US CHINA TRADE WAR–TRUMP TRADE CRISIS, NAFTA NEAR COLLAPSE, NO FTAS, THIRD COUNTRIES BEAT US OUT ON TRADE DEALS, AD CASES MORE POLITICAL, NO SYMPATHY FOR BOMBARDIER, 201 SOLAR, 301 CHINA, TAA FOR COMPANIES

Winder Building United States Trade Representative Washington DC. United States Trade Representative is chief US trade negotiator. Winder Building created 1848

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 20, 2017

Dear Friends,

Having just returned from a month-long trip to Europe, the trade situation under the Trump Administration has heated up to the boiling point, but the target is not just China.  The Trump Administration appears to be attacking all trade with the firm belief that all prior trade deals that the US entered into were a raw deal.  NAFTA negotiations are at a standstill, and many believe Trump’s real intention is to kill NAFTA.

The United States is at a trade crossroads and apparently Trump and his supporters have decided to become much more protectionist, while the rest of the World is moving to free trade agreements.

As also stated below, directly contrary to statements by Trump supporters, the Trump trade policy is not a continuation of President Reagan’s trade policy.  Although President Reagan took pragmatic trade actions when he had to, he was a strong free trader and we know that was his position because he said so.

President Trump is very protectionist and truly does not want free trade deals.  He ripped up the TPP with no attempt at renegotiation.  He has made such strong demands of Canada and Mexico that he knows they will reject with the purpose of eventually killing the deal.

The decisions on TPP and NAFTA have been taken without any real idea of the negative ramifications, the costs, of terminating these deals on US farmers and corporations, many of which have interconnected supply chains that have been finely calibrated to produce lower cost consumer products so as to be competitive with lower priced imports of that final product from China.  Many believe that the real effect of killing NAFTA will be to move production to China or other lower cost countries.

Moreover, Trump won the election because of rural states and the farmers in those rural states but US agriculture is dependent on exports.  When Trump slams trade, he slams his own constituents, farmers in the rural states, which elected him as President.

One of the other losers in the Trump trade policy besides agriculture will be the high tech companies because these two sectors will bear the brunt of the trade retaliation that is coming.

Trump wants to protect the low tech industry, the Steel industry with its 141,000 jobs and the heck with everyone else.

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

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

Maybe instead of ripping up trade agreements and making US producers less competitive it is time for the United States to find a way to make its companies more competitive in the US and international markets as they exist now rather than erect protectionist barriers to international competition.  Maybe the US should turn to an existing program, which has saved companies injured by imports, the Trade Adjustment Assistance for Firms/Companies program.

Commerce has made antidumping and countervailing duty investigations more political, but the EC wants to change China’s nonmarket economy status to allow a case by case determination.

But there is no sympathy for Bombardier in the Boeing fight at the Commerce Department in Civil Aircraft Preliminary determinations as Bombardier refused to cooperate with the Commerce Department’s antidumping investigation leading to a decision of all facts available.  So there will be no negotiated agreement in that case.  Bombardier has decided to jointly produce the plans with Airbus at its Mobile, Alabama plant, but it is questionable whether that will really work.

The US International Trade Commission (“ITC”) reached an affirmative injury determination in the Solar Section 201 case and now it moves to remedy phase.

USTR has also initiated a section 301 case against forced technology transfers in deals with China, but not many companies showed up for the USTR hearing. This may reflect the point made by my partner, Dan Harris, in his August 30, 2017 article “China US Trade Wars and the IP Elephant in the Room” that many US companies make the mistake of simply handing over their IP rights to Chinese joint venture companies with no protection. The US government cannot protect US companies from stupid mistakes.

Meanwhile, the Section 232 Steel and Aluminum cases remain on hold.

In a decision near and dear to my heart, USTR is charging ahead with a Wine case against BC and Canada at the WTO and now EC, Australia, Argentina and other countries are interested.    Canada and BC’s protectionist position on Wine play right into Trump’s argument that NAFTA is not a free trade agreement.

China has filed an antidumping and countervailing duty case against the United States.  More Antidumping and Countervailing Duty and 337 cases have been filed against China and the trade issue could well become the most important issue in upcoming elections.

If Trump makes unwise protectionist decisions, the US economy will be hurt, jobs will be lost and he will lose in the next election.

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

Best regards,

Bill Perry

TRADE AT A CROSSROADS AND IT’S NOT JUST CHINA

Prior to his election, with Trump complaining during the election about China so many times, many voters would have believed that Trump’s primary target in the trade area would be China.

But nine months after his inauguration, it is becoming clearer that Trump’s real target is trade in general.  We are at a trade crossroads, and the Trump Administration with substantial support from the Democrats apparently has decided to move down a very protectionist road.

Trump and his Administration firmly believe that the United States has gotten a raw deal in all the trade deals it has entered into.  In effect, Trump sees trade as economic warfare and the United States is losing the war.  When economic competition from imports causes problems for US companies, it must be unfair trade caused by unfair trade deals.

Although Trump will mouth free trade, when Trump pulled out of the Trans Pacific Partnership, it was the first Free Trade Agreement that the United States had ever refused to join.  As described below under the Costs article, this action has put US exporters, including farmers, at a distinct cost disadvantage in World markets and caused enormous economic damage to Trump’s own constituents, workers and farmers.  Many experts believe that there is a better than 50% chance that Trump will pull out of NAFTA.  See articles below from Wall Street Journal and John Brinkley at Forbes about the costs of pulling out of NAFTA.

But killing the TPP and potentially killing NAFTA gores the agriculture ox.  This is the one fly in the ointment, flaw in Trump’s entire economic strategy.  If the Trump trade policy hurts farmers, Trump could lose the rural states: Iowa, Kansas, North Dakota, South Dakota, Montana, Wisconsin, Oklahoma, and Arkansas, to name a few and that could lead to Trump’s loss in the next Presidential election.  In contrast to arguments made by Trump supporters, rural states are not just manufacturing, they are farmers, agriculture, and one half of all US produced agricultural prorducts is exported.

In addition to agriculture, high tech companies will also be hit as they are perfect retaliation targets and all the side agreements on digital and IP protection in the TPP Agreement have died and will die.

Trump supporters attack not only the trade deals, but the WTO itself because ceding power in a trade deal or to the WTO is giving away the sovereignty of the US people.  The WTO’s job, however, is to provide a forum for negotiations and adjudication of trade disputes between different sovereign countries.  The United States simply cannot dictate its trade policy to other sovereign countries.  It must negotiate trade agreements.  If that be globalism, then so be it.

The real issue is what is the US interest in trade negotiations.  The trade deals that the Trump supporters attack were negotiated by the US government and then approved by Congress.  Are all treaties that create multi-government organizations as a forum for negotiations and adjudication of international disputes to be attacked because they result in giving away US sovereignty?  If so, the World returns to 1914, World War 1, and the Guns of August.  The United States has to negotiate with other sovereign countries.  And in negotiation with other sovereign countries, the United States does not always get everything it wants to get.  That is the essence of negotiations.

As stated before, the simplistic Trump approach to trade is that the United States is the largest market in the World and countries must kowtow to get into the US market.  But that is no longer true.  The remaining countries in the TPP represent a larger market than the US.  That is why during the push for Trade Promotion Authority in the House of Representatives, House Speaker Paul Ryan stated that 75% of all consumers are outside the United States.

The Trump supporters also look at economic competition as economic warfare and, therefore, the United States must win each trade deal.  But as stated below, President Reagan himself believed that economic competition is good for the United States because it is the essence of free markets.

WOULD PRESIDENT REAGAN HAVE SUPPORTED TRUMP’S ECONOMIC PROTECTIONIST NATIONALISM?—I THINK NOT

One of the basic arguments of the Trump supporters in the Trade area is that Trump’s trade policy is simply an extension of Reagan’s trade policy and, therefore, President Ronald Reagan would have supported the protectionist economic nationalism of Donald Trump.  In effect, these supporters argue all trade deals in the past, including NAFTA and China’s entry into the WTO, were raw deals that hurt the US working man.  These supporters argue that the trade deals are the reason for the loss of millions of US manufacturing jobs and even a major reason for the US budget deficit.  Therefore, President Reagan would have opposed all of these trade deals.

But I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department.  I do not remember the Reagan trade policy in the same way as being overly protectionist.  I remember a President, who was the most Free Trade President of my generation, who firmly believed in the power of the free market and economic competition.  Although President Reagan took tough trade actions as needed, he also knew that in the long run protectionism would not work because the US companies themselves would only become weaker.  Reagan’s real trade policy is indicated by his actual words and actions, not summary statements by conservative pundits.

Reagan also understood that when dealing with trade, we are dealing with the interests not only of the United States, but the interests of other countries.  Although the US should always represent its own interests first, it cannot dictate the outcome to other countries, because it does not have the power to do so.  The EC, China, Mexico, Canada, Japan, and Australia are sovereign countries too, and they have a say in international trade negotiations.

On October 14, 2017, at the Values Summit in Washington DC, Fox Contributor Laura Ingraham stated that Reagan was an economic populist and pointed to the 45% tariff issued by President Reagan in the Harley Davidson Motorcycles case and the large duties of 100% against Japanese electronics, such as semiconductors.  She then argued that President Trump’s stance on trade was simply a continuation of the Reagan trade policy.  See https://www.youtube.com/watch?v=qofqnUHPGnc.

During the speech, Ingraham stated that every Free Trade Agreement must be either rewritten or repealed and that Trump like Reagan understands the working class and the need to protect US industry and jobs.  She pointed to present USTR Robert Lighthizer, the former Deputy USTR under Reagan, as an example of Trump’s sterling trade policy.

