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–Trump, Trade Policy, NME, TPP, Trade, Customs, False Claims, Products Liability, Antitrust and Securities

Jefferson Memorial and Tidal Basin Evening at Cherry Blossom TimTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MARCH 11, 2016

MOVING TO NEW LAW FIRM, HARRIS MOURE

Dear Friends,

Have not been able to send out a new newsletter in April because we are in the process of moving to a new law firm.  As of May 1, 2016, I will no longer be at the Dorsey law firm. Dorsey will continue to represent clients in international trade and customs matters but will no longer be handling antidumping, countervailing duty, section 201, escape clause and other similar trade regulation cases.

My new law firm is Harris Moure, here in Seattle and my new e-mail address is bill@harrismoure.com.  The US China Trade War blog and newsletter will be coming with me, but coming from my new firm.

Although will miss my Dorsey friends, I am looking forward to Harris Moure, which can be found at http://www.harrismoure.com/.  With a Beijing office and lawyers that can speak fluent Chinese, the Harris firm is well known for helping US and other foreign companies move to China to set up manufacturing operations.  Dan Harris has a very famous blog, http://www.chinalawblog.com/, which is followed by many companies that are interested in doing business in and with China.

In addition, set forth are two major developments involving trade litigation against Chinese companies.

If anyone has any questions or wants additional information, please feel free to contact me at this Dorsey e-mail address until April 30th and then after that at bill@harrismoure.com.

Bill Perry

TRADE UPDATES

NEW SECTION 337 UNFAIR TRADE CASE AGAINST ALL CHINESE CARBON ALLOY STEEL COMPANIES AND ALL STEEL PRODUCTS FROM CHINA

On April 26, 2016, US Steel Corp filed a major 337 unfair trade case against all the Chinese steel companies seeking an exclusion order to bar all imports of carbon and alloy steel from China.  See the ITC notice below. U.S. Steel Corp. is accusing Chinese steel producers and their distributors of conspiring to fix prices, stealing trade secrets and false labeling to avoid trade duties.  It is asking the U.S. International Trade Commission (“ITC”) to issue an exclusion order baring all the Chinese steel from the US market and also cease and desist orders prohibiting importers from selling any imported Chinese steel that has already been imported into the United States.

The petition alleges that the Chinese companies:

work together to injure U.S. competitors, including U.S. Steel. Through their cartel, the China Iron and Steel Association (“CISA”), Proposed Manufacturer Respondents conspire to control raw material input prices, share cost and capacity information, and regulate production and prices for steel products exported to the United States. Proposed Manufacturer Respondents also share production schedules and time the release of products across multiple companies. This enables them to coordinate exports of new products to flood the U.S. market and destroy competitors.

4. Some of the Proposed Manufacturer Respondents have used valuable trade secrets stolen from U.S. Steel to produce advanced high-strength steel that no Chinese manufacturer had been able to commercialize before the theft. In January 2011, the Chinese government hacked U.S. Steel’s research computers and equipment, stealing proprietary methods for manufacturing these products. Soon thereafter, the Baosteel Respondents began producing and exporting the very highest grades of advanced high-strength steel, even though they had previously been unable to do so. Chinese imports created with U.S. Steel’s stolen trade secrets compete against and undercut U.S. Steel’s own products.

5.        Proposed Respondents create documentation showing false countries of origin and false manufacturers for Chinese steel products. They also transship them through third countries to disguise their country of origin, circumvent anti-dumping and countervailing duty orders, and deceive steel consumers about the origin of Chinese steel.

Having worked at the ITC on 337 cases and later in private practice, section 337 is generally aimed at imports that infringe intellectual property rights, such as patents, trademarks or copyrights.  Moreover, one provision of section 337(b)(3) provides that when any aspect of a section 337 case relates to questions of dumping or subsidization, the Commission is to terminate the case immediately and refer the question to Commerce.

Also in the past when section 337 was used to bring antitrust cases, there was intense push back by the Justice Department.  Customs and Border Protection also may not be happy with the use of section 337 to enforce US Custom law.

But section 337 cases are not antidumping and countervailing duty cases.  There are no mandatory companies and lesser targets.  All the Chinese steel companies are targets, and this will be intense litigation with very tight deadlines.  If the individual Chinese steel companies do not respond to the complaint, their steel exports could be excluded in 70 days to six months.  Section 337 cases are hard- nosed litigation on a very fast track.

If you are interested in a copy of the complaint, please feel free to contact me.

The ITC notice is as follows:

Tuesday, April 26, 2016

Commodity: Carbon and Alloy Steel Products

Pending Institution

Filed By: Paul F. Brinkman

Firm/Organization: Quinn Emanuel Urrquhart & Sullivan LLP

Behalf Of: United States Steel Corporation

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Carbon and Alloy Steel Products. The proposed respondents are: Hebei Iron and Steel Co., Ltd., China; Hebei Iron & Steel Group Hengshui Strip Rolling Co., Ltd., China; Hebei Iron & Steel (Hong Kong) International Trade Co., Ltd., China; Shanghai Baosteel Group Corporation,China; Baoshan Iron & Steel Co., Ltd., China; Baosteel America Inc., Montvale, New Jersey; Jiangsu Shagang Group, China; Jiangsu Shagang International Trade Co, Ltd., China; Anshan Iron and Steel Group, China; Angang Group International Trade Corporation, China; Angang Group Hong Kong Co., Ltd., China; Wuhan Iron and Steel Group Corp., China; Wuhan Iron and Steel Co., Ltd., China; WISCO America Co., Ltd., Newport Beach, California; Shougang Group, China; China Shougang International Trade & Engineering Corporation, China; Shandong Iron and Steel Group Co., Ltd, China; Shandong Iron and Steel Co., Ltd., China; Jigang Hong Kong Holdings Co., Ltd., China; Jinan Steel International Trade Co., Ltd., China; Magang Group Holding Co. Ltd, China; Maanshan Iron and Steel Co., Ltd., China; Bohai Iron and Steel Group, China; Tianjin Pipe (Group) Corporation, China; Tianjin Pipe International Economic & Trading Corporation, China; TPCO Enterprise Inc., Houston, Texas; TPCO America Corporation, Gregory, Texas; Benxi Steel (Group) Co., Ltd., China; Benxi Iron and Steel (Group) International Economic and Trading Co., Ltd., China; Hunan Valin Steel Co., Ltd., China; Hunan Valin Xiangtan Iron and Steel Co., Ltd., China; Tianjin Tiangang Guanye Co., Ltd., China; Wuxi Sunny Xin Rui Science and Technology Co., Ltd., China; Taian JNC Industrial Co., Ltd., China; EQ Metal (Shanghai) Co., Ltd., China; Kunshan Xinbei International Trade Co., Ltd, China; Tianjin Xinhai Trade Co., Ltd., China; Tianjin Xinlianxin Steel Pipe Co. Ltd, China; Tianjin Xinyue Industrial and Trade Co., Ltd., China; and Xian Linkun Materials (Steel Pipe Supplies) Co., Ltd., China.

UNION FILES SECTION 201 CASE ON ALUMINUM, BUT THEN WITHDRAWS IT

On April 18, 2016 the United Steelworkers Union filed a section 201 safeguard case against imports of aluminum from all countries at the US International Trade Commission (“ITC”). Although the target appeared to be China because its overcapacity has affected the World aluminum market, in fact, not so much.   China has an export tax in place to prevent exports of primary aluminum.  The real targets were Canada and Russia.  Canada exports about $4 billion in aluminum to the US, and Russia exports about $1 billion.

But after intense pressure from the US Aluminum producers, on April 22th the Union withdrew the petition.  Apparently, the US Aluminum producers have production facilities in Canada and also part of the Union was in Canada and not happy with the case.

Moreover, at the request of Congress, the ITC is conducting a fact-finding investigation on the US aluminum industry. The report is due out June 24, 2017.  The Union may have decided to wait until the ITC issues the fact-finding report in June and then it will refile the 201 case.

But there are reports that as a result of the case the Canadian and US governments are discussing the aluminum trade problem, which may result in a settlement down the road.

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

Best regards,

Bill Perry

Dear Friends,

On March 21, 2016 and March 17, 2016, after this post was sent out, I was interviewed on Donald Trump and the US China Trade War by the World Finance, a bi-monthly print and web outlet on the financial industry.

To see the video on the impact of Donald Trump on International Trade policy, please see  Could Trump Take the US Back to the Great Depression, http://www.worldfinance.com/inward-investment/asia-and-australasia/could-trump-take-the-us-back-to-the-great-depression

To see the video on the US China Trade War, click on the following link

http://www.worldfinance.com/inward-investment/asia-and-australasia/the-us-china-trade-war-explained

For more information on the specific points made in the two videos on the US China Trade War and Donald Trump, please see the lead article below on the Trump Impact on International Trade policy.

March 11 Blog Post

After returning from a two week trip to China to work on the Solar Cells case, this March blog post will cover trade policy, including Trump’s impact on Trade Policy, trade, Customs, False Claims Act, the recent ZTE Export Control debacle, 337, patents/IP, criminal IP cases, products liability, antitrust and securities. There are significant developments in the US antitrust area.

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

Best regards,

Bill Perry

THE TRUMP IMPACT ON US TRADE POLICY

As stated in numerous past blog posts, one of the major reasons the Trans Pacific Partnership is running into problems in Congress along with a number of other trade issues, such as market economy for China, is the impact of the Presidential elections, especially the rise of Donald Trump. After Super Tuesday on March 1, 2016 and the Trump victories in seven different states many Republican pundits believe the game is over and Trump has won the Republican primary and will be the party’s nominee.

Thus Ed Rollins, who worked in the Reagan Administration and is a highly respected expert on the Republican party, published an article on March 2, 2016 on the Fox News website stating, “Trump is now unstoppable. It’s game over for Cruz, Rubio, Kasich and Carson.” Rollins goes on to state:

Game over! This was a rout, America. Winning seven states and the vast majority of delegates is a landslide. Donald Trump and the millions of his supporters have changed American politics and the Republican Party for the foreseeable future. . . .

Trump, who is an unconventional candidate, to say the least, has tapped into the anger and frustration across America and has mobilized voters to turn out in record numbers.

Love him or hate him, be inspired by him or be appalled by him, Trump has totally dominated a political cycle like no other politician I’ve seen in decades.

I admit I was a total skeptic, like many others. At first, I didn’t think he would run. Then I thought there was no way he could beat the all-star cast of elected officials running against him.

Then I underestimated his lack of substance and trite answers in the debates. Then I underestimated his lack of a real campaign.

Then I was convinced the political establishment was going to spend millions and take him out. And like the Energizer bunny he just keeps going and winning!

Trump is getting stronger by the day and his supporters are locked in and not going away. And no one has mastered the media like this since Teddy Roosevelt and his rough riders.

What’s ahead is a Republican Party that either becomes part of his movement or splinters into many pieces. No matter what Trump does or says, the nomination is his for the taking.

For the full article, see http://www.foxnews.com/opinion/2016/03/02/trump-is-now-unstoppable-its-game-over-for-cruz-rubio-kasich-and-carson.html?intcmp=hpbt2#

At most, there is only a 30% chance that some other Republican candidate can beat Trump, but with a 70% chance that Trump will be the Republican nominee, the question is can Trump beat Hilary Clinton? Many facts indicate that Trump could win and become the next President.

On February 29, 2016, the Boston Herald reported that my childhood state, Massachusetts, which is very liberal and very Democratic, is seeing a surge in Democratic voters switching parties to vote Republican for Trump. As the Boston Herald reported on February 29, 2016, “Amid Trump surge, nearly 20,000 Mass. voters quit Democratic party”. The Article goes on to state:

The primary reason? [Secretary of State Galvin said his “guess” is simple: “The Trump phenomenon” . . . . Galvin said the state could see as many as 700,000 voting in tomorrow’s Republican primary, a significant number given just 468,000 people are actually registered Republicans. In Massachusetts. unenrolled — otherwise known as independent — voters can cast a ballot in the primary of any party.

For full article see http://www.bostonherald.com/news/us_politics/2016/02/amid_tru… 3/1/2016

On February 29, 2016, Buck Fox in Investors Business Daily, one of the more well- known financial newspapers in the US, predicted that Trump would win the Presidency:

Let’s take a rare journalistic moment to answer definitively: Will Donald Trump win the presidency? Yes.

Good. Got that out of the way. No dialing a focus group. Tell it straight. … Answers. Trump rattles them off fearlessly. He doesn’t consult pollsters. He goes with his gut.

Which is one reason he’s wildly popular — dominating the Drudge debate poll with 57% — and on the way to delivering the inaugural address on Jan. 20, 2017, as the 45th president.

As Ann Coulter says, President Trump will be halfway through that speech as the Republican Party keeps debating his viability.

Don’t limit that hedge to GOP bureaucrats. Throw in 99% of TV pundits: Karl Rove, Brit Hume, George Will, Bill Kristol, Rich Lowry, Steve Hayes, Charles Krauthammer, S.E. Cupp, Mike Smerconish, Ben Ferguson, Jeff Toobin.

They share a maddening trait — smug, glib and handsomely paid while belittling Trump’s odds of winning. Even though that’s all he’s done while building a titanic real estate empire. . . .

The smart ones see a runaway Trump Train, with Los Angeles radio host Doug McIntyre —hardly a Don fan — conceding after Nevada’s rout, “Donald Trump will win the Republican nomination.”

No “maybe.” No “very well could.” Trump will claim the GOP trophy in July in Cleveland. And win it all in November. Why?

  1. Issues. Trump owns immigration, trade, Muslim terror, self-funding his campaign to ignore special interests. . . . .

For full article, see http://www.investors.com/politics/capital-hill/trump-towers-over-the-presidential-field/[2/29/2016 12:29:13 PM]

On March 1, 2016, Politico published an article “The media’s Trump reckoning: ‘Everyone was wrong’ From the New Yorker to FiveThirtyEight, outlets across the spectrum failed to grasp the Trump phenomenon.”

In a March 3, 2016 article, John Brinkley of Forbes asks “Why Is Trade Such A Big Deal In The Election Campaign?”, stating in part:

Did you ever think you’d see a day when international trade was a central issue in a U.S. presidential election?

That’s where we are in 2016. For one reason or another, all the presidential candidates have felt the need to stake out positions on trade.

Let’s look at the last half-century. Issues that animated presidential campaigns were the Cold War, civil rights, the Vietnam War, Watergate, nuclear weapons, inflation, budget deficits, health care costs, terrorism, national security, wars in Iraq and Afghanistan, a financial crisis, illegal immigration. But never trade.

Well, almost never. While running for president in 1992, Ross Perot warned that NAFTA would cause “a giant sucking sound” from Mexico, but he wasn’t able to elevate NAFTA to a prominent position in that year’s election debates.

This year the Republican front-runner Donald Trump, who says he knows a lot about trade, but has proven that he doesn’t, says he’ll repeal NAFTA and the Trans-Pacific Partnership if it takes effect before he becomes president.

He also says he wants to slap a 45 percent tariff on Chinese imports. It’s been pointed out that this would get us into a trade war. The Trump camp’s fatuous response is that we’re already in a trade war with China. That’s like saying your house is in fire, so let’s spray gasoline on it.

Sen. Bernie Sanders, who had a realistic shot at the Democratic nomination until Super Tuesday, has ranted and raved about free trade agreements throughout his campaign. He says they have cost millions of Americans their jobs, although there is no empirical evidence of that.

In her inimical please-all-the-people-all-the-time style, Democratic frontrunner Hilary Clinton says she doesn’t like the Trans-Pacific Partnership in its present form, but might change her mind if certain changes are made. She obviously thinks trade is important enough as a political issue that she has to bob and weave rather than take an unambiguous yes-or-no position. . . .

Why is trade such a volatile issue this year?

An obvious reason is that the Obama administration has negotiated and signed the most mammoth trade agreement in the history of the universe.

The TPP encompasses 12 countries and 40 percent of the world’s economy. . . .

And a third we can call The Trump Factor: the other GOP candidates are so scared of Trump that they feel they have to respond to everything he says, just to show that they’re not like him (which hardly seems necessary). . . .

Keeler said the prominence of trade in the 2016 presidential campaign “is surprising in the same way that everything about Donald Trump is surprising.”

For the full article, see

http://www.forbes.com/sites/johnbrinkley/2016/03/03/why-is-trade-such-a-big-deal-in-the-election-campaign/print/.

Why is trade policy so important in this election? It is not because Trump says it is so.  Instead, it is the reason Trump is doing so well in the Republican primary—his appeal to a large constituency that is being hammered by illegal immigration, hurt by trade and afraid of losing their jobs.  Several pundits have tried to explain what this election is really about and the reason for Trump’s rise:

Hundreds of workers in Indiana, who just saw their jobs heading to Mexico;

Disney employees being fired and forced to retrain foreign replacements;

and finally the systematic invasion of the country by illegal immigrants, who take American jobs away.

Middle class and lower middle class people are afraid of losing their jobs and their livelihood and are flocking to Trump.

In two word, this is economic nationalism.

One central core of Donald Trump’s strategy is the argument that the United States has been soft on trade and “does not win any more.” Trump specifically points to China as one of the biggest winners saying that China, Mexico and Japan all beat the US in trade.

Moreover, the Core Constituency of Trump, his followers, are blue collar workers, many without a college education, so-called Reagan Democrats, that work in companies, factories, service industries and often are in labor unions. These workers are in regular 9 to 5 jobs on a set salary, in the lower middle and middle class, who are not privileged and not protected, feel their livelihoods threatened by illegal immigration and trade deals that give other countries access to US markets.  These blue collar workers are white, black, and Hispanic, such as in the Nevada primary where many Hispanics voted for Trump.  These workers would normally vote Democratic, but they firmly believe that no party be it Democratic or Republican truly represents their interests and are willing to protect their jobs and way of life.  Along comes Donald Trump stating that he will stop illegal immigrants at the border, do away with trade agreements and stop imports from China saving their jobs.  He will make America great again.  For many, many workers this argument makes them solid Trump supporters.

In a March 2 article entitled Eight Reasons we need to start preparing for President Trump, Geoff Earle writing for the NY Post states

Reason 5:

Trump’s main demographic strength — working-class men and white voters — matches up well against one of Hillary Clinton’s chief weaknesses. He could go after Clinton in must-win Ohio, where “Trump’s rhetoric appeals to those blue-collar Democrats,” said GOP strategist Brian Walsh.

For full article, see http://nypost.com/2016/03/02/8-reasons-we-need-to-start-preparing-for-president-trump.

In listening to Donald Trump’s victory speech on Super Tuesday, he stated that he wants to be a unifier and that he will reduce corporate taxes and make it easier for US companies to repatriate profits and set up manufacturing in the US. No one has problems with Trump’s idea of using carrots to bring back US manufacturing.  The problem is with Trump’s idea of using trade sticks to force manufacturing back to the US by setting up high protectionist walls.

On February 29, 2016, The Wall Street Journal in an editorial entitled, “Making Depressions Great Again — The U.S. may renounce its trade leadership at a dangerous economic moment,” expressed its real concern that by using the Trade/Tariff sticks Trump could take the United States back to the 1930s and the Smoot Hawley Tariff that created the Great Depression:

Reviving trade is crucial to driving faster growth, yet the paradox of trade politics is that it is least popular when economic anxiety is high and thus trade is most crucial.

And so it is now: Four of the remaining U.S. candidates claim to oppose the Trans-Pacific Partnership, and Congress now lacks the votes to pass it.

The loudest voice of America’s new antitrade populism is Mr. Trump, who has endorsed 45% tariffs on Chinese and Japanese imports and promises to punish U.S. companies that make cookies and cars in Mexico. When Mr. Trump visited the Journal in November, he couldn’t name a single trade deal he supported, including the North American Free Trade Agreement (Nafta).

He says he’s a free trader but that recent Administrations have been staffed by pathetic losers, so as President he would make deals more favorable to the U.S., and foreigners would bow before his threats. “I don’t mind trade wars,” he said at Thursday’s debate.

He should be careful what he wishes. Trade brinksmanship is always hazardous, especially when the world economy is so weak. A trade crash could trigger a new recession that would take years to repair, and these conflicts are unpredictable and can escalate into far greater damage.

The tragic historic precedent is the Smoot-Hawley tariff of 1930, signed reluctantly by Herbert Hoover. In that era the GOP was the party of tariffs, which economist Joseph Schumpeter called the Republican “household remedy.” Smoot-Hawley was intended to protect U.S. jobs and farmers from foreign competition, but it enraged U.S. trading partners like Canada, Britain and France.

As economic historian Charles Kindleberger shows in his classic, “The World in Depression, 1929-1939,” the U.S. tariff cascaded into a global war of beggar-thy-neighbor tariff reprisals and currency devaluation to gain a trading advantage. Each country’s search for a protectionist advantage became a disaster for all as trade volumes shrank and deepened the Great Depression.

Kindleberger blames the Depression in large part on a failure of leadership, especially by a U.S. that was unwilling to defend open markets in a period of distress. “For the world economy to be stabilized, there has to be a stabilizer—one stabilizer,” he wrote. Britain had played that role for two centuries but was then too weak. The U.S. failed to pick up the mantle. . . .

Once the President recovered his trade bearings, Mitt Romney promised in 2012 to sanction China for currency manipulation and even ran TV ads claiming that “for the first time, China is beating us.”

Mr. Trump is now escalating this line into the centerpiece of his economic agenda—protectionism you can believe in. And what markets and the public should understand is that as President he would have enormous unilateral power to follow through. Congress has handed the President more power over the years to impose punitive tariffs, in large part so Members can blame someone else when antitrade populism runs hot. . . .

In an exchange with Bill O’Reilly on Feb. 10, Mr. Trump said that’s exactly what he plans to do. The Fox News host suggested a trade war is “going to be bloody.” Mr. Trump replied that Americans needn’t worry because the Chinese “will crash their economy,” adding that “they will have a depression, the likes of which you have never seen” in a trade war. He might be right about China, but the U.S. wouldn’t be spared.

The Trump candidacy thus introduces a new and dangerous element of economic risk to a world still struggling to emerge from the 2008 panic and the failed progressive policy response. A trade war would compound the potential to make depressions great again.

For the full editorial see http://www.wsj.com/articles/making-depressions-great-again-1456790200 3/1/2016.

President Ronald Reagan, who lived through the Great Depression and knew about the impact of the Smoot Hawley tariff on his generation, was a solid free trader stating on June 28, 1986 in the attached speech on international trade, BETTER COPY REAGAN IT SPEECH:

But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth. You see, trade barriers and protectionism only put off the inevitable.

Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff.

Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Ronald Reagan was a true free trader; Donald Trump is not.

But Trump’s rhetoric along with the strong positions of Bernie Sanders, have already had an impact on US trade policy.

Trans Pacific Partnership (“TPP”)

On February 22, 2016, despite strong opposition from Republican lawmakers and many Democratic Senators and Congressmen, in a speech before the National Governors Association, President Obama stated that he was cautiously optimistic that Congress would pass the TPP before he leaves office. President Obama specifically stated:

“I am cautiously optimistic that we can still get it done. Leader McConnell and Speaker Ryan both have been supportive of this trade deal.  We’re going to … enter this agreement, present it formally with some sort of implementation documents to Congress at some point this year and my hope is that we can get votes.”

But President Obama admitted that selling the TPP is not easy with the opposition of four of the top five candidates for the presidency — Donald Trump, Hillary Clinton and Sens. Bernie Sanders, I-Vt., and Ted Cruz, R-Texas. He further stated:

“The presidential campaigns have created some noise within and roiled things a little bit within the Republican Party, as well as the Democratic Party around this issue. I think we should just have a good, solid, healthy debate about it.  What all of you can do to help is to talk to your Congressional delegations and let them know this is really important.  All of you, though, can really lift up the benefits for your states, and talk to your congressional delegations directly.”

Obama can only submit legislation to implement the TPP to Congress after the U.S. International Trade Commission releases an extensive report on the agreement’s economic impact in mid-May.

As reported in my last newsletter, on February 5, 2016, in the Democratic debate, Hillary Clinton stated that she could support the TPP if the deal is changed, but also stated afterwards that she opposes the deal as currently written.  Meanwhile there is intense pressure on Clinton to stay opposed to the TPP as the labor unions have increased pressure on those Democratic Congressmen and Senators that voted in favor of the Trade Promotion Authority and were put on labor’s hit list.  On February 29, 2016, it was reported that labor unions were now targeting 28 moderate Democrats who supported “fast-track” trade promotion legislation.

California Rep. Scott Peters estimates his reelection campaign is likely to see a $200,000 to $300,000 drop in labor donations — about a seventh of his total contributions so far — and fewer ground volunteers knocking on doors unless he changes his trade stance. The two-term lawmaker, who won reelection by 3 percent of the vote, is likely to face ad buys, call-in campaigns and protests outside his office. As Peters further stated:

“We’ve lost some pretty important labor support as a result on the vote on TPA, and that’s painful … There’s no doubt there has been a political price.”

Labor’s attacks on the free traders could also be decisive in the reelection bids of California Rep. Ami Bera and New York Rep. Kathleen Rice. The White House has sought to counter the labor attacks by early endorsements, raised campaign funds and deployed Cabinet officials to praise members in their districts.

This makes passage of the TPP very doubtful in Congress. As Texas Rep Eddie Bernice Johnson said of the loss of the AFL-CIO backing:

“It gets your attention,” adding that trade is an “economic engine” for her Dallas district. “But I cannot neglect the stance and conditions of my district that I pledged heartily to represent.”

There’s a chance a TPP vote could get delayed until the Lame Duck session or the next administration and the next Congress, but AFL-CIO President Richard Trumka has stated:

“So they want to put it after the election because they think we’ll forget. Well, we’re not going to forget, and we’re not going to let the American worker forget, and we think they’ll have a tough time explaining their vote to workers who have lost jobs”

During a meeting with labor and trade protectionists, Oregon Congressman Earl Blumenauer reportedly slammed a notepad down on a table at the height of the debate, telling the group he was frustrated with the constant calls and picketing outside his home and district office. Blumenauer went on to state:

“I have a community that is very trade-dependent, but we also have people who are trade skeptics. So I’m just going to let the chips fall where they may.”

On March 7, 2016, former Congressman Don Bonker wrote the following article for the Seattle Times about the developments in the Trade area:

Trump’s trade rhetoric threatens U.S. economy, global standing, Trump’s fear tactics combined with viral protectionism spreading across the country is a monkey wrench for passage of Trans-Pacific Partnership.

Donald Trump’s political rhetoric, however absurd, is boastfully driving the debate among Republicans on issues such as immigration, but it’s his relentless jabs at U.S. trade policy that is more alarming.

Threatening to slap a 35 percent tariff on all imports from China definitely resonates with his support base, but it could undermine America’s leadership globally and also prove harmful in the Puget Sound area, given that such arbitrary tariffs are imposed on American importers, not Chinese suppliers, then passed on to distributors and ultimately result in higher consumer prices.

Trump, ever boastful of his business savvy, should also expect the Chinese to retaliate, as they predictably will, to restrict U.S. exports from Washington state and beyond.

Not surprisingly, Trump wants it both ways, asserting that free trade is terrible because we have “stupid” officials doing the negotiating, yet it could be wonderful if he calls the shots and has the final word (someone should inform him about the Constitution, which clearly states that “Congress shall regulate interstate and foreign commerce.”)

This may be how he cuts backroom business deals, but Trump’s approach would be unacceptable as leader of the world’s No. 1 economy.

Such fear tactics combined with viral protectionism spreading across the country, tapped into by Bernie Sanders and now Hillary Clinton switching her position on Trans-Pacific Partnership (TPP), is alarming to other nations who depend on America leadership in today’s global economy.

Using Trump’s words, “to make America great again,” our president must be a strong leader in today’s global economy, which Barack Obama has attempted to do with initiatives such as TPP. The partnership would give the U.S. a stronger presence in the Pacific Rim and provide a protective shield for Asian countries threatened by China’s enormous growth and influence in the region.

The TPP is destined for burial thanks to Trump’ rhetoric and growing protectionism among Democrats in Congress. It will be to China’s advantage given their own trade negotiations with the same countries.

If Trump is elected, will it put us in a trade war with China? In the 1928 presidential election, Herbert Hoover was less pompous than Trump but nonetheless called for higher tariffs that set the stage for a Republican Congress poised to run amok on limiting imports.

Shortly after the elections, hundreds of trade associations were formed that triggered an unbridled frenzy of logrolling, jockeying for maximum protection for commodity and industry producers leading to enactment of the Smoot-Hawley Tariff Act that hiked import fees up to 100 percent on over 20,000 imported products.

On the Senate side, another 1,200 amendments were added that proved so egregious, prompting Democrat Senator Thaedeus H. Caraway of Arkansas to declare that, “I might suggest that we have taxed everything in this bill except gall,” to which Senator Carter Glass of Virginia responded, “Yes, and a tax on that would bring considerable revenue.”

What Congress sent to the president proved so alarming it prompted 1,000 of nation’s leading economists to sign a petition urging President Hoover to veto the Smoot-Hawley Act, while The New York Times printed an ad that listed 46 states and 179 universities warning that signing the bill may prompt a fierce reaction.

Indeed within a few months, America’s leading trade partners — Canada, France, Mexico, Italy, 26 countries in all — retaliated, causing the world trade to plummet by more than half of the pre-1929 totals, one of several factors that precipitated the Great Depression.

Based on his campaign rhetoric, a Trump presidency would have plenty of gall, to be sure but it is certainly not what is needed to make America great again.

