Practice

Attached is a copy of the opinion in Bravetti v. Liu (D.N.J. December 11, 2013), SERVICE CHINESE RESPONDENTS Bavetti v Liu  which may be of interest to Chinese companies.  In Bravetti, Plaintiffs proceeding derivatively on behalf of American Oriental Bioengineering, Inc. sued current and former officer and directors, each of whom is a resident of the PRC.  The matter came before the Court, Magistrate Judge Bongiovanni, on Plaintiffs’ motion to allow service on the individual defendants by personally serving the U.S. counsel for the company, American Oriental.  Defendants opposed the motion, arguing that the Hague Convention provides the exclusive means for service of process on PRC’s residents and that service on U.S. counsel for the company did not comport with due process.  The Court rejected Defendants’ arguments and allowed service to proceed by personal service on U.S. counsel for the company.

Plaintiffs brought their motion under Rule 4(f)(3) of the Federal Rules of Civil Procedure, which provides,

“(f) Serving an Individual in a Foreign Country. Unless federal law provides otherwise, an individual—other than a minor, an incompetent person, or a person whose waiver has been filed—may be served at a place not within any judicial district of the United States:

*    *     *

(3) by other means not prohibited by international agreement, as the court orders.”

The Court allowed the requested service using the following analysis:  It began by acknowledging, “Courts may direct service when ‘the particularities and necessities of a given case require alternative service of process.’  See Rio Properties, Inc. v. Rio Int’l Interlink, 284 F.3d 1007 at 1016 (9th Cir. 2002).”

The Court further held that alternative service of process was not prohibited by the Hague Convention.  The Court noted that the Hague Convention does not apply “’where the address of the person to be served is not known.’”  Hague Convention, Art. 1.  Here, service was difficult under the Hague Convention, because the residences of the Defendants in the PRC was not known.  Further, the Court found that the Hague Convention does not apply because Plaintiff’s proposed method of service does not require the transmittal of documents abroad.  Under Khachatryan v. Toyota Motor Sales, U.S.A., Inc., 578 F.Supp.2d 1224, 1228 (C.D. Cal. 2008), the Hague Convention did not apply where Khachatryan served Toyota Japan under California law in a manner which did not require the transmittal of documents abroad.  Here, the proposed method to serve Loeb & Loeb in the United States does not require the transmittal of documents abroad.  Thus, the Hague convention does not apply.

The Court last addressed Defendants’ Due Process argument, finding that service on the Company’s U.S. counsel is “reasonably calculated, under the circumstances, to apprise interested parties of the pendency of the action and afford them the opportunity to present their objections.”  Mullane v. Central Hanover Bank &Trust Co., 339 U.S. 306, 314 (1950).  In finding service on the company’s counsel appropriate here, the Court relied on opinions from the United States District Court for the Central District of California, including Brown v. China Integrated Energy, Inc., 285 F.R.D. 560, 566 (C.D. Cal. 2012) (citations omitted) and Rose v. Deer Consumer Products, Inc., 2011 WL 6951969, at *2 (C.D. Cal 2011), both of which allowed service on U.S. registered agents or counsel for individuals residing in the PRC.

Bravetti’s holding should not be limited to Securities derivative litigation.  Whenever a plaintiff finds itself faced with service on PRC residents who, either individually, by agency, or through direct or indirect counsel have a presence in the U.S., that plaintiff will be encouraged to proceed under Civil Procedure Rule 4(f)(3) and seek permission to allow service on their agents, their counsel, or the agents or counsel of the companies on which they serve.

Chinese companies need to keep these issues in mind when they participate in US litigation.

SEC ENFORCEMENT ACTIONS

Tom Gorman, a partner in our Washington DC office, who was originally with US Securities and Exchange Commission’s (“SEC”) enforcement division, was quoted in the attached article about how the SEC has increased its enforcement capability after the Bernie Madoff case.  GORMAN SEC

COMPLAINTS

On December 2, 2013, the attached class action securities case was filed by John Hsieh against NQ Mobile and various individuals.  HSIEH NQ MOBILE

If you have any questions about these cases or about the Solar Cells case, US trade, 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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