But I too worked in the Reagan Administration and later under Robert Lighthizer.  I simply do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it.  In the Harley Davidson Motorcycles case, for example, which happened when I was in the General Counsel’s office at the US International Trade Commission, Harley brought a case under Section 201, the Escape Clause, allowing Harley to get short term temporary protection from imports.  After winning the case and after Reagan issued a temporary tariff on imports of motorcycle subassemblies from Japan (Japanese companies had manufacturing facilities in the US too), Harley after only two years asked the Reagan Administration to lift the temporary tariff because it had adjusted to import competition.

Contrast that tariff relief with the tariff relief provided to Mr. Lighthizer’s client in the Steel Industry—30 plus years of protection from imports from many, many antidumping (“AD”) and countervailing duty (“CVD”) orders issued under US AD and CVD laws.  That is not temporary tariff relief; that is permanent tariff relief.  Despite that protection for decades, the US steel industry has declined with Bethlehem Steel going out of business, just as President Ronald Reagan himself predicted.  Trade protection only slows the decline of industries; it does not cure the disease.

Ms. Ingraham’s speech parallels the statements she recently made in her book “Billionaire at the Barricades”, which articulates very well the thinking and many of the arguments from the Trump Administration and his supporters against trade and trade agreements in general.  In the book, Ms. Ingraham states, “Except for Reagan, all modern presidents of both parties campaigned as populists but governed as globalists.”  And that Conservative Populists “are against huge trade deals and international organizations like the World Trade Organization because they take power out of the hands of voters and give it to a far-away and often hostile global elite.”  Page 43.

Ingraham also attacks all trade deals, especially NAFTA, the North American Free Trade Agreement between Mexico and Canada, and China’s entry into the WTO, along with the WTO itself.  With regards to NAFTA, Ingraham states:

“but Perot and millions of Americans—the kind who don’t worship at the Wall Street Journal’s altar of globalism and internationalism for profit’s sake—knew it was a raw deal for workers and bad for America. The biggest “tell” that NAFTA was going to be a boon for elites and a bust for everyone else was the fact that George H. W. Bush and Bill Clinton (as well as their Donor Class” pals) all supported the monstrosity.”

Billionaires at the Barricades at 313 (footnotes omitted).

According to Ingraham, Clinton promised that NAFTA would:

“create the world’s largest trade zone and create 200,000 jobs in this country by 1995 alone . .  .Clinton not only lied, he made a “pledge” to the American working class who opposed NAFTA that they would receive “gains.”

They received pink slips instead.

The populists’ NAFTA predictions proved painfully prescient. Between 1993 and 2013, the U.S. trade deficit with Mexico and Canada went from $17 billion to $177.2 billion.  . .

The effects on American workers have been even more catastrophic. EPI data concluded that in just 10 years, NAFTA was responsible for displacing 851,700 American jobs. To put that in context, that’s more people than live in Columbus, Ohio. “All of the net jobs displaced were due to growing trade deficits with Mexico”.  .. .The destruction of nearly one million jobs and the implosion of American manufacturing—that’s Bill Clinton’s NAFTA legacy.”

Billionaires at the Barricades at 385 to 389.

But Ingram forgets to mention that since NAFTA was enacted, total trade among these three countries has increased from $290 billion in 1993 to $1.1 Trillion in 2016 and that trade was not solely imports, but also US exports to those countries.  According to the US Chamber of Commerce, six million US jobs are dependent on US trade with Mexico.

Ingraham then goes on to attack the decision to let China into the WTO:

“If NAFTA had unleashed a flood of dangerous economic currents crashing into the American working class, his [Clinton’s] decision to pave the path for China’s entry into the World Trade Organization (WTO) by giving it Permanent Normal Trade Relations (PNTR, now known as Most Favored Nation) status swelled into an outsourcing tidal wave. Millions of American manufacturing jobs were washed out to sea – the South China Sea, that is. . .  .

It is “one of the most important foreign policy developments” if you want to understand the destruction of American manufacturing. It is also “one of the most important foreign policy developments” for understanding how millions of U.S. manufacturing jobs were vaporized in record speed, even as China grew at a steroidal rate of muscular economic growth.

Let’s start with the basics. The World Trade Organization was officially created during Bill Clinton’s presidency in January 1995, but it had existed in other forms since 1948. . . .

“Seventeen years hence, it is difficult to overstate the economic destruction wrought by China’s entry into the WTO and Congress and President Clinton’s decision to grant the Chinese permanent” “Most Favored Nation status. A 2016 analysis published in the Annual Review of Economics concluded that between 1999 and 2011, America lost between 2 and 2.4 million jobs.  Others, like the left-leaning Economic Policy Institute, put the American jobs loss figures even higher at 3.2 million jobs, when calculated between the years 2001 and 2013.50

The brutal economic reality was a cruel reversal of Clinton’s promises: all the gains were on the Chinese side, all “the losses and devastation were America’s. American manufacturing jobs were eviscerated. From 2001 to 2011, U.S. manufacturing jobs plunged from 17.1 million to 11.8 million.51 That’s a loss of 5.3 million manufacturing jobs, a figure that’s nearly the population of the entire state of Minnesota.

The narrowing of the trade deficit between the United States and China never materialized either. To the contrary, it exploded. In 2000, the annual trade in goods deficit with China stood at a towering $84 billion. After Clinton ushered China to the front of the line, the trade deficit more than quadrupled to a jaw-dropping $367 billion by 2015.  The year before America let China join the WTO (1999), the United States accounted for 25.78 percent of world GDP. By 2014, that figure had dropped to 22.43—the lowest it has been in government records going back to 1969, according to the Economic Research Service of the U.S. Department of the U.S. Department of Agriculture. In 1999, China’s annual GDP was $1.094 trillion. In 2015, it was more than $11 trillion. In 1999, the U.S. national debt was $5.7 trillion (the good ol’ days!). Today, after the big government globalist policies of the last several presidents, U.S. national debt stands at a mind-bending $20 trillion.”

Id. at 415, 417, 427-431 (footnotes omitted).

Let me make one point very clear.  The China WTO Agreement is not a Free Trade Agreement.  Before China entered the WTO, it was already exporting substantial exports to the US.  I know because I represented Chinese companies and US importers in many antidumping cases long before China entered the WTO.  What China’s entrance into the WTO allowed the US to do was to gain leverage with China by putting Chinese trade practices into a forum, the WTO, which gave the US the ability to call some of China’s trade practices into account and discipline them.  The United States has brought many cases against China at the WTO and won many and caused China to change its trade practices, but it should be noted that China has brought cases against the US at the WTO, especially in the antidumping and countervailing duty area, and won many too.

As Charlene Barshefsky, the USTR, who negotiated the US China WTO Agreement, recently stated to the Wall Street Journal in answer to the question whether China’s entry into the WTO accounted for its enormous economic growth:

”No, I don’t think he’s right. If you go back to the mid-1990s, you saw a China that was already growing at about 8%, 8.5% a year, with the world’s largest standing army, a nuclear power, a permanent member of the U.N. Security Council, a fifth of the world’s population, a reformist premier, Zhu Rongji, and willing to orient toward the West.

In the course of doing the WTO negotiation, China opened its market. The U.S. didn’t alter its trade regime, nor did any other country alter  its trade regime. As in any WTO negotiation, it is the acceding country that needs to reform its economy.

The key point is that, in the context of a country as large as China entering, were there protections built into the agreement to prevent, for example, unexpected surges of imports? And indeed, there were—a mechanism almost never used by the very industries Steve Bannon is pointing to, although it would’ve been entirely protective of their interests.”

To see what Ms. Barshefsky believes is the real China trade problem see the video at https://www.wsj.com/articles/the-impact-of-china-joining-the-wto-1495504981.

During that interview, Barshefsky pointed to the real China problem.  After 2006 China has shifted to a more protectionist trade policy pushing US and other foreign companies and foreign imports out of China.  The Trump trade policy rightly so could demand more reciprocity from China and demand that China drop its barriers to US imports and investment.

On the other hand, killing all trade with China is not the answer.  Although Ms. Ingraham points to the deficits, China has become the largest importer of US products.  On August 21st, in an editorial entitled “Yes, China Steals U.S. Intellectual Property, But That Doesn’t Mean Trade With China Is A Bad Thing” Investors Business Daily states:

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

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

In addition, when Ms. Ingraham quotes economic data from left leaning groups, she should keep in mind that these groups are very big supporters of labor unions, which provide the backbone of the Democratic Party.  Labor unions traditionally have been very, very protectionist, anti-free market and economic competition, very anti-Republican and very pro- Democratic party.  That is why Senator Chuck Schumer, who Ingraham does not like, supports the Trump protectionist trade policy, but Schumer believes that Trump is not being protectionist enough.   Chuck Schumer’s views are not the views of President Ronald Reagan.

But Ms. Ingraham also states that:

“Trump’s critics would do well to examine the election data on working-class rural Americans—a group who overwhelmingly went for Trump’s message of economic nationalism. Rural voters accounted for nearly one out of five votes in 2016 and were a pivotal part of Trump’s successful Rust Belt strategy. NBC News exit polls revealed that Trump beat Clinton 57 to 38 percent among Michigan’s rural voters (Romney carried the same group but by only seven percentage points). Among Pennsylvania rural voters, Trump destroyed Clinton 71 percent to 26 percent . . ..”

Id. at 1163-1164.

But Ms. Ingraham herself should also watch out because many of those rural voters are farmers and agriculture is dependent on exports.  Those rural voters could turn against Trump and the Republican party and that is why Republican Senators and Congressmen from rural states are so concerned about Trump’s trade policy.  Farmers want trade agreements, even if Trump and his manufacturing supporters do not.  That is why after listening to the complaints of Republican Senators and Congressmen from agricultural states along with complaints of US Ambassador to China and former Iowa Governor Terry Branstad, Trump told Lighthizer in the NAFTA negotiations to do no harm.

In her book, Laura Ingraham points to Reagan’s history, but misses an important point Reagan lived through the Great Depression and he firmly believed that the protectionist policies in the 1930 Smoot Hawley tariff act, which “protected” the US by increasing tariffs on almost every import, made a depression into the Great Depression.  How do I know?  Because President Ronald Reagan said so.