On March 9, I attended a reception here in Seattle with Congressman Dave Reichert, Chairman Subcommittee on Trade, House Ways and Means. Congressman Reichert stated that he is the first Washington State Congressman to become Chairman of the Trade Subcommittee.  He also stated that he is dedicated and personally committed to passing the TPP through Congress no matter how long it takes because of its importance for the economies of Washington State and the entire United States.

On March 10, 2016, however, the Wall Street Journal had a front page headline entitled, “Free Trade Loses Political Favor, Republican backing fades as voters voice surprising skepticism; Pacific pact seen at risk”. The Article states in part:

After decades in which successive Republican and Democratic presidents have pushed to open U.S. and global markets, resentment toward free trade now appears to have the upper hand in both parties, making passage this year of a sweeping Pacific trade deal far less likely and clouding the longer-term outlook for international economic exchange.

Many Democrats have long blamed free-trade deals for big job losses and depressed wages, especially in the industrialized Midwest, which has been battered over the years by competition from lower-cost manufacturing centers in countries like Japan, Mexico and China. . . .

But one big surprise Tuesday was how loudly trade fears reverberated among Republican voters in the primary contests in Michigan and Mississippi—evidence, many observers say, of a widening undercurrent of skepticism on the right about who reaps the benefits from loosened trade restrictions.

CHINA

Despite arguments by the Federalist Society in the attached article, Everything Trump Says About Trade With China Is Wrong, that Donald Trump’s arguments against China are simply wrong, Trump’s strong position and Hilary Clinton’s desire to keep Union support has forced her to take a much tougher stand on trade with China and the TPP. On February 23rd, 2016 in the attached commentary to the  Maine Press Herald, CLINTON ARTICLE CHINA, entitled “If elected president, I’ll level the playing field on global trade,” Hilary Clinton stated:

At the same time, China and other countries are using underhanded and unfair trade practices to tilt the playing field against American workers and businesses.

When they dump cheap products in our markets, subsidize state-owned enterprises, manipulate currencies and discriminate against American companies, our middle class pays the price. That has to stop.

Ninety-five percent of America’s potential customers live overseas, so closing ourselves off to trade is not a solution. . . .

As President, my goal will be to win the global competition for the good-paying manufacturing jobs of the future.

  • First, we have to strongly enforce trade rules to ensure American workers aren’t being cheated. Too often, the federal government has put the burden of initiating trade cases on workers and unions, and failed to take action until after the damage is done and workers have been laid off.

That’s backward: The government should be enforcing the law from the beginning, and workers should be able to focus on doing their jobs. To make sure it gets done, we should establish and empower a new chief trade prosecutor reporting directly to the president, triple the number of trade enforcement officers and build new early-warning systems so we can intervene before trade violations cost American jobs.

We should also hold other countries accountable for meeting internationally sanctioned labor standards – fighting against child and slave labor and for the basic rights of workers to organize around the world.

Second, we have to stand up to Chinese abuses. Right now, Washington is considering Beijing’s request for “market economy” status. That sounds pretty obscure. But here’s the rub – if they get market economy status, it would defang our anti-dumping laws and let cheap products flood into our markets. So we should reply with only one word: No.;

With thousands of state-owned enterprises; massive subsidies for domestic industry; systematic, state-sponsored efforts to steal business secrets; and blatant refusal to play by the rules, China is far from a market economy. If China wants to be treated like a market economy, it needs to act like one.

Third, we need to crack down on currency manipulation – which can be destructive for American workers. China, Japan and other Asian economies kept their goods artificially cheap for years by holding down the value of their currencies.;

I’ve fought against these unfair practices before, and I will do it again. Tough new surveillance, transparency and monitoring regimes are part of the answer – but only part. We need to expand our toolbox to include effective new remedies, such as duties or tariffs and other measures.

Fourth, we need to stop rewarding U.S. companies for shipping jobs overseas by closing loopholes and ending tax write-offs – and encouraging “in-sourcing” here in America instead. Two HVAC plants in Indiana recently decided to move abroad, costing 2,100 jobs – and likely pocketing a tax deduction.

They’re not just turning their back on the workers and community that supported them for years, they’re turning their back on America. As President, I’ll also end so-called “inversions” that allow multinational businesses to avoid paying U.S. taxes by moving overseas in name only.

Fifth, we have to set a high bar for any new trade agreements, and only support them if they will create good jobs, raise wages and advance our national security. I opposed the Trans-Pacific Partnership when it failed to meet those tests, and would oppose future agreements if they failed to meet that bar.;

America spent generations working with partners to develop strong and fair rules of the road for the global economy – but those rules only work if we enforce them. Tough enforcement and other smart policies to support a manufacturing renaissance are the only way we can ensure that trade helps American workers. If I’m elected President, that’s what I’ll do.

THE REASON TRADE IS AT THE CENTER OF THE DEBATE AND THE REAL TRADE ANSWER—TAA FOR COMPANIES

THE REASON

What is the reason that trade is the center of the Presidential debate? I believe at its core there are two fundamental reasons—failure to educate the general populace on the benefits of trade so that they understand how manufacturing in the US is connected in global supply chain with raw material inputs from abroad.

The second reason is the toxic domestic raw material heavy industry/Labor Union attack based on false arguments that all trade competition is caused by unfair trade and that companies can be saved by bringing trade remedy cases. This rhetoric has generated a Globalization victimhood way of thinking that all imports are unfairly traded, especially from China. This is despite the fact that 80 of the outstanding 120 antidumping orders against China are directed at raw materials, chemicals, metal and steel, which goes directly into downstream US production. Restrictions on raw material inputs hurts downstream US industries, which have no standing under US antidumping and countervailing duty laws to argue against the restrictions and have their arguments have any weight in the determination.

Years ago a United States Trade Representative (“USTR”) in the W Bush Administration spoke in Seattle and said that in the Trade area the major failure has been to educate the American public on the benefits of trade. Washington State, which is dependent on imports and exports, certainly knows the benefits of trade. The Ports in Washington State are incredibly important for the economic health of the State. Our largest trading partner is China to which Washington exports $20 billion every year. Thus the Washington Council for International Trade is pushing hard for the Trans Pacific Partnership. See http://wcit.freeenterpriseaction.com/v9xpssZ

But that is not true in many other states, especially in the Midwest and on the East Coast, which have adopted the trade victimization ideology. In addition, the Steel Industry and Labor Unions make three attacks against China—currency manipulation, cyber hacking and antidumping. When one looks deeper at these arguments, however, they fall apart.

CURRENCY MANIPULATION

Donald Trump and Hilary Clinton have been screaming about currency manipulation. But on May 22, 2015, on the Senate floor during the debate on Trade Promotion Authority (“TPA”) Senator Hatch made a very strong argument against the Stabenow and Portman Currency Amendment, which would have included tough provisions and sanctions, against currency manipulation. Senator Hatch clearly stated that the reason he opposed the Amendment was because President Obama under pressure from Treasury Secretary Lew stated that if the currency amendment was included, he would veto the TPA bill.

Why were President Obama and Treasury Secretary Lew opposed to tough sanctions against currency manipulation? Because those sanctions could be used against the United States. See Testimony of Senators Wyden and Hatch at http://www.c-span.org/video/?326202-1/us-senate-debate-trade-promotion-authority&live. As Senator Hatch stated:

I think I can boil this very complicated issue down to a single point: The Portman-Stabenow Amendment will kill TPA.

I’m not just saying that, Mr. President. It is, at this point, a verifiable fact.

Yesterday, I received a letter from Treasury Secretary Lew outlining the Obama Administration’s opposition to this amendment. . . . most importantly, at the end of the letter, Secretary Lew stated very plainly that he would recommend that the President veto a TPA bill that included this amendment.

That’s pretty clear, Mr. President. It doesn’t leave much room for interpretation or speculation. No TPA bill that contains the language of the Portman-Stabenow Amendment stands a chance of becoming law. . . .

We know this is the case, Mr. President. Virtually all of our major negotiating partners, most notably Japan, have already made clear that they will not agree to an enforceable provisions like the one required by the Portman-Stabenow Amendment. No country that I am aware of, including the United States, has ever shown the willingness to have their monetary policies subject to potential trade sanctions. . . .

Second, the Portman-Stabenow Amendment would put at risk the Federal Reserve’s independence in its ability to formulate and execute monetary policies designed to protect and stabilize the U.S. economy. While some in this chamber have made decrees that our domestic monetary policies do not constitute currency manipulation, we know that not all of our trading partners see it that way. . . .

If the Portman-Stabenow language is adopted into TPA and these rules become part of our trade agreements, how long do you think it will take for our trading partners to enter disputes and seek remedies against Federal Reserve quantitative easing policies? Not long, I’d imagine.

If the Portman-Stabenow objective becomes part of our trade agreements, we will undoubtedly see formal actions to impose sanctions on U.S. trade, under the guise that the Federal Reserve has manipulated our currency for trade advantage. We’ll also be hearing from other countries that Fed policy is causing instability in their financial markets and economies and, unless the Fed takes a different path, those countries could argue for relief or justify their own exchange-rate policies to gain some trade advantage for themselves.

CYBER HACKING

The trade critics also attack China for Cyber Hacking, but on September 29, 2015, in response to specific questions from Senator Manchin in the Senate Armed Services Committee, James R. Clapper, Director of National Intelligence, testified that China cyber- attacks to obtain information on weapon systems are not cyber- crime. It is cyber espionage, which the United States itself engages in.  As Dr. Clapper stated, both countries, including the United States, engage in cyber espionage and “we are pretty good at it.”  Dr. Clapper went on to state that “people in glass houses” shouldn’t throw stones.  See http://www.armed-services.senate.gov/hearings/15-09-29-united-states-cybersecurity-policy-and-threats at 1hour 8 minutes to 10 minutes.

In response to a specific question from Senator Ayotte, Director Clapper also specifically admitted that the attack on OPM and theft of US government employee data is state espionage and not commercial activity, which the US also engages in. See above hearing at 1 hour 18 and 19 minutes.  

Thus, the United States itself does not want to clearly define Cyber Hacking as unacceptable because it is state espionage and we the United States do it too and are pretty good at it.

DUMPING

As indicated in numerous past blog posts, more dumping and countervailing duty cases, some against China based on faked numbers, does not solve the trade problem. For over 40 years the Commerce Department has refused to use actual prices and costs in China to determine dumping resulting in antidumping and countervailing duty orders blocking about $30 billion in Chinese imports.  In doing so, however, China is treated worse the Iran, Russia, Syria and many other countries under the US antidumping law.

As indicated below, that issue comes to a boil on December 11, 2016 when pursuant to the China WTO Agreement, China is supposed to be treated as a market economy country. But Hilary Clinton states that if market economy treatment were given to China so they could be treated like Iran, we would “defang our antidumping laws.”  Nothing could be further from the truth.  Having worked at the Commerce Department, I am convinced that if China were to become a market economy, Commerce would still find very large dumping rates against China.

More importantly, the antidumping, countervailing duty and other trade laws do not work. They do not save US companies and industries.  We have a poster child to prove this point—The US Steel Industry.  After forty years of trade cases and protection from steel imports, where is the US steel industry today?

Many of the major steel companies, such as Bethlehem Steel, Lone Star Steel and Jones & Laughlin, have become green fields. The total employment of the US Steel industry now is less than one high tech company. A failure caused not because of the lack of  antidumping and countervailing duty protection covering billions of dollars in imports, but because as President Reagan stated back in 1986, protectionism does not work.  It does not save the companies, because these cases do not get at the root causes of the company’s and industry’s decline.

Donald Trump and Hilary Clinton have pointed to the closure of manufacturing plants in the US and their move to Mexico. But why did the factories close?

On March 4, 2016, the Wall Street Journal in an editorial entitled Trump on Ford and Nabisco The real reasons the companies left the U.S. for Mexico” clearly set out the reasons some of these companies left the United State to move to Mexico—Wages demands as high as $60 an hour from the Labor Unions coupled with sky high taxes to support public workers in Illinois.  As the Journal stated:

“Last summer, Deerfield, Illinois-based Mondelez, which owns Nabisco, announced that it would close nine production lines at its plant in Chicago—the largest bakery in the world—while investing in new technology at a facility in Salinas, Mexico. Mondelez made the decision after asking its unions for $46 million in concessions to match the annual savings it would achieve from shifting production to Mexico. . . .

Operating in Chicago is particularly expensive since Illinois has among the nation’s highest corporate and property taxes—which are soaring to pay for city employee pensions—and workers’ compensation premiums. Last year Illinois lost 56 manufacturing jobs per work day while employment increased in most other Midwest states including Wisconsin (18 a day), Indiana (20), Ohio (58) and Michigan (74).

As for Ford, Mr. Trump flogged the auto maker’s $2.5 billion investment in two new engine and transmission plants in Mexico. . . . One impetus behind Detroit’s Mexico expansion is the United Auto Workers new collective-bargaining agreement, which raises hourly labor and benefit costs to $60 in 2019—about $10 more than foreign auto makers with plants in the U.S.—from the current $57 for Ford and $55 for GM. The increasing wages make it less economical to produce low-margin cars.

Foreign car manufacturers including BMW, Honda, Volkswagen, Kia, Nissan and Mazda have also recently announced new investments in Mexico. Besides lower labor costs, one reason they give is Mexico’s free-trade agreements, which allow access to 60% of world markets. Mexico has 10 free-trade agreements with 45 countries including Japan and the European Union whereas the U.S. has only 14 deals with 20 countries.”

Companies have to be competitive with foreign competition, and labor unions must work with management to stay competitive with the rest of the World. The “More” statement of the famous US labor leader John L. Lewis no longer works if the labor union’s more leads to the closure of the US manufacturing company, which employs the workers in question.

THE ANSWER

Not only must US Companies be competitive, but countries, including the United States, must also be competitive and be willing to meet the competition from other countries. A major reason for the rise of Donald Trump is the failure of the US Congress to formulate a trade policy that works and promote the only US trade program that truly saves import injured manufacturing companies by helping them adjust to import competition—the Trade Adjustment Assistance (TAA) for Firms/Companies program.  As stated in prior blog posts, because of ideological purity among many Republican conservatives in Congress and the Senate, the TAA for Companies program has been cut to the bone to $12.5 million nationwide.  This cut is despite the fact that since 1984 here in the Northwest, the Northwest Trade Adjustment Assistance Center (“NWTAAC”) has been able to save 80% of the companies that entered the program.

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

This cut back to $12. 5 million nationwide from $50 million makes it impossible for the TAA for Companies program to work with medium or larger US companies, which have been injured by imports. TAA for Companies is hamstrung by neglect with a maximum technical assistance per firm level that has not changed in at least 30 years.

In case you don’t know about TAAF, this is a program that offers a one-time, highly targeted benefit to domestic companies hurt by trade. The benefit is not paid to the companies, but to consultants, who help the company adjust to import competition.   To put that in context, the very much larger TAA for Worker Program’s appropriation for FY 2015 was $711 million to retrain workers for jobs that may not exist after the company has closed.

Congress needs to find a cure to the trade problem, and it is not more trade cases, which do not save US companies and the jobs that go with them. TAA for Companies works, but because of politics, ideology and the resulting Congressional cuts, TAA has been so reduced it is now marginalized and cannot do the job it was set up to do.

Both Republicans and Democrats have failed to formulate a trade policy that will help US companies injured by imports truly adjust to import competition and become competitive in the World again. This failure has created Donald Trump and possibly a new dangerous protectionist era in US politics, which could have a disastrous impact on the US economy.

TPP TEXT AND TRADE ADVISORY REPORTS

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

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

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

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

NEW TRADE AND CUSTOMS ENFORCEMENT BILL

President Obama signed the bipartisan Trade Facilitation and Trade Enforcement Act of 2015 (TFTE) on February 24. A copy of the bill, the conference report and summary of the bill are attached,  JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015 Trade-and-Environment-Policy-Advisory-Committee.pdf.

The bill makes many changes to the Customs and Trade laws with a specific focus on enforcement, particularly of the Trade laws. One of the provisions focuses on concerns surrounding non-resident, small “fly-by-night” importers of record.  The TFTE authorizes the Customs and Border Protection (“CBP”) to set up an importer-of-record program.  Through the program, CBP must establish criteria that importers must meet to obtain an importer-of-record number.

In addition, CBP is to establish an importer risk assessment program to review the risk associated with certain importers, particularly new importers and nonresident importers, to determine whether to adjust an importer’s bond or increase screening for an importer’s entries.   Specifically, Section 115(a) of the law provides:

Not later than the date that is 180 days after the date of the enactment of this Act, the Commissioner shall establish a program that directs U.S. Customs and Border Protection to adjust bond amounts for importers, including new importers and nonresident importers, based on risk assessments of such importers conducted by U.S. Customs and Border Protection, in order to protect the revenue of the Federal Government.

Title IV of the Act, Prevention of Evasion of Antidumping and Countervailing Duty Orders, sets up a new remedy for companies that believe that antidumping and countervailing duty orders are being evaded by shipping through a third country or misclassification or some other means.  The Act creates the Trade Remedy Enforcement Division within Department of Homeland Security, which is charged with developing and administering policies to prevent evasion of US antidumping and countervailing duty orders. The Secretary of Treasury is also authorized to enter into agreements with foreign nations to enforce the trade remedy laws.

On Aug. 23, 2016, CBP must begin investigating allegations of trade remedy evasion according to established procedures.   Those procedures include that CBP must initiate an investigation within 15 business days of receiving an allegation from an interested party and then has 300 days to determine whether the merchandise was entered through evasion. If CBP finds that there is a reasonable suspicion that merchandise entered the U.S. through evasion, CBP is directed to suspend the liquidation of each unliquidated entry of such covered merchandise.

Any CBP evasion decision is subject to judicial review by the Court of International Trade. The act also provides an expanded range of penalties where evasion is found to have occurred, including the imposition of additional duties and referrals to other agencies for other civil or criminal investigations.

Section 433 of the Act also eliminates the ability of an importer of a new shipper’s merchandise to post a bond or security instead of a cash deposit. This provision will prevent a company from importing substantial quantities of merchandise covered by an antidumping and/or countervailing duty order and then fail to pay the appropriate duty.

Finally, section 701 of the act, Enhancement of Engagement on Currency Exchange Rate and Economic Policies with Certain Major Trading Partners of the United States, establishes a procedure for identifying trade partners that are suspected of currency manipulation and conducting a macroeconomic analysis of those partners. The key finding is under section 701(2)(B), where the Treasury Secretary is to publicly describe the factors used to assess under paragraph (2)(A)(ii) whether a country has a significant bilateral trade surplus with the United States, has a material current account surplus, and has engaged in persistent one-sided intervention in the foreign exchange market.

If the Treasury Secretary is unable to address currency manipulation issues with a trading partner, the act authorizes the President to take additional steps to prevent and remedy further manipulation. For instance, the president may prohibit the approval of new financing products, which can be waived only upon a finding of adverse impact on the U.S. economy or serious harm to national security.

ZTE EXPORT LAW VIOLATIONS—MORE FUEL ON THE FIRE OF THE US CHINA TRADE WAR

On March 8, 2015, the Commerce Department’s Bureau of Industry and Security (“BIS”) published the attached Federal Register notice, ZTE FED REG NOTICE, announcing that China based mega corporation ZTE and three of its affiliated companies have been added to the Entity List, which requires an export license before US made products can be exported to those companies. As China’s second largest telecommunications company, ZTE is also the world’s seventh largest producer of smartphones and has operations in the US and more than 160 other countries.

The Federal Register notice states:

The End-User Review Committee (“ERC”) composed of representatives of the Departments of Commerce (Chair), State, Defense, Energy, and, where appropriate, the Treasury has determined:

to add four entities—three in China and one in Iran—to the Entity List under the authority of § 744.11 (License requirements that apply to entities acting contrary to the national security or foreign policy interests of the United States) of the EAR. . . .

The ERC reviewed § 744.11(b) (Criteria for revising the Entity List) in making the determination to list these four entities. Under that paragraph, entities and other persons for which there is reasonable cause to believe, based on specific and articulable facts, have been involved, are involved, or pose a significant risk of being or becoming involved in, activities that are contrary to the national security or foreign policy interests of the United States . . . .

Pursuant to § 744.11 of the EAR, the ERC determined that Zhongxing Telecommunications Equipment Corporation (‘‘ZTE Corporation’’) . . . be added to the Entity List under the destination of China for actions contrary to the national security and foreign policy interests of the United States. Specifically, the ZTE Corporation document ‘‘Report Regarding Comprehensive Reorganization and Standardization of the Company Export Control Related Matters’’ (available at http://www.bis.doc.gov) indicates that ZTE Corporation has reexported controlled items to sanctioned countries contrary to United States law. The ZTE Corporation document ‘‘Proposal for Import and Export Control Risk Avoidance’’ (available at http://www.bis.doc.gov) describes how ZTE Corporation also planned and organized a scheme to establish, control, and use a series of ‘‘detached’’ (i.e., shell) companies to illicitly re-export controlled items to Iran in violation of U.S. export control laws.

Having looked at the internal confidential ZTE report, which Commerce in a very unusual situation has published as a public document on its website, ZTE truly has been caught red handed. The ZTE Report lays out a detailed scheme to evade US Export Control laws.  No country, including the United States or China, would tolerate such a scheme to systematically evade a country’s laws.

For more on the ZTE Action along with a link to the confidential ZTE document now posted on the Commerce Department website, see http://ftalphaville.ft.com/2016/03/08/2155724/has-the-cold-us-sino-trade-war-just-got-piping-hot/.

From the Chinese point of view, however, the Commerce Department has no credibility because its antidumping laws presently block about $30 billion in imports based on fake numbers. Because the US Government’s Import and Export Control Administration are both located in the Commerce Department, the Chinese government looks at all the Department’s decisions as US based protectionism.

The problem is that through its nonmarket economy methodology, which does not use actual costs and prices to determine dumping, Commerce has created a game, and the Chinese will play it. Sometimes Chinese companies talk to me about using the “houmen” back door and shipping products through different countries to evade US antidumping laws.  I always tell the Chinese companies that this is Customs fraud and they risk civil and criminal prosecution under US Customs and trade laws.

In fact, in the past Chinese honey suppliers that used transshipment to get around the US antidumping law were caught in the United States and hauled in front of Federal Court on criminal charges for evasion of US antidumping laws. I have heard of one Chinese company seafood executive arrested in Belgium and sent to Belgian jail on an extradition warrant for evasion of US antidumping laws.

With the enactment of the New Trade and Customs Enforcement Act, described above, the US government now has more ways of catching Chinese companies and US importers that try to evade US trade laws. As one Chinese friend told me, such actions are “too damned dangerous”.

Although US judgments are not enforceable in China, Chinese companies have to also realize, that like ZTE, they have grown up and have subsidiaries all around the World. US judgments may not be enforceable in China, but they are enforceable in Hong Kong and other countries, and every Chinese company I have ever dealt with has a Hong Kong bank account.  Through its scheme to evade US export control laws, ZTE now has major problems and those problems may now multiply worldwide.

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

As stated in prior newsletters, interest groups on both sides of the issue have increased their political attacks in the debate over China’s market economy status. On February 23, 2016, under intense pressure from the labor unions, Hilary Clinton stated that to give market economy status to China:

“would defang our anti-dumping laws and let cheap products flood into our markets. So we should reply with only one word: No.”

To summarize the issue, on December 11, 2016, pursuant to the WTO Agreement, the 15 year provision, expires. More specifically, the United States faces a looming deadline under the WTO Agreement with regard to the application of this nonmarket economy methodology to China.

Under Nonmarket economy methodology, Commerce does not use actual prices and costs in China to determine dumping, but constructs a cost from consumption factors in China multiplied by surrogate values from import statistics in 5 to 10 different countries and those values can change from preliminary to final determination and review to review. Because of this methodology no Chinese company and certainly no US importer that is liable for the duties, knows whether the Chinese company is truly dumping.  Fake numbers lead to fake results.

Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, provides:

  • Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

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

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

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

As stated above, Hilary Clinton is under enormous pressure to be tough on China. On February 12th,The American Iron and Steel Industry made it clear that it wants China’s non-market economy status in antidumping cases to be at the forefront of the public debate.  Thus Thomas Gibson, AISI president and CEO, stated:

“We want to keep the issue in front of decision makers and in the public debate because there will be a new government a year from now. “

He further stated that the Obama administration has not shown any sign that it is considering treating China as a market economy in AD cases as a result of an expiring provision in the country’s accession protocol to the World Trade Organization. As Gibson further stated:

“We have not heard anyone in the administration say that they agree with China’s assertion that it is to be given market economy status automatically at the end of the year. I think the administration has heard our concerns.”

Deputy U.S. Trade Representative Michael Punke also reportedly stated in early February in Geneva that there was little administration interest in treating China as a market economy:

“The issue of China’s status is not automatic. The mere change of date at the end of the year does not automatically result in a change of status for China.”

Other US government officials have informally conceded that the administration has arrived at the conclusion that no automatic change of U.S. AD methodology is needed, a position clearly articulated by the Commerce Department.

In the attached February 24, 2016 statement to the US China Economic and Security Review Commission, HUFBAUER STATE, however, Gary Clyde Hufbauer, a well-known international trade expert at the Peterson Institute for International Economics, made the opposite argument noting first that the following countries have granted China market economy status in antidumping cases: New Zealand, Singapore, Malaysia and Australia. Hufbauer went on to state:

Some lawyers read the text differently. While they agree that Article 15(a)(ii) effectively disappears on December 11, 2016, they do not agree that the Protocol confines WTO members to a binary choice between MES (strict comparison of export prices with Chinese prices or costs) and NME (comparison with surrogate prices or costs). They point to the opening language in Article 15(a), which states:

…the importing WTO member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China….

To be sure, under Article 15(d), the whole of Article 15(a) disappears:

Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated….

The United States might well argue, come December 11, 2016, that China has not established that it has become, in all important respects, a market economy. The Commerce Department could modify its current surrogate practices and instead use a “mix-and-match” approach—claiming on a case-by-case basis that some Chinese prices or costs reflect market conditions and others do not. For the prices or costs that do not reflect market conditions, the Commerce Department could use surrogate prices or costs. This seems most likely in industries, such as steel, dominated by state-owned enterprises, with large losses financed by state-controlled banks.

Whether the United States takes a “mix-and-match” approach, rather than granting China blanket market economy status, will turn primarily on policy considerations, not legal parsing. The policy decision may reflect the general atmosphere of commercial relations with China late in 2016, including the evolution of the renminbi exchange rate (manipulated devaluation would inspire a harder line) and the outcome of US-China bilateral investment treaty (BIT) negotiations (success would have the opposite effect).

Assuming the United States adopts a “mix-and-match” approach, the stage will be set for China to initiate WTO litigation. In this scenario, the year 2018 seems the earliest date for a final decision by the WTO Appellate Body. My guess is that the Appellate Body would rule against the “mix-and-match” approach. Even so, China would not receive retroactive refunds for antidumping duties collected prior to the ruling.

Moreover, within China, the US denial of full-fledged MES would resonate strongly, in a negative way. Antagonism would be particularly strong if, as I expect, the European Union and other major countries accord MES in December 2016. Consequently, China would likely retaliate in opaque ways against US exporters and investors.

On balance, the United States would lose more than it gains from withholding full-fledged MES. A very large irritant would be thrown into US-China commercial relations, with a modest benefit to US industries that initiate AD proceedings. Even without the use of surrogate costs and prices, AD margins are typically high. Adding an extra 20 percent penalty, through the use of surrogate cost and price methodologies, will not do a great deal more to restrain injurious imports.

On February 25, 2016, Cecilia Malmström, the EU Commissioner for Trade, stated at a China Association Event in London that China is:

a major investment partner too. The EU has stocks of 117 billion pound sterling in the Chinese economy. And China is a growing source of foreign investment for the EU. Chinese investment in EU in 2014 is four times what it was in 2008.

And, if we just look at our exports alone, over 3 million jobs here in Europe depend on our sales in China. . . .

The second issue I want to raise is the question of changing the methodology in anti-dumping investigations concerning Chinese products, the so-called market economy status.

This is a sensitive issue. And it’s become even more so with the steel situation. That’s why the EU is conducting a thorough impact assessment and public consultation before we make up our minds on where to go.

But what is clear is that certain provisions of China’s protocol of accession to the WTO related to this issue will expire in December.

We need to be very careful how we approach this and we need to work cooperatively. We will need the constructive engagement of all Member States, including the UK.

On March 3, 2016, the executive council of the AFL-CIO labor union called on the US government to end the trade agreement TTIP negotiations if the EU makes China a market economy country.

TRADE

RAW ALUMINUM PROBLEMS

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

On February 24, 2016, in a letter to the US International Trade Commission (“ITC”), WAYS MEANS LETTER ALUMINUM, House Ways and Means Committee Chairman Kevin Brady requested that the Commission conduct a section 332 fact finding investigation of the US aluminum industry. The letter specifically states:

The Committee on Ways and Means is interested in obtaining current information on relevant factors affecting the global competitiveness of the U.S. aluminum industry. The U.S. aluminum industry remains a globally successful producer of aluminum products. A healthy and growing aluminum industry is not only important to our economy, but is also vital for our national defense. ·

In order to better assess the current market conditions confronting the U.S. industry, we request that the U.S. International Trade Commission conduct an investigation under section 332(g) of the Tariff Act of 1930 ( 19 U.S.C. !332(g)), and provide a report setting forth the results of the investigation. The investigation should cover unwrought (e.g., primary and secondary) and wrought (e.g., semi-finished) aluminum products

To the extent that information is available, the report should contain:

  • an overview of the aluminum industry in the United States and other major global producing and exporting countries, including production, production capacity, capacity utilization, employment, wages, inventories, supply chains, domestic demand, and exports;

information on recent trade trends and developments in the global market for aluminum, including U.S. and other major foreign producer imports and exports, and trade flows through third countries for further processing and subsequent exports;

  • a comparison of the competitive strengths and weaknesses of aluminum production and exports in the United States and other major producing and exporting countries, including such factors as producer revenue and production costs, industry structure, input prices and availability, energy costs and sources, production technology, product in novation, exchange rates, and pricing, as well as government policies and programs that directly or indirectly affect aluminum production and exporting in these countries;
  • in countries where unwrought aluminum capacity has significantly increased, identify factors driving those capacity and related production changes; and
  • a qualitative and, to the extent possible, quantitative assessment of the impact of government policies and programs in major foreign aluminum producing and exporting countries on their aluminum production, exports, consumption, and domestic prices, as well as on the U.S. aluminum industry and on aluminum markets worldwide.