On June 28, 1986, President Reagan from his ranch in Santa Barbara gave the attache speech, BETTER COPY REAGAN IT SPEECH, on International Trade.  This speech is in effect a point by point rebuttal that Reagan was an economic nationalist.  So I would say to Ms. Ingraham to paraphrase Robert Dole, do not distort Ronald Reagan’s record.  I have quoted the entire speech to show that it came directly from President Reagan and is not a characterization.  As Reagan himself stated in the speech:

My fellow Americans:

This coming week we’ll celebrate the Fourth of July and the birthday of the Statue of Liberty, dedicated one century ago this year. Nancy and I will be in New York Harbor for the event, watching fireworks light the sky over the grand old lady who welcomes so many millions of immigrants to our shores. But I’ve often thought that Lady Liberty also represents another symbol of our openness to the rest of the world. With the ships plying the waters of New York Harbor beneath her, she reminds us of the enormous extent of our trade with other nations of the world.

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 flim flammery 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.

And that’s why I wanted to talk with you today about some legislation that the Congress now has before it that is a throwback to the old protectionist days. It greatly cuts down my flexibility as President to bargain with and pressure foreign governments into reducing trade barriers. While this legislation is still pending before the Senate, it has already passed the House of Representatives. So, the danger is approaching. Should this bill become law, foreign governments would respond, and soon a vicious cycle of trade barriers would be jeopardizing our hard-won economic prosperity. Yes, the politicians are back at it in Washington. And should this unacceptable legislation continue to move through the Congress, I’ll need your help in sending them a message. So, please consider our talk today an early warning signal on free and fair trade, a jobs and growth alert. And stand by, I may need your help in resisting protectionist barriers that would hinder economic growth and cost America jobs.

Until next week, thanks for listening, and God bless you.

Emphasis added.

I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department.  I too saw the Reagan trade policy and I do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it.  I saw President Ronald Reagan appoint the most free trade Commissioners in its history to the US International Trade Commission—Susan Liebeler and Anne Brunsdale — and they certainly were not economic nationalists.  These free trade ITC Commissioners used to frustrate Robert Lighthizer in cases brought by the US Steel industry because they refused to go affirmative in certain cases and put antidumping and countervailing duty orders in place.

Let me say at the outset, I am not a Libertarian.  I have no problem with trade policy that hammers countries to open markets.  I have no problem with a domestic policy of low taxes and less regulation.  We need to make our companies, farmers and workers more competitive by giving them back the money they have earned.

I also believe that making America great again and putting America’s interests first is a correct policy position.  I am not a globalist, but firmly believe that we first must know what America’s interest is.

But as indicated below, in the post on Trade Adjustment Assistance for Companies, I firmly believe, like Ronald Reagan, who personally approved of the program, that an answer to the trade crisis is not more protectionism, but finding ways to make US companies more competitive.

Like Ronald Reagan, who was a free trader, I do not believe in putting up protectionist trade barriers, which are not temporary and can stay in place for 30 plus years, such as antidumping and countervailing duty orders against steel that wipe out imports and make downstream companies less competitive, is in the interest of the United States.

As President Reagan himself stated, “the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition,” and competition is what makes and will make America great again.

Like Ronald Reagan I do not believe that protection in the long run saves the industries it is trying to protect.  Robert Lighthizer for decades at Skadden, Arps represented US Steel in the Steel Trade Wars.  My former boss, Mike Stein, represented Bethlehem Steel for decades in the Steel Wars along with Lighthizer, but where is Bethlehem Steel today after 40 years of protection from steel imports—green fields.  Green fields when the steel industry has been protected to some degree for decades from steel imports.

Why?  Despite the protection from steel imports, Bethlehem Steel management and union did not take the protection and adjust to import competition so as to make their production facilities more competitive.  In the 90s, when given protection in a Section 201 case from imports, US Steel bought Marathon Oil.  All the trade protection the US can provide will not save the companies if they want to give their workers exorbitant pensions and their management large bonuses and reduce their own competitiveness in the World market.

Antidumping orders against steel imports have led to a higher US steel price than the World market price.  Steel, however, is a raw material input and the antidumping orders against Steel have led to US antidumping orders brought by injured US industries against imports of ironing tables, folding metal tables and chairs, wind towers, stainless steel sinks, boltless steel shelving, steel nails and a myriad of other products that use US steel as a raw material input.  The disease of the steel industry has spread to the downstream steel using industries.

During the speech Laura Ingraham asked what is the problem with trade protectionism?  One major problem is that trade is a two-way street and what the United States does to one country that country can do back to the United States.  The United States cannot dictate trade policy to the other countries in the World because they are sovereign too.  Also the entire world is moving to an open market, when the US appears to be moving backward to a protectionist US market.  This puts US companies and farmers at a distinct cost disadvantage because it means US exports cannot compete on a level playing field, by Trump’s choice

Lighthizer’s and Trump’s answer to trade problems is simply to put up one more brick and build the protectionist wall higher against imports.  If Ms. Ingraham wants a history lesson, I suggest she look at two countries—recently Japan and less recently China, who followed that same strategy.  In the 1980’s when I was at the ITC and Commerce, the big trade target was Japan.  Having worked in Japan I knew that it had numerous non-tariff trade barriers, which blocked many US exports.  Then in the early 1990s Japan’s economy imploded and it entered into the lost decades in large part because of its own trade policy, which explains why Prime Minister Abe wants the TPP.

China also did exactly what Laura Ingraham is proposing.  China closed down and its economy took a nose dive and went back to the Dark Ages.   It took Deng Xiaoping and later Zhu Rongyi to open up China.  China grew not because of the United States, but because it opened its economy up as it was in China’s economic interest to do so.  Many US companies have joint ventures in China.  When GM was having economic problems in the Obama Administration, the one part of the company it was trying to save was its China operations because the GM Buick was the number one selling car in China.  If the US shuts down, it too like China will go back to the dark ages.

Essentially, Trump appears to be adopting the mercantilist trade policies that he has condemned.  With its focus on trade deficits in manufacturing, Trump’s trade policy appears to be that the only trade deals we want are those where the US has a trade surplus.  That is not the way the World works.

THE TRADE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—THE COSTS OF NOT DOING THE TRADE DEALS

As stated in my last blog post, President Trump dropped the Trans Pacific Partnership (TPP) Agreement, has made noises about dropping the US Korea agreement and is on the verge of killing the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada.

During the time when the TPP was being discussed in Congress, its passage was in trouble because many Senators and Congressmen believe the US did not get enough.  Senator Orin Hatch wanted more on biologics and other Senators and Congressmen wanted a a better deal.

But the big problem at the Trump Presidential and Congressional level with regards to these trade agreements was and is the failure to calculate the cost of not doing these trade agreements or of terminating them.  Keep in mind the only party that is more protectionist than Donald Trump is the Democrats.  Also with Steve Bannon’s attacks on “establishment” Republicans, free traders in the Republican party are becoming few and far between.

The Bannon and Trump approach reveal fatal misunderstandings.  Steve Bannon and Donald Trump have not figured out one important point: Not only do companies compete against each other and States compete against each other, but the United States and other countries compete against each other.  The US decision to go the Protectionist route means it has given up competing and has created an open road for the economic competitors of US, including EC, China, Mexico, Canada, Australia and other countries, who are all moving in to replace US exports in those markets.  Trump’s and Bannon’s policy combined with the Democrat’s protectionist policies mean the US will lose the economic war because of the US failure to compete in the international economic marketplace.

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

The Trans Pacific Partnership, for example, combines the markets of 12 countries, now 11 with the US exit, into one “huge” trading block.  Since Mexico, Canada, Japan, Australia and New Zealand are part of that block, the TPP market is a much larger market than the US alone.

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

But it is the costs of terminating the TPP deal, which are becoming much more clear.

As stated in my last newsletter, the ox that will be gored by Trump’s trade policy is agriculture and that is just what is happening.  Mexico and Canada are also in a stronger trade position than the US because they already have free trade agreements with a number of other countries, including the EC, and that gives them a substantial competitive advantage getting into those markets.  This fact gives Canada and Mexico leverage in the NAFTA negotiations even though Trump, Lighthizer and Ross simply do not understand the dynamics of the deal.

In that blog post, I quoted extensively from the attache August 7, 2017 article entitled “Trump’s Trade Pullout Roils Rural America”, Trump’s Trade Pullout Roils Rural America – POLITICO Magazine.  To summarize some of the points in that Politico article:

for the already struggling agricultural sector, the sprawling 12- nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime “breadbasket of the world”—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.

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

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

In other words, the entire World is moving in the direction of President Ronald Reagan to a more open free trading market, which would have benefitted US companies greatly.  The US is following Trump’s trade policy and moving backward to a more closed protectionist market.

The article went on to state the numerous free trade agreements being negotiated by the other countries in the TPP and now those Agreements are putting US farmers at a distinct disadvantage.  EC pork farmers, which already exports as much pork to Japan as the United States does, have an advantage of up to $2 per pound over U.S. exporters. European wine producers, who sold more than $1 billion to Japan between 2014 and 2016, have a 15 percent tariff advantage over U.S. exporters.

When Donald Trump pulled out of the TPP, Japan turned around and offered the same deal to the EC, which the United States had spent two excruciating years extracting from Japanese trade officials.  The United States is now left out.

Four Latin-American countries—Mexico, Peru, Chile and Colombia, known as the Pacific Alliance are opening negotiations with New Zealand, Australia and Singapore.

Australia is selling beef at a lower price than the US to Japan.  Without the TPP, Australian ranchers eventually will enjoy a 19 percent tariff advantage over U.S. competitors.

With the TPP, economic forecasts already show projected gains for countries involved. Canada, according to one estimate, could permanently gain an annual market share of $412 million in beef and $111 million in pork sales to Japan by 2035, because lower tariffs would enable it to eclipse America’s position in the market.