The report should focus primarily on the 2011-2015 time period, but examine longer term trends since 2011. To develop detailed information on the domestic aluminum market and industry, it is anticipated that the Commission will need to collect primary data from market participants through questionnaires. The Committee requests that the Commission transmit its report to Congress no later than 16 months following the receipt of this request. . . .

One major purpose of the investigation is to assess how China policies have affected the US aluminum industry.

President Heidi Brock of the US Aluminum Association, which represents the US aluminum industry, applauded the Ways and Means request for an ITC investigation:

“An investigation by the [ITC] will help us address ongoing issues in the global aluminum industry that are hurting the domestic market and leading to curtailments, closures and job losses. I am pleased that the Congress recognizes the continued economic importance of this vital industry and I applaud Chairman Brady’s leadership to move this issue forward.”

Recently, the U.S. industry has curtailed or closed 65 percent of U.S. aluminum capacity with many job losses for U.S. workers

The information collected by the ITC could be used as the basis for trade cases against China and other countries.

THE ONGOING STEEL CASES

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

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

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

COLD ROLLED STEEL FROM CHINA, BRAZIL, KOREA, INDIA AND RUSSIA—PRELIMINARY COUNTERVAILING DUTY AND ANTIDUMPING DETERMINATIONS

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

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

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

On March 1, 2016 Commerce issued its attached preliminary antidumping determination mirroring the rates in the preliminary CVD determination. Specifically, in a factsheet, factsheet-multiple-cold-rolled-steel-flat-products-ad-prelim-030116, Commerce announced its affirmative preliminary determinations in the antidumping duty  investigations of imports of certain cold rolled steel flat products from Brazil, China, India, Japan, Korea, Russia, and the United Kingdom.

As predicted, China’s antidumping rate was 265.79% as the Chinese companies simply gave up and did not participate because they believed that it would be impossible to get a good antidumping rate using nonmarket economy methodology.

For the other market economy countries, the results were mixed. Brazil received antidumping rates of 38.93% and Japan was 71.35%.

But India’s rate was only 6.78% and Korea had rates ranging from 2.17 to 6.85%. For Russia, the rates ranged from 12.62 to 16.89% and the United Kingdom rates were between 5.79 to 31.39%.

What does this mean? China is wiped out along with Japan and probably Brazil, but Korea, India, Russia and UK will continue to export steel to the US and simply take the Chinese market share.

Antidumping and countervailing duty cases do not save US industries.

CUSTOMS NEW “LIVE ENTRY” PROCEDURES FOR STEEL IMPORTS

On March 3, 2016, Customs announced a new effort to enforce trade rules against steel shipments at risk for evasion of antidumping and countervailing duty orders. It requires importers of record to provide the paperwork and pay the necessary duties before a given shipment is released into the U.S. market.

This live-entry requirement is already being applied to cut-to-length steel plate from China. Customs is considering requiring live-entry procedures for other high-risk steel imports subject to the 100 plus AD/CVD cases, but sidestepped a question on whether these procedures would apply to products other than steel.

This new live entry requirement slows up imports from entering the US commerce to that Customs can make sure everything in the shipment is correct before releasing it into the Commerce of the United States.

SOLAR CELLS REVIEW DETERMINATION

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

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

Meanwhile, requests for antidumping and countervailing duty review investigations in the Solar Cells case were due in December 2015 and in February 2016 for the Solar Products. While in China in February, I ran into many Chinese solar companies that were in serious trouble because they failed to request a review investigation.

MARCH ANTIDUMPING ADMINISTRATIVE REVIEWS

On March 1, 2015, Commerce published the attached Federal Register notice, MARCH REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of March. The specific antidumping cases against China are: Chloropicrin, Circular Welded Austenitic Stainless Pressure Pipe, Glycine, Sodium Hexametaphosphate, and Tissue Paper Products.

The specific countervailing duty case is: Circular Welded Austenitic Stainless Pressure Pipe

For those US import companies that imported : Chloropicrin, Circular Welded Austenitic Stainless Pressure Pipe, Glycine, Sodium Hexametaphosphate, or Tissue Paper Products during the antidumping period March 1, 2015-February28, 2016 or the countervailing duty period of review, calendar year 2015, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

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

CUSTOMS

RICO ACTION AGAINST CHINESE GARLIC EXPORTERS

In the attached complaint, GARLIC COMPLAINT, on January 28, 2016, Chinese garlic exporter Zhengzhou Harmoni Spice Co. Ltd. and its parent company sued a group of Chinese competitors in California federal court accusing them of deliberately defrauding the U.S. government in order to acquire preferential duty rates.

Zhengzhou Harmoni claimed the exporters, which the company says are affiliated to Chinese businessman Wenxuan Bai, are defrauding the system by lying and submitting falsified documents to Customs and Commerce in violation of the Racketeer Influenced and Corrupt Organizations Act. The company said their competitors’ allegedly unlawful conduct is unfairly eroding Harmoni’s market share because Harmoni rightly earned favorable rates from the federal government through the antidumping review process,

Zhengzhou Harmoni told the court that its parent company and exclusive importer enjoys a similar advantage in the U.S. marketplace, but accused the Bai-affiliated garlic exporters of unlawfully forming new corporate entities and revitalizing old ones in order to obtain coveted “new shipper” designations to garner preferential treatment.

Meanwhile, in a decision, CIT PREMIER GARLIC, in late January Premier Trading, Inc. v. United States, Premier, a U.S. garlic  importer of garlic from Qingdao Tiantaixing Foods Co. Ltd., one of the companies named in Harmoni’s RICO suit, sued Customs and Commerce in the U.S. Court of International Trade (“CIT”). Premier Trading Inc. alleged CBP’s enhanced bond requirements for shipments from QTF are resulting in delays and leaving fresh garlic to spoil.

On February 11, 2016, Judge Gordon of the CIT denied Premier’s motion for a preliminary injunction, stating at the outset that there was no likelihood of success on the merits:

It is apparent that QTF may potentially be subject to the higher PRC-wide rate as a consequence of Commerce’s preliminary determination in the 20th administrative review. Furthermore, there has been a long and documented pattern of non-payment and underpayment of antidumping duties subject to the Garlic Order (amounting to several hundred million dollars). . . . Customs, here, has also provided confidential documents regarding Plaintiff’s connection to other importers that mirror a pattern of non-payment and underpayment, which suggests, as Customs claims, that Plaintiff poses a similar risk to the revenue. . . . In light of these facts, it is hard to see merit in Plaintiff’s claim that Customs failed to provide an adequate explanation for the enhanced bonding requirement for Plaintiff’s entries. Accordingly, Customs’ imposition of a heightened bonding requirement on imports from QTF does not appear arbitrary or capricious. . . . Plaintiff has therefore failed to establish a likelihood of success on the merits.

Judge Gordon then found that there was no irreparable injury and that the balance of equities favored the Government. Judge Gordon then stated that Public Interest lies in favor of the Government:

Here, the public has an interest in protecting the revenue of the United States and in assuring compliance with the trade laws. See 19 U.S.C. § 1623. Enhanced bonding pending litigation serves both these interests. Additional security covers potential liabilities and protects against default, ensuring the correct antidumping duty is paid.

CUSTOMS PROTEST RULE APPEALED TO SUPREME COURT

Meanwhile, International Custom Products Inc. has filed an attached writ of certiorari on January 19, SUPREME COURT CERT PROTEST ISSUE, and asked the U.S. Supreme Court to review the constitutionality of a Customs rule requiring the full payment of duties by an importer before a court case can proceed, challenging the Federal Circuit’s conclusion that the policy meets due process requirements. The importer argues that the CPB rule requiring importers to fully pay imposed duties before bringing a court case is unconstitutional because it deprives the company of due process. The company has been disputing $28 million in tariffs it claims have been erroneously applied to its imports of white sauce due to the agency’s reclassification of the product.

FALSE CLAIMS ACT

GRAPHITE ELECTRODES

On February 22, 2016 in a settlement agreement, SETTLEMENT FCA GRAPHITE, Ameri-Source International Inc., a graphite electrodes company, paid $3 million to settle a false claims act case that it schemed to avoid antidumping duties on imports of graphite electrodes from China in violation of the False Claims Act. The complaint alleges that the importer misclassified the merchandise and lied about the country of origin to avoid paying anti-dumping duties on shipments of small-diameter graphite electrodes use for manufacturing.

Ameri-Source reportedly established a shell company in India to accept the imports of graphite rods from China for “jobwork,” and to re-export the materials to the U.S. to circumvent stateside customs regulations. The settlement resolves claims that Ameri-Source evaded anti-dumping duties on 15 shipments.

IP/PATENT AND 337 CASES

NEW 337 CASES

On January 21, 2016, Edgewell Personal Care Brands, LLC and International Refills Company Ltd. filed a new 337 patent case on Certain Diaper Disposal Systems and Components Thereof, Including Diaper Refill Cassettes against Munchkin, Inc., Van Nuys, CA; Munchkin Baby Canada Ltd., Canada; and Lianyungang Brilliant Daily Products Co. Ltd., in China.

On February 5, 2016, Simple Wishes, LLC filed a new section 337 on Pumping Bras against Tanzky, China; Baby Preg, China; Deal Perfect, China; and Buywish, China.

CRIMINAL PATENT CASES

On January 26, 2016, the US Justice Department announced that Chinese National Mo Hailong, Robert Mo, pled guilty to conspiring to steal trade secrets from Dupont, Pioneer and Monsanto. In a notice, Chinese National Pleads Guilty to Conspiring to Steal Trade Secrets _ OPA _, the Justice Department stated:

Specifically, Hailong admitted to participating in the theft of inbred – or parent – corn seeds from fields in the Southern District of Iowa for the purpose of transporting those seeds to China. The stolen inbred seeds constitute the valuable intellectual property of DuPont Pioneer and Monsanto.

During the conspiracy, Hailong was employed as director of international business of the Beijing Dabeinong Technology Group Company, a Chinese conglomerate with a corn seed subsidiary company, Kings Nower Seed. Hailong is a Chinese national who became a lawful permanent resident of the United States pursuant to an H-1B visa.

Hailong is scheduled to be sentenced at a date to be determined later in Des Moines, Iowa. Conspiracy to steal trade secrets is a felony that carries a maximum sentence of 10 years in prison and a maximum fine of $250,000. As part of Hailong’s plea agreement, the government has agreed not to seek a prison sentence exceeding five years.

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

On January 13, 2016, in the attached complaint, SHENZHEN PATENT CASE, PS Products Inc and Bill Pennington filed a patent case against Global Sources, Ltd. and affiliated parties, and Jiangsu Rayi Security Products, Co., Ltd. and Shenzhen Rose Industrial Co., Ltd.

On January 21, 2016, in the attached complaint, STAHLS PATENT CASEStahls’ Inc. filed a patent case against Vevor Corp., Shanghai Sishun Machinery Equipment Co., Ltd. and Saven Corp.

On January 25, 2016, in the attached complaint, UNICOLORS COPYRIGHT, Unicolors, Inc. filed a copyright infringement case against Jiangsu Global Development, Inc., T. Milano Ross Stores Inc., DD’s Discounts, Phool Fashion Ltd., the Vermont Country Store, Inc. and Trends Inc.

On January 26, 2016, in the attached complaint, BLUE RHINO PATENT CASE, Blue Rhino Global Sourcing filed a patent case against Guangdong Chant Group Co., Ltd.

On February 1, 2016, in the attached complaint, ZHEJIANG PATENT CASE, Otsuka Pharmaceutical Co., Ltd. filed a patent case against Stason Industrial Corp., Stason Pharmaceuticals Inc., Zhejiang Jinhua Conba Bio-Pharm Co., Ltd., Tai Heng Industry Co., Ltd, and Breckenridge Pharmaceutical Inc.

On February 5, 2016, in the attached complaint, VACCUUM TRADE SECRET CASE, IMIG, Inc., Nationwide Sales and Services Inc, Gumwand Inc. and Perfect Products Services and Supply Inc. filed a trade secrets and unfair competition case against Omi Electric Appliance Company Co., Ltd., Beijing China Base Startrade Co., Ltd. and Xi Shihui, a Chinese citizen.

On February 10, 2016, in the attached complaint, HUAWEI PATENT CASE, Blue Spike LLC filed a patent case against Huawei Technologies.

PRODUCTS LIABILITY CASES AND LACY ACT VIOLATIONS

THE RISE OF CHINESE PRODUCTS LIABILITY INSURANCE

While in China last month working on various cases, I learned that the People’s Insurance Company (“PICC”) is offering Chinese companies products liability insurance. Every US importer should demand that his Chinese supplier obtain product’s liability insurance.  Otherwise when something goes wrong, the US importer is on the hook for damages, not the Chinese company that created the problem.

PRODUCT LIABILITY COMPLAINTS

On January 26, 2016, in the attached complaint, CHINA FIREWORKS CASE, the Reynolds Family filed a products liability/wrongful death case on behalf of Russell Reynolds, who was killed when Chinese fireworks went off by mistake. The respondent companies are Pyro Shows of Texas, Inc., Pyro Shows, Inc., Czech International Trading, Jiangxi Lidu Fireworks Group Co., Ltd., Jiangxi Province Lidu Fireworks Corp., Ltd., Fireworks Corp., Ltd., Icon Pyrotechnic International Co., Ltd., Oriental Fireworks Co., Ltd. and Glorious Company.

On January 26, 2016, in the attached complaint, CHINA REFRIGERATOR, Allstate Insurance Company on behalf of Miguel Bejarno filed a products liability case against Electrolux Home Products Inc., Midea Group Co., Ltd. and Guangzhou Refrigeration Co., Ltd. because a Chinese produced refrigerator blew up and burned down a house causing extensive damage.

LARGEST LACEY ACT FINE IN HISTORY AGAINST LUMBER LIQUIDATORS FOR CHINESE HARDWOOD IMPORTS

On February 1, 2016, the Justice Department in the attached statement, Lumber Liquidators Inc. Sentenced for Illegal Importation of Hardwood and Re, announced that Lumber Liquidators Inc. was sentenced for illegal Importation of hardwood from China and related environmental crimes and agreed to pay 13 million, one of the largest penalties ever issued under the Lacey Act. The announcement states:

Virginia-based hardwood flooring retailer Lumber Liquidators Inc. was sentenced today in federal court in Norfolk, Virginia, and will pay more than $13 million in criminal fines, community service and forfeited assets related to its illegal importation of hardwood flooring, much of which was manufactured in China from timber that had been illegally logged in far eastern Russia, in the habitat of the last remaining Siberian tigers and Amur leopards in the world . . . .

In total, the company will pay $13.15 million, including $7.8 million in criminal fines, $969,175 in criminal forfeiture and more than $1.23 million in community service payments. Lumber Liquidators has also agreed to a five-year term of organizational probation and mandatory implementation of a government-approved environmental compliance plan and independent audits. In addition, the company will pay more than $3.15 million in cash through a related civil forfeiture. The more than $13.15 million dollar penalty is the largest financial penalty for timber trafficking under the Lacey Act and one of the largest Lacey Act penalties ever.

Lumber Liquidators pleaded guilty and was charged in October 2015 in the Eastern District of Virginia with one felony count of importing goods through false statements and four misdemeanor violations of the Lacey Act, which makes it a crime to import timber that was taken in violation of the laws of a foreign country and to transport falsely-labeled timber across international borders into the United States. . . . This is the first felony conviction related to the import or use of illegal timber and the largest criminal fine ever under the Lacey Act.

“The case against Lumber Liquidators shows the true cost of turning a blind eye to the environmental laws that protect endangered wildlife,” said Assistant Attorney General John C. Cruden for the Department of Justice’s Environment and Natural Resources Division. “This company left a trail of corrupt transactions and habitat destruction. Now they will pay a price for this callous and careless pursuit of profit.” . . .

“By knowingly and illegally sourcing timber from vulnerable forests in Asia and other parts of the world, Lumber Liquidators made American consumers unwittingly complicit in the ongoing destruction of some of the world’s last remaining intact forests,” said Director Dan Ashe of the U.S. Fish and Wildlife Service. “Along with hastening the extinction of the highly endangered Siberian tiger and many other native species, illegal logging driven by the company’s greed threatens the many people who depend on sustainable use of these forests for food, clean water, shelter and legitimate jobs. These unprecedented sanctions show how seriously we take illegal trade, and I am grateful to the Service special agents and wildlife inspectors, Homeland Security agents, and Justice Department attorneys who halted Lumber Liquidators’ criminal acts and held the company accountable under the law.”

According to a joint statement of facts filed with the court, from 2010 to 2013, Lumber Liquidators repeatedly failed to follow its own internal procedures and failed to take action on self-identified “red flags.” Those red flags included imports from high risk countries, imports of high risk species, imports from suppliers who were unable to provide documentation of legal harvest and imports from suppliers who provided false information about their products. Despite internal warnings of risk and noncompliance, very little changed at Lumber Liquidators.

ANTITRUST

There have been developments in the antitrust area.

CHINESE BAUXITE EXPORTERS WIN ANTITRUST CASE

On January 25, 2016, in the attached opinion in Resco Products, Inc. v. Bosai Minerals Group Co., Ltd. and CMP Tianjin Co., Ltd., BAUXITE OPINION, Chief District Judge Conti in the Western District of Pennsylvania granted summary judgment for the Chinese companies and dismissed the antitrust case. Resco brought the claim individually and as a class representative, against Bosai and CMP alleging a conspiracy in China to fix the price and limit the supply of refractory grade bauxite in violation of the Sherman Act, 15 U.S.C. § 1.

The Court concluded that any price floor or quota was set by the Chinese government’s Ministry of Commerce, not by the individual Chinese Bauxite companies. In its discussion of the facts, the Court stated:

In his declaration for the China Chamber of Commerce for Metals and Chemicals (“CCCMC”), Liu Jian (“Jian”), a CCCMC employee since 1995 and deputy director of the Bidding Office since 2006, . . . explained that “[a]t Bauxite Branch meetings, Bidding Office staff asked the Bauxite Branch members for their opinions about specific proposed quota amounts, quota bidding minimum prices, and other matters relating to quota bidding.” . . . but the authority and power to adopt quotas, and to establish the quota amount, minimum bidding price, and other terms, was always with MOFCOM, not the members or the CCCMC. MOFCOM could, and often did, set the quotas and minimum bidding prices at levels different than those favored by members. . . .

The Judge went on to state:

Here, plaintiff’s § 1 claim is based on its assertion that “[d]efendants and their co-conspirators colluded to fix export prices and quotas for bauxite from 2003 to 2009. . . .

In a per se case, “‘the plaintiff need only prove that the defendants conspired among each other and that this conspiracy was the proximate cause of the plaintiff’s injury.’”  . . .

In a vacuum, proposals to set bauxite quotas at specified levels being voted on at Bauxite Branch meetings appear to indicate explicit member participation in a conspiracy to limit output. However, the Bauxite Branch’s demonstrated lack of authority with respect to quotas invalidates such a finding. Since at least 2001, MOFCOM has been “responsible for deciding and announcing the types and the total quota quantity of commodities subject to bidding,” not the CCCMC or its Branches. . . . The quota announced by the Bidding Committee during each of the years of the alleged conspiracy never corresponded to a resolution of the Bauxite Branch. At its 2004 through 2006 meetings, the Bauxite Branch failed to pass any resolution related to quota amount, yet the Bidding Committee, an instrumentality of MOFCOM, still announced quotas in each of those years. . . . Any conspiracy to establish a limit equal to or higher than that imposed by the government could have no effect.

Consistent with the undisputed Declaration of the CCCMC, Bauxite Branch member votes for proposals concerning the yearly bauxite quota amount can only be construed as opinions offered to MOFCOM. .   . . These opinions were not that limits should be placed on bauxite output. The implementation of quotas was mandated by the Chinese government, not agreed to by private entities. . . .

Bauxite Branch members were asked for their opinions pertaining to the bauxite quota during meetings, “but the authority and power to adopt quotas, and to establish the quota amount, minimum bidding price, and other terms, was always with MOFCOM.” . . .

As discussed previously, the evidence adduced with respect to the quotas cannot support a § 1 claim, because the Chinese government – and not defendants – set the quotas.

Resco has appealed the District’s Court’s determination to the Court of Appeals.

CHINESE COMPANIES SETTLE SOLYNDRA SOLAR CASE

On February 26, 2016, in the attached settlement agreement, SOLYNDRA SETTLEMENT, Yingli Green Energy Holding Company Ltd. agreed to settle for $7.5 million a US antitrust case alleging that Chinese companies conspired to set prices with the objective of destroying Solyndra.

Solyndra previously settled the litigation against two other Chinese companies, Trina Solar Ltd. and Suntech Power Holdings Co. Ltd, for a total of $51 million, with Trina Solar paying $45 million and Suntech paying $6 million.

CHINA ANTI-MONOPOLY CASES

On February 3, 2016, T&D sent us their attached January report on Chinese competition law, T&D Monthly Antitrust Report of January 2016.  The main contents of the January report are:

(1) NDRC: Guideline on Leniency Policies in Horizontal Monopoly Agreement Cases has Begun to Seek for Opinions; (2) SAIC Held a Forum to Seek for Opinions and Comments on the Guideline on Prohibiting the Behavior of Abusing Intellectual Property Rights to Restrict or Eliminate Competition (the Sixth Draft); (3) MOFCOM Year-End Review: Positively Promoting Anti-monopoly Enforcement and Protecting Fair Competition of the Market; (4) SAIC: Anti-monopoly Law Enforcement Treats All Market Players the Same, etc. . . .

On February 5, 2016, T&D sent us the latest attached draft of Guideline on Undertakings’ Commitments in Anti-Monopoly Cases on February 3rd, 2015, Guideline on Undertakings’ Commitments in Anti-Monopoly Cases-EN-T&D.

SECURITIES

US LISTED CHINESE COMPANIES MOVING BACK TO CHINA TO RAISE MONEY

On February 29, 2016, it was reported that many U.S.-listed Chinese companies are leaving the United States and moving back to China as the easing of Chinese securities regulations has renewed the possibility of finding stronger valuations domestically.

Although there has been market volatility in China, US too has had volatility. Apparently, there is a perception that a stronger valuation can be found in Chinese domestic stock markets, where investors have a stronger understanding of the companies and the role they play.  In November, the China Securities Regulatory Commission began greenlighting IPO-bound companies and promised to take measures to help reform the country’s system for initial public offerings.

FOREIGN CORRUPT PRACTICES ACT

In February Dorsey& Whitney LLP issued its January February 2016 Anti-Corruption Digest, TIANJIN INVESTMENT COMPANY. The Digest states with regards to China:

China

Wang Qishan, the Secretary of the Central Commission for Discipline Inspection has given assurances that China’s anti-corruption efforts will continue in 2016. In a recent speech, Mr. Wang stressed that, “the strength of our anti-corruption efforts will not be lessened”.

This sentiment was echoed by the recent sentencing of two former officials:

According to state media, Li Dongsheng, China’s former deputy national police chief, has been sentenced to 15 years in prison for corruption. Reports state that Mr. Li stood accused of taking bribes totally ¥22 million ($3.3 million/£2.3 million) and abusing his power. It is said that Mr. Li will not appeal the verdict.

A former top official in the city of Guangzhou has reportedly admitted to taking ¥111 million ($17 million/£11.5 million) in bribes between 2000 and 2014. Wan Qingliang’s alleged corruption is said to have included taking bribes of more than ¥50 million ($7.6 million/£5.2 million) from a company that he had helped to win a government development project.

In a written statement the Nanning Intermediate People’s Court said that Mr. Wan raised no objection to the charge of corruption and that he showed remorse during the trial. It is said that Mr. Wan told the court that, “I have hurt the Party, the people and my family and I hope that the court can give me another chance.”  

Recently, Dorsey& Whitney LLP issued its attached February 2016 Anti-Corruption Digest, Anti_Corruption_Digest_Feb2016. The Digest states with regards to China:

China

China’s army has not been immune from President Xi Jinping’s anti-corruption drive and has seen a number of its officers investigated, including two former vice chairmen of the Central Military Commission.

To continue this drive, it has been reported that the military’s anti-corruption discipline inspection committee has established a hotline as a means for reports to be made regarding allegations of corruption in the People’s Liberation Army. It is said that the hotline will “fully utilize supervision by the masses” and complaints will be addressed in a “timely and earnest” fashion.

SECURITIES COMPLAINTS.

On March 8, 2016 Jacob Sheiner filed the attached class action securities complaint, TIANJIN INVESTMENT COMPANY, against a number of individuals and also Tianjin Tianhai Investment Co., Ltd. as well as GCL Acquisition, Inc.

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE, TAX, CUSTOMS, PATENTS/337, ANTITRUST AND SECURITIES

Benjamin Franklin Statue Old Post Office Building Washington DC“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR BLOG UPDATE—SEPTEMBER 11, 2014

SEPTEMBER UPDATE

Dear Friends,

There have been major developments in early September in the Trade and Chinese antitrust areas of interest.

SPEECH IN VANCOUVER CANADA ON US SANCTIONS AGAINST RUSSIA—RUSSIAN TRADE LESSON

On September 3, 2014, I spoke 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 copies of the powerpoint for the speech US SANCTIONS RUSSIA and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. RUSSIAN TRADE PRACTICEThe sanctions will be described more in my September newsletter.

But my speech started with a quote from the last paragraph of the September 3, 2014 Wall Street Journal editorial about the Russian crisis, entitled “Deterring a European War”, which states:

“The temptation of democracies is to believe that autocrats treasure peace and stability as much as we do. Europeans in particular want to believe that their postwar institutions and economic integration have ended their violent history. But autocrats often prosper from disorder, and they need foreign enemies to feed domestic nationalism. This describes Russia under Mr. Putin, who is Europe’s new Bonaparte. His goal is to break NATO, and he’ll succeed unless the alliance’s leaders respond forcefully to the threat.”

This powerful paragraph reflects the very serious military situation between Russia and the EC and the US. But let’s probe a little more deeply.

What is the difference between Russia and China and our relationship with the two countries—Trade. When I was a young attorney at the ITC, a former Chairman Catherine Bedell, who was the first woman to be elected to the US Congress from Washington State, came to speak to the ITC staff. Former Chairman Bedell emphasized in her speech that our work at the ITC was not just simple trade work. It was the work of promoting peace.

President Reagan understood this. More trade means more peace and less chance of a shooting war.

The United States has 796,000 US jobs dependent upon exports to China, and China has millions of jobs dependent on exports to the US.

But what about Russia? The answer is much less trade coming from Russia. In 2013, the United States imported approximately $27 billion from Russia as compared to $464 billion from China. Of the Russian imports, $19 billion was for oil, and the rest for raw materials, including iron and steel products, chemicals, metals, fertilizer and fish. With China, electronics leads the way.

Much of what Russia exports is oil, raw materials and steel products. Many steel products and urea, fertilizer, are blocked by US Antidumping Orders or a Steel Agreement. There is less trade and with less trade it is much easier to have a shooting war.

In 1986 when I was working at the Commerce Department, one of Russia’s most important exports, Urea, fertilizer, was attacked with an antidumping case, which resulted in an antidumping order on July 14, 1987. The case was so long ago that it was not against Russia. It was against the entire Soviet Union.

When the Soviet Union broke up, the Commerce Department issued antidumping orders against Urea from all the member countries in the Soviet Union. Most of the orders against the other member states in the Soviet Union have been lifted, but not the orders against Russia or Ukraine. Urea from both countries are still covered by antidumping orders from the original 1986 case. In early November 2011, the US International Trade Commission (“ITC”) extended the antidumping orders for another five years. So we have had antidumping orders on Urea from Russia and Ukraine for almost 3o years.

One company, Eurochem, has been able to get through the antidumping order because in contrast to China Russia is considered a market economy country, but every other Russian company is blocked. Why is Russia considered a market economy country and not China? Because of 911, President Bush wanted Russian military bases to attack Afghanistan. President Putin of Russia, being a tough negotiator, said make Russia a market economy under the US antidumping and countervailing duty law. Secretary Evans of Commerce flew into Moscow and said it looks like a market economy to me. 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/

But even with the change in the US antidumping law, Russian imports remain relatively low, and the United States has less influence. Because of the importance of the present situation with Russia and the interest of US exporters and US importers, my blog and newsletter will include a new section on trade with Russia and the US sanctions in place against trade with Russia. More will come out in the next newsletter and blog post.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST BOLTLESS STEEL SHELVING FROM CHINA

On August 26, 2014, Edsall Manufacturing filed a new AD and CVD case against Boltless Steel Shelving from China. The alleged Antidumping rates are 33 to 267%.

The ITC will hold its preliminary conference on September 16, 2014. Attached are the ITC notice and the relevant pages of the petition.  ITC PRELIMINARY NOTICE STEEL SHELVING SHORT PETITION

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On September 2, 2014, Commerce published in the Federal Register the attached notice, SEPT REVIEWS ,regarding antidumping and countervailing duty cases for which reviews can be requested in the month of September. The specific antidumping cases against China are: Freshwater Crawfish Tailmeat, Foundry Coke, Kitchen Appliance Shelving and Racks, Lined Paper Products,   Magnesia Carbon Bricks, Narrow Woven Ribbons with Woven Selvedge, New Pneumatic Off-The-Road Tires, Raw Flexible Magnets, and Steel Concrete Reinforcing Bars.

The specific countervailing duty cases are:

Kitchen Appliance Shelving and Racks, Magnesia Carbon Bricks, Narrow Woven Ribbons with Woven Selvedge, New Pneumatic Off-The-Road Tires, and Raw Flexible Magnets.

For those US import companies that imported Freshwater Crawfish Tailmeat, Foundry Coke, Kitchen Appliance Shelving and Racks, Lined Paper Products,   Magnesia Carbon Bricks, Narrow Woven Ribbons with Woven Selvedge, New Pneumatic Off-The-Road Tires, Raw Flexible Magnets, and Steel Concrete Reinforcing Bars and the other products listed above from China during the antidumping period September 1, 2013-August 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.

NEW MAJOR 337 PATENT CASE AGAINST PERSONAL TRANSPORTERS FROM CHINA

On September 9, 2014, Segway filed a major 337 patent case against imports of personal transporters from a number of Chinese companies in Beijing and Shenzhen. The ITC notice is below and the relevant parts of the Petition are attached. SHORT PERSONAL TRANSPORTERS 337 Complaint Segway is requesting a general exclusion order to exclude all personal transporters from China and other countries and also cease and desist orders to stop importers from selling infringing personal transporters in their inventory.

Chinese companies must respond to the complaint in about 60 days, 30 days for Institution and 30 days from service of complaint. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

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

Dorsey & Whitney has substantial expertise in the patent and 337 areas. Recently, we were able to win a major 337 case for a Japanese company in the Point-to Point Network Communication Devices 337 case.

Docket No: 3032

Document Type: 337 Complaint

Filed By: David F. Nickel

Firm/Org: Foster & Murphy

Behalf Of: Segway Inc. and DEKA Products Limited Partnership

Date Received: September 9, 2014

Commodity: Personal Transporters

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 Personal Transporters, Components Thereof, and Manuals Therefor . The proposed respondents are: PowerUnion (Beijing) Tech Co. Ltd., Beijing; UPTECH Robotics Technology Co., Ltd., Beijing; Beijing Universal Pioneering Robotics Co., Ltd., Beijing; Beijing Universal Pioneering Technology Co., Ltd., Beijing; Ninebot Inc.,(in China) Beijing; Ninebot Inc., Newark, DE; Shenzhen INMOTION Technologies Co., Ltd., Guangdong; Robstep Robot Co., Ltd., Guangdong; FreeGo High-Tech Corporation Limited, Shenzhen; Freego USA, LLC, Sibley, IA; Tech in the City, Honolulu, HI; and Roboscooters.com, Laurel Hill, NC.

Status: Pending Institution

RISE IN CHINESE ANTI-MONOPOLY CASES CREATES INTENSE CONCERN FROM US AND FOREIGN COMPANIES

In September 2014, the US China Business Council and the US Chamber of Commerce published the attached major reports/survey from US Companies about the impact of the Chinese anti-monopoly law on US business in China.  US CHINA BUSINESS COUNCIL REPORT CHINA AML The Executive Summary of the US China Business Council report states as follows:

Executive Summary

  • China’s increased level of competition enforcement activity and the high-profile reporting of its competition investigations have prompted growing attention and concern from US companies. Eighty-six percent of companies responding to the US-China Business Council’s (USCBC’s) 2014 member company survey indicated they are at least somewhat concerned about China’s evolving competition regime—although more so about the potential impact than actual experience so far.
  • China’s competition regime framework is relatively new. The Antimonopoly Law (AML) came into force in 2008 after Chinese authorities spent more than a decade drafting the law and consulting with foreign competition authorities from the United States, the European Union, and other jurisdictions. The AML draws from elements of both the US and EU competition laws, though it is more closely tied to the EU model and contains some elements unique to China.
  • The rise in competition-related investigations has corresponded to the buildup in personnel at regulatory agencies following the AML’s implementation.
  • USCBC monitoring of publicly announced cases indicates that both foreign and domestic companies have been targets of AML-related investigations, but that foreign companies appear to have faced increasing scrutiny in recent months.
  • The perception that foreign companies are being disproportionately targeted is also fueled by China’s domestic media reporting, which has played up foreign-related investigations versus those of domestic companies.
  • Targeted or not, foreign companies have well-founded concerns about how investigations are conducted and decided. Company concerns include:

o Fair treatment and nondiscrimination

o Lack of due process and regulatory transparency

o Lengthy time periods for merger reviews

o Role of non-competitive factors in competition enforcement

o Determination of remedies and fines

o Broad definition of monopoly agreements

  • Bigger questions remain unanswered about the objectives of China’s competition regime, such as: Will China use the AML to protect domestic industry rather than promote fair competition? Is the government using the AML to force lower prices, rather than let the “market play the decisive role” as enshrined in the new economic reform program? The answers are not fully determined yet, but in at least some cases so far there are reasons for concern.

The report by the US China Business Council was followed by the attached even stronger report by the US Chamber of Commerce in China entitled, Competing Interests in China’s Competition Law Enforcement: China’s Anti-Monopoly Law Application and the Role of Industrial Policy, AM CHAM ACTUAL REPORT ON AML. My September newsletter and blog post will have more about the rise of the Chinese anti-monopoly law. What goes around, does indeed come around.

AUGUST NEWSLETTER

Dear Friends,

There have been major developments in the trade, Solar Cells, Tax, Trade Agreements, 337/IP, US/Chinese antitrust, and securities areas in August 2014.

I have been late in sending out this blog post because the Trade War keeps expanding into many different areas, especially antitrust. The United States has brought a shotgun to the Trade War with its antidumping and countervailing duty laws against Chinese companies, and the Chinese government has brought a bazooka to the Trade War with the enforcement of its Antimonopoly Law/Antitrust laws against US and other foreign companies. What goes around, does indeed come around.

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 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 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

TAX IMPLICATIONS OF US ANTIDUMPING AND COUNTERVAILING DUTY CASES

Recently, it has come to my attention that a major problem for importers that import under antidumping and countervailing duty orders is the US tax laws. As indicated in past blog posts, the US Congress is screaming because US importers are not paying all the antidumping and countervailing duties that are retroactively assessed.

As mentioned previously, the United States is the only country in the World that has retroactive liability for US importers in antidumping and countervailing duty cases. When an antidumping or countervailing duty order is issued, the rates in the orders are not the actual dumping or countervailing duties owed by US importers to the US government. The published rates are merely the cash deposit rates to be posted by US importers, when they import under an antidumping or countervailing duty order. The actual duties are determined during annual review investigations that often start up one year after the antidumping or countervailing duty order are issued.

Review investigations start up in the anniversary month in which the specific order is issued and will take a year and a half. So at a minimum, after the importer imports the product into the United States under an antidumping or countervailing duty order, it will take two and a half years, one year for the review investigation to start up and then a year and a half for Commerce to conduct the review investigation for the importer to learn how much it actually owes the US government. If the Commerce Department’s final determination is appealed to the Courts, it can take 5 to 10 years before the US importer knows how much it actually owes the US government.

If the antidumping or countervailing duty rate goes up in the annual review investigation, the US importer is retroactively liable for the difference plus interest. In numerous cases, such as Ironing Tables, Wooden Bedroom Furniture, Mushrooms and other China cases, rates can go from 0% or 16% to 157, 216 and 300%, creating millions of dollars in retroactive liability for US importers and often bankruptcy.

Congress then screams that US importers do not pay the duties that are due, but according to David Musser, a tax accountant, at Nicholas Cauley that I have been talking to, if a US importer sets up an internal fund to pay off any potential antidumping or countervailing duties, that fund is taxable because it is not considered a deductible expense. So the US government has set up a system where it is impossible for the importer to protect itself from increased antidumping or countervailing duties.

As David Musser states:

“ANTIDUMPING TARIFFS – ACCOUNTING TREATMENT vs. TAX DEDUCTION

Antidumping duties that attach to certain imports create accounting issues that may be in conflict with income tax deduction rules. The rule for deducting an expense for income tax purposes is that it must pass the all events test and economic performance occurs. This means that the liability for the antidumping fees must be fixed and determinable and paid (economic performance) for it to be tax deductible. This can create a large timing difference for deductibility since the Commerce Department may not determine the fees owed until a minimum of two and half years after the import was made. So if you accrue an amount for estimated antidumping fees, the amount is not fixed and determinable at that point and is not deductible. If you pay a deposit for the fees, you have satisfied economic performance, but the amount is still not fixed and determinable.

This appears to be in conflict with matching rules where specific expenses are matched in the same year to related income items, especially if you are passing the cost of the antidumping fees to your customers. Depending on how you invoice, there may be a potential to reduce the effect of the tax timing difference. This would require the antidumping fees/deposits to be separately stated on the sales invoice and accounted for as deferred antidumping fees on your balance sheet. This does not completely eliminate the timing difference associated with the fees, but it may be better than waiting two and a half years or more to get the deduction.”

In a May, 5, 1995 letter ruling 538001, the Internal Revenue Service (“IRS”) stated:

“In the present case, the deposits were determined on the basis of transactions that occurred in a prior year. The deposits are specifically characterized as such by the relevant provisions of the applicable statutes and regulations. There is no necessary correlation between the circumstances in the year that provided the basis for the deposits and the circumstances that exist in the year the deposits are required. . . .

An importer’s ability to influence the ultimate disposition of a deposit required by an antidumping duty order is consistent with the characterization of the amount as a deposit. If an importer sells merchandise that is subject to the deposit requirement at fair value, the importer can ensure the recovery of the deposit. Generally, an asserted liability is not affected by the subsequent actions (other than administrative or judicial review) of the obligor. . . .

CONCLUSION

In the circumstances described, the Taxpayer’s deduction for antidumping duties is not allowable for the taxable year in which the antidumping duty order was issued. Antidumping duties are determined on the basis of the weighted-average dumping margins on all U.S. sales during the period covered by an administrative review of an antidumping duty order or, in the absence of a request for administrative review, on the basis of deposits required by an antidumping duty order. In either case, occurrence of all events necessary to allow a reasonable basis for determination of the amount of a liability for antidumping duties had not taken place before the end of the taxable year for which the Taxpayer claimed a deduction for antidumping duties.”

The 1995 tax ruling, however, is completely wrong as it applies to antidumping cases against China.  The writer of the ruling assumed “an importer can sell merchandise that is subject to the deposit requirement at fair value”. As readers of this blog know, since antidumping duties in Chinese cases are not based on actual market prices and costs in China, it is impossible for the Chinese exporter to know whether it is dumping, never mind the US importer.  With regards to China, Commerce constructs a cost using consumption factors from Chinese producers multiplied by surrogate values from import statistics from 10 potential surrogate countries, ranging from Thailand, Indonesia, Philippines, to Columbia or Bulgaria and those countries can change in subsequent review investigations.

Because of the fact that actual price and costs in China are not used to determine Chinese antidumping rates, it is impossible for the Chinese company or the US importer to know whether it is dumping. Thus, the US importer that is trying to protect itself from bankruptcy is in a damned if you do, damned if you don’t situation.

SEPARATE ANTIDUMPING RATES—NO LONGER A PRO FORMA EXERCISE– MUCH TOUGHER FOR STATE OWNED COMPANIES

With December 11, 2016 and the requirement in the US China WTO Agreement that China is a market economy country coming up, one would expect Commerce to relax the requirements regarding separate rates for state owned companies. Instead, 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.

Based on recent attached decisions in the Court of International Trade in the Diamond Sawblades case, specifically two opinions in the Advanced Technology & Materials Co., Ltd. v. United States, ADVANCED TECHNOLOGY TWO CIT CIT ADVANCED TECHNOLOGY 11-12211-122, where the Court, in effect, forced Commerce to deny a separate rate to Advanced Technology because part of the ownership was by SASAC, Commerce has made it more difficult for Chinese companies under the control of or owned in part by the State-Owned Assets Commission to get separate dumping margins/separate rates.

Recently, in the preliminary determination in 1,1,1, 2 Tetrafluoroethane from China case, Commerce overturned decades of past decisions giving Sinochem a separate antidumping rate, and determined that many Chinese companies, including numerous Sinochem companies, were not entitled to a separate dumping rate. In the May 22, 2014 preliminary determination, in the Issues and Decision memo, AD Tetrafluoroethane Prelim Decision Memo-5-21-14, the Commerce Department stated:

The Department has not granted a separate rate to the following additional Separate Rate Applicants: SC Ningbo International Ltd (“SC Ningbo International”), Sinochem Environmental Protection Chemicals (Taichang) Co., Ltd. (“SC Taicang”), Sinochem Ningbo Ltd. (“SC Ningbo”), Zhejiang Quhua Fluor-Chemistry Co., Ltd. (“Quhua-Fluor”), Zhejiang Quzhou Lianzhou Refrigerants Co., Ltd. (“Lianzhou”) and Aerospace for the following reasons:

“The Department preliminary determines that SC Taicang, SC Ningbo Ltd. and SC Ningbo International have not demonstrated an absence of de facto government control.Specifically, each of these companies is under the control of Sinochem Group, a 100%-owned SASAC [State-owned Assets Supervision and Administration Commission of the State Council]entity.Evidence shows that members of Sinochem Group’s board of directors and management actively participate in the day-to-day operations of SC Taicang, SC Ningbo Ltd. and SC Ningbo International as members of the board of directors. Furthermore, while the boards of these companies claim they are not involved in the day-to-day activities, each board oversees every aspect of the company, including the hiring and firing of the managers and determining their remuneration.

Accordingly, based on this evidence, we find that these companies have not demonstrated an absence of de facto government control.

Similarly, the Department preliminarily determines that neither Quhua nor Lianzhou demonstrated an absence of de facto government control. Specifically, both of these companies are under the control of Juhua Group, a 100%-owned SASAC entity, and evidence shows that members of Juhua Group’s board of directors and management actively participate in the day-to-day operations of Quhua and Lianzhou as executive directors. Further, the Juhua Group holds monthly price discussions and sets price guidance for sales of the merchandise under consideration. Accordingly, based on this evidence, we find that these companies have not demonstrated an absence of de facto government control.

Similarly, the Department preliminary determines that Aerospace did not demonstrate an absence of de facto government control. Specifically, Aerospace’s controlling Board members are also on the Board of its largest single owner China Aerospace Science & Industry Corp. (“CASIC”), a 100%-owned SASAC entity, and evidence shows that members of CASIC’s board of directors actively participate in the day-to-day operations of Aerospace.  Aerospace’s Board elects the company’s general manager and the Board will appoint or dismiss other senior managers based upon the general manager’s recommendation. Although the ownership from SASAC is less than a majority, record evidence leads us to conclude that the other shareholders have no formal authority to appoint board members or directors. Accordingly, based on this evidence, we find that Aerospace has not demonstrated an absence of de facto government control.”

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 are posted on my blog in my last post. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%.

As stated in the attached Commerce Department memo, ADCVD Solar Products Ex Parte Phone Call with Senator Patty Murray (WA)-7-23-14, on July 23rd, Senator Patty Murray spoke to Commerce expressing her concern of the impact of the Commerce Department determination on REC Silicon, a polysilicon producer in Washington.

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. More specifically, on July 25, 2014, DOC announced preliminary AD duties ranging from 27.59 to 44.18 percent for Chinese companies, and 27.59 to 44.18 percent for Taiwanese companies. With the set off for countervailing duties, however, the antidumping rates are offset resulting in a lower overall cash deposit rate.

Attached are the Commerce Department’s Factsheet, Solar Products AD Prelim Fact Sheet 072514 (1), Federal Register notice, FR Notice AD Solar Products Affirmative Prelim Determination Postponement of Final Determination-7-31-14, Issues and Decision memo from the Antidumping Preliminary Determination, AD Solar Products Decision Memo for Prelim Determination-7-24-14, along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, COMMERCE INSTRUCTIONS TO CUSTOMS COMMERCE CVD INSTRUCTIONS CHINA CUSTOMS, which will help importers understand what products are covered by this case.

Attached also is the ITC scheduling notice for its final injury investigation in the Solar Products case. FR Notice ITC Solar Products Scheduling of Final Phase of CVD AD Inv -8-25-14 The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department.

Once and if any agreement is negotiated, Commerce will disclose the terms of the Agreement and seek public comment. Pursuant to the Statute, the Petitioner must approve the Agreement, which will make it much more difficult to negotiate an Agreement acceptable to Solar World. But miracles can happen.

If the Chinese government were to submit a proposed settlement agreement to Commerce, that might start negotiations. But the underlying antidumping and countervailing duty cases on Solar Products are moving quickly with verifications of the Chinese companies already underway and a final Commerce Department determination due in December and an ITC final injury determination in January 2015. There is little time left for negotiations or posturing.

Meanwhile, it has been reported that Chinese solar companies are moving to set up production facilities in third countries, such as India. In addition, Solar companies in third countries, such as REC Group in Norway and a German company with production facilities in Singapore and Malaysia, are reporting increased sales.

Also there have been reports that REC Silicon, a US polysilicon producer, is now moving forward with a joint venture in China, rather than increasing its investment in Washington State.

TAIWAN SOLAR PRODUCTS

On August 21, 2014, in the attached Federal Register notice, FR Notice AD Solar Products from Taiwan- Notice of Amended Prelim Determination-8-22-14, because of a “ministerial” error in its calculation, the Commerce Department reduced significantly the preliminary antidumping rate of the Taiwan respondent, Motech Industries Inc., from 44.18 percent to 20.86 percent. Apparently Commerce made a mistake in its calculations by adding a warranty expense to the normal/foreign value of Motech’s products without first converting that expense from New Taiwan dollars to U.S. dollars. This decision has also caused the all other rate for other Taiwan companies to fall to 24.23%.

TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND

As mentioned in past blog posts, 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.  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 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 mid-term elections as soft on trade.

As mentioned in prior blog posts, 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 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, other than more oversight by Congress and input by the Public in the trade negotiations.

On July 16, 2014, the American Iron and Steel Institute, which represents all the US steel manufacturers, stated that any future legislation that grants the president Trade Promotion Authority (TPA) or implements a free trade agreement must contain provisions on trade enforcement, including changes to the U.S. trade remedy law, the enactment of the ENFORCE Act, to put more pressure on US Customs to address transshipment and other issues, and language to address currency manipulation. The US Steel Industry and the United Steel Workers (“USW”) are also requesting Congress to lower the injury standards in antidumping and countervailing duty cases to make it easier for the ITC to go affirmative in antidumping and countervailing duty cases.

On July 17th, all Republican members of the House Ways and Means Committee sent a letter to USTR Froman, which is posted on my last July blog post, 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 July 30th in the attached letter, JAPAN TPP HOUSE REPS tpp_market_access_letter.pdfHpR)_R)wR)_, close to 100 Congressmen/women wrote to the USTR to express their concern regarding the agricultural negotiations with regard to Japan and Canada. They stated:

We write to express our deep concern over Japan’s current market access ·offer within the ongoing Trans-Pacific Partnership (TPP) negotiations. When Japan joined these negotiations, it agreed that the elimination of tariffs is a key feature of the agreement, as announced by TPP leaders on November 12, 2011. Unfortunately, Japan’s current position falls far short of acceptability.

Specifically, Japan is seeking to exempt numerous tariff lines from complete elimination with the United States. If accepted, this unprecedented and objectionable offer would significantly limit access for U.S. farmers and ranchers to the Japanese market, and most likely, to other TPP countries as well.

Furthermore, caving to Japan’s demands would set a damaging precedent, compromising the U.S. negotiating position with future TPP members. This result runs the significant risk that the EU will be encouraged to make unacceptably weak offers in the Transatlantic Trade and Investment Partnership negotiations, undermining Congressional support. In that same vein, we are also troubled by Canada’s lack of ambition, which is threatening a robust outcome for U.S. farmers.

The Trans-Pacific Partnership was envisioned as a high-standard, 21st century trade agreement that would be a model for all future U.S. free trade agreements. To realize this goal, we urge you to hold Japan and Canada to the same high standards as other TPP partners. Otherwise, Congressional support for a final TPP agreement will be jeopardized.

Indeed, we urge you to pursue the TPP negotiations without any country, including Japan, Canada, or others, that proves unwilling to open its market in accordance with these high standards. We owe our farmers and ranchers the best deal possible.

On August 14, 2014 the North American steel, automotive and textile industries called on USTR to include currency manipulation in future trade deals, including the TPP.

USTR Froman in prior statements has acknowledged the importance of dealing with rampant currency manipulation in countries such as China but has stopped short of indicating whether or not the rules would make their way into the TPP. He has also been careful to note that Treasury takes the lead on all issues relating to currency.

On August 19, 2014, the Electronic Frontier called on Sen. Ron Wyden, head of the powerful Senate Finance Committee, to create more transparent rules overseeing the negotiation and passage of free trade agreements, warning against overly restrictive protections for copyrights. The Electronic Frontier launched a petition calling on Wyden to introduce and pass legislation that would grant unprecedented access to trade negotiating texts and meetings for lawmakers and other observers, along with negotiating objectives that would balance the rights of both users and private industry.

On August 27, 2014, it was reported that TPP negotiators will meet for 10 days in Hanoi, Vietnam to discuss various issues, including food safety, intellectual property, investment, technical barriers to trade, environmental rules and state-owned enterprises. But because of the political situation, experts doubt that a serious breakthrough will occur and that the decisions necessary to close the deal still need to be made at the highest levels of government. The hope, however, is that the Hanoi session will allow the negotiators to narrow the gaps on the way to an agreement.

But the differences with Japan and the lack of Trade Promotion Authority are two big issues that need to be addressed by the US Government. Without these two issues being resolved, the chance of any big breakthroughs in Hanoi are small. These two problems would appear to prevent a final deal at the November APEC meeting, which has been an objective of the Obama Administration.

INDIA WANTS TO JOIN THE TPP???

On August 12, 2014, Indian government officials stated that the TPP presents a substantial opportunity for India to bring its own trade regime up to global standards. Commerce Secretary Rajeev Kher told a Confederation of Indian Industry conference in New Delhi that while India is not a member of the TPP talks, the finalization of the 12-nation pact may serve as the catalyst for India to take a more active role in the global trading system and diversify its economy.

In summarizing the event the Confederation stated “Kher observed that there are several countries in the world that are not part of the TPP and India could enhance its trade relations with these countries. The TPP also gives India an opportunity to pay greater attention to strengthening its services sector so as to diversify it away from information technology as well as to bring about trade facilitation measures to boost trade.”

External Affairs Secretary Sujata Mehta also speaking at the event said that whatever rules become enshrined in the TPP agreement may well become the “gold standard” for global trade regulation moving forward and that developing countries will be affected by the pact even if they are not parties to it.

According to CII, “Mehta felt that India needed to work on a successful response, especially on non-tariff issues so as not to be shut out of the global markets. . . . She was of the view that India needs to achieve a balance between our economic goals and strategic interests.”

In light of India’s decision to kill the trade facilitation agreement negotiated in Bali at the World Trade Organization meeting, as described below, however, it is very doubtful that many countries in the TPP would welcome India into the Group. China would be a much better candidate because it is less ideological and more willing to make the necessary compromises to be included in the Agreement.

INDIA KILLS WTO TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI

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, which wishes to limit the pact because of food security initiatives.

WTO Director-General Roberto Azevedo said on July 31st that a late-night informal session of the WTO’s Trade Negotiating Committee in Geneva failed in a last-ditch attempt to find common ground with the holdout countries. Azevedo stated that “I am very sorry to report that despite these efforts I do not have the necessary elements that would lead me to conclude that a breakthrough is possible. We got closer — significantly closer — but not quite there. At this late hour, with the deadline just a matter of moments away, I don’t have anything in my hands that makes me believe that we can successfully reach consensus.”

Because of outstanding differences that Azevedo termed “unbridgeable,” the WTO members will not be able to implement the deal, a move that required a consensus among members. The modest Trade Agreement was regarded as a sign that the WTO could be a forum to create new broad trade rules, in spite of the collapse of the Doha round of trade talks.

Azevedo went on to plead with the negotiators, “So please, take this time to reflect—and let’s be ready to discuss the way forward on these issues when you return. The future of the multilateral trading system is in your hands.”

But opposition from developing countries, chiefly India, has grown louder in recent weeks. While India’s specific demands have not been made public, the country has said that it will not agree to implement the facilitation deal without first securing a permanent solution on food security, a key priority for developing nations.

Top US trade officials criticized India for trying to alter the strict deadlines for each agreement laid out in Bali. India, however, has repeatedly refused to compromise, rejecting calls at the G-20 summit of trade ministers and the WTO’s General Council to follow through on the deal it made in Bali.

In response on August 1, 2014, House of Representatives Chairman Congressman Dave Camp of Ways and Means Committee along with Trade Subcommittee Chairman Devin Nunes made the following attached statement, HOUSE INDIA TRADE FACILITATION DEAL KILLED:

Rep. Camp: “India’s actions last night to bring down implementation of the Trade Facilitation Agreement are completely unacceptable and put into doubt its credibility as a responsible trading partner. As we determine next steps, I am committed to the WTO as an institution, and I hope that we can salvage the Trade Facilitation Agreement, either with or without India.”

Rep. Nunes: “It’s one thing for a country to be a tough negotiator. It is entirely another to agree to a deal with your trading partners, and then just simply walk away months later, insisting instead on one-sided changes. That’s what India has done here by going back on its word, running the risk of eliminating any sense of good will toward it.”

And India now wants to join the TPP??? As they say in New York, “Ferget about it.”

On August 6, 2014, EU trade commissioner Karel De Gucht stated that the European Union would have been willing to support “any solution” that would respect the substance of the deal.

The Bali package was the first unanimous trade agreement since the WTO’s inception and included a so-called cease-fire on challenges to India’s food subsidy programs while the countries worked to find a permanent solution by 2017. But India backed off on the deal insisting food security move to the front hoping to push more members to join them.

The ramifications from India’s decision could mean a near-fatal blow to the WTO’s already failing effort to craft comprehensive new global rules to govern international commerce. Experts said that the shrinking of the WTO as a negotiating platform would likely lead to a shift toward smaller, binational, talks among willing countries members and regional free trade agreements, such as the TPP.

WTO Director-General Roberto Azevedo made clear that the members’ inaction would have far-reaching implications for the multilateral negotiating system.

“My sense, in the light of the things I hear from you, is that this is not just another delay which can simply be ignored or accommodated into a new timetable — this will have consequences. And it seems to me, from what I hear in my conversations with you, that the consequences are likely to be significant.”

With the first of those trade agreements now facing an uncertain future after this week’s missed deadline, many trade experts are pessimistic that the multilateral system can ever be workable again. As one trade lawyer stated “If agreements agreed to by all governments of the world become subject to hostage-taking by a country who desires a change in the package, then you have no sense in negotiating because it’s not going to be worth anything.”

Meanwhile on August 19, 2014, Members of the Asia-Pacific Economic Cooperation, including China, vowed to do everything in their power to improve the flow of goods across their borders even as the WTO Agreement falls apart. The APEC Committee on Trade and Investment restated their commitment to trade facilitation, indicating that they will take matters into their own hands if no progress can be made on the multilateral stage.

CHAOTIC TRADE SITUATION WITH COLLAPSE OF WTO TALKS

The collapse in Trade Facilitation Agreement has led many experts to question the future of the WTO Multilateral system. In an article published on August 18th, Terry Stewart, a well-known trade lawyer in Washington DC, stated:

“The World Trade Organization has existed for almost 19 years, replacing the former General Agreement on Tariffs and Trade in 1995. . . . Last December, trade ministers from the WTO eeked out a last-minute compromise to permit an agreement on trade facilitation to be reached and to agree to commitments on a range of other topics at the 9th Ministerial in Bali, Indonesia. . . . The trade facilitation agreement (“TFA”) had long been viewed as a win win for all members. Some estimates of the benefits to the world economy were as high as $1 trillion and the creation of some 21 million jobs (most in the developing world). . . .

The WTO membership operates on momentum. When there is optimism based on success or progress, the membership appears capable of searching for solutions and the organization can achieve significant forward movement. . . .

Where there are missed deadlines or spoiled expectations, WTO members go into lockdown positions, where officials in Geneva are basically just going through the motions, and the organization’s negotiating function effectively shuts down for extended periods. . . .

But never before have WTO members (or GATT contracting parties before them) ever failed to move a new agreement approved by ministers through the steps of a legal scrub and adoption of appropriate documents to permit the agreement to be opened for ratification by members. Yet that is exactly what happened last month as India (with some support from a few other countries) refused to permit adoption of a simple protocol of amendment to add the trade facilitation agreement to the WTO agreements and to open the agreement for ratification by the membership.

The failure was not just another missed deadline. The failure sends the WTO once again to the precipice of irrelevance for trade negotiations. . . ..

The path out of the crisis India has created is not clear. While India has downplayed the importance of the missed date and the significance of changing the balance of the Bali package, the dilemma for others is more obvious. If a WTO member can hold the membership hostage on an agreed upon direction in the hopes of altering a previously agreed balance, negotiations at the WTO become meaningless and subject to repeated hostage-taking.”