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

Now there are more indicators that Canada, Mexico and Japan are turning away from US imports because of the Trump protectionist positions.

COSTS OF PULLNG OUT OF NAFTA AND TPP

CANADA

In an October 16, 2017 article in the Globe and Mail, “Canada must prepare for life after NAFTA” former Canadian trade negotiator Gordon Ritchie stated:

“The Canadian government (as well as the provinces, business and labour) is now forced to contemplate life without a free-trade agreement.  While this is far from a preferred choice, it would not be the end of the world. In the absence of a bilateral agreement, the most-favored-nation rules of the World Trade Organization would apply and offer many of the same protections. Tariffs would be restored, but at a much lower level than before the free-trade agreement, averaging roughly 3.5 per cent on shipments to the United States. Unquestionably, existing economic linkages would be put under stress but most would survive. This is clearly not the option the Canadian government would prefer but it could be better than what is currently on offer from the Trump administration.

Meanwhile, the impact on U.S. businesses would be just as severe if not more so. In an unprecedented statement, the U.S. chamber of commerce, the broadest and perhaps most influential business lobby, came out strongly against dismantling NAFTA, which it earlier estimated underpinned about 12 million American jobs.”

MEXICO

On October 16, 2017 in an article entitled “Mexico Braces for the Possible Collapse of Nafta”, the New York Time reported:

“Mexico is steeling itself for the increasing possibility that the United States will pull out of the North American Free Trade Agreement, envisioning how the Mexican economy would adapt without the deal that has guided relations between the neighbors for a quarter-century. .  .

President Enrique Peña Nieto recently traveled to China to discuss trade, among other issues; Mexico is a member of the Trans-Pacific Partnership trade accord.

Already new suppliers are emerging. In December, Argentina is expected to deliver 30,000 tons of wheat, its first sale ever to Mexico. Crisp Chilean apples have begun to appear on Mexico’s supermarket shelves, next to piles of apples from Washington State. . . .

Still, the question is what a post-Nafta economy would look like. The Mexican government’s view is that the United States market would remain largely open.

Without Nafta, American duties on Mexican goods would revert to levels set by the World Trade Organization.

The figures vary, although the average is estimated to be about 3 percent for manufactured products. Cars assembled in Mexico, for example, would pay a duty of 2.5 percent.

“Do we like those duties? No. Can we live with them? Yes,” said Luis de la Calle, a former trade negotiator for Mexico. “The integration of Mexico, the United States and Canada will continue regardless of the governments. . . .

If tariffs rise, one possible effect could be that companies move more production from the United States to Mexico to reduce the number of parts requiring duty payments.

The other risk is that companies move production to Asia, buying parts there instead of in North America, and paying a single duty when the finished product enters the United States.

Ford Motor Company set the example this year. In January, it scrapped plans to build a factory in Mexico to produce the Focus, a small passenger car, a decision that won praise from Mr. Trump. But in June, the company announced that it would build a new Focus factory in China instead. . . .”

JAPAN

Despite Japanese noises of a bilateral trade agreement with the US after meetings with Vice President Pence, on October 15, 2017 in the attached article entitled “Japan exasperated by Trump’s trade policies”, Japan exasperated by Trump’s trade policies – POLITICO, Politico reported:

“As U.S. farmers suffer under high tariffs, Japanese officials are in no rush to cut a new trade deal with the United States.

TOKYO — Japanese officials are expressing growing frustration with the Trump administration’s economic policies, vowing to continue striking trade deals with other countries that undercut U.S. agricultural exports rather than seek a new trade agreement with the United States.

The frustration comes both from President Donald Trump’s harsh rhetoric on trade and from his pullout from the 12-nation Trans-Pacific Partnership, which Japan still hopes can provide a bulwark against China’s growing influence in the Asia-Pacific region.

Meanwhile, there is growing evidence that the failure of the TPP is taking a sharp toll on rural America. In August, the volume of U.S. sales of pork to Japan dropped by 9 percent year over year, a serious blow to farmers who had been preparing for a big increase in sales because of lower tariffs in the TPP.

Instead, other countries that export meats, grains and fruits have seized on their advantage over American growers and producers in the wake of the U.S. pullout from the TPP. And a new Reuters poll shows Trump’s favorability in rural America — once a great stronghold — dropped from 55 percent last winter to 47 percent in September. The poll also showed a plunge in support for Trump’s trade agenda among rural voters. . . .

in interviews with POLITICO, more than half a dozen senior Japanese officials said they were uneasy with a so-called bilateral — two-nation — deal to replace the TPP, arguing that the goal of the multinational agreement was to create a wide international playing field. They said they are dismayed by Trump’s seeming inability to understand the importance of a multinational pact to establish U.S. leadership in the region and set the trade rules for nations on both sides of the Pacific Ocean as a counterweight to China’s rising influence.

“Our prime minister has made it quite clear that we respect the U.S. decision. … That is our official position, but I think withdrawal from TPP is very wrong,” said one senior official. “Honestly, it has diminished many of things that the U.S. has achieved in the region.”

In response, Japan has continued negotiating with American trade competitors, striking a political deal on a landmark free-trade agreement with the European Union in July while continuing to work toward closing a deal with the 11 remaining members of the TPP. In interviews, the senior Japanese officials made clear their ultimate goal is to persuade the United States to rejoin the TPP.

“In the conduct of our affairs with the United States, we need to have leverage,” said one former senior Japanese Cabinet official. “In order for us to convince the U.S., we need to have our own leverage, and our own leverage needs to be free-trade agreements [with U.S. competitors].”

There are some signs the Japanese strategy is working. Republicans in Congress, many of whom were TPP supporters, are expressing impatience with the administration and a conviction that U.S. agricultural industries are suffering because of tensions unleashed by the TPP pullout.

“We cannot allow much more time to lapse in creating opportunities to have other agreements, and especially when you look at Japan,” said Rep. Dave Reichert of Washington state, chairman of the House Ways and Means Trade Subcommittee, as his panel wrapped up a hearing last week on trade opportunities in the Asia Pacific region.

Trump himself has shown no sign of second- guessing his pullout from the TPP, which he described in an interview with Forbes magazine this month as “a great honor.”

“I consider that a great accomplishment, stopping that. And there are many people that agree with me,” he said. “I like bilateral deals.” .  . . .

Perdue’s comments came amid growing frustration in the farm belt. U.S. producers expect to continue losing market share in meat exports to other countries, even as domestic production reaches an all-time high, until something is done to address high import tariffs on the other side of the Pacific. Japan remains the top market for U.S. beef, and exports are up 22 percent from a year ago, but the impact of a recent hike in tariffs on frozen beef from 38.5 percent to 50 percent — a move that would have been avoidable if the TPP had been in force — will soon be felt, the U.S. Meat Export Federation predicts. The volume of pork exports of pork to Japan, the leading market for the U.S. in terms of value, dropped by 9 percent in August year over year. . . .

But Japan is in no rush to do so, according to the interviews with senior Japanese officials, who suggested that their country’s frustrations with the Trump administration are vast. . . .

For the ever-powerful career officials who sit in the unadorned buildings lining the leafy streets of Tokyo’s government district, there is one concern about the U.S. president that overrides all others: Trump’s determination to measure the effectiveness of trade deals in terms of which side sells more to the other.

Indeed, there are many people in the United States who share the view that free trade grows the global pie, with competition serving to promote efficiency and let countries take advantage of their own assets — such as the vast farming sector in the center of the United States, which has no parallel in Japan. . . .

Trump’s view, backed up by “American first” rhetoric, presumes that countries are inherently competitors, and that there are clear winners and losers.

“We want to avoid the relationship turning into a zero-sum game,” said a senior Japanese official.

“Each country has its own policy objectives, but Japan does not see trade deficits or surplus as the only driving force for trade negotiations,” said another senior government official. “A rules-based system is very important.”

Thus, Japanese officials are watching closely as the Trump administration renegotiates the North American Free Trade Agreement through ongoing talks with Canada and Mexico. To support its America- first agenda, the administration is threatening to blow up the 23-year-old trade deal and unravel complex supply chains that have grown over the life of the pact.

“They’re watching NAFTA and, frankly, in East Asia, they’re saying if the United States is so stupid as to screw up its agreements with its continental powers in Canada and Mexico, what can we in East Asia expect from these guys?” said Robert Zoellick, who served as President George W. Bush’s chief trade negotiator and later as World Bank president. “That’s a realistic question.” . . .

The failure of the TPP is a subject of contention between the two men — because Japan not only risked its economic future in hopes of a multinational trade deal but also pinned much of its national security hopes on the deal.

The need to counter the growing clout of China is an all-consuming priority in Tokyo, and Japanese officials felt that with the TPP they were on the verge of a genuine breakthrough, tying the United States, Canada, Vietnam, Mexico, Chile and other large nations on both sides of the Pacific into an economic alliance greater than anything China could muster. . . .

Seeking to fill the void left by the TPP, China has accelerated the pursuit of its own mega-deal with other Asian nations, called the Regional Comprehensive Economic Partnership, or RCEP.

The United States leaving TPP “created a vacuum in the region, that’s for sure,” the official said. “It’s why RCEP is gaining momentum. That is why the government is asking the U.S. to come back to the TPP. We keep continuing to say so.” . . .

“The Japanese government has no mind of going back to the table for a bilateral negotiation,” said another senior official. “TPP was risky for Abe; a bilateral will require an even bigger leap.”

AGRICULTURE

On September 11, 2017 in article in Bloomberg entitled, “Four Ways to Rebuild Consensus on Agricultural Trade, The U.S. is losing ground fast to global rivals in Asia”, two former US Senators Max Baucus and Richard Lugar stated that they had formed a new group, Farmers for Free Trade stating:

“The financial health of American farmers depends on trade. In what remains the “breadbasket of the world,” U.S. farmers export half of all major commodities they grow, contributing to a projected trade surplus of $20 billion this year alone and supporting millions of direct and indirect jobs. At a time when American farm incomes have been rapidly declining, trade is what’s helping to keep farmers, ranchers and many rural communities afloat.