As former US Trade Representative Susan Schwab recently stated, the stalling of multilateral efforts to craft cohesive global trade and investment rules has pushed nations both large and small to pursue more limited agreements that can squarely address their most immediate concerns in a given region, but the proliferation of these efforts has substantially complicated the operations of businesses across several sectors. Schwab stated, “Even the largest multinational firms, stepping back and looking at what is going on, their heads are spinning trying to figure out how this affects all of their business plans . . . You’ve got the progress in the trade system stalling and all of the regional [deals] in various states of suspended animation.”

Schwab echoed the near-unanimous sentiment of several experts in saying that India’s move poses a substantial threat to ever reviving a serious effort to rewrite international trade rules for the first time in two decades. According to Schwab, “What the Indians did is a travesty, and it’s a disaster for India’s economy, the rest of the world and the multilateral trading system . . . . The implications for the trading system and the global economy and businesses are really bad news. Not only do you have a stalling of these mega-regional negotiations, but now you’ve got a stalling of what had been a glimmer of hope in the multilateral system.”

OCTG

As stated in prior newsletters and above, US Steel Corp along with the Steel Union (USW) 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.

But Chinese imports were 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. In the preliminary antidumping determination, Commerce calculated very low antidumping rates, such as 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.

The USW and US Steel through the Congress put immense political pressure on Commerce to change its preliminary determination, especially with regards to Korea. On July 11, 2014, Commerce issued its final determination, which is posted in my last post on this blog, 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.

As indicated in the factsheet that can be found at http://www.usitc.gov/press_room/news_release/2014/er0822mm1c.htm, on August 22, 2014, based on a threat of material injury determination, the U.S. International Trade Commission (“ITC”) made affirmative injury determinations with respect to OCTG imports from India, Korea, Taiwan, Turkey, Ukraine and Vietnam, but negative determinations with respect to imports from Philippines and Thailand.

ALUMINUM EXTRUSIONS

WHIRLPOOL SUES

In the attached complaint, WHIRLPOOL COMPLAINT, on August 26, 2014, Whirlpool Corporation filed suit in the US Court of International Trade against the Commerce Department to stop the Department from including door handles for kitchen appliances within the scope of the antidumping and countervailing duty order on aluminum extrusions from China.

Whirlpool is arguing that the handles are outside the scope of the orders because they are “finished goods.” Certain finished goods that don’t require additional assembly are excluded from the order.

In the Complaint, Whirlpool specifically states:

Appliance handles with end caps consist of alloy 6 series aluminum extrusions and nonaluminum components that are permanently assembled together, are fully complete and finished, and are ready for use as appliance door handles at the time of import. Thus, these appliance handles with end caps are ready to be attached to the kitchen appliance doors in their as-imported condition. No further processing or finishing of these handles is necessary prior to fulfilling their intended use….

Appliance handles with end caps consist of alloy 6 series aluminum extrusions and non-aluminum components that are permanently assembled together, are fully complete and finished, and are ready for use as appliance door handles at the time of import. Thus, these appliance handles with end caps are ready to be attached to the kitchen appliance doors in their as-imported condition. No further processing or finishing of these handles is necessary prior to fulfilling their intended use.

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On May 8, 2014, Senator Mitch McConnell wrote the attached letter to Commerce, AD Aluminum Extrusions 5000 SERIES Controlled Correspondence Inbound-5-8-14, complaining about the circumvention of the antidumping order against aluminum extrusions from China. In the letter Senator McConnell stated:

“I write on behalf of constituents at Kentucky’s Cardinal Aluminum. Cardinal, an aluminum extruder, employs over 500 people in Louisville and plays a vital economic role in the community. My constituents have informed me that unfair trade practices from China are once again threatening Kentucky jobs. . . .

Unfortunately, my constituents have informed me that Chinese exporters are now circumventing existing U.S. import duties using 5000-series aluminum alloy not covered under previous DOC antidumping measures. . . .I ask that you give full and fair consideration of their request to include 5000-series aluminum alloy with similar products covered by existing DOC anti-dumping measures . . . .”

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

On August 1, 2014, Commerce published in the attached Federal Register notice, REVIEW REQUEST NOTICE AUGUST, 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 WTO CASE

As mentioned in the prior post,on July 14, 2014, in a decision and summary, which is posted in my last blog post, the WTO upheld China’s claims that certain US countervailing duty cases against China were inconsistent with the WTO Agreement. On August 22nd, China filed the attached notice of appeal at the WTO with regards to the remaining cases, CHINA APPEALS WTO DETERMINATION.

CUSTOMS

SENATE HEARING ON COLLECTIONS OF UNPAID ANTIDUMPING DUTIES IN HONEY, MUSHROOMS, GARLIC AND CRAWFISH FROM IMPORTERS AND INSURANCE CUSTOMS BOND COMPANIES

On July 16, 2014, at a Senate Appropriations subcommittee hearing in Washington DC, US Customs and Commerce Department officials discussed enforcement proceedings against evasion of US Antidumping and Countervailing Duty laws and several U.S. food producers and their Congressional supporters discussed a longstanding fight to push Customs and Border Protection (CBP) to bring lawsuits against insurance companies to collect hundreds of millions of dollars in unpaid antidumping duties on imports of honey, mushrooms, garlic and crawfish from China.

In the attached testimony, Testimony – ICE Trade Enforcement, Lev Kubiak, Assistant Director of US Immigration and Customs Enforcement (“ICE”) testified about the ongoing Customs enforcement investigations by Homeland Security:

“Currently, HSI is involved in more than 80 investigations relating to open Commerce AD/CVD orders covering commodities such as honey, saccharin, citric acid, tow-behind lawn groomers, shrimp, steel, and wooden bedroom furniture.”

According to a January 2nd letter from Senators Wyden and Thune to Homeland Security, there are an estimated $107 million in uncollected duties on honey, $132 million on garlic, $309 million on crawfish and $102 million on mushrooms — a total of roughly $650 million from 2000 to 2007.  Apparently, these dumping duties are from large unpaid bills by importers, who have gone out of business, and bond companies that are contesting the payments.

In the attached statement, APPROPRIATIONS HONEY, the President of the Louisiana Beekeepers Association testified about the problems US honey producers are facing because of inability of Customs to recover bonds issued in new shipper review investigations:

“Customs estimates it is holding over 600 million dollars in thousands of New Shipper Bonds as security against unpaid dumping duties on imports of honey, fresh garlic, crawfish tail meat, and preserved mushrooms from China – 150 million dollars of which secure honey imports.

Shockingly, the major insurance companies that issued these bonds all failed to determine whether the sham companies that acted as the U.S. importers were creditworthy, or to require that they deposit any collateral to cover the insurers in case they had to pay under the bonds. When Customs eventually assessed substantial duties on these imports, the importers had disappeared. And the insurance companies – which had collected tens of millions of dollars in premiums for issuing the bonds – uniformly refused Customs’ demands that they pay as promised.

This duty-evasion scheme devastated the domestic producers of these four agricultural products in two ways. First, the scheme allowed the importers to enter and sell in this country huge volumes of these goods over an eight-year period at steeply dumped prices – as if the government orders imposing substantial dumping duties on these products did not exist. As a result, the domestic producers continued to suffer the very economic injury the dumping duties were supposed to prevent.

Second, all of these imports are subject to a provision of US trade law, which requires Customs to distribute dumping duties collected on imports that arrived through 2007 to the injured domestic producers. Thus, some of the injury inflicted by these imports on the honey, garlic, crawfish and mushroom producers could have been partly offset by Customs’ distribution of duties collected under the New Shipper Bonds. But the insurance companies’ refusal to pay as promised under these bonds has prevented this.

Unfortunately, Customs must bear substantial responsibility for this debacle. Although the insurance companies first started refusing to pay under these bonds in 2001, Customs by 2009 had failed to file a single collections lawsuit against them. In fact, the agency filed its first New Shipper Bond collections lawsuit only after being sued to do so by the four domestic industries.

Customs currently is attempting to recover $80 million from the insurance companies through 30 collections lawsuits. Rather than pay Customs as promised, the insurance companies are dragging out those lawsuits by raising many frivolous defenses.

One insurance company – Hartford Fire – has raised many of the same frivolous defenses in 350 lawsuits it has filed against Customs in its effort to avoid paying an estimated two to three hundred million dollars under its New Shipper Bonds. Indeed, Hartford Fire’s lawsuits now account for 20 percent of all cases before the Court of International Trade.

Despite Customs’ recent actions to recover under the bonds, the agency’s extended delay in suing the issuing insurance companies will likely block it from recovering under many bonds. This is because a bond collections lawsuit must be started within six years of the date the issuing insurance company becomes liable for the duties. Indeed, in the first collection lawsuit, the court ruled that Customs was time-barred from recovering three million dollars in duties secured by three of the nine bonds at issue.”

In the attached statement, CRAWFISH, the representative of the US Crawfish industry testified along the same lines:

“The problem is that a huge proportion of antidumping duties that should have been collected on imports from China that entered the United States prior to October 1, 2007, have not been collected, despite the fact that they are secured by bonds issued by large, U.S.-based insurance companies. That date is important because U.S. law requires a portion of the duties collected prior to October 1, 2007, to be paid to domestic producers who have been injured in their business by the dumping.

People who are unfamiliar with this area of the law are often surprised that there would still be unpaid duties on goods that came into U.S. ports in 2007 or earlier. They don’t realize that part of this is just because antidumping duties are assessed retrospectively – so delays of a couple or three years are not shocking. However, we’re still trying, right now in 2014, to get Customs to collect duties on entries from 2000, 2001, and so on. . . .

People might say they’d rather have Louisiana crawfish than Chinese crawfish, and they might actually mean it. But everyone has a price. With such a huge price difference, if you’re a U.S. processor, you’re going to be hard pressed to replace that old truck or upgrade your freezer or pay down your debt. You’re just trying to survive another day. The CDSOA was set up to use the antidumping duties to correct that problem, but it only works when Customs actually collects what’s owed. Even worse, the people importing the Chinese product – which, oftentimes, were just shell corporations with no real assets in the United States – started noticing that they didn’t really have to pay the duties, so they weren’t afraid of dumping. Massive volumes of imports kept pouring in, at very low prices. The hole just got deeper and deeper.

The responsible Congressional committees have been trying to fix this problem since at least July 15, 2002, the date of H.R. Report 107-575, in which the Appropriations Committee said: “The Committee is very concerned with the status of tariffs and duties assessed on crawfish . . . The U.S. Customs Service is therefore directed to begin, using funds currently available, vigorous and active enforcement of the tariff. Additionally, the U.S. Customs Service shall, not later than April 30, 2003, issue to the Committee and make publicly available a comprehensive report detailing their efforts to enforce and collect this duty.” That was in 2002 – twelve years ago. . . .

We’re also hoping to learn something about what happened with duty collections last year (FY2013) and what is happening this year (FY2014). More specifically:

• Last summer, Customs released its report on “Preliminary Amounts Available to Disburse” under the CDSOA for FY2013, reflecting collections made from October 1, 2012, through April 30, 2013. For crawfish, this “preliminary amount” turned out also to be the final amount, to the penny. In other words, during the last five months of FY2013, Customs did not collect a single penny of additional duties out of the vast backlog owed on entries made prior to October 1, 2007.

• This year, the “preliminary amount” for crawfish is only $2,687,300.70, reflecting collections through April 30, 2014. Yet we know for certain that Customs collected $6.1 million from Great American Insurance and Washington International Insurance, in February of this year, in crawfish antidumping duties on imports entered during 2000-01. We have copies of the checks from the sureties. Customs is on record, at the court, as saying that the checks had been received and were being processed in late February. It is unclear why this $6.1 million has apparently not been included in the “preliminary amount” for FY2014.

• Customs has also stated, in a letter to Congressman Boustany dated April 11, 2014, that it had fully collected “more than $14 million” in crawfish antidumping duties on April 7, 2014, one day before the six-year statute of limitations would have expired. From other information in the letter, we know that the money was owed by Hartford, a surety, on entries that came into the United States well before 2007. Although this money was allegedly collected prior to the April 30, 2014, cut-off date for the report on “preliminary amounts,” it has obviously been left out. We do not know why. . . .

Much remains to be done. Our best information right now is that there is still more than $600 million in bond money to be collected on imports of crawfish tail meat, honey, garlic, and mushrooms from China that entered the United States between May 1998 and August 2006. This debt is secured by over 8,000 bonds. Yet, so far, Customs has filed lawsuits to collect on only about one-tenth of those bonds, representing roughly 12 percent of their face value.”

PATENT/IP AND 337 CASES

337 CASES

There has been major developments at the US International Trade Commission (“ITC”) in 337 cases.

SUPREMA—EN BANC CAFC PROCEEDING ON 337 AND INDUCED INFRINGEMENT

As mentioned in prior posts, in the Suprema v. ITC case, on February 21, 2014, in the attached petition, Suprema – ITC Petition for Rehearing, the ITC asked for a rehearing en banc of the original panel decision, and on June 11, 2014 the Court of Appeals for the Federal Circuit (“CAFC”) granted a request for an en banc hearing, that means an en banc hearing before all the CAFC judges, to review the original 2-1 decision in the Suprema case.

In prior blog posts, I mentioned that Suprema was a major decision on induced infringement holding that if a product did not infringe when it crossed the border, the ITC did not have jurisdiction to find that the product violated section 337 because of induced infringement. The decision also has a major impact on general patent cases regarding induced infringement.

The ITC’s brief is due on September 15th at the CAFC, but the Commission has asked for an extension until October 15. Experts have predicted an oral argument in the case, possibly in January.

In its February 21st petition to the CAFC, the ITC set out the issues as follows:

“(1) Did the panel contradict Supreme Court precedent in Grokster and precedents of this Court when it held that infringement under 35 U.S.C. § 271(b) “is untied to an article” (Maj. Op. at 19)?

(2) Did the panel contradict Supreme Court precedent in Grokster and this Court’s precedent in Standard Oil when it held that there can be no liability for induced infringement under 35 U.S.C. § 271(b) at the time a product is imported because direct infringement does not occur until a later time (Maj. Op. at 19-21)?

(3) When the panel determined the phrase “articles that . . . infringe” in 19 U.S.C. § 1337(a)(1)(B)(i) does not extend to articles that infringe under 35 U.S.C. § 271(b), did the panel err by contradicting decades of precedent and by failing to give required deference to the U.S. International Trade Commission (“the Commission”) in its interpretation of its own statute (Maj. Op. at 20-21, 26 n.5)?

(4) Did the panel misinterpret the Commission’s order as a “ban [on the] importation of articles which may or may not later give rise to direct infringement” (Maj. Op. at 25) when the order was issued to remedy inducement of infringement and when the order permits U.S. Customs and Border Protection to allow importation upon certification that the articles are not covered by the order?

In its petition for en banc rehearing, the ITC argued that “the panel not only overturned decades of Commission practice affirmed by the courts, but also upended the law of induced infringement.” The ITC based the section 337 violation on the imported products’ combination with software produced by Texas-based Mentalix Inc., which imports Suprema scanners. More specifically, as the ITC states in its petition:

“Appellant Suprema, Inc. (“Suprema”), a Korean company, manufactures fingerprint scanners overseas and imports those scanners into the United States. Before the scanners may perform their intended purpose, they must be connected to a computer running specialized software. Suprema does not make or sell this software, but provides a Software Development Kit (“SDK”) that allows its customers to create their own customized software to operate the scanners. Suprema imports scanners and SDKs and supplies them to appellant Mentalix, Inc. (“Mentalix”), a company located in Plano, Texas. Suprema assisted Mentalix in developing Mentalix software for use with Suprema’s imported scanners. Mentalix then used the software with Suprema’s scanners in a manner that directly infringed method claim 19 of U.S. Patent 7,203,344.”

On August 13th, Suprema filed a brief arguing that the full CAFC should affirm the original panel decision that the ITC does not have authority to hear inducement patent infringement cases where a product is found to infringe after importation.  Suprema argues that the ITC’s Section 337 does not reach conduct where a product may be found to infringe only after it was imported and used together with something else — in this case, software. Suprema argues that “[Section 337] empowers the Commission to bar only the importation, and sale for or after importation, of infringing articles, not the importation of non-infringing staple articles based on the respondent’s purported state of mind,”

Google, Microsoft and other high tech companies have jumped on Suprema’s bandwagon to argue in Amicus Briefs that the full CAFC should uphold the original panel decision barring the ITC from hearing induced patent infringement cases when a product only infringes after importation.  In attached amicus brief, Microsoft Suprema, filed on August 18, Microsoft argues that the law is clear that products that do not infringe at the time they are imported are not within the ITC’s jurisdiction. In the attached separate brief, Google BRIEF, filed on August 19th, Google, Dell Inc., Samsung Electronics Co. Ltd., LG Electronics Inc. and others state that they have an interest in the case because they are “often targets of expensive litigation at the ITC.” “Allowing exclusion orders against articles that do not infringe when imported — on the ground that they may be combined with other products after importation to infringe — threatens substantial disruption to their businesses.”

According to Google’s brief, “The panel’s conclusion is correct: the statute as a whole makes more sense when infringement is judged at the time an article is imported. . .” If a product infringes after it enters the U.S., that infringement can be addressed with a suit in federal court. “The ITC need not expand its jurisdiction to reach every infringement claim that could be brought in district court because the role of the ITC is not to serve as an alternative forum for patent litigation . . . It is a trade court that may hear only the specified types of cases that Congress has designated.”

Both briefs also urged the en banc court to further hold that the ITC cannot hear cases based on alleged infringement of method patents, because such patents are infringed only when the claimed steps are actually performed. According to Microsoft, “A method is an action, not a product or good. Thus, the phrase ‘articles that infringe’ in Section 337 cannot refer to infringement of method claims.”

On August 18, the American Intellectual Property Law Association told an en banc Federal Circuit panel in an amicus brief that the ITC has the authority to find a violation of Section 337 of the Tariff Act of 1930 and issue exclusion orders on certain imports in induced infringement cases regardless of whether direct infringement occurred before or after the articles were imported. The AIPLA argues that the ITC has authority over induced infringement, saying the panel’s initial decision “overlooks the long, uninterrupted history of U.S. protection against unfair trade practices provided by Section 337.” “AIPLA respectfully submits that the Commission has such authority, and that its exercise of such authority in appropriate investigations is consistent with, indeed compelled by, Congressional intent and public policy.” The AIPLA said that Section 337 is an important tool for the effective enforcement of intellectual property rights and is not limited in regards to the time or location that an alleged act of infringement took place. If allowed to stand, however, the Federal Circuit’s initial decision may enable some foreign companies “to circumvent Section 337 and evade effective IP enforcement” by allowing them to eliminate any software-based features in their products found to directly infringe a patent while inviting end-users to download the features after importation.

DISK DRIVES—DOMESTIC INDUSTRY ISSUES

On July 17th, in the Optical Disk Drives case, an ITC administrative law judge held that there was no domestic industry in a 337 case if the Petitioner was non-practicing entity, which is purely revenue driven, and there is no proof that the NPE exploits the asserted patents under § 1337(a)(3)(C).  This ruling would require purely revenue-driven NPEs to make some showing that they exploit the asserted intellectual property under 19 U.S.C. § 1337(a)(3)(C) in every case. They could no longer rely solely on the investments of their licensees.

Although the ALJ’s decision is reviewable by the Commission itself, if the decision becomes final, it will be even more difficult for non-practicing entities (NPEs) to bring 337 cases.

TIRES FROM CHINA

On July 24, 2014, In Re: Certain Tires and Products Containing Same, Inv. No. 337-TA-894, the ITC banned the import of certain kinds of automotive tires from China and Thailand, because they violate design patents held by Toyo Tire Holdings of America Inc. The Asian companies did not respond to the 337 complaint and were found in default.

On July 24th, the ITC issued a limited exclusion order forbidding the import and sale of tires that violate Toyo’s patents by the defaulting respondents.

The American companies held in default include importers, Kentucky’s WestKy Customs LLC; California’s Tire & Wheel Master, WTD Inc., Lexani Tires Worldwide Inc. and Wholesale Tires Inc.; North Carolina’s Vittore Wheel & Tire and RTM Wheel & Tire; and Tennessee’s Simple Tire. The patents cover the unique tread and side wall patterns on Toyo- and Nitto-brand tires.

The foreign infringers include Hong Kong Tri-Ace Tire Co. Ltd., Weifang Shunfuchang Rubber & Plastic Co. Ltd., Doublestar Dong Feng Tyre Co. Ltd., Shandong Yongtai Chemical Group Co. Ltd., Shandong Linglong Tyre Co. Ltd., Svizz-One Corp. Ltd., South China Tire and Rubber Co. Ltd., Guangzhou South China Tire & Rubber Co. Ltd., Turbo Wholesale Tires Inc. and related importers and U.S. distributors.

SECTION 337 COMPLAINTS

On July 25, 2014, Bose Corp. filed a patent based section 337 case at the ITC against a Chinese company on Noise Cancelling Headphones. The respondents are: Beats Electronics LLC, Culver City, California; Beats Electronics International Ltd., Ireland; Fugang Electronic (Dong Guan) Co., Ltd., China; and PCH International Ltd., Ireland.

On August 4, 2014, Adrian Rivera and ARM Enterprises, Inc. filed a section 337 patent case against imports Beverage Brewing Capsules from a number of Chinese and Hong Kong companies. The specific respondents are: Solofill LLC, Houston, Texas; DonGuan Hai Rui Precision Mould Co., Ltd., China; Eko Brands, LLC, Woodinville, WA; Evermuch Technology Co., Ltd., Hong Kong; Ever Much Company Ltd., China; Melitta USA, Inc., North Clearwater, FL; LBP Mfg. Inc., Cicero, IL; LBP Packaging (Shenzhen) Co. Ltd., China; Spark Innovators, Corp., Fairfield, New Jersey; B. Marlboros International Ltd. (HK), Hong Kong; Amazon.com, Inc., Seattle, WA.

PATENT AND IP CASES IN GENERAL

DUPONT SUES SUN EDISON FOR INFRINGEMENT OF US SOLAR PASTE PATENTS

On August 18, 2014, Dupont filed the patent infringement suit against Sun Edison for infringing its thick-film paste patent by importing and selling certain solar modules. DUPONT SOLAR COMPLAINT

DuPont alleges that Sun Edison imports solar modules from Malaysia, which are constructed by Flextronics International Ltd. and use photovoltaic cells provided by Neo Solar Power Corp., which include a paste that uses tellurium-oxide solids.

EX DUPONT ENGINEER SENTENCED TO PRISON FOR STEALING TRADE SECRETS FOR CHINA TITANIUM DIOXIDE INDUSTRY

On August 26, 2014, a California federal judge sentenced a former DuPont Co. engineer to two and a half years in prison and ordered him to pay nearly $750,000 in restitution and forfeitures for conspiring to sell to Chinese companies trade secrets on the technology to safely produce massive amounts of titanium dioxide.

According to the Judge, although Robert Maegerle’s involvement in a conspiracy to sell DuPont’s secret method of producing titanium dioxide to Chinese companies was his first crime, it was a serious one. In March, a jury convicted Maegerle, 79, of participating in the trade-secrets scheme and also of obstructing prosecutors’ investigation into the crimes.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING ZTE

On July 28, 2014, JST Performance, Inc. d/b/a Rigid Industries and Illumination Management Solutions, Inc. filed a case for patent infringement against imports of various LED lighting products for off road vehicles against Sun Auto Electronics, LLC and Foshan Sunway Auto Electrical Company, Ltd., a Chinese company.  LED LIGHTING COMPANY SUED

On August 6, 2014, Shenzhen Liown Electronics Co., Ltd., a Chinese company, filed a patent infringement case against a US company, Luminara Worldwide, LLC, Michael L. O’Shaughnessy, and John W. Jacobson. COUNTERSUIT SHENZHEN LIOWN

On August 6, 2014, Multiplayer Network Innovations, LLC filed a patent infringement case against ZTE Corp. and ZTE (USA), Inc. ZTE

On August 7, 2014, a Taiwan company sued a Taiwan company for theft of trade secrets and patent infringement. Via Technology companies in California and Taiwan filed the patent infringement suit against Asus Computer International, a California corporation, Asutek Cmputer Inc., a Taiwan corporation, and Asmedia Technlogy Inc., a Taiwan corporation. VIA TECHNOLOGY TAIWAN

On August 13, 2014, Pacific Lock Company filed a patent infringement case against the Eastern Company d/b/a/ Security Products, World Lock Co., Ltd., and Dongguan Reeworld Security Products LtdDONGGUAN COMPANY

On August 25, 2014, Folkmanis, Inc. filed a copyright infringement case against Delivery Agent, Inc., S.F. Global Sourcing LLC, CBS Broadcasting, Inc. and Shanghai Oriland Toys Co., LtdSHANGHAI COPYRIGHT

PRODUCTS LIABILITY

On July 21, 2014, Loren Vieths filed a products liability case against Shanxi Regent Works, Inc., a Chinese company, and The Sports Authority, Inc. EXERCISE EQUIPMENT

On July 29, 2014, Eduardo and Carmen Amorin filed a products liability case for defective drywall against The State-Owned Assets Supervision and Administration Commission of the State Council; Taishan Gypsum Co., Ltd. f/k/a Shandong Taihe Dongxin Co., Ltd.; Tai’an Taishan Plasterboard Co., Ltd.; Beijing New Building Materials Public Limited Co.; China National Building Material Co., Ltd.; Beijing New Building Materials (Group) Co., Ltd.; China National Building Materials Group Corporation. TAISHAN CLASS ACTION

CFIUS—CHINESE INVESTMENT IN THE US

RALLS CORP CASE

On July 15, 2014, the Federal DC Circuit Court of Appeals in Ralls Corp. v. Committee on Foreign Investments (“CFIUS”), which is attached to my last post on this blog, 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.

The DC Circuit overturned the CFIUS decision on due process procedural grounds requiring the President and CFIUS at a minimum to explain why the decision was made and grant Ralls Corp’s access to the unclassified evidence used to come to that decision and give company an opportunity to rebut the evidence. 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.

Many experts, however, have been issuing comments to the effect that the Ralls decision will not have a meaningful impact on the outcome of the case and is likely do little to boost the transparency of the CFIUS review process. Experts doubt that any of the unclassified information given to Ralls or any other company in a similar situation in the future would not have a substantial impact on the case. A former head of CFIUS stated that because these cases involve national security, “There isn’t a lot of non-deliberative information that’s not classified or not derived from classified material that can be shared.” Another attorney that specializes in this area stated, “What are they going to do with unclassified information based on a partial record?”

Although the legal victory has little practical impact, it helps to dispel the idea that the U.S. judicial system is biased against Chinese investment and avoids the chilling of the current Chinese investment boom. The U.S. has a process and if that process is not followed, there is relief within the U.S. judicial system.

CHINESE INVESTMENT IN US SEMICONDUCTOR COMPANY

In spite of or maybe because of the Ralls decision, on August 14th a group of Chinese investors made an unsolicited $1.6 billion offer for California chipmaker OmniVision Technologies Inc. The deal would send a chip maker for smartphones, including Apple Inc.’s iPhone, and tablets, to an investor group led by Hua Capital Management Ltd. The potential buyers pitching the $29-per-share bid also include state-owned Shanghai Pudong Science and Technology Investment Co. Ltd. If OmniVision accepts the offer, a comprehensive government review is likely.

CHINESE INVESTMENT OPPORTUNITIES

US FOUNDRY

A US investment company has approached me because an undisclosed US Foundry that produces metal castings has put itself on the auction block. The public information available to me is as follows:

The US Company provides complex metal casting services and products from 50 to 200,000 pounds for industry-critical applications. The Company operates through its two wholly-owned facilities (“Facility A” and “Facility B”) that aggregate in excess of 650,000 square feet, both of which have been in operation for more than 100 years.

The Company differentiates itself by offering highly-complex and highly-engineered products, compared to the simpler commoditized products of other facilities. In addition, the Company emphasizes quality over price —administering price increases without customer attrition.

The Company is focused on energy, infrastructure, and industrial equipment end markets, with approximately 53%, 33% and 13% of production in each of these markets, respectively. Products used in energy and power generation applications include the following sectors: air compression, fossil fuels, gas compression and wind. The Company also manufactures products for other industries including: construction equipment, machine tools, agriculture and refrigeration.

If anyone is interested in the opportunity, please feel free to contact me.

US INVESTMENT IN CHINA

HOSPITALS

It has been reported that on August 27, Ministry of Commerce and National Health and Family Planning Commission issued the “Notice on Establishing Wholly Foreign-owned Hospital Pilots”. The notice lays out the requirements, standards, and approval processes for foreign investors applying to qualify for establishing wholly foreign-owned hospitals in China.     The seven provinces included in the notice’s pilot zones are Beijing, Tianjin, Shanghai, Jiangsu, Fujian, Guangdong, and Hainan. Investors have the option of establishing their own new hospital, or investing through M&A. The notice regulates that only investors from Hong Kong, Macau, and Taiwan may establish hospitals featuring traditional Chinese medicine.

If anyone is interested in the opportunity, please feel free to contact me.

ANTITRUST– VITAMIN C, MAGNESITE AND AU OPTRONICS

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

VITAMIN C

On August 11, 2014, the parties in the Vitamin C case filed their attached final briefs in the Second Circuit.  In its attached brief, HEBEI REPLY BRIEF, Defendants HeBei Welcome Pharmaceuticals Co. Ltd. et al reiterated its arguments that it followed Chinese law when it coordinated on pricing, and that co-defendant North China Pharmaceuticals Group Corp. was not involved in the coordination.

Hebei argued:

“Appellees’ brief confirms that the judgment below cannot be affirmed unless this Court rejects a sovereign government’s view of its own laws, establishes federal courts as arbiters of the validity of foreign nations’ regulatory decisions, disregards the massive foreign policy concerns raised by that approach, creates multiple circuit splits, and rejects binding precedent. This Court should therefore decline Appellees’ invitation to sit in judgment over China’s economic development policies.