Not so long ago, we served in Washington D.C. when these realities were well understood. It was a time when bipartisan support for opening new markets to our farmers was assumed and expected. As globalization took hold, we understood that trade agreements were our only tool to ensure that American wheat, soy or beef could out-compete other countries’ products vying for the same markets. It was a consensus that delivered for millions of American farmers. Today, that consensus has faded.

American agricultural trade is facing risks not seen in a generation. Public attitudes toward trade agreements have shifted as protectionist sentiment has grown. Threats of tariffs on U.S. trading partners invite the specter of retaliation. Meanwhile, our competitors plot to assume the mantle of global supplier the U.S. has long occupied.

We need to rebuild consensus on agriculture trade. It must be one that incorporates the position of American farmers; that reflects the needs of rural communities; that is echoed by state and local leaders, and that seeks to heal the deep fissures on trade in Washington D.C.

We believe that consensus can be built around four important steps.

First, we need to get off the sidelines and get back in the business of negotiating trade agreements. The U.S. currently does not have a single ongoing trade negotiation that gives our farmers access to the rapidly growing Asian market. Our absence in Asia means that China is quickly moving into the void with its own trade deals that outflank U.S. agricultural producers. One of those China-led deals, the Regional Comprehensive Economic Partnership, involves 15 other Asia-Pacific countries with growing middle classes, many of whom are clamoring for the agricultural bounty the U.S. once supplied.

Meanwhile, agriculture powerhouses like Canada, New Zealand and Australia are cutting bilateral deals that provide preferential treatment for their commodities.

Take the example of beef. According to the National Cattlemen’s Beef Association, as of this week, the U.S. has now lost out to Australia on more than $165 million in beef sales to Japan. That happened because Australia cut a trade deal with Japan in 2015, and we recently walked away from one.

These sharp competitive disadvantages are becoming the norm, and while it’s difficult to calculate all the untapped gains the U.S. has lost, the numbers are clear on how we reverse the trend. Since 2003, U.S. agricultural exports to countries we do have trade agreements with increased more than 136 percent.

Second, we need to remove the threat of retaliation against U.S. agriculture. Our trading partners are not novices when it comes to whom and what they retaliate against when the U.S. runs afoul of our international commitments. U.S. farmers are always target number one.

That is because our trading partners know it is the economic engine for so many states, and because the pain inflicted is immediate and acute.

For example, the last time Mexico retaliated against the U.S., their targets included everything from corn, to apples, to almonds and grapes. The Department of Agriculture estimated that those measures cost U.S. growers close to $1 billion in lost sales.

We know there are onerous trade practices that must be addressed through diplomacy and other mechanisms for setting disputes. But threatening our closest trading partners with blanket tariffs, border taxes or aggressive enforcement actions risks a trade war that would have no winners.

Third, we need to modernize NAFTA in a way doesn’t erode the enormous gains it has delivered for American farmers and ranchers. That means working to eliminate any remaining tariff and non-tariff barriers, simplifying packaging and labeling requirements, and improving agriculture opportunities through e-commerce platforms.

But it also means doing no harm to a pact that — according to the Farm Bureau — has resulted in an annual jump of agriculture exports from $8.9 billion in 1993 to $38 billion last year.

The Trump administration has a real opportunity to expand on those gains. They should do it quickly and thoughtfully so we can turn to the task of keeping pace with our competitors.

Finally, to rebuild consensus on trade, we need to organize and educate. We know there are officials in the administration and in Congress who understand the value of agricultural trade. Yet, recent trade debates have too often become a microcosm of our broader partisan politics.

To support this effort, we’re launching a bipartisan, not-for-profit organization called Farmers for Free Trade, to build a coalition of farmers, mayors and community leaders in congressional districts across the country. This isn’t only about the over 1 million U.S. jobs supported by agriculture trade, but also the secondary and tertiary jobs it creates in rural communities: from growers, harvesters, processors, and packagers to grain elevator operators, railroad workers, truck drivers and port operators.

Rebuilding consensus on trade begins in the heartland and capitalizes on the great strength of American farmers and ranchers. If we can do that, America wins.”

U.S. ANTI-TRADE STANCE AIDS EU

Meanwhile who benefits from the US decision to turn toward protectionism, other countries and the EU.  Jyrki Katainen, the European Commission’s vice president for jobs, growth, investment and competitiveness recently stated:

“We are willing to negotiate with third countries all the time – it’s part of our economic strategy. And now we have seen that many countries have been concerned about rising protectionism and entities which undermine the multilateral system, so they have been contacting us.”

The Wall Street Journal article below outlines the negative impact of terminating NAFTA on the US automobile industry.

US CHAMBER OF COMMERCE

Instead of listening to the protectionist steel industry and the unions, maybe it is time for the Trump Administration to listen to the winners in the Trade World.  On October 10, 2017, in Mexico City, U.S. Chamber of Commerce President Tom Donohue spoke out against the Trump administration’s approach to negotiating the North American Free Trade Agreement, which he said has been riddled with “unnecessary and unacceptable” poison pill proposals from the U.S. side.  As Donohue stated:

“All of these proposals are unnecessary and unacceptable.  They have been met with strong opposition from the business and agricultural communities, congressional trade leaders, the Canadian and Mexican governments, and even other U.S. agencies. Ladies and gentlemen, we’ve reached a critical moment, and the Chamber has had no choice but ring the alarm bells.

“[NAFTA withdrawal] would abruptly slam the door on future negotiations because those governments have made it very clear they won’t negotiate with a gun to their head.  The United States could then reasonably expect trade retaliation … higher tariffs … broken supply chains … and potentially less cooperation on other priorities like anti-terrorism and anti-narcotics efforts.”

Donohue specifically criticized the foolish reliance on the need for the agreement to reduce the U.S. trade deficit:

“The business community, along with any economist worth his or her salt, has repeatedly explained that the trade balance is not only the wrong way to measure who’s ‘winning’ on trade, it’s the wrong focus, and is impossible to achieve without crippling the economy.”

NAFTA NEGOTIATIONS HAVE STALLED

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

On October 18th, Politico reported that the NAFTA negotiations are at a standstill as Canada and Mexico have rejected the strident US proposals and potentially insurmountable disagreements on areas ranging from auto rules of origin to dairy market access and a sunset provision. The next round is to start on November 17th in Mexico.

At the closing press conference, the Canadian and Mexican trade ministers attacked the United States for making impractical demands and an overall unwillingness to compromise.

US Robert Lighthizer responded:

“Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners. As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits.

We have seen no indication that our partners are willing to accept any change that will result in a rebalacing and a reduction in these huge trade deficits.  Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantages.”

In a press briefing in his private conference room, Lighthizer later stated that his primary goal is to reduce the trade deficit and:

“take away what I consider to be in many cases artificial incentives to encourage investment overseas that are not market based. If we get that right, we’ll have an agreement that the president will be enthused about and at that point if the president is enthused, I think the Congress will be enthused.”

Lighthizer has also argued that NAFTA is just frosting on the cake for major corporations:

“I think it’s possible to take a little of the sugar away and have them say, ‘Yeah we’re still doing pretty well.  I understand that everybody that’s making money likes the rules the way that they are. That’s how it works and they can make a little less money or make more money in a different way and we can get the trade deficit down and we can also have what I consider at least in the investment realm to be a market-based investment decision. I think if we do that business will be fine, and if we do that labor will come along and say this is a step in the right direction and it’s worth changing the paradigm in doing that.”

On October 16, 2017, in an article entitled Trump’s NAFTA Threat”, the Wall Street Journal made the opposing argument.

“Donald Trump is threatening again to terminate the North American Free Trade Agreement if Canada and Mexico don’t agree to his ultimatums.

If this is a negotiating tactic of making extreme demands only to settle for much less and claim victory, maybe it will work. Otherwise Mr. Trump is playing a game of chicken he is playing a game of chicken that he can’t win

Mr. Trump’s obsession with undoing Nafta threatens the economy he has so far managed rather well. The roaring stock market, rising GDP and tight job market are signs that deregulation and the promise of tax reform are restoring business and consumer confidence. Blowing up Nafta would blowup all that too. It could be the worst economic mistake by a U.S. President since Richard Nixon trashed Bretton-Woods and imposed wage and price controls.

U.S. demands in the Nafta renegotiations­ which returned to Washington last week-are growing more bizarre. U.S. Trade Representative Robert Lighthizer now wants to add a sunset clause, which would automatically kill it in five years unless all three governments agree to keep it. In other words, the U.S. proposes to increase economic uncertainty and raise the incentive for businesses to deploy capital to more reliable investment climates.

The U.S. also wants to change Nafta’s “rules of origin” for autos. Cars now made in North America can cross all three borders duty-free if 62.5% of their content is Nafta-made. Mr. Lighthizer wants to raise that to 85% and add a sub­ clause requiring 50% be made in the U.S.

Mr. Lighthizer needs to get out more. Nafta’s current rules-of-origin for autos are already the highest of any trade agreement in the world, says John Murphy of the U.S. Chamber of Commerce. Raising them would give car makers an incentive to source components from Asia and pay America’s low 2.5% most -favored-nation tariff. A higher-content rule would hurt Mexico, but it won’t bring jobs to the U.S

It’s hard to overstate the damage that ending Nafta would inflict on the U.S. auto industry. Under Nafta, companies tap the comparative advantages of all three markets and have created an intricate web of supply chains to maximize returns. As Charles Uthus at the American Automotive Policy Council said last week, Nafta “brings scale, it brings competitiveness, it brings efficiencies [and] synergies between all three countries, and it brings duty-free trade.” Its demise would be “basically a $10 billion tax on the auto industry in America.”

Last week the Boston Consulting Group also released a study sponsored by the Motor & Equipment Manufacturers Association that found ending Nafta could mean the loss of 50,000 American jobs in the auto-parts industry as Mexico and Canada revert to pre­ Nafta tariffs.

Mexico has elections next year and no party that bows to unreasonable demands by Mr. Trump can win. The Mexican political class appears willing to call his bluff, which is making American business very nervous. More than 300 state and local chambers of commerce signed an Oct. 10 letter to Mr. Trump imploring him to “first ‘do no harm’ in the Nafta negotiations.”

It noted that 14 million American jobs rely on North American daily trade of more than $3.3 billion. “The U.S. last year recorded a trade surplus _o f $11.9 billion with its NAFTA partners when manufactured goods and services are combined,” the letter said. “Among the biggest beneficiaries of this commerce are America’s small and medium-sized businesses, 125,000 of which sell their goods and services to Mexico and Canada.”

Ending Nafta would be even more painful for U.S. agriculture, whose exports to Canada and Mexico have quadrupled under Nafta to $38 billion in 2016. Reverting to Mexico’s pre-Nafta tariff schedule, duties would rise to 75% on American chicken and high-fructose corn syrup; 45% on turkey, potatoes and various dairy products; and 15% on wheat. Mexico doesn’t have to buy American, and last week it made its first wheat purchase from Argentina-30,000 tons for December delivery.

Canada and Mexico know that ending Nafta will hurt them, but reverting to pre-Nafta tariff levels could hurt the U.S. more. Mr. Trump can hurt our neighbors if he wants, but the biggest victims will be Mr. Trump’s voters.”

On October 16, 2017, in an article entitled “Trump Trying To Destroy NAFTA with Pin Pricks Instead Of A Sledgehammer” John Brinkley at Forbes outlined the US demands in the NAFTA negotiations and why they are being rejected:

“It appears increasingly likely that NAFTA is headed for the trash heap. People involved in the re-negotiation of the 23-year-old trade pact are pessimistic about its chances for survival, because the Trump administration seems bent on causing its death by 1,000 cuts.

An inexplicable aspect of this is that there is no constituency in the United States for NAFTA’s termination.

Not even the most fervent NAFTA-haters — e.g., the AFL-CIO, the Sierra Club, Public Citizen’s Global Trade Watch, and Democratic House members from Rust Belt states — have demanded the death of NAFTA. Businesses large and small, farmers and ranchers, mayors of most American cities and most members of Congress want NAFTA to stay in force. No one of note has said NAFTA has to go. So, whose interests is President Trump trying to protect?

It’s clear that what he would like to do is simply withdraw from the agreement, which he can easily do by providing Canada and Mexico six months’ notice in writing. But instead, his negotiators have tabled several proposals – poison pills would be a more apt description – that they know the Canadians and Mexicans won’t accept. This will allow Trump to blame them for NAFTA’s demise.

“Issues are being put on the table that are practically absurd,” former Mexican   Jaime Serra told Reuters during the fourth round of talks, which ended Sunday. “I don’t know if these are poison pills, or whether it’s a negotiating position or whether they really believe they’re putting forward sensible things.”

Here are four of them:

A sunset provision that would automatically terminate NAFTA after five years unless all three countries vote to keep it in force.

Deletion of NAFTA Chapter 19, which allows parties to defend themselves against dumping and illegal subsidies by one another.

A so-called opt-in provision to NAFTA’s investor-state dispute settlement (ISDS) chapter.

A change to automotive rules of origin that would make it more difficult for Canada and Mexico to export cars to the United States.

Let’s look briefly at each of these.

A five-year sunset clause would add so much uncertainty to NAFTA’s future that businesses in all three countries would be reluctant to plan and invest with regard to cross-border trade. It would also trigger a renegotiation of NAFTA every five years.

Scrapping Chapter 19 would end 23 years of fairness and equality in the way the three NAFTA parties pursue anti-dumping and illegal subsidy cases. Conservative opponents of Chapter 19 say it impinges on U.S. sovereignty by requiring the government to adhere to a supranational system. That is an argument based on principle. It has no practical merit.

ISDS allows a private company operating in a foreign country to challenge an action by that country’s government that hurts the company. Allowing one country to opt in or out of ISDS would be like allowing a driver who is pulled over for speeding to opt out of having to obey the law against speeding – sorry, officer, I have my own speed limit and it’s higher than yours.

NAFTA requires that 62.5% of the content of NAFTA-built cars and light trucks originate in the U.S. if those vehicles are to be exported duty-free to the U.S. The Trump administration wants to raise that to 80%. This is a purely protectionist measure that would raise the price of cars sold in the United States, including those made here.

The governments of Mexico and Canada vehemently oppose these proposals and others the administration has presented. But Trump has said, no problem, if the NAFTA renegotiations don’t work out, he’s willing to negotiate separate bilateral free trade agreements with the two countries.

It’s apparent that what he really wants is to get rid of Mexico. He has said most illegal Mexican immigrants were rapists and murderers, vowed to build a wall along the Mexican border, threatened to invade the country to rid it of some unspecified “bad hombres,” and threatened to impose a 20% border tax.

And we’re to believe that he wants to sit down with the Mexican government and negotiate a free trade agreement in good faith?

Yeah, right.”

TRUMP THREATS ARE NOT WORKING WITH THE US SOUTH KOREA TRADE AGREEMENT

Meanwhile, South Korean Trade Minister Kim Hyun-chong recently indicated that Seoul is willing to let President Donald Trump kill the pact, rather than bow to unreasonable U.S. demands for concessions to bring bilateral trade more into balance.

Kim also stated that cutting trade ties with South Korea will only push the country, as a matter of necessity, economically closer to China, the source said.

US ANTIDUMPING AND COUNTERVAILING DUTY CASES BECOME MORE POLITICAL

Recently there has been a distinct difference in the antidumping and countervailing duty area.  Friends have told me that internally at Commerce all countervailing duty and antidumping duty determinations go to the Secretary’s office of his personal review.  That was not true when I was at the Commerce Department during the Reagan Administration.

Countervailing duty and antidumping determinations are legal proceedings that are subject to Court review.  The Court of International Trade and the Court of Appeals for the Federal Circuit can overturn as not based on substantial evidence on the record if there is not a factual underpinning for the Commerce Department decisions.

If politics become a large part of the case, that is a reason for the Court to overturn Commerce decisions as arbitrary and capricious and not based on substantial evidence on the record.

Every time Commerce issues a determination in an antidumping and countervailing duty case, Commerce Secretary Wilbur Ross makes a personal statement.  When the Countervailing Duty preliminary determination of 212% in the Bombardier Civil Aircraft case was issued, Secretary Ross stated:

“The U.S. values its relationships with Canada, but even our closest allies must play by the rules.  The subsidization of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”

In past newsletters, I have argued that Commerce is a hanging judge in AD and CVD determinations finding dumping and subsidization in close to 100 percent of the cases.  But in contrast to a China case, where Commerce uses fake numbers, in a market economy case against Canada, for example, Commerce is to use actual domestic prices and costs to determine dumping and actual government payments to determine subsidization in the case and actual commercial values in that country to value them.  Thus, in counseling foreign companies in antidumping and countervailing duty cases, if they are in market economy countries, I tell them that they can use computer programs to run their numbers and make sure that they are not dumping.  Also companies can usually figure out whether they have taken subsidies from the Government.

As indicated in the Article about the Bombardier/Civil Aircraft case below, however, although the AD and CVD rates were very high at 219% and 79%, Commerce did give reasoned decisions as to how it calculated those high rates.

NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.

Just before the countervailing duty preliminary determination in the Civil Aircraft from Canada case, I was interviewed by BBC radio and by various investment companies asking me for my views on the case.  During those interviews, I emphasized that the US countervailing duty and antidumping cases against Canada were legal proceedings and that the Commerce Department’s preliminary determinations were normal operating procedure pursuant to the US antidumping (“AD”) and countervailing duty (“CVD”) law.  The Commerce Department must follow the statutory requirements of the AD and CVD law, and these preliminary determinations were not political decisions.  They were legal decisions made pursuant to the law and the statutory deadlines in those laws.

With all the political arguments from both the Canadian and UK Governments in the wind, during those interviews, however, I also suggested the case could result in a negotiated suspension government to government agreement, much like happened in the Canadian Lumber case.  After the CVD preliminary determination, USTR Lighthizer also mentioned the possibility of a government to government negotiated deal in the Bombardier case.

But then Commerce issued a preliminary CVD rate of 219.63%.  Immediately the Canadian government complained about the unfairness of the decision, and the UK government threatened a trade war with the US because Bombardier has a production plant in Northern Ireland.

Commerce issued the very high CVD rate as indicated in the attached Commerce Department’s Issue and Decision Memo, 2017.09.26 Aircraft Prelim I&D Memo, because of the massive equity infusion of $1 billion by the Quebec Government directly into Bombardier, making it in effect a state-owned company, much like the Chinese state-owned companies.

The entire purpose of the US CVD law and CVD laws in general is that private companies should not have to compete in commercial markets against the Government and that is just what has happened.

Although the argument is made that Boeing is financed by its military sale of airplanes to the US government, Boeing itself is a publicly traded company on the New York stock exchange and certainly has not received $1 billion in a direct equity infusion into the company by a Government to finance its production operations.

But then Bombardier seriously damaged its own chances for a negotiated government to government suspension agreement because Commerce issued an antidumping preliminary determination of 79.82% antidumping rate based on All Facts Available (“AFA”) because Bombardier refused to provide sales information regarding its contracts with Delta and Air Canada and cost information.

Essentially an AFA rate is a penalty for a respondent refusing to cooperate in the Commerce Department’s investigation.  The Canadian Government would have reached an identical decision in the Antidumping Case if a a respondent refused to provide requested information in its questionnaire response.  The EC takes the same position. If a respondent refuses to cooperate in EC antidumping and countervailing duty cases, the EC will use all facts available.