The dispositive issue is now undisputed: Appellees concede that Chinese law required active coordination by vitamin C manufacturers on vitamin C prices and output. This amounts to a concession that the Chinese government compelled violation of the Sherman Act and that the district court’s determination of Chinese law cannot survive de novo

That should end the case. But Appellees argue that this Court should find that Chinese manufacturers and their corporate affiliates could still face nine-figure penalties because they complied with their own government’s legal, regulatory, and policy decisions. Their arguments that U.S. law can prohibit the same conduct a sovereign nation ordered and directed, if accepted, would go far in eradicating the foreign sovereign compulsion, international comity, act of state, and political question doctrines altogether, contrary to decades of established law.”

In the attached brief, ANIMAL SCIENCE REPLY BRIEF, the Plaintiffs, Animal Science Products Inc. and The Ranis Co. Inc., asserted that the district court’s verdict was proper and that the companies’ actions were not covered by the Chinese government, stating:

“Appellants and the Ministry of Commerce of China (“Ministry”) ask this Court to adopt an unprecedented “whatever the Ministry says, goes” approach to overturn a jury verdict, even though the Ministry’s assertions are not supported by the evidence or even Chinese law.

In the nine years since this case was filed, two district court judges appropriately considered the evidence of Appellants’ conspiracy to fix prices and limit the supply of vitamin C imported into the U.S. and determined the nature of Chinese law in light of the evidence submitted by the parties and statements by the Ministry (appearing as Amicus). The district court then presided over a trial at which the jury—using an unobjected-to set of instructions and verdict form—concluded that the Chinese government did not compel Appellants’ cartel as a factual matter.

Appellants’ and the Ministry’s assertion that the district court’s judgment represents a groundbreaking application of the Sherman Act is overblown because foreign corporations are routinely subject to liability under U.S. antitrust law over foreign governments’ objections. No Chinese law required Appellants and their co-conspirators to set supra-competitive prices for vitamin C imported to the United States.

Appellants argue that they were required by Chinese law to accept coordination by a vitamin C Subcommittee of a China Chamber of Commerce that was acting to implement the Chinese government’s regulatory objectives. Regardless of the proper interpretation of Chinese law, the facts as determined by the jury under unobjected-to instructions showed that the Subcommittee and Chamber did not as a factual matter act to compel the conduct at issue here; rather, the jury found Appellants liable for their own voluntary conduct.

With respect to its correct rulings on Chinese law, the district court gave the Ministry’s statements appropriate respect and regard, but in multiple rulings disagreed with the Ministry, concluding that the plain language of Chinese law and the overwhelming evidence contradicted the Ministry’s position. Having made its Federal Rule of Civil Procedure 44.1 (“Rule 44.1”) ruling on issues of foreign law, the district court properly excluded copies of Chinese laws and regulations from the evidence submitted to the jury. As it should be in every trial, the jury reached its verdict based on instructions of law from the Court and not from Appellants’ counsel reading and arguing law to the jury.

The district court correctly exercised personal jurisdiction over North China Pharmaceutical Group Corporation (“NCPG”) and denied its motion for judgment as a matter of law based on the evidence of NCPG’s direct participation in a cartel selling products into the United States.”

MAGNESITE

On July 24, 2014, in Animal Science Products Inc. and Resco Products Inc. v. China Minmetals Corp., et al, in he attached decision and order, MAGNESITE DISMISSAL STANDING MAGNESITE ORDER DISMISSAL, the US Federal Court dismissed the US companies antitrust action for a price fixing cartel on Chinese exports to the US of Magnesite and Magnesite products because plaintiffs lacked standing to represent the class of direct purchasers of Magnesite from China. The Court states:

“Plaintiffs seek to represent a putative class of U.S. purchasers of magnesite. They allege that sixteen Chinese corporations have conspired to fix prices and control the supply of magnesite and magnesite products exported to the United States. As a result, they say, magnesite prices have remained above market levels since at least April 2000. . ..

There is, however, one critical fact that distinguishes Cordes & Co. from the case now before me. There, the class action was initiated by two putative class representatives who were “indisputably members of the class they sought to represent.” . . . That is, the class representatives had themselves suffered the same injury that gave rise to the assigned antitrust claims they asserted. Here, the facts are not so clear, or at least, have yet to be established, as discussed below.

Suffice it to say that, at this stage, Resco must establish its own standing, either through its own direct purchases or through the direct purchases of some entity that validly assigned its claims to Resco. . . .

Plaintiff Resco has pleaded very few facts regarding its own “direct purchases” of magnesite from Defendants. The original complaint . . . contains no statements regarding Resco’s direct purchases of magnesite, or Animal Science’s indirect purchases of magnesite. . . .

In short, Plaintiffs allege no direct purchases by Resco from any named defendants.

Nothing in the Amended Complaint constitutes a plausible factual allegation in support of the most direct and obvious form of standing: plaintiff’s direct purchases from one or more of the defendant . . .Plaintiff Resco’s status as a direct purchaser, whether obtained through its own direct purchases or by means of an assignment, is a critical and yet unresolved question in this case. That uncertainty permeates not only the Amended Complaint but the Motion to Compel Arbitration.

For the reasons discussed above, the Minmetals and Sinosteel Defendants’ Motions to Dismiss Plaintiffs’ Amended Complaint are GRANTED on standing grounds only. The Amended Complaint is DISMISSED WITHOUT PREJUDICE to the filing of a Second Amended Complaint.”

Unfortunately, the Court and the Parties may have missed the forest through the trees. Many forms of magnesium from China, including many magnesium products, are covered by US antidumping orders, which have blocked many importers from importing Chinese magnesium into the United States for decades. The Court and the Parties may ignore this reality, but the point is that the effect of antidumping orders is to raise prices. That may be the cause of the increased prices on these products.

TAIWAN LCDS CASE

On August 25, 2014, AU Optronics Corp, along with several Taiwan individuals filed the attached petition, auo petition, with the 9th Circuit Court of Appeals asking it to rehear or hold an en banc hearing in its appeal of a $500 million price-fixing fine the government won against the liquid crystal display maker. The Petition argues that the panel misinterpreted the evidence in the case.

As reported in my July post on this blog, in July a three-judge panel affirmed the Justice Department’s victory before the Federal District Court in the case against AUO, its U.S. subsidiary and former top executives Hsuan Bin Chen and Hui Hsiung concerning a global plot to fix the price of liquid crystal display panels.

CHINA ANTITRUST CASES

As US antitrust cases have been on the rise in the United States, they are sharply rising against Chinese and foreign companies, including US companies, in China. The recent surge in antitrust cases reaches US and foreign companies like Qualcomm, Interdigital, Microsoft, Chrysler and Mercedes-Benz.

On July 24, 2014, it was reported that the National Development and Reform Commission (“NDRC”), one of China’s three National Antitrust Agencies, announced that it had determined that US chipmaker Qualcomm is a monopoly and was suspected of overcharging and abusing its market position in wireless communication standards.  The allegations could lead to record fines of more than $1 billion.

As the Chinese consumer market surges upward, Western companies are seeing their profits fall downward after this wave of antitrust cases. The China media has reported that the prices of many foreign items, including a Starbucks latte to a Jaguar sedan, are higher in China than in many other places in the world.

Chinese consumers, who now travel the World, are complaining. According to the media, although some of the price differences are explainable by factors, such transportation, real-estate costs, higher Chinese import taxes and fragmented supply chains in which multiple distributors each add a markup, at least some multinationals allegedly have adopted sales practices in China that would not be tolerated by antitrust regulators in Europe or the US. Automobile companies do not always give their Chinese customers a choice in their purchase of spare parts, causing high prices.

What concerns the US government, however, is procedures, the heavy-handed way that investigations are being pursued, and the highly charged media coverage that makes for heated nationalistic rhetoric against Western and US companies.

Foreign companies have learned two early lessons from the antitrust probes. First, the Chinese law provides little protection. The message that the National Development and Reform Commission, the Chinese agency that sets pricing rules, delivers in private to multinationals at the outset of a price-fixing investigation is not to bring in their foreign lawyers. The second lesson, apparently, is resistance is futile.

In almost every antitrust case launched so far, foreign companies have settled without a fight. Voluntary price cuts of up to 20% are the norm, accompanied by board-level expressions of remorse and promises to do better. Chrysler described its abrupt decision to slash car-part prices as a “proactive response” to the price fixing probe as it got under way.

These price-fixing investigations have been accompanied by heated nationalistic rhetoric in the state media with anti-foreign overtones. Pushing down multinationals goes over well with large sections of the Chinese public that view the foreign companies as arrogant. The China Youth Daily recently stated that multinationals “pollute the environment, lie to consumers, act arrogantly when facing their wrongdoings, and ignore China’s law and protests from Chinese consumers.”

For many years that China’s Anti-Monopoly Law has been in place, enforcement has been lax, but the National Development and Reform Commission (“NDRC”) and the State Administration for Industry and Commerce (“SAIC”), the two agencies charged with enforcing the AML’s antitrust provisions, have rapidly increased enforcement over the last year, with probes into Qualcomm Inc., Microsoft, and now international automakers. The action has come at the same time as the government has voiced a broader intention to promote the creation of Chinese players in many key industries, contributing to the impression that the latest antitrust probes may have a protectionist purpose.

While technically, agency decisions can be appealed to China’s administrative courts, the courts tend to defer to the agencies in all but the most blatant violations of the law. That means that as a practical matter, companies don’t have the same ability to force the agencies to defend themselves in court the way companies do in the U.S. and Europe.

MICROSOFT

As mentioned in my last post, on July 29, China time, the Chinese government conducted a dawn raid of Microsoft offices in China, apparently because of antitrust concerns. According to reports out of China, Microsoft Corp‘s internet browser and media player are being targeted in a Chinese antitrust probe, raising the prospect of China revisiting the software bundling issue at the heart of past antitrust complaints against the firm.

On August 6, 2014, it was reported that more raids were conducted on the Microsoft offices. Mr. Zhang Mao, the head of the State Administration for Industry and Commerce (SAIC), told reporters that Microsoft has not been fully transparent with information about its Windows and Office sales, but that Microsoft has expressed willingness to cooperate with ongoing investigations.

In 2004, the European Union ordered Microsoft to pay a 497 million euro ($656 million) fine and produce a version of Windows without the Windows Media Player bundled. The fine was later increased to nearly 1.4 billion euros.

The SAIC said earlier this month that Microsoft had been suspected of violating China’s anti-monopoly law since June last year in relation to problems with compatibility, bundling and document authentication for its Windows operating system and Microsoft Office software.

On August 4, 2014, Microsoft Deputy General Counsel Mary Snapp met with the SAIC in Beijing where the regulator warned Microsoft to not obstruct the probe.

But industry experts have questioned how exactly Microsoft is violating anti-trust regulations in China, where the size of its business is negligible.

AUTOMOBILE AND AUTO PARTS PRODUCERS—CHRYSLER, MERCEDES-BENZ AND VOLKSWAGEN

On August 6, 2014, it was reported that the National Development and Reform Commission (“NDRC”) had announced that it would punish Audi and Chrysler for monopoly practices, potentially paving the way for the automakers to be fined up to 10 percent of their domestic annual sales revenue in the world’s biggest car market.

NDRC spokesman Li Pumin stated that an ongoing investigation into the two companies showed they had “conducted anti-competitive behaviors” and that “They will be punished accordingly in the near future.” The NDRC has recently finished a probe of a dozen Japanese auto parts manufacturers on similar anti-trust charges.

According to Li Pumin, “The purpose is to maintain a sound competitive order in the auto market and protect consumer interest.” The NDRC did not specify the punishment for Chrysler or Audi. Under the six-year-old antimonopoly law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year.

In the  attached Article from Singapore’s Strait Times on the Auto Parts antitrust investigation, QUOTE STRAIT TIMES, which features my quote, Esther Teo for the Strait Times states:

Industry experts say automakers have too much leverage over car dealers and auto part suppliers, enabling them to control prices, considered as a violation of China’s anti-trust laws.  “Monopolistic practices are quite rampant in the auto industry. NDRC is first targeting imported luxury brands because the problem is most severe in this area,” said Yale Zhang, managing director of consultancy Automotive Foresight (Shanghai) Co. Ltd. “It’s also a warning signal to the industry. If top brands like Audi gets punishment, others would know what to do.”

Zhang said imported luxury cars in China cost, on average, 2-1/2 to three times their price in the United States. The price difference is due to higher import duties and other taxes, foreign carmakers have argued. . . .

NDRC spokesman Li Pumin reiterated at a briefing in Beijing yesterday that China will punish any violators of the law regardless of nationality. . . .

While Beijing has denied these allegations, experts say the high-profile probes are likely to have a chilling effect on the business climate unless there is more transparency about how the anti-monopoly law is being enforced. . . .

experts said more needs to be done to convince international firms that they are not being unfairly targeted. For instance, whether it is a foreign or domestic firm being investigated, the authorities should provide more detailed and public information on the reasons for the decision reached and how the fine was determined. Without such transparency, multinational firms might be less willing to invest in China, they added.

Mr William Perry, an international trade partner at Seattle-based law firm Dorsey & Whitney, told The Straits Times that the business climate for foreign firms is becoming increasingly “uncertain”. “This is likely to affect trade relations down the line, especially between the United States and China.”

DORSEY ARTICLE ON CHINA ANTITRUST

On August 25, 2014, Peter Corne, who heads Dorsey’s China practice, published the following article about the situation in China:

A Fine Season for Antitrust Enforcement in China

The World Cup has ended and visiting fans have returned home from Brazil’s hot and humid climate. Now, some companies are feeling a different kind of heat, as Chinese antitrust regulators step up their enforcement activities. The regulatory actions include an investigation into the sale of World Cup tickets to Chinese football fans. The practice at issue was the bundling of high-end tickets with hotel, transportation, and tour services. Beijing Shankai Sports Development Company Limited (“Shankai”), the exclusive dealer for World Cup tickets within Greater China, failed to clarify whether customers were free to buy the high-end tickets separately. Some employees of Shankai told customers that they could not buy high-end tickets separately. The State Administration of Industry and Commerce (“SAIC”) started its investigation soon after Shankai’s practice was exposed by State central television. Backed into a corner, Shankai had no option but to admit its guilt in the sordid tale and promised to rectify its misdemeanors, leading to the SAIC approving the target’s application for a suspension to the investigation.

In other enforcement news, China’s second antitrust enforcement agency, the National Development and Reform Commission (“NDRC”), has escalated its own enforcement efforts. NDRC branches in each of China’s northern (Beijing), central (Shanghai), and southern (Guangdong) coastal regions all had a part in what has turned into a ‘fine’ season for the optical industry in China. The practice in question involved ‘disguised’ recommended retail prices that, in reality, apparently amounted to resale price maintenance. Manufacturers of glasses and contact lenses adopted a carrot and stick approach: their distributors were punished for failing to sell the products at “recommended retail prices”, and rewarded if they did. Hoya and Weicon reportedly turned on the rest of the culprits in the industry by reporting the monopolistic activities to the NDRC and providing important evidence; in return, Hoya and Weicon were provided an amnesty from prosecution. The targeted companies (Essilor, Nikon, Carl Zeiss, Bausch & Lomb, and Johnson & Johnson) were fined RMB 8.79 million, RMB 1.68 million, RMB 1.77 million, RMB 3.69 million, and RMB 3.64 million, respectively (for a total of about $3.2 million /€2.38 million).

Not to be left out of the action, China’s third and remaining antitrust enforcement organ, the Ministry of Commerce (“MOFCOM”), for only the second time in history, rejected a transaction: the attempted global joint alliance among Maersk, Mediterranean Shipping Company, and CMA CGM. MOFCOM determined that the tie-up would restrict or eliminate competition in the Asia-European shipping route, despite the deal’s having previously been approved by the US and European antitrust authorities.

In a MOFCOM-led multiple-ministry initiative to crack down on interregional trade barriers and industrial monopolies launched by 12 ministries at the end of 2013, MOFCOM sent questionnaires to companies in no fewer than 80 different industries to ascertain their level of compliance with antitrust legislation. This suggests that the enforcement net will soon be cast even wider. The automobile industry has already been snared, but that particular enforcement action may have resulted from a Ferrari distributor’s complaint to the industry association (when Ferrari suddenly terminated the distribution relationship) this past April.

Just before this briefing went to press, Microsoft China also started feeling the summer heat. On July 28, nearly 100 regulators from nine provincial branches of the SAIC converged on Microsoft in four different locations around the country.

This seems to have arisen out of a preliminary investigation that commenced about a year ago, in response to complaints by other companies concerning alleged bundling and other issues related to Windows and Office. At the preliminary investigation stage, Microsoft personnel were interviewed and Microsoft submitted answers to a series of questions. The SAIC still could not rule out antitrust infringement, so it proceeded to file a case and initiate its dawn raid. During the raid, Microsoft staff attempted to head off the interviews by begging lack of availability of the relevant people. The regulators apparently have managed to interview already, or have required attendance to interview, a Vice President, other senior management, and marketing and financial staff. During the raid, they copied contracts and financial statements and acquired internal correspondence including emails, and seized two computers.

In short, it may be summertime, but antitrust enforcement in China has not taken a vacation.

ARTICLES BY CHINESE ANTITRUST LAWYERS

AUTO PARTS ARTICLE

In the article, Analysis of NDRC Penalty Decision on 12 Auto Parts and Bearing Companies_AnJie_Michael Gu_Eng_20140830, Note of Caution: Record Fines on 12 Japanese Auto Parts and Bearing Manufactures – Analysis of the NDRC’s Penalty Decision and Countermeasures of Companies,Michael Gu, an antitrust partner in the AnJie Law Firm, in Beijing states:

Introduction

Within six years of implementation of China’s Anti-Monopoly Law, the China’s law enforcement agency responsible for supervising price monopoly, the National Development and Reform Commission (“NDRC”), continues to strengthen its law enforcement efforts with rounds of “antitrust storm” that swept across a number of industries and companies along with record fines.

This is especially true since 2013, the NDRC has probed into number of high-profile penalty cases, including the LCD Panel case, Moutai and Wuliangye case, Baby Formula case, Shanghai Gold Jewelers case and Spectacle Lenses case. Meanwhile, the NDRC has also launched investigation into the US high-tech giants, InterDigital and Qualcomm. For InterDigital case, the investigation has been suspended. As for Qualcomm case, Qualcomm has manifested their willingness to cooperate with the NDRC in its investigation and has submitted relevant commitment.

The “antitrust round up” of the automobile and auto parts industries is undoubtedly the most prominent case recently. Under such high pressure of antitrust law enforcement, a number of major foreign invested automobile manufacturers, including BMW, Benz, Audi, Toyota and Chrysler etc., have recently announced their price cut for auto parts. On August 20, the NDRC has announced its punishment of 12 Japanese auto parts and bearing companies who engaged in price related monopolistic behavior. Eight auto parts manufacturers are imposed fines totaling RMB 831.96 million (approximately USD 135.50 million), although Hitachi is exempted of the penalty. Four bearing manufacturers are imposed fines totaling RMB 403.44 million (approximately USD 65.70 million), although Nachi-Fujikoshi is exempted of the penalty. The combined amount of the fines reaches RMB 1.24 billion (approximately USD 200 million), setting up another record in China’s Anti-Monopoly Law’s enforcement.

This article will analyze the train of thought and trends of the NDRC’s anti-monopoly law enforcement, application of leniency program, impact of actions of the companies (including responses to investigations and illegal conducts) on the amount of the fines, and suggestions for relevant companies in dealing with antitrust investigation. . . .

Conclusion and Suggestions for the Companies

This record penalty decision demonstrates NDRC’s determination to intensify its antitrust law enforcement. Six years since the implementation of AML, the NDRC has taken more active and aggressive approach targeting a wider range in industries. This case will not be the finishing line, but merely a starting line that directs enforcement to areas closely related to the people’s livelihood, which have always been under its antitrust radar, such as petroleum, health care, telecommunication, pharmaceuticals, automotive, banks and consumer goods.

It is worth mentioning that the NDRC has indicated in its announcement that it will conduct further investigation following the leads uncovered in this case. Thus, the relevant companies should pay special attention to their possible monopolistic conduct related to this case or other auto parts and take necessary actions in a timely manner. They are strongly encouraged to report to the NDRC as early as possible in order to obtain exemption and reduction of fines.

The NDRC has adopted more stringent and definitive approach in application of leniency program. The NDRC has placed the leniency applicants in order and granted them exemption and reduction of fines accordingly. Companies need to seek professional advice in making leniency applications as to set up appropriate strategies in securing its first place by submitting the most important evidence to the NDRC within a short period of time and cooperating with the NDRC in its investigation.

The current heated antitrust law enforcement has posed unprecedented compliance challenges to all types of companies including foreign, domestic and even state-owned companies. Companies are suggested to take the following proactive measures to control and minimize risks associated with antitrust compliance:

1. Companies should conduct internal antitrust audit to inspect and evaluate potential antitrust risk with the assistance of external counsel. It’s also advisable to provide up-to-date and tailored antitrust trainings for senior management and employees, promote awareness of antitrust compliance.

2. For companies that are already found to be in potential violation of AML, it is recommended to voluntarily report to antitrust law enforcement agencies as soon as possible and to take rectification after seeking professional advice. Rectification measures may cover rectified sales policy and sales agreement that involves price-fixing and correction of conducts of price-fixing and collusive bidding, etc. Such measures shall be sufficient to maintain competition in the market and benefit the consumers.

3. Companies that have been dawn-raided by the antitrust law enforcement agencies should cope with the investigation appropriately, defend its legitimate interest and be proactive depending on the situation (e.g. propose defense regarding the gravity of the conduct and calculation of fines). In this case, Sumitomo has submitted written defense within one week of its receipt of the Prior-Notice of Administrative Penalty issued by NDRC. The defense addresses the miscalculation of turnover of joint venture that is involved. The NDRC has accepted its defense and granted a reduction of RMB 52.32 million in its fine. It can be seen that proactive approach and proposal of defense could help the companies avoid or mitigate penalties.

MICROSOFT ARTICLE

In the report on Chinese antitrust law by the Chinese T&D Law Firm, T&D Monthly Antitrust Report of July 2014, which will be attached to my blog, Chinese antitrust lawyer John Ren had this to say about the Microsoft case:

SAIC Initiates Anti-Monopoly Investigation on Microsoft

29 July, 2014 According to the information issued on the SAIC’s official website , on July 28, around 100 enforcement officials from the SAIC conducted dawn raids on Microsoft China and its branch companies in Shanghai, Guangzhou, and Chengdu. In June 2013, SAIC verified whether Microsoft violated the AML because of the allegation of the compatibility issue due to the non-full disclosure of information about the Windows operational system and office software, tying, and file validation, reported by other enterprises. During the verification, SAIC successively interviewed Microsoft and relevant enterprises, and Microsoft submitted the responding reports focusing on issues SAIC paid attentions to. In the period, relevant enterprises also continued to provide relevant information to SAIC. SAIC concluded that the preliminary verification cannot remove the suspicion of anti-competitive practices as mentioned above. Therefore, SAIC has initiated the investigation on Microsoft for its suspected anti-monopoly conducts pursuant to the relevant laws and regulations.

On July 28, 2014, according to the AML, SAIC conducted dawn raids on four of Microsoft’s business locations, i.e. Microsoft China and its branch companies in Shanghai, Guangzhou, and Chengdu. The personnel who were investigated included the Vice Presidents, senior management and the relevant staffs in the marketing, financial and other departments of Microsoft. The enforcement officials of SAIC copied some contracts and financial statements of Microsoft, extracted large amounts of electronic data including internal communication documents and emails, and sealed and removed two working computers. During the dawn raids, the investigation contents had not been fully completed, since according to Microsoft, some of the major staffs who need to be investigated were not in China at this stage. SAIC has instructed Microsoft to arrange relevant staffs to visit SAIC for being inspected as soon as possible.

Microsoft’s Chinese councils witnessed the entire enforcement practice conducted the by SAIC. Currently, the case is still under investigation.

NOW INDIA

Now India has followed China’s lead and its antitrust agency have hit 14 carmakers, including General Motors and Ford, with fines totaling 2,545 crore ($420.3 million) for violating India’s competition laws by allegedly restricting the ability of independent repair shops to enter the market.

The Competition Commission of India alleged the companies abused their dominant position by denying access to branded spare parts and diagnostic tools to independent repairers, hampering competition while allowing authorized dealers to charge higher prices.

SECURITIES

LIHUA

On August 15, 2014, William Peck filed the attached shareholder derivative suit, LIHUA COMPLAINT, in New York Federal District Court against Lihua International, Inc, Jianhua Zhu, Daphne Yan Huang, Yaying Wang, Robert C. Bruce, Jonathan P. Serbin, Siu Ki “Kelvin” Lau, Tian Bao Wang and Ming Zhang. Lihua is a China-based copper products company, and the attached complaint alleges materially false and misleading public filings that failed to disclose a substantial asset transfer out of the company by its former CEO. The shareholders say that eight executives and board members “knew nothing” about the former CEO’s alleged diversion of assets to another company, Power Apex Holdings Ltd., which the plaintiffs say is ultimately owned by the People’s Republic of China. The new derivative suit says the company is already being sued by two putative classes of shareholders who lost money in the stock drop.

CHINA MEDIA EXPRESS

On August 15, 2014, in the attached decision, CHINA MEDIA OPINION, a New York Federal Judge certified a class of investors in a class action securities case against China MediaExpress Holdings Inc. The Plaintiff allege the Chinese company concealed material information and made various misstatement and omissions that eventually led to a stock drop. The complaint was filed in February 2011.

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

VOLKSWAGEN

On August 25, 2014, there were reports out of China that the Chinese government has launched an anticorruption probe into a former and a current executive at one of Volkswagen AG ‘s China joint ventures. The Communist Party’s Central Commission for Discipline Inspection accused Li Wu, a former deputy general manager at FAW-Volkswagen Automobile Co., and Zhou Chun, a deputy general manager of the joint venture’s Audi sales division, of “suspected serious violations of discipline and law.” The phrase is typically used in Chinese corruption cases.

DORSEY FCPA DIGEST

In the attached August edition of the FCPA Digest, DORSEY Anti_Corruption_Digest_Aug2014, Dorsey lawyers report on a corruption investigation involving China stating:

“China

It has been reported that China commenced an investigation into former domestic security chief, Zhou Yongkang, on suspicion of corruption. The Communist Party decided to question Zhou Yongkang for suspected “serious disciplinary violations”, according to the official Xinhua news agency. The investigation will be conducted by the Party’s watchdog, the Central Commission for Discipline Inspection.

During Zhou Yongkang’s five-year appointment as security chief, he oversaw the police force, civilian intelligence apparatus, paramilitary police, judges and prosecutors.”

SECURITIES COMPLAINTS

On August 6, 2014, Andrew Dennison filed the attached class action securities case against China Commercial Credit, Inc., Huichun Qin, Long Yi, Jianmin Yin, Jingeng Ling, Xiangdong Xiao and John F. Levy. CHINA COMMERCIAL

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

 

US CHINA TRADE DEVELOPMENTS TRADE, CRIMINAL IP, ANTITRUST AND SECURITIES

Smithsonian Castle Statue  Night With Stars Washington DCDear Friends,

There have been some new developments in the trade, solar cells, 337/patents, antitrust and securities areas.

TRADE

SOLAR CELLS NEGOTIATIONS

Recently EC officials have returned to Brussels after about two weeks of negotiations in Beijing without an agreement that would resolve the Solar Cells fight with China.  Talks continue, less than a month before preliminary EC antidumping (AD) duties on Chinese solar imports are due to ratchet up to more than triple their current amount on Aug. 6.

On the Chinese side, the talks are being handled primarily by the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME).

The solar cell negotiations between China and EC continue, but the devil is in the details.  The hurdle is creating a deal that the EC can defend as eliminating the injury to the EC producers without demanding a floor price so high that the Chinese government abandons negotiations and walks away.

The talks include discussions on both a floor price for solar wafers, cells and modules — more commonly called panels — and voluntary quantitative restrictions, but there appears to be no breakthrough.

One contact stated that the EC offered up a floor price of 65 eurocents per watt, but indicated that would not be acceptable to the EC industry because it would barely over the cost of production.  For the Chinese industry, however, a price floor of 65 eurocents would be a huge concession that the Chinese companies could not accept.

The EC imposed AD duties of 11.8%, but these would go up to 47.6 percent or higher next month unless a deal is reached.

In the US, however, negotiations are still down the road.  There have been initial, informal discussions between the U.S. and China on a potential settlement of the trade cases with USTR added by the Commerce Department leading the initiative.

But so far there is no plan for the U.S. to be party to any eventual EU-China arrangement. The EC has not welcomed the idea because that it fears that US involvement could complicate already difficult negotiations.

If the EC and China are able to reach a deal, however, it will almost certainly influence any potential deal between the US and China.  One problem, however, is the third country loophole.  Unless the loophole is eliminated, the U.S. industry is unlikely to be interested in a deal, and Chinese companies have adjusted to the US order by obtaining the solar cells from third countries.  The third country loophole allows China to export solar cells produced in third countries, such as Taiwan, in panels and modules produced in China to the United States.

In the EC 18 out of 27 EC countries are opposed to the case so if there is no deal, the Chinese government may walk away and take a chance that the member states will overturn the case.

In the US on the technical side, one of the key issues is the legal basis under which the Obama administration can seek a settlement given that the AD and CVD orders are now in effect. The time for negotiating a suspension agreement in a case is legally set between a preliminary and a final determination, which has now passed.