I firmly believe that because of the decision not to cooperate with Commerce, the Trump Administration will refuse to do a suspension agreement in this case.  Commerce will not reward bad behavior in AD cases.  A company cannot refuse to cooperate with Commerce and give them the information they need to make a decision and then expect Commerce to give it a political deal.

Also the UK threat of a trade war indicates an ignorance of how AD and CVD law works, which is understandable because all AD and CVD cases in the EC are handled in Brussels.  As stated above, these preliminary determinations were legal determinations under the US AD and CVD law, which are based on the WTO Antidumping and Countervailing Duty Agreements and agreed to by all countries in the WTO, including Canada, the EC and through the EC, the UK.

Bombardier argued that it could not provide the sales information because the airplanes had not been exported to the US.  As indicated in the attached AFA memo, ANTIDUMPING AFA BOMBARDIER, the US Antidumping Law, which is based on the WTO Antidumping Agreement, covers “sales” and in the absence of sales offers for sale.  As the AFA Memo states:

Additionally, section 772 of the Act defines export price and constructed export price as the price at which merchandise under consideration is first sold or agreed to be sold. Moreover, 773(a)(1)(B) of the Act states that normal value is the price at which:

the foreign like product is first sold (or, in the absence of a sale, offered for sale) for consumption in the exporting country, in the usual commercial quantities and in the ordinary course of trade and, to the extent practicable, at the same level of trade as the export price or constructed export price.

In addition, as previously mentioned, under 19 CFR 351.102(b)(43), the term “sale” includes a contract to sell. Furthermore, a Ways and Means Committee report describes the reason for amending the countervailing duty law, along the lines of what already existed in the antidumping duty law, to make clear that the Department could initiate countervailing duty cases and render determinations in situations where actual importation had not yet occurred but a sale for importation had been completed or was imminent. The House Report explained that “{a}ntidumping law has, since its inception, applied not only to imports, but to sales or likely sales. This report additionally explained that the amendment (including the phrase “or sold (or likely to be sold) for importation” in section 701(a) of the Act) was “particularly important in cases involving large capital equipment, where loss of a single sale can cause immediate economic harm and where it may be impossible to offer meaningful relief if the investigation is not initiated until after importation takes place.” This logic described in the House Report is relevant in this antidumping duty investigation as well. For these reasons, the Department appropriately requested information related to Bombardier’s purchase contracts for merchandise under investigation in the United States and the home market.

According to Commerce, Bombardier only submitted arguments in response to sections B through D of the questionnaire.  It did not provide the facts to support those arguments.  Under US AD law, however, Commerce Department decisions and respondent’s arguments have to be based on the facts on the Administrative Record.  When there are no facts, Commerce will use All Facts Available.

Through intermediaries, I have been told that Bombardier refused to release that information to Commerce because of fear it would be released to Boeing.  If that is true, it reveals the failure of Bombardier’s outside lawyers to discuss how Commerce Department Administrative Protective Orders work in AD and CVD cases.  Under US AD and CVD law, only outside counsel, not Boeing’s inside counsel, are granted access to Bombardier information and if those outside lawyers reveal that information to Boeing, they can be disbarred.  Trade counsel in the US take very seriously the APO requirements under the US AD and CVD Law.  In addition, Bombardier’s outside counsel has had access to Boeing’s confidential information under Administrative Protective at the US International Trade Commission so there is simply no sympathy for Bombardier’s arguments.

Finally, the latest news is that Bombardier is asking Airbus to take a majority share in its production of C Series Aircraft and Airbus will shift the production to Mobile, Alabama to get out of the case.  Boeing has argued that Boeing’s move will not have an effect on the case because any orders issued will cover parts.

But that is not quite correct.  The jurisdiction in AD and CVD cases is in rem over the things, products, being imported into the US.  So the critical issue is how did Boeing describe the products to be covered by the case and that are in the Scope of the Merchandise Section in the Federal Register notice issued by the Commerce Department.

The Scope of the Merchandise Section in the Federal Register notice states that the AD and CVD orders will cover imports of:

“aircraft, regardless of seating configuration, that have a standard 100- to 150-seat two-class seating capacity and a minimum 2,900 nautical mile range, as these terms are defined below. . . .

The scope includes all aircraft covered by the description above, regardless of whether they enter the United States fully or partially assembled, and regardless of whether, at the time of entry into the United States, they are approved for use by the FAA.”

The scope does not include “parts thereof” language so the real question is whether Customs will consider any parts imported into the United States to be “partially assembled” civil aircraft.

The key point is that the desperate measure to joint venture with Airbus, however, means Bombardier has given up on a government to government Suspension Agreement to settle the case.  I suspect Bombardier will have major problems going forward.

SECTION 201 SOLAR CELLS CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.

The ITC had to determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”

The ITC reached an affirmative injury determination in the case on September 22, 2017, and now it has entered a remedy phase on which remedy to recommend to the President.

The Commission will issue its report to the President on November 13, 2017 and the President within 60 days must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

Although the ITC remedy phase is important, the real remedy will be determined by President Donald Trump with the assistance of the USTR after November 13th.

On October 3, 2017, the ITC held a hearing in the remedy phase.  The proposed remedies from the parties are:

The petitioners, Suniva and SolarWorld Americas, in their public briefs, proposed two remedies: a tariff plus a price floor for solar cells, or a tariff plus a quota. The two companies agree that the commission should choose one.

The Solar Energy Industries Association, the users coalition, along with solar producer SunPower, argued that a tariff will result in the loss of 62,800 jobs in 2018 and 80,000 jobs in later years. Tariffs will simply increase the price of panels, which will kill solar projects. SEIA in its brief also argued that if tariffs are imposed, the big winner will be Arizona-based thin-film manufacturer First Solar, which does much of its manufacturing in Malaysia.

At the hearing, Suniva and SolarWorld requested a 32-cent-per-watt tariff on crystalline silicon photovoltaic cells.  Suniva continued to push for a price floor on solar panels of 74 cents per watt, while SolarWorld wants a quota on imported cells and panels to cap import supply; both support each other’s idea in the alternative.  In its brief, Suniva stated:

“The crisis caused by foreign market overcapacity now facing the U.S. CSPV cell and module industry is so extreme, the financial losses so great, that, to be effective, any remedy … must be bold, extensive and multifaceted.  [A] strong and effective remedy is required to stop the industry’s bleeding, and then provide breathing space for this American-invented manufacturing technology to grow and thrive.”

But SEIA, which maintains that such trade barriers will devastate the entire U.S. solar industry by raising prices and crippling demand, says the two manufacturers are failing for internal and not external reasons and have asked for more help than the government can grant. Since the ITC must recommend a remedy by mid-November with Trump then to decide within 60 days, SEIA offers these alternatives: technical assistance and job training assistance from government agencies, and an import licensing fee to fund manufacturing growth.

The interesting point is that Suniva and Solar World failed to submit an adjustment plan to the ITC to show, in direct contrast to Harley Davidson, how they will adjust to import competition if they are given relief.

SEIA argued in its brief:

“The commission should rely on its trade policy expertise to create and recommend constructive advice instead of resorting to trade restraints.  Denying the existence of the tens of thousands of jobs that are at stake, denying the reality and importance of grid parity, and denying the domestic industry’s internal problems in favor of scapegoating imports will not help the industry or serve the national interest.”

TRUMP AND CHINA

But what about developments regarding trade with China, as indicated below new trade cases are being filed against China in the antidumping and countervailing duty area and for IP violations under Section 337.

During her speech mentioned above, Laura Ingraham argues that there is no remedy if imports come into the US that infringe US intellectual property rights.  That simply is not true.

Under Section 337, 19 USC 1337, Petitioners holding valid IP rights can filed a Section 337 case at the US ITC and after a year long proceeding, the ITC will issue an order excluding the infringing imports at the border.

In addition, if the imports infringe US trademarks or copyrights, Petitioner can go directly to Customs, which will exclude the infringing exports at the border.

In addition, if Chinese exports infringe US intellectual property rights, such as trademarks and copyrights, a US company can go directly to Chinese Customs and stop the export of infringing exports.

But with China’s decision to help on North Korea, I suspect that during Trump’s visit to China in November deals will be reached.  But as Charlene Barshefsky has indicated in her speech to the Wall Street Journal above, the real problem is China’s decision to close down areas to US investment and put up barriers to US imports.

In light of the US position in the NAFTA talks, we can expect the US to demand reciprocity.  Trump and Congress may well take the position that we will close off the US market to the Chinese investment in the same areas where China blocks US investment in.  The US should also consider closing off Chinese imports into sectors where the US cannot export into.  That is reciprocity.

There are many fights to come.

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD

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

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

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

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

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

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

The United States Trade Representative (“USTR”) held a hearing on October 10th at the International Trade Commission.  During the October 10th hearing, only two US companies appeared to argue that their IP was stolen by Chinese government actions.  Juergen Stein, CEO of SolarWorld Americas stated that his company was a victim of Chinese “state-sponsored hacking and theft” while it was pursuing his AD and CVD cases against China.  Stein further stated that this “greatly weakened SolarWorld’s first-mover status, and again left SolarWorld vulnerable to China’s relentless effort to take over the U.S. solar industry through the sale of solar cells and panels below the cost of production,”

Just one other company, American Superconductor Corp., testified that it had been badly hurt by Chinese theft of its intellectual property.  The company accused a Chinese state-owned enterprise, Sinovel Wind Group, of stealing its intellectual property. AMSC has lost over $1.6 billion in company value and 70 percent of its workforce over the past six years as a result, AMSC President Daniel Patrick McGahn said.

“We believe that over 8,000 wind turbines – most owned by large Chinese utility state-owned enterprises – currently are operating on stolen AMSC IP I personally believe such actions should have consequences. The negative impact of Sinovel’s IP theft on the financial health of AMSC has been dramatic.”