In the preliminary explorations of a potential settlement, the U.S. has discussed the option of a changed circumstances review as a legal basis. Such a review would assess whether the existing U.S. trade remedy cases are still needed or could be replaced with a settlement. But that option would require the consent of the U.S. industry.

As indicated in past posts on this blog, on June 4th, the Solar Cell case really heated up as the EC issued a preliminary antidumping decision on Solar Cells from China with a preliminary antidumping rate of 11% that would escalate by August 5th to a rate as high as 67.9%.

In a March 2013 hearing of the Senate Finance Committee, Subcommittee on Trade, Senator Ron Wyden, the Chairman and the political supporter of Solar World, pressured Acting USTR Demetrios Marantis for a global agreement in the Solar Cells situation. The US Solar Cells Trade case has not worked and has not protected the US domestic industry. Prices for solar cells in the US have only gone up by $3. Also in response to the US case, the Chinese Government has brought an antidumping and countervailing duty cases against $2 billion of imports of US produced polysilicon, which goes into the Chinese solar cells.

A negotiated settlement would also result in the removal of Chinese antidumping and countervailing duties on US and EC produced polysilicon.

DIAMOND SAWBLADES– SECTION 751 CHANGED CIRCUMSTANCES ITC INVESTIGATION

On July 11, 2013, Husqvarna Construction Products North America, Inc. filed a request for a 751 changed circumstances investigation at the ITC on Diamond Sawblades and Parts from China.  In the attached petition, Req for Commission Review-7-11-13 Husqvarna argues that the Commission reached a 3-3, tie vote, in the Diamond Sawblades case only by cumulating, that is adding together the imports of Korea and China.

The Commerce Department, however, has now determined to revoke the antidumping order on diamond sawblades from Korea because there was no dumping during the period of investigation.   In addition, Huqvarna is the largest domestic producer and now opposes the order.  Finally, the other US producers in response to the order have expanded with low-cost foreign manufacturing affiliates, rather than expanding their US production.

 ALUMINUM EXTRUSIONS—NOW COMES EVASION

On June 21st, ICE, Immigration and Customs Enforcement arrested 5 individuals from Sultana Screens and Aluminum and PRP Trading for importing aluminum extrusions from China by passing false and fraudulent invoices and documents to CBP to defraud the US of approximately $26.7 million in antidumping and countervailing duties.  See the attached announcement. ICE ANNOUNCEMENT ALUMINUM

 ALUMINUM EXTRUSIONS — NEW REVIEW COVERS MANY MORE CHINESE COMPANIES

On June 28, Commerce initiated the Antidumping and Countervailing Duty Review Investigations on Aluminum Extrusions from China naming many Chinese companies based on a request by petitioners.  See the attached notice.  ALUMINUN EXTRUSIONS INITIATION NOTICE

Separate Rate applications are due August 27th at Commerce.

CAFC LAMINATED WOVEN SACKS

On June 24th, in AMS Associates, Inc. v. United States, the Court of Appeals for the Federal Circuit affirmed the Commerce Department’s determination in the Laminated Woven Sacks case that where the Chinese company withdrew the evidence on the record, the Commerce Department was correct in giving the Chinese company the country wide rate.  See the attached decision.  CAFC SACKS DECISION

 IMPORTERS’ LOBBYING COALITION AGAINST EXPANSION OF ANTIDUMPING AND COUNTERVAILING DUTY LAWS AGAINST CHINA

As mentioned in prior newsletters, we are working on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.  Our first organizational meeting will be July 24th in Washington DC.  If anyone is interested in the Coalition, please feel free to contact me.

The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US trade war, especially the impact of 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.

16 US importers in a number of different industries have joined the Coalition, but we continue to search for additional members.

COMMERCE DEPARTMENT SEPARATE RATES REGULATIONS

On July 5th the Commerce Department issued a regulatory announcement in the Federal Register COMMERCE DE FACTO REGULATION stating that in determining whether Chinese or other companies in Nonmarket Economy Countries were entitled to a separate rate in antidumping cases, it would examine more closely whether the company meets certain de facto criteria for obtaining a seaprate rates.  See the attached Federal Register notice

Commerce specifically stated that it will examine on a case by case basis certain issues related to a respondent’s separate rate status in nonmarket economy dumping cases.  This action is part of its Trade Enforcement initiative.

In determining whether a Chinese or other nonmarket economy company is entitled to a separate rate, Commerce looks at the following criteria, whether the Chinese/NME company:

• has export prices set by or subject to approval of a governmental agency;

• has authority to negotiate and sign contracts and other agreements on the company’s behalf;

• has autonomy from the government in decision making on management;

• retains proceeds of its export sales and makes independent decisions regarding disposition of profits or financing of losses.

Since respondents generally possess information on their day-to-day operations, Commerce will consider, on a case-by-case basis, issuing supplemental questionnaires to identify and review additional documentation and information relating to de facto government control by any level of government in cases where the respondent’s initial questionnaire responses are insufficient to support its separate rate claim. Supplemental questions might address:

• selection and removal of directors and managers at the producing/exporting company;

• identification of parties with authority to approve contracts and bank transactions on behalf of the company;

• ownership, including individual and corporate;

• whether any corporate owners are state-owned, state-controlled, or otherwise affiliated with the state, at the national or sub-national levels; and,

• whether any managers hold government positions at the national or sub-national levels.

Consistent with comments urging Commerce to conduct more separate rate verifications, Commerce said it would continue to consider verification of separate rate information where warranted, on a case-by-case basis.

This new regulation may make it harder for Chinese companies to obtain separate rates in antidumping investigations at the Commerce Department.

 NEW EU CASE AGAINST STONE IMPORTS FROM CHINA

If the granite fabricators had a problem with the Steel Sinks case, they may have a larger problem down the road.  On Friday the European Union launched an Antidumping investigation against imports of stone from China used in countertops and tiles.  The specific product is agglomerated stone – a material consisting of rock pieces held together by resin that is often used for kitchen and bathroom tiles and counter tops.  The complaint was filed by ASIA Europe.

EU cases are often followed by similar cases in the United States and vice versa.

CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE–WINE FROM THE EC

On July 1, 2013, China said it will initiate an antidumping and countervailing duty case against Wine from the EC.  See the attached initiation notice and press release from the Chinese Ministry of Commerce or MOFCOM. MOFCOM ANNOUNCEMENT MOFCOM NOTICE

Notices of appearance are due by July 24th at MOFCOM.

PATENTS

 CRIMINAL IP CASE AGAINST CHINESE COMPANY

In a highly unusual case, the US Justice Department has brought a criminal case and indictment against a Chinese Wind Tower company, Sinovel Wind Group Co.  SINOVEL COMPLAINT SINOVEL INDICTMENT In the attached complaint and indictment in United States v. Sinovel Wind Group, the Justice Department charged the Chinese company with stealing trade secrets including proprietary source code from its former vendor American Superconductor Corp. and causing it losses of more than $800 million.

An indictment filed Thursday in Wisconsin federal court targeted Sinovel along with two of its employees and former American Superconductor employee Dejan Karabasevic, 40, who allegedly gave source code stolen from American Superconductor’s computer system to Sinovel employees.

The indictment also targets Sinovel’s deputy director of its research department, Su Liylng and its technology manager, Zhao Halchun, both of whom allegedly convinced Karabasevic to come work for Sinovel and bring the stolen code with him.

“Today, we announce charges against Sinovel and three individuals for stealing proprietary wind-turbine technology from [American Superconductor] in order to produce their own turbines powered by stolen intellectual property” Acting Assistant Attorney General, Mythili Raman, said in a statement.

“This charged intellectual property theft caused significant harm to a domestic company that develops cutting edge technology and employs Americans throughout the country,” she said. “Stamping out intellectual property theft is a top priority for this administration and we will continue to work with our intellectual property task force partners to ensure that American ingenuity is protected.”

The indictment followed an investigation by the Federal Bureau of Investigation into the code allegedly stolen from the Massachusetts-based firm, which it found were used in certain 1.5 megawatt Sinovel turbines, according to American Superconductor’s own statement Thursday on the charges.

American Superconductor has so far filed four suits against Sinovel in China over the alleged thefts, and has asked for more than $1 billion in damages, but Chinese courts have yet to address its claims.

“In the U.S., the Department of Justice has indicted Sinovel,” the U.S. firm’s CEO Daniel P. McGahn said in a statement Thursday. “In China, however, the legal system has yet to take substantive action. We believe this clearly demonstrates that the rights of foreign businesses are not being protected. The inability to rely on the rule of law is creating a risk for U.S. businesses operating in China.”

NEW 337 CASES

SILICON MICROPHONE PACKAGES

On June 21, 2013 Knowles Electronics, LLC filed a section 337 patent case against GoerTek, Inc., China; and GoerTek Electronics, Inc., Sunnyvale, California.

See ITC announcement below.

Docket No: 2962

Document Type: 337 Complaint

Filed By: Sturgis M Sobin

Firm/Org: Covington and Burling

Behalf Of: Knowles Electronics, LLC

Date Received: June 21, 2013

Commodity: Silicon Microphone Packages

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 Silicon Microphone Packages and Products Containing Same. The respondents are: GoerTek, Inc., China; and GoerTek Electronics, Inc., Sunnyvale, California.

If anyone wants short copies of the complaints, please feel free to contact me.

 PATENT CASES

 PATENT COMPLAINTS

Two patent complaints have been filed recently, June 17th complaint by Safe Storage v. Huawei and a June 25th complaint by Cellular Communications Equipment v. ZTE.  CELLULAR ZTE SAFE STORAGE HUAWEI

 ANTITRUST—PROPOSAL TO QUINTUPLE DAMAGE AWARDS IN CARTEL CASES

If Chinese respondents believe that triple damages are unfair, two antitrust professors are claiming that Congress should revise the law and provide 5x or quintuple damages for price fixing.  See the attached article, Cartels as Rational Business Strategy: Crime Pays by John M. Connor and Robert H. Lande.  QUINTUPLE ANTITRUST AWARDS

The two professors state at page 479 of their article:

“Perhaps the most straightforward policy conclusion that follows from our study would be to quintuple the overall current U.S. cartel sanction levels. A modest, ultra-conservative step in the right direction would be to double the average sanction level.”

SECURITIES

CHINESE GOVERNMENT AGREES TO RELEASE AUDIT DOCUMENTS TO SEC

On July 12th following the Strategic and Economic Dialogue talks led by U.S. Treasury Secretary Jack Lew, the Treasury Department announced that the Chinese government has agreed to turn over audit paperwork to the US Securities and Exchance Commission and the Public Company Accounting Oversight Board. China has also agreed to work with the United States to develop a cooperative process governing how the two nations oversee auditing foreign-listed companies.

The Chinese government has repeatedly resisted requests from the SEC and US regulators seeking the power to inspect Chinese auditing firms. The agreement between the two governments to protect investors and combat fraud comes following several high-profile accounting scandals, that have led to enforcement actions against fraud.

As Treasury Secretary Jack Lew stated on July 11th in the attached announcement:

“China’s securities regulator announced that it will begin providing certain requested audit work papers to our market regulators, an important step towards resolving a long-standing impasse on enforcement cooperation related to companies that are listed in the United States.”  TREASURY SECRETARY ANNOUNCEMENT PAPERWORK

CHINA MEDIA SEC COMPLAINT–SEC CROSS BORDER WORKING GROUP

Attached is a June 20th complaint filed by the U.S. Securities and Exchange Commission (SEC) against China Media Express Holdings Inc. in Washington DC federal court accusing the advertising company of fraud in grossly exaggerating its finances.  CHINA MEDIA COMPLAINT  The SEC complaint follows class action lawsuits against China Media Express.

The complaint alleges that China Media Express “massively overstated its cash balances” after it entered the public market in 2009, touting balances that overshot reality by 452 to over 40,000 percent.

This complaint is the latest product of the SEC’s Cross-Border Working Group, which cracks down on foreign-operating companies that are publicly traded in the United States.  Probes led by the Group have produced fraud cases against more than 65 foreign issuers or executives and forced more than 50 companies to de register securities.

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEVELOPMENTS–TRADE, SOLAR CELLS, WINE, PATENTS, ANTITRUST AND SECURITIES

Dear Friends,

Mao Tomb from Qianmen Gate Tiananmen Square Beijing China NightThere have been some new developments in the trade, solar cells, 337/patents, antitrust and securities areas.

TRADE

SOLAR CELLS NEGOTIATIONS

The Solar Cell case has really heated up as the EC issued on June 4th a preliminary antidumping decision on Solar Cells from China with a preliminary antidumping rate of 11% that would escalate by August 5th to a rate as high as 67.9%.  See the attached decision by the EC in the Solar Cells case. EC PRELIMINARY ANTIDUMPING DECISION SOLAR CELLS

In response, the Chinese government initiated an antidumping and countervailing duty case against Wine from the EC.  See article below.

In the United States, on June 6th, Deputy National Security Adviser Michael Froman testified on Capitol Hill at his nomination hearing that he supports a global settlement to the Solar Cell war.  Froman testified that the Administration had reached out to China and the European Union to explore a possible negotiated settlement.  Apparently, any agreement would involve the whole supply chain of the solar industry, ranging from the polysilicon producers to the manufacturers of solar panels and solar installers who are using the products.

After the hearing, Wyden said it is critical to have a global solution because the “whole future of solar production [in the United States] is on the line.”

The USTR nominee conveyed a similar message in a written response to a question on this topic from Sen. Maria Cantwell (D-WA). “I assure you that this [solar dispute] is an urgent matter and that if confirmed, USTR will explore all avenues to attempt to address this matter,” he wrote.

Cantwell, in her question, noted that China plans to make a decision in its trade remedy case against U.S. exports of polysilicon, a raw material used in the production of solar cells, “in the coming weeks.” Some industry observers say the push for a negotiated solution comes from the U.S. makers of polysilicon, which are hurt by the Chinese trade case.

EC officials have stated that this phased in approach of antidumping duties in their Preliminary Antidumping determination avoids disruption in the EC market, but also provides China with a clear incentive to negotiate.  In the past, EU officials have shown little enthusiasm for including the U.S. in any negotiated settlement on the solar cases for fear it will dilute their leverage over China to negotiate an acceptable deal.

On June 5th, Coco Liu in an article in Climate Wire, entitled “TRADE: E.U. softens its tone in Chinese solar case, but trade tensions remain” stated:

“Although the European Commission has the final say on trade issues, it does not want to be seen as acting against the interests of member states.  The lower initial tariff also reflects the European Union’s desire to avoid a trade war with its second largest trade partner, China. As the solar trade case will affect Chinese exports worth more than $20 billion and more than 400,000 domestic jobs, the Chinese government made it clear that it won’t stand by without reacting. . . .

Chinese politicians and industry groups have been in talks with their European counterparts since the trade dispute was sparked, but their negotiations often turned into mutual recriminations. If both sides fail to reach an agreement this time, the tariff will be raised to 47.6 percent on Aug. 6. That means the Chinese solar industry will face a killing blow from its biggest customer.

“Chinese solar manufacturers have a chance to compete in the European market as long as the tariff is below 15 percent,” said Steven Han, analyst at U.S.-based consultancy Solarbuzz. “But if the tariff is being raised, their market access to the E.U. market will cease to exist.”

Another chance for the Chinese to talk off the tariffs is December 2013, when the European Union makes its final decision whether or not to set the punitive tariffs for five years and at what rate. But Han doubts Chinese solar companies could survive into that time.

Overcapacity and a ferocious price war as a result have already driven the Chinese solar industry to a breaking point, forcing many small factories out of business and leaving industry giants with red ink in their financial reports  . . .The E.U. decision is seen as the straw that broke the camel’s back.

The Alliance for Affordable Solar Energy, a coalition of more than 400 companies in the European solar industry, says that its members’ already thin profit margins are also at risk due to the E.U. decision.

“We need to be clear about one thing: The current market development leaves no room for price increases. Therefore already duties as low as 11.8 percent will put a halt to most of the PV projects in the E.U. and cause severe damage to the European solar value chain,” the association said in its statement issued yesterday.”

See article at www.eenews.net/cw.

 

As indicated in past posts on this blog, in a March 2013 hearing of the Senate Finance Committee, Subcommittee on Trade, Senator Ron Wyden, the Chairman and the political supporter of Solar World, pressured Acting USTR Demetrios Marantis for a global agreement in the Solar Cells situation. The US Solar Cells Trade case has not worked and has not protected the US domestic industry. Prices for solar cells in the US have only gone up by $3. Also in response to the US case, the Chinese Government has brought an antidumping and countervailing duty cases against $2 billion of imports of US produced polysilicon, which goes into the Chinese solar cells. So Senator Wyden has created a fire storm.

In response, the US and EC have decided to try and negotiate settlements with China in the Solar Cells case involving roughly $30 billion a year in solar panel shipments to both the US and the EC. The strategy is to essentially carve up the global solar panel market into regional markets. This would have the effect of driving up the prices for Chinese solar panels by requiring Chinese companies to charge higher prices and limit the total number of solar panels that they ship. In return, the Chinese companies would no longer be charged the steep antidumping and countervailing duties against their solar cells.

Francisco Sanchez, the under secretary of commerce for international trade, recently visited Beijing to discuss this issue along with a number of other issues. The US Administration is just in the early stages of sounding out Congress on the terms of a possible settlement.

A negotiated deal would close the third country loophole, although there is no third country loophole with regards to the EC. The third country loophole allows China to export solar cells produced in third countries, such as Taiwan, in panels and modules produced in China to the United States. A negotiated settlement would also result in the removal of Chinese antidumping and countervailing duties on US and EC produced polysilicon.

Negotiations with China are still in a very early stage, so it may take several months before a final deal, if any, is struck. It is also possible that no deal will emerge at all.

Both Chinese, EC and US officials indicate that they want a deal, but any negotiated settlement could be difficult. EC negotiators have already met three times with Chinese officials at the request of the Chinese side, but at none of these meetings has China put forward any plan to limit export volumes or raise prices.  According to EC officials, however, the negotiations could not really start until the Preliminary Determination was issued, which just happened on June 4th.

In the EC when the Solar Cells case was first brought, Chancellor Merkel indicated that this trade fight should end in a negotiated settlement.  Thus, Germany and a number of other EC countries have indicated their opposition to antidumping and countervailing duty orders against solar cells from China.  France, however, supports the EC antidumping and countervailing duty cases against Solar Cells from China.

In US Antidumping and Countervailing Duty cases, however, an agreement is usually struck before the orders are issued–called a Suspension Agreement. As a result of the negotiated deal, the antidumping and countervailing duty investigations are “suspended” before the orders are issued. In the Solar Cells case, therefore, normally any Agreements would have had to be negotiated before the orders were issued. Thus, it will be interesting to see if the US government goes forward, how it will craft a settlement with China in this situation.  The US government might have the Petitioners withdraw their petition in return for a negotiated settlement.

With the US Congress involved, however, anything is possible.

ALUMINUM EXTRUSIONS

The Commerce Department on Tuesday, June 7th, issued preliminary determinations in the first review investigations on Aluminum Extrusions from China.  See the Attached Determinations.  AluminumExtrusions.PrelimNotice.signed   FR UNPUBLISHED SIGNED OCR PUBLIC This case has become very important because Commerce has expanded the antidumping and countervailing duty orders on aluminum extrusions to cover many downstream products, including jungle gyms, auto parts and curtain walls, the sides of buildings.

In the initial investigation, the Commerce Department set a countervailing duty cash deposit rate of 374%, but through a series of appeals in the McLain Fogg case that cash deposit rate was reduced to 137%.

As US importers know, however, the really important decision is the Commerce Department’s final determination in the review investigations, because that decision determines the actual antidumping and countervailing duties that US importers have to pay.  If the rates go up in an antidumping or countervailing duty review investigation, the US importers are retroactively liable for the difference plus interest.  If the rates go down, however, the US importers get back the difference plus interest.

These June 7th preliminary determinations by the Commerce Department are the first indication of what the actual liability for US importers will be and there is some good news.

As indicated in the attached preliminary determinations, the Antidumping rate basically stayed the same as the rate in the initial investigation at 32.79%, but the countervailing duty rates for most Chinese companies fell from 137% to 12.57% in 2010 and 20.75% in 2011.  There will be a set off between the antidumping and countervailing duty rates so there will be some changes later on.

This means that a US importer that imported $100 of aluminum extrusions in 2011, will probably owe a final amount of $32 plus to the US government.

It should be noted that some Chinese companies received antidumping and countervailing duty rates as low as 0 to 1%, where certain Chinese companies were hit with a countervailing duty rate as high as 170%.  A US importer, therefore, should look at the attached notices to figure out which company has which rate.

These rates also will change in the Commerce Department final determinations and those rates then can be appealed to the Court of International Trade and Court of Appeals for the Federal Circuit.

Keep in mind these new rates only apply to the Chinese companies that requested a review investigation.  If there was no request for the review investigation, the China wide CVD rate will be the rate from the Initial Investigation, which is still on appeal to the Court of Appeals for the Federal Circuit.

In the first review investigation, probably because of the high 374% CVD rate, the Petitioner did not request review investigations of many Chinese companies.

In contrast to the first review, however, in the 2012-2013 Antidumping and Countervailing Duty Review Investigations that just started, the Petitioners have requested a review of almost all the Chinese companies that were involved in exporting products to the United States.

IMPORTERS’ LOBBYING COALITION AGAINST EXPANSION OF ANTIDUMPING AND COUNTERVAILING DUTY LAWS AGAINST CHINA

We continue to put together a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.  In particular, we will be trying to educate the US Congress and Administration on the damaging effects of the US 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.

13 US importers in a number of different industries have joined the Coalition, but we continue to search for additional members.  If anyone is interested in such a Coalition, please feel free to contact me.

CHINESE ANTIDUMPING AND COUNTERVAILING DUTY CASES

WINE FROM THE EC

On June 5th, the Ministry of Commerce in Beijing (“MOFCOM”) announced that it was initiating an antidumping and countervailing duty case against wine from the EC.  Coming just after the EC preliminary antidumping determination in the Solar Cells from China case, many commentators speculated that the Wine case against the EC was retaliation against the EC Solar Cells decision.

Thus the UK Telegraph stated in an article on June 5, 2013:

“China has launched a trade probe against European Union wine imports, a day after Brussels imposed stinging duties on its solar panels, as it emerged that the commissioner leading the EU probe could personally be hit by any Chinese penalties. . . .

In a move that will increase tensions between two of the world’s biggest trading blocs, the commerce ministry in China said the government had begun an anti-dumping and anti-subsidy probe into EU wines at the request of Chinese wine manufacturers.

The Chinese move targets France, one of the countries that supported the commission’s tariffs on Chinese solar panels, levies that were opposed by Germany and Britain. . . .

In an added twist, Karel de Gucht, the EU trade commissioner who hit China with the solar panel levies, is himself a wine producer. He owns the Tuscan vineyard that produces “La Macinaia”, a Chianti Classico that retails in Belgium at €22,49 a bottle.

Italy and Spain, which both supported the solar panel tariffs, will have exports worth €77 million and €89m potentially covered by any Chinese measures against European wines. . . .

The French trade ministry has condemned the Chinese move and warned of an escalating trade war if Beijing did not follow WTO rules procedures. . . .”

On June 6th, a Chinese newspaper, Xinhua, reported that the Chinese trade investigation of EC wine imports was not retaliation against EC because of the EC Solar Cells determination:

“China’s trade investigation of wine imports from Europe is not retaliation against European Union’s (EU) decision to impose punitive tariffs on China’s solar panels, a spokesperson of the Chinese Mission to the EU said Thursday.

“China has long been exercising restraint in adopting trade remedy measures despite of clear evidence for the EU dumping and subsidizing certain exports to China,” the spokesperson said in a statement.

The investigation launched by the Ministry of Commerce (MOC) of China is in response to requests and complaints from Chinese wine producers, the spokesperson said.

“The decision complies with the World Trade Organization (WTO) rules and China’s anti-dumping and countervailing regulations. Such regular investigation should not be regarded as retaliation,” the spokesperson stressed.

The statement came a day after China decided to begin an anti-dumping and anti-subsidy investigation into wines imported from the EU.

China’s wine producers filed a petition to the ministry last year, calling for probes into the EU’s dumping of wine that received unfair government subsidies and was damaging China’s wine industry, according to the ministry Wednesday.

The MOC said China has always been cautious about the use of trade remedy measures, and the ministry has observed that wine imports from the EU has (sic) risen at a high speed in recent years and will carry out a strict investigation according to relevant laws.”

CUSTOMS FRAUD

On June 10, 2013, Hartford Insurance filed a complaint against one of the US Honey companies involved in the Honey Antidumping Evasion Scheme, asking the Illinois Court for a declatory judgement that it does not have to pay for the class action lawsuit from the duty-evasion scheme.  Hartford argues that Groeb Farms, the defendant, breached various aspects of the insurance policies it signed, because it knew about the fraud problems when it signed the insurance policies.

See attached complaint.  HARTFORD COMPLAINT

PATENTS

 337

On June 7th the Court of Appeals for the Federal Circuit issued the attached decision in Interdigital Communications v. ITC reversing the Commission’s decision in the 337 Case in Certain Wireless Devices.  In that case, the ITC dismissed the 337 Case against LG based on an arbitration clause.  CAFC DECISION LG

CRAWLER CRANES NEW 337 CASE AGAINST CHINA

On June 12th, a new section 337 case we filed against Crawler Cranes from China.  See the notice below.  A short form of the Complaint is attached. Certain Crawler Cranes Short Version PUB Complaint-6-14-13

Docket No: 2960

Document Type: 337 Complaint

Filed By: Mark. L. Whitaker

Firm/Org: Baker & Botts

Behalf Of: Manitowoc Cranes LLC

Date Received: June 12, 2013

Commodity: Crawler Cranes

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 Crawler Cranes and Components Thereof. The respondents are: Sany Heavy Industry Co, Ltd., China and Sany America Inc., Peachtree City, Georgia.

PATENT CASES

SUPREME COURT HOLDS THAT GENES CANNOT BE PATENTED

Attached is the June 13th decision of the Supreme Court holding unanimously that Myriad cannot patent DNA itself, because that falls within the law of nature exception, but that cDNA is not a product of nature and can be patented.  SUPREME COURT GENE OPINION

PATENT COMPLAINTS

Two patent complaints have been recently filed against Chinese companies—a May 31, 2013 case—Emerson Electric Co. v. Suzhou Cleva Electric Appliance Co. and another  June 4, 2013 case filed by Patentmarks Communications v. ZTE (USA).  SUZHOU PATENT CASE ZTE PATENT CASE

ANTITRUST

VITAMIN C

On June 3, 2013, North China Pharmaceutical Group and Hebei Welcome filed the attached reply brief in an attempt to toss out the $153 million damages award in the Vitamin C price fixing case.  The companies argued that the Act of State doctrine was designed to block the kind of case made by Plaintiffs at the trial.  This argument was previously rejected by the Court in a September 11, 2011 Summary Judgment determination by the Court.

See the attached reply brief and September 11th decision by the Court. vitamin c response  SEPT 11 VITAMIN C DECISION

It should be noted that a jury in March awarded plaintiffs $54.1 million in damages, which was tripled to $162 million, but former defendants had paid the remaining $9 million in settlement of the trebled award lowering the total amount due from the remaining defendants from $162 million to $153 million.

SECURITIES

CHINA ELECTRIC MOTOR

On June 3, 2013, a California Federal District Court agreed to a $3.7 million settlement of a securities class action alleging China Electric Motor Inc. made misleading statements in its initial public offering documents.  The Court found the deal was fair and reasonable for investors.

The agreement resolves one of numerous securities fraud suits filed against U.S.-Iisted Chinese companies since 2010.

See the attached settlement. CHINA ELECTRIC SETTLEMENT

SHELL COMPANIES

On June 3, 2013, the US Securities and Exchange Commission (“SEC”) suspended trading in 16 dormant shell companies, whose stocks could be used in fraud schemes.  See attached announcement.  SHELL COMPANIES ORDER  This was the second-largest suspension in SEC history.  One of the companies was China Renyuan International, Inc.

The SEC said an analysis by its Microcap Fraud Working Group found that the companies were delinquent in their public filings and appeared to no longer be in business, raising the risk that their securities could be used in pump-and-dump schemes.

In a pump-and-dump scheme, fraudsters will purchase shares of a thinly traded company, tout the firm to investors through false and misleading statements, and sell the stock for significant profit once investors buy in.

“Stock manipulators crave empty shell companies that they can use to conduct pump-and dump schemes and line their pockets with illicit trading profits by taking advantage of unsuspecting investors,” said Andrew J. Ceresney, co-director of the SEC’s Division of Enforcement. “We will aggressively suspend trading in such empty shells to take away a tool of their trade and help rid our markets of fraud.”

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

Best regards,

 

Bill Perry

US CHINA TRADE WAR–TRADE, PATENTS, SECURITIES, ANTITRUST

Jackson Statue Lafayette Park Monument White House After Snow WaDear Friends,

Over the last week, there have been major developments in the Trade, Patents, Securities and Antitrust areas.  The beat of the US China Trade War goes on.

 

TRADE

SOLAR CELLS

Commerce has referred a number of Chinese exporters and US importers to Customs for evasion of the Antidumping and Countervailing Duty Orders through the Third Country Solar Cells issue.  See attached document.  PUBLIC VERSION Solar Cells Referral to CBP  In fact, we are working with one importer now because Customs is requiring the importer to prove that all the solar cells in the Chinese panels and modules are foreign solar cells and have not been commingled with Chinese solar cells.

STEEL SINKS

Unfortunately, the ITC reached an affirmative injury determination in the Steel Sinks case, ignoring the “but for” standard, the higher causation standard set in the Wood Flooring appeal.  The major reason for the loss in this case, however, was the failure of US importers and Chinese producers/exporters to participate in the case.  They gave up too soon.  Attached are the antidumping and countervailing duty orders that were issued in the case.  SINKS AD ORDER FED REG   SINKS CVD ORDER FED REG

COMMERCE DEPARTMENT RULE CHANGE

Attached is a revision to the Commerce Department’s antidumping and countervailing duty regulations regarding the submission of factual information, including surrogate value information, on the record at the Commerce Department, which was published April 10, 2013 in the Federal Register.  COMMERCE RULES CHANGE ON SURROGATE VALUES  The most important change apparently is the decision of the Commerce to eliminate the opportunity to submit surrogate values after the preliminary determination.

This is a real blow to US importers and Chinese producers/exporters because often the Chinese respondents have no idea what critical value Commerce will use until they see the Commerce Department’s preliminary determination.  If, for example, Commerce uses an aberrational surrogate value for a specific raw material input in the preliminary determination, the US importer or the Chinese company had the opportunity to get a more reasonable value and put it on the record.  No longer.

By the way, Commerce’s argument that Petitioners or respondents could not comment on the submission of the surrogate values after the preliminary determination is bogus.  Generally, Commerce takes another 6 months after the preliminary determination to issue its final determination and during that period both Petitioners and Respondents submit case and rebuttal briefs and attend a hearing at Commerce.

Now the chance to counter an aberrational surrogate value has been eliminated making it even more difficult for US importers and Chinese producers/exporters to get a fair determination at the Commerce Department.

CUSTOMS FRAUD

HONEYGATE– HONEY TRANSSHIPMENT

Attached is an article about the Customs fraud investigations in the transshipment of Chinese honey around US antidumping orders.  Honeygatel  The author is Michael Coursey, at the Kelley, Drye law firm.  Mike and I used to work at the Commerce Department together. Mike represents the US producers in the Honey, Mushrooms and Garlic from China antidumping cases so understand that he is looking at antidumping cases from a domestic producer’s point of view.

The point of the article, however, is that US producers are pushing for Customs investigations against transshipment around antidumping orders, and Customs is taking these investigations very seriously. As Mike states in the attached article as just one example of the Customs investigations listed in the Article:

“ICE’s undercover investigation also led to it to uncover another major player in Honeygate: Jun Yang, a wealthy Chinese businessman and purported pillar of the Houston, Texas community who served on advisory boards to the Mayor of Houston and hobnobbed with the rich and famous. Yang is believed to be involved in efforts to avoid dumping duties through the “new shipper” administrative review process at the Commerce Department. Specifically, Yang made millions as owner of honey and seafood importer National Commodity Corp. by brokering sales to Honey Solutions and others of honey that was adulterated or mislabeled as being from India and Malaysia when it really came from China. Yang has agreed to the prosecutors’ recommendation for a 74-month prison sentence, imposition of a $250,000 fine and restitution of $2.64 million. The judge has not yet ruled on the plea agreement. . . .”

“In addition to Honeygate, there is an increasing trend of the U.S. Department of Justice (DOJ) and private citizens fighting customs fraud under the False Claims Act, which allows private citizens to sue on behalf of the United States and share in any recovery if they provide the government with the necessary information and evidence. The first phase of Honeygate marked the DOJ’s first use of Sarbanes-Oxley’s criminal obstruction of justice statute, which includes a 20-year incarceration penalty per offense, in the Alfred L. Wolff prosecutions.

This trend has continued in other customs fraud prosecutions of importers that falsify entry documents and cover-up such fraud in order to avoid paying millions in customs duties.  Much of this area is still evolving, with at least four U.S. federal circuit courts currently split as to whether certain customs fraud and smuggling laws are just civil or also criminal in nature.”

In talking to Mike, he also told me that he is behind the effort to go after the US insurance companies that posted new shipper bonds for Chinese producers/exporters.  Mike estimated that the liability for one US insurance company is close to $200 million.

Attached is also another article about the Honeygate Customs fraud cases.  CANADIAN FOOD WHOLESALER HONEY GATE

PATENTS

HAIER

Attached is a patent complaint that was filed on April 8, 2013 by Guardian Media Technologies against Haier, Desay, Lasonic, Digway, Veehom, Denca and Express Way Ltd. for infringement of certain patents for TVs and DVD players.  HAIER CASE

HUAWEI

Another patent complaint was filed on April 11, 2013 against Huawei by Media Digital.  HUAWEI PATENT MEDIA DIGITAL

337 CASES

A new section 337 case was filed on April 3rd against China on Linear Actuators.  If anyone wants a copy of the complaint, please feel free to contact me.  The notice is below:

Pending Institution

Docket No: 2949

Document Type: 337 Complaint

Filed By: Gorman & Williams

Behalf Of: Okin America Inc. and Dewert Okin GmbH

Date Received: April 3, 2013

Commodity: Linear Actuators

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 Linear Actuators. The

proposed respondents are Changzhou Kaidi Electrical Co. Ltd., China and

Kaidi LLC, Easton Rapids, MI.

SECURITIES

FARRIS ARTICLE—DELAWARE COURT DECISION ON ZST DIGITAL NETWORKS

On April 9, 2013, Ted Farris, an international capital markets partner in our New York office, authored an article about Deutsch v. ZST Digital Networks, Inc. (Del. Ch. C.P.A. No. 8014-VCL, March 28, 2013), in which the Delaware Chancery Court authorized seizure of a Chinese company’s assets and a court ordered shareholder buy-out in what should have been a simple books and records case. See attached order.  ZST ACTUAL ORDER  Ted Farris specializes in assisting Chinese companies, acquirers and special committees in considering an exit from U.S. regulatory and reporting requirements in going dark and going private transactions, including delistings from US stock exchanges.  As Ted states in the Article:

 

“Delaware Court Authorizes Seizure of Chinese Company’s Assets in Books and Records Case

China-based companies incorporated and publicly traded in the United States have received another harsh blow from the Delaware Court of Chancery, which appears to be losing patience with failure of Chinese companies to comply with Delaware corporate-law requirements. In Deutsch v. ZST Digital Networks, Inc. (Del. Ch. C.P.A. No. 8014-VCL, March 28, 2013), China-based ZST Digital failed to comply with a December 2012 default judgment ordering it to produce corporate books and records to a U.S. shareholder in Delaware pursuant to Section 220 of the Delaware General Corporation Law. On the shareholder’s motion, Vice Chancellor J. Travis Laster held the company in contempt of court, granted the U.S. shareholder the right to put his shares back to the company at a price based on book value derived from its last SEC financial report, and appointed a receiver for the Chinese company’s assets to enforce the court orders, including payment of the put price. Although, as a practical matter, it may be extremely difficult for the receiver to reach the company’s assets which are all in China, the case unveils a potentially powerful new weapon to enforce U.S. corporate-law standards on Chinese companies that are incorporated in the United States and have shares traded in U.S. markets. The ruling may further encourage China-based companies to consider exiting U.S. securities markets.

Stonewalling a Books and Records Request

ZST Digital is a China-based company that was incorporated in Delaware in 2006. Its business operations are entirely in China where it is engaged in supplying digital and optical equipment to cable equipment operators, including internet-enabled set top boxes, primarily in Henan Province. ZST Digital’s common shares became publicly traded through a 2009 share exchange that was accounted for as a reverse merger. The company filed reports with the Securities and Exchange Commission until August 2012, when it “went dark” by filing a Form 15 with the SEC to terminate its reporting obligations under the Securities Exchange Act of 1934. However, its shares continued to trade in the over-the-counter market. The company’s last SEC filing, its Form 10-Q for the quarter ended September 30, 2011, claimed total revenue exceeding $125 million for the nine months ended September 30, 2011. After that filing, ZST Digital ceased filing financial reports with the SEC. In addition, BDO, the company’s auditor resigned in March 2012, and the company claimed it was therefore unable to provide audited financial statements (although it subsequently hired a new auditor). The company’s share price declined from a high of approximately $11.00 in January 2010 to $1.30 per share in April 2013. The stock’s current 52-week range as of April 5, 2013 was from $6.76 to $0.31 per share.

Peter Deutsch, a ZST Digital shareholder who claimed to own more than 3.9 million shares, brought an action in the Delaware Court of Chancery after ZST Digital “went dark” seeking access to the company’s books and records under DGCL Section 220.  Prior to the lawsuit, the company’s counsel at Pillsbury Madison & Sutro LLP had responded by letter offering access to the books and records at the company’s principal office in China, a common response by China-based companies to such a request. Deutsch was not willing to travel to China to see the documents and filed suit demanding that they be produced in Delaware or New York. ZST Digital ultimately failed to respond, and a default judgment was entered on the Section 220 claim in December 2012.

The default judgment ordered ZST Digital to produce books and records in the State of Delaware that included extensive financial disclosures and company strategic plans, including any plans to “go private.” The court rejected the company’s request that Deutsch travel to China to inspect the information. When ZST Digital failed to comply with the terms of the initial order, Deutsch filed a motion against the company for contempt of court, for grant of a put right at the fair value of his shares and for appointment of a receiver. Vice Chancellor Laster granted the plaintiff’s motion for contempt and also granted Deutsch the extraordinary and unprecedented right to put his shares of ZST Digital back to the company at their supposed book value of $8.21 per share (at a time when the shares were trading for only approximately $1.39 per share).

The value of the court-ordered buy back exceeded $30 million and was based on the Company’s book value derived from the balance sheet included in its last-filed Form 10-Q report for the quarter ended September 30, 2011. The court further ordered the appointment of a receiver for the company’s assets for the purpose of enforcing the court’s orders, including the put right, and ordered ZST Digital to pay all costs and expenses of the action, the receivership and enforcement of the court’s orders. ZST Digital has so far failed to respond to the court’s orders.

In his court filings, Plaintiff Deutsch alleged that ZST Digital and other Chinese companies have “gone dark” and ceased filing reports with the SEC in order to lower their stock prices and make a “going private” transaction less expensive. The court-ordered buy-out option requested by Plaintiff Deutsch was based on court-ordered buy-outs in the context of closely held corporations. Plaintiff conceded the unprecedented nature of the “put” remedy in the public company context. The court’s order will effectively prevent ZST Digital from undertaking a “going private” transaction as many other Chinese companies have done over the last several years. (More than 100 Chinese companies have “gone dark” or “gone private” since January 1, 2008.)  Any effort to cash out U.S. shareholders now would undoubtedly face substantial court obstacles given Deutsch’s put right and the receivership order. What impact this will have on the company’s U.S. shareholders remains to be seen.

As ZST Digital has simply failed to respond to the lawsuit, Deutsch’s extraordinary legal victory may have little practical impact so long as the company stays out of the United States and does not attempt a transaction with its U.S. shareholders. ZST Digital has no U.S. assets for the receiver to seize and has so far shown no inclination to pay the put price required by the court’s order. Nevertheless, the case shows that the Delaware courts are willing to use every conceivable remedy against a Chinese company that they perceive as having flouted court orders and ignored the corporate-law rights of U.S. shareholders. The decision leaves both ZST Digital and its shareholders in limbo.

Conclusion

Chinese companies have often attempted to stonewall U.S. shareholders of their Delaware-incorporated entities under DGCL Section 220 by insisting that U.S. shareholders travel to China to inspect books and records. Vice Chancellor Laster made clear that shareholders can insist on such production in the State of Delaware. Further, the list of documents ordered to be produced under DGCL Section 220 was extremely broad and included detailed financial and strategic information even though ZST Digital was no longer required, as a matter of U.S. securities law, to file any reports or disclose information under SEC reporting requirements. In the absence of a confidentiality agreement with a shareholder, this kind of material, nonpublic information could not, as a practical matter, be disclosed to one shareholder (who might freely trade on it) without making that information available to all shareholders through a public announcement.

If Delaware courts can really require public disclosure of financial information by non-reporting companies pursuant to a shareholder demand under DGCL Section 220, this section could in theory be used to defeat a company’s purpose in “going dark” by deregistering under the Exchange Act. Nevertheless, the extreme remedies of granting a put right (in effect a court ordered buy out), appointing a receiver and effectively requiring public disclosure of financial and strategic information by a publicly traded company may reflect the unusual facts of the case. There is no question that ZST Digital’s refusal to participate in the case and its repeated defaults in responding to court orders motivated Vice Chancellor Laster in shaping these extraordinary remedies. If ZST Digital had instead made an appearance, contested the matter and offered some compromise proposal on the information requested, it could almost certainly have obtained a better result for the company that would not have limited its future flexibility in dealing with U.S. shareholders.

Still, the ZST Digital case means that Chinese companies would be well advised to pay more attention to U.S. legal risks given the Delaware courts’ increasingly tough stances in these areas. It is no longer sufficient for U.S.-incorporated Chinese companies to “go dark” and then ignore compliance with basic requirements of U.S. corporate law. The Delaware courts are not likely to give such companies the benefit of the doubt any longer (if they ever did), and other states regularly follow Delaware’s lead in matters of corporate law.

China-based companies with shares trading in U.S. public markets should carefully consider the implications of the ZST Digital case as part of their determination of whether to remain trading in the United States or to consider an exit through a “going private” transaction.”

 

Attached also an article from “Theasset.com” quoting Mr. Farris on this issue.  FARRIS QUOTE

LONGTOP—DELOITTE

On April 8, 2013, a New York Federal District Court Judge tossed Deloitte out of a class action securities lawsuit against Longtop Financial Technologies for lying to investors and exaggerating the size of its profit margins.  In the attached opinion, the Judge determined that the Plaintiff had failed to sufficiently allege that Deloitte violated federal securities laws in signing off on Longtop accounts between June 2009-May 2011. LONGTOP SECURITIES DECISION TOSSING DELOITTE

CITIC AND PUDA COAL

ON April 8, 2013, a class action securities case was brought in the Federal Court in the Southern District of New York against Puda Coal Inc. and CITIC Trust Co., Ltd.  Attached is a copy of the complaint.  PUDA COAL CITIC

The complaint alleges that CITIC is “the largest Chinese private equity fund and merchant bank, which, by means of a transfer of 49% ownership interest and a 51 % pledge as security for a loan, now controls Puda’s sole operating subsidiary and its only source of revenues.”

The complaint further alleges that “this action arises from a fraudulent scheme in which Puda insiders improperly transferred the Company’s only revenue-producing, operating subsidiary to CITIC and then, with the assistance of CITIC, falsely portrayed to investors in Puda that the Company still possessed its operating subsidiary.”

ANTITRUST

VITAMIN C

The Vitamin C case goes on to the next phase.  The first attack is the motion by Plaintiffs to obtain their legal fees from the Chinese defendants.  The legal fees for Plaintiffs could well be in the millions.  See the attached document asking for an extension to file the motion.  VITAMIN C MOTION TO PAY PLAINTIFF’S LEGAL FEES  The Court granted the extension.

This was followed by an April 11, 2013 Renewed Motion by Hebei Welcome and North China Pharmaceutical Group Corp. that the case be dismissed as a matter of law based on state and foreign sovereign compulsion and international comity.  See attached document.  SHORT HEBEI MOTION JUDGMENT  In the motion, the Chinese defendants go into detail as to MOFCOM regulations issued in the late 1990s purportedly giving the Chamber the authority to set up a group to set prices.  The Court has yet to rule on the Renewed Motion.

On April 12, 2013, Plaintiffs filed the attached injunction motion to enjoin the Chinese defendants from operating the cartel and setting the export prices for Vitamin C.  INJUNCTION MOTION  In the Fact Section of the attached motion, Plaintiffs state:

“Evidence admitted at trial established that after Plaintiffs filed their complaint in January 2005, Defendants continued meeting, exchanging information, and reaching agreements with one another. In November 2005, Wang Qiang of Aland wrote that the defendants “should not have any worry” about the lawsuit whether they won or lost, but that they should “do many things in a more hidden and smart way”:

“This act of deciding production or prices based on coordination is a kind of monopoly whatever the reasons. However, I believe we should not have any worry since the Ministry of Commerce is a friend of the court in the lawsuit. If we won the lawsuit, it would be hard for foreigners to make more trouble. Even if we lost the case, government would take the foremost part of responsibility. After all, we need to do many things in a more hidden and smart way.”

. .  . . (“The recent antitrust lawsuit is unprecedented, but we shall not suspend the coordination mechanism of the VC industry in our country”); (noting that “the antitrust investigation was time-consuming” and that “[e]verybody must pay special attention to relevant matters on confidentiality”).

Wang Qi also testified that after the lawsuit was filed, the defendants discussed the need to keep meetings confidential and to be more careful about what was written down.  . . . And Qiao Haili testified that, as a result of the lawsuit, any notes taken by meeting participants “would be torn apart.” . . . .

Eventually, with trial approaching, the meetings to discuss price subsided. At trial, Wang Qi of Aland testified that in the time since his 2008 deposition, his company had stopped meeting with competitors to discuss prices.  . . . He also testified that he would know if such communications were taking place. . . .”

DOJ ANNUAL ANTITRUST REPORT 2013

On April 11, 2013, the Justice Department issued its annual 2013 antitrust report.  In the report, there are two sections of interest to Chinese companies and US importers because it demonstrates how the Justice Department is going after foreign companies for price fixing of export prices using a cartel in the export of products to the United States.  The point is that antitrust cases against foreign cartels are not just aimed at China.

The Criminal Division of the report states as follows:

Liquid Crystal Display Panels

On March 13, 2012, following an eight-week trial, a jury in the Northern District of California returned guilty verdicts against AU Optronics (AUO), a Taiwan manufacturer of liquid crystal display panels, its American subsidiary, AU Optronics America, and the former president and former vice president of AUO for their participation in a conspiracy to fix the price of thin film transistor liquid crystal display panels (TFT-LCD panels).

The jury was unable to return a unanimous verdict as to one of the subordinates charged. It returned not guilty verdicts against two other subordinates.

The guilty verdicts were notable in that the jury determined that the Division had proven beyond a reasonable doubt that the gain derived from the conspirators for sales into the U.S. was at least $500 million. This was the first time that a jury convicted a corporate defendant under the antitrust laws and applied the “twice the pecuniary gain or loss” alternative fine provision of 18 U.S.C. § 3571(d).

On September 20, 2012, AUO was sentenced to pay a $500 million fine and the convicted executives were each sentenced to serve three years in prison. The $500 million fine matches the largest fine ever imposed against a company for violating the U.S. antitrust laws.

The Division successfully retried the third AUO executive, who was found guilty after a three-week trial, on December 18, 2012. Including these trial convictions, the Division’s LCD investigation thus far has resulted in convictions of ten companies and criminal fines totaling $1.39 billion, as well as convictions of 13 executives, and charges against seven additional individuals (one awaiting trial and six who remain fugitives). . .  .

Ongoing Investigations Continue to Produce Results

Auto Parts

The Division is dedicating significant resources to the ongoing automobile parts investigation. To date, this investigation has yielded charges against nine companies and 12 individuals and more than $809 million in criminal fines for participation in conspiracies to fix prices of and rig bids on automobile parts, including safety systems such as seatbelts, airbags, steering wheels, and antilock brake systems, and critical parts such as instrument panel clusters and wire harnesses. Two of the executives charged are Japanese citizens. Each was sentenced in 2012 to serve two years in prison, the longest sentences imposed on foreign nationals voluntarily submitting to U.S. jurisdiction for an antitrust violation. During FY 2012, this investigation also yielded the third-largest criminal antitrust fine ever imposed—a $470 million fine against Yazaki Corporation. The Division continues to cooperate with its counterparts in Japan, Korea, the EC, and Canada, among others, on this investigation.

To date, the following corporate fines have been obtained:

• U.S. v. Yazaki Corporation, $470 million—the third largest criminal fine ever for an antitrust violation

• U.S. v. Furukawa Electric Company Ltd., $200 million

• U.S. v. DENSO Corporation, $78 million

• U.S. v. Fujikura Ltd., $20 million

• U.S. v. Tokai Rika Co., Ltd., $17.7 million

• U.S. v. Autoliv, Inc., $14.5 million

• U.S. v. TRW Deutschland Holding GMBH, $5.7 million

• U.S. v. G.S. Electech, Inc., $2.7 million

• U.S. v. Nippon Seiki Co., Ltd., $1 million

GENERAL LITIGATION PROBLEMS AGAINST CHINESE COMPANIES

In the attached decision, United States v. Pangang Group Company Ltd. and a group of affiliated Pangang companies, a federal judge in California threw out summonses that the Justice Department issued against titanium and steel producer, Pangang Group Co., and related entities in a criminal suit alleging the Chinese state-owned companies stole trade secrets from DuPont Co. by finding that the U.S. government failed to properly serve the defendants.  PANGANG ORDER

Pangang was allegedly aided by former DuPont employee Tze Chao and others in the U.S. who wanted to sell titanium dioxide trade secrets. These include chemical technology company USA Performance Technology and one of its co-owners Walter Liew and his wife Christina.  The Liews were arrested in July 2011 and indicted in August 2011 on charges that they tampered with witnesses, made false statements and attempted to delay the FBI’s effort to uncover the illegal sale of DuPont’s trade secrets to rival manufacturers, including Pangang.

Chao pled guilty in March 2012 to leaking confidential information from documents he reportedly retained after retiring in 2002.  The Liews pled not guilty in April 2012 to charges over their alleged role in the scheme. In February, a magistrate judge ordered Walter Liew to be freed on $2 million bail after 19 months in custody.

If you have any questions about these cases or about these laws in general, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–CHINESE ANTIDUMPING CASE, TRADE, CUSTOMS, ANTITRUST, SECURITIES

Dragon Bronze Statue Gugong Forbidden City Palace Beijing ChinaDear Friends,

There have been more developments in the US China Trade War.

TRADE

TRADE WAR IN PULP, PAPER AND WOOD PRODUCTS

The most important development may be the February 6, 2013 decision of the Chinese government to launch a major antidumping case against the United States, Canada and Brazil on Cellulose Pulp.  The target is estimated to be about $2 billion in exports to China of Cellulose Pulp.

A translated version of the announcement by the Ministry of Commerce (“MOFCOM”) is attached.  2.2Cellulose Pulp Notice of Initiation_EN  The target companies in the US, Canada and Brazil are as follows:

US

Buckeye Technologies Inc

Rayonier Inc.

Cosmo Specialty Fibers, Inc.

Weyerhaeuser Company

GP Cellulose, LLC

CANADA

Tembec Inc

Fortress Specialty Cellulose INC

Neucel Specialty Cellulose Ltd

AV Nackawic Inc.

AV Cell Inc.

BRAZIL

Sateri Holdings Limited

The respondent companies now only have 20 days from the date of initiation or by approximately February 26th to enter a notice of appearance at MOFCOM.

One very important point of Chinese antidumping and countervailing duty law, which is different from US antidumping and countervailing duty law, Chinese Customs will assume that an imported product is in the case if it is imported under specific Tariff Code Numbers in the case.  In the Pulp Case, the specific Tariff Numbers are: 47020000, 47061000 and 47063000.

If an exporter or importer’s product is in the case, the burden is on them to go into MOFCOM and show that their product is out of the case and not covered by the antidumping or countervailing duty order.  A foreign company cannot assume its product is out of the case from the written description if its product is imported under the relevant Chinese HTS numbers

SOLAR CELLS

The Petitioners in the Solar Cells case have appealed the Commerce Department’s antidumping and countervailing duty decisions to the Court of International Trade.  One of the allegations in the complaints is directed at the Commerce Department’s decision to exclude Chinese Solar Panels and Modules when they include solar cells made in third countries.  Attached are copies of the complaints.  SOLAR WORLD AD COMPLAINT SOLAR WORLD COMPLAINT

CUSTOMS— ANTIDUMPING AND CVD COLLECTIONS

Customs has issued a large attached report on trade trends in 2012.  CUSTOMS YEAR END Customs reports that antidumping duties and countervailing duties have increased to record levels based on a record level of imports of $2.4 trillion.  The report states:

“Antidumping duty deposits increased by nearly $43 million to $329 million, a 13 percent increase over fiscal year 2011. Countervailing duty deposits more than doubled from $27 million in fiscal year 2011 to $69 million in fiscal year 2012, a 160 percent increase.”

SENATE LETTER ON MISSING ANTIDUMPING DUTIES

Meanwhile, Congress continues to increase pressure on Customs to collect the missing antidumping duties.  Attached is a February 7, 2013 letter to Customs from Senators Wyden and Thune protesting Customs failure to collect “massive amounts of duties under four antidumping (AD) orders” and, in particular, Customs failure to push the bond insurance companies to pay those missing duties.  SENATE LETTER RE MISSING BONDS FOR AD DUTIES  The letter states in part:

“These orders cover imports of honey, canned mushrooms, garlic and crawfish tail meat from China (Four Orders).  We found CBP’s response deeply troubling and glaringly incomplete. It failed to provide any meaningful answers to our questions about the hundreds of single-entry “new shipper” bonds CBP accepted to secure the payment of AD duties assessed under the Four Orders.

Our request was based on the following, widely-acknowledged facts:

l. According to CBP’s own data, the agency failed to collect almost $1 billion in AD duties assessed under the Four Orders from 2003-2011. It collected less than 10 percent of all duties assessed under those orders during that period.

2. The bulk of these duties are owed by importers who entered goods from exporters that were undergoing “new shipper” administrative reviews under the Four Orders before 2006.

3. Most of those duties are secured by single entry bonds (SEBs), which the importers were required to post with CBP upon entry. Each bond has a face value of two to four times the total value of the covered imports. According to CBP’s own data, the combined value of all SEBs on unliquidated entries from new shipper exporters under the Four Orders totaled $347 million as of Oct. 1, 2007.

This does not include the total value of such bonds that secured the assessed, but unpaid, duties under those orders as of that date.

4. In the wake of the importers’ massive and ongoing defaults, the insurance companies – sureties – that issued the bonds have, with rare exception, refused to pay CBP despite their legal obligation to do so.

5. Prior to the domestic producers’ filing of a lawsuit in April 2009 to compel the sureties to pay under the bonds and CBP to take legal action against the sureties, CBP had not filed a single collections lawsuit against any of the issuing sureties. Subsequent to the dismissal of that lawsuit, CBP has filed only a relatively small number of such actions.

CBP’s apathy in taking actions to collect the duties that the American people are owed is troubling, particularly at a time when the nation faces unprecedented fiscal challenges.  Collecting revenue and enforcing the trade laws is the central mission of the agency, yet the agency appears less and less interested in performing its statutory job. The American people are owed duties that are secured by sureties that issued these bonds. It is your responsibility to collect these substantial funds, which we understand could approach $500 million, without further delay.”

COUNTERFEIT TOYS FROM CHINA 

Attached is a Justice Department announcement of criminal indictment against several individuals and five corporations for importing and selling hazardous toys in violation of the Consumer Product Safety Act (CPSA) and toys bearing copyright-infringing images and counterfeit trademarks, smuggling, and money laundering.  The companies are: Family Product USA Inc., H.M. Import USA Corp., ZCY Trading Corp., Zone Import Corp. and ZY Wholesale Inc.  COUNTERFEIT TOYS

ANTITRUST

VITAMIN C CASE

In the Vitamin C case, one of the defendants, North China Pharmaceutical Group Corp. (“NCPGC”), moved for summary judgment, arguing that it should be dismissed from this litigation.  DISMISSES MOTION TO EXCLUDE CHINA NORTH PHARMACEUTICAL The Court denied the motion, finding that:

“ plaintiffs carried their burden of demonstrating a genuine dispute of material fact with regard to NCPGC’s participation in the alleged conspiracy. Although NCPGC has offered a great deal of evidence that strongly suggests it was not involved in the conspiracy, that evidence is not sufficient to persuade the Court that no reasonable jury could find that NCPGC was a participant in the alleged conspiracy.”

The Vitamin C case is now going to trial after the Court dimissed all efforts of Chinese companies to get out of the case.

SECURITIES

The Corporate/Securities world is abuzz because of a recent bench ruling by Chancellor Leo E. Strine, Jr., of the Delaware Court of Chancery, refusing to dismiss claims alleging that the former outside directors of a Delaware corporation doing business in China had breached their fiduciary duty of loyalty. The plaintiffs claimed that the directors failed their oversight function by not detecting the theft in China of the corporation’s primary assets by the Chairman in China.

Chancellor Strine firmly stated:

“if you’re going to have a company domiciled for purposes of its relations with its investors in Delaware and the assets and operations of that company are situated in China that, in order for you to meet your obligation of good faith, you better have your physical body in China an awful lot.”

The Chancellor further warned that the outside directors “better have in place a system of controls to make sure that you know that you actually own the assets” and “have the language skills to navigate the environment in which the company is operating.”

The case is In re Puda Coal, Inc. Stockholders Litigation, C.A. No. 6476-CS (Del. Ch. Feb. 6, 2013) and involves a US Delaware corporation that is the subject of a Securities and Exchange Commission (“SEC”) enforcement and a federal securities law class action based on fraud.  The auditor found that the company’s chairman had inappropriately transferred the company’s primary operating subsidiary to himself. The SEC suspended trading in the company’s stock, and the outside directors later resigned from the board of directors due to an alleged lack of cooperation from the company in trying to investigate and pursue the company’s claims.

In the Delaware case, the stockholder-plaintiffs alleged that the directors had acted in bad faith by failing to adequately monitor the corporation.  The court held that the former outside directors breached their fiduciary duty of loyalty by failing to discharge their oversight function.  The Chancellor stated that the directors “have a duty not to be dummy directors”

If you have any questions about these cases or the legal areas, please feel free to contact me.

Best regards,

Bill Perry

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