A third company, ABRO Industries, said it had learned to work within the Chinese intellectual property protection system to address problems when they arise. William Mansfield, director of intellectual property at ABRO, also urged the Trump administration to refrain from rash action, stating, “The time for gunboat diplomacy is long since past.”

Acting Assistant USTR for China Terry McCartin, commenting on the dearth of business witnesses, said some companies had expressed concern “about retaliation or other harm to their businesses in China if they were to speak out in this proceeding.”

But as indicated in an article by Dan Harris, the problem may be that US companies on their own gave away their IP because of bad business decisions.  The US government cannot protect US companies from the consequences of bad business decisions.  See August 30, 2017 article by Dan Harris entitled “China-US Trade Wars and the IP Elephant in the Room”, on his China law blog at http://www.chinalawblog.com/2017/08/china-us-trade-wars-and-the-ip-elephant-in-the-room.html.

CHINA NME STATUS

On the question of China’s nonmarket economy status in AD and CVD cases, in light to the expiration of the 15-year deadline in the China-WTO Agreement on December 16, 2016 and a Chinese case in the WTO, the EU on October 3rd reached agreement with the European Council and Parliament to overhaul its antidumping procedures.  Pursuant to the Agreement, the EU will decide the issue on a case-by-case basis, leaving it up to the EU Government to determine whether a Chinese industry has demonstrated enough independent from the Chinese government.

In the announcement, the EU stated:

“The new legislation introduces a new methodology for calculating dumping margins for imports from third countries in case of significant market distortions, or a pervasive state’s influence on the economy.  The rules are formulated in a country- neutral way and in full compliance with the EU’s WTO obligations.”

EU Trade Commissioner Cecilia Malmström further stated:

“Having a new methodology in place for calculating dumping on imports from countries which have significant distortions in their economies is essential to address the realities of today’s international trading environment. The commission has repeatedly stressed the importance of free but fair trade and the agreement today endorses that view.”

WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA

In the attached complaint filed by the United States against Canada on Wine, WTO WINE COMPLAINT, a case which is near and dear to my heart, on October 2, 2017 the Trump administration revived an Obama-era World Trade Organization case against Canadian rules that have allegedly kept U.S. wine off grocery store shelves in British Columbia, according to a WTO document circulated on Monday.

According to the US complaint:

“The BC wine measures provide advantages to BC wine through the granting of exclusive access to a retail channel of selling wine on grocery store shelves.  The BC measures appear to discriminate on their face against imported wine by allowing only BC wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called store within a store.”

According to prior statements from the government and the industry backing the case, many retailers in Canada have not taken the necessary steps to set up their “store within a store” to sell foreign wine, likely because of the high costs associated with controlled access and separate cash registers.

According to the complaint:

“These measures appear to be inconsistent with Canada’s obligations … because they are laws, regulations or requirements affecting the internal sale, offering for sale, purchase or distribution of wine and fail to accord products imported into Canada treatment no less favorable than that accorded to like products of Canadian origin.”

In the following months, Argentina, Australia, the European Union and New Zealand all asked to join the case, according to the World Trade Organization website.

USTR asserts the provincial regulations discriminate against imported wine because they only allow wine from British Columbia to be sold on regular grocery store shelves. In contrast, imported wine may only be sold in the province’s grocery stores through a so-called store within a store.

“British Columbia’s discriminatory regulations continue to be a serious problem for U.S. winemakers,” USTR spokeswoman Amelia Breinig said. “USTR is requesting new consultations to ensure that we can reach a resolution that provides U.S. wine exporters fair and equal access in British Columbia.”

In fact, BC Wine regulations are probably the most protectionist in the World, worse than China requiring the equivalent of an 80% tariff to sell imported wine.  BC protectionist measures on wine simply feed right into the Trump argument on NAFTA that it is not a free trade agreement.

SECTION 232 STEEL AND ALUMINUM CASES REMAIN STALLED

The Section 232 Steel and Aluminum cases appear to have stalled for the time being.  No news on the Section 232 front raises the question what can be done for US Steel and Aluminum companies injured by imports without distorting the US market and expanding the problems.  Across the board tariffs on steel imports would create enormous collateral damage on the many US producers that use steel as a raw material input to produce downstream steel products.  Such a remedy would probably result in the loss of 100s of thousands of US job.

That is the problem with purely protectionist decisions.  They distort the US market and simply transfer the problems of the steel industry to other downstream industries.

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

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

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

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

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

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

This was a problem personally approved by President Ronald Reagan.  The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports on an individual basis to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

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

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

Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  To retrain the worker for a new job, the average cost per job is $50,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

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

But TAA for Companies has been cut to the bone.  On August 22, 2017, in the attached press release, US Commerce Department Announces $133 Million to Boost Competitiveness of US Ma, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers.

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

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

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

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

PTFE RESIN

On September 28, 2017, the Chemours Company FC LLC filed AD and CVD cases against imports of Polytetrafluoroethylene (PTFE) Resin from China and India.

FORGED STEEL FITTINGS

On October 5, 2017, the Bonney Forge Corporation and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union filed AD and CVD cases against imports of Forged Steel Fittings from China Italy and Taiwan.

UNIVERSAL TRADE WAR CONTINUES

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

CHINESE ANTIDUMPING CASES AGAINST US AND JAPAN

HYDRIOC ACID FROM THE US and JAPAN

On October 16, 2917, China Ministry of Commerce (“MOFCOM”) published the attached initiation notice of antidumping investigation against Hydriodic Acid from the USA and Japan, Initiation Notice_Hydriodic Acid_EN.  The alleged dumping margin on the US imports is 36.09% and Japanese imports is 41.18%

The Target companies in the US are: USA: Iofina Chemical, Inc.; IOCHEM Corporation and Ajay North America, LLC

The Target Companies in Japan are: SE Chemicals Corporation, NIPPOH CHEMICALS CO., LTD. and TOHO Earthtech, Inc.

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law.  Team’s newsletter-EN Vol.2017.37 Team’s newsletter-EN Vol.2017.38 Team’s newsletter-EN Vol.2017.39 Team’s newsletter-EN Vol.2017.40

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

REUSABLE DIAPERS

On September 19, 2017, Cotton Babies, Inc filed a section 337 case against imports of Certain Reusable Diapers, Components Thereof, and Products Containing the Same.  The respondent companies named in the complaint are:

Alvababy.com, China; Shenzhen Adsel Trading Co., Ltd.d/b/a Alva, China; and Huizhou Huapin Garment Co., Ltd., China.

AMORPHOUS METALS

On September 19, 2017, Metglas, Inc. and Hitachi Metal, Ltd. filed a section 337 case against imports of amorphous metals and products containing same.  The named respondents in the case are:

Advance Technology & Materials, China; AT&M International Trading Co., Ltd., China; CISRI International Trading Co., Ltd., China; Beijing ZLJG Amorphous Technology Co., Ltd., China; Qingdao Yunlu Energy Technology Co., Ltd., China; Dr. Hideki Nakamura, Japan; and Mr. Nobrou Hanai. Japan.

LED LIGHTING

On September 21, 2017, Philips Lighting North America Corp. and Philips Lighting Holding B.V. filed a section 337 case against imports of LED Lighting Devices and LED Power Supplies.  The named respondents in the case are:

Feit Electric Company, Inc., Pico Rivera, California;  Feit  Electronic  Company,  Inc., (China),  China;  Lowe’s  Companies,  Inc.,  Mooresville,  North  Carolina; L G Sourcing,  Inc., North  Wilkesboro,  North Carolina; MSi Lighting, Inc., Boca Raton, Florida; RAB Lighting Inc., Northvale, New Jersey; Satco Products, Inc., Brentwood, New York;  Topaz  Lighting Corp.,   Holtsville, New York; Wangs Alliance Corporation d/b/a WAC Lighting Co., Port Washington, New York; and WAC Lighting (Shanghai) Co. Ltd. , China.

REUSABLE RAZORS
On September 27, 2017, The Gillette Company LLC filed a section 337 case against imports of Certain Shaving Cartridges, Components Thereof and Products Containing Same.  The named respondents in the case are:

Edgewell Personal Care Company, Chesterfield, Missouri; Edgewell Personal Care Brands, LLC, Shelton, Connecticut; Edgewell Personal Care, LLC, Shelton, Connecticut; Schick Manufacturing, Inc., Shelton, Connecticut; and Schick (Guangzhou) Co., Limited, China.

BEVERAGE CONTAINERS

On September 28, 2017, YETI Coolers, LLC filed a section 337 case against imports of Insulated Beverage Containers, Components, Labels, and Packaging Materials.  The named respondents are:

Alibaba (China) Technology Co., Ltd., Hong Kong; Alibaba Group Holding Limited, c/o Alibaba Group Services Limited, Hong Kong; Alibaba.com Hong Kong Limited, Hong Kong; Alibaba.com Singapore E-Commerce Private Limited, Hong Kong; Bonanza.com, Inc., Seattle, Washington; ContextLogic, Inc. d/b/a Wish, San Francisco, California; Dunhuang Group, China; Hangzhou Alibaba Advertising Co., Ltd., Hong Kong; Huizhou Dashu Trading Co., Ltd., China; Huagong Trading Co., Ltd., China; Tan Er Pa Technology Co., Ltd., Hong Kong; Shenzhen Great Electronic Technology Co., Ltd., China; and SZ Flowerfairy Technology Ltd., China.

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

Best regards,

Bill Perry

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NOVEMBER 14, 2016

Dear Friends,

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

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

TRADE AND TRADE POLICY

TRUMP VICTORY AND WHAT IT MEANS FOR TRADE

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

TPP IS DEAD

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

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

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

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

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

As Paul Ryan stated,

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

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

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

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

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

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

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

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

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

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

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

As Frost further stated:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Emphasis added.

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

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

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

NOT RETALIATION RECIPROCITY

The problem with protectionism is that trade is a two-way street and what the US can do to countries, they can do back.  In my last blog post, I stated that although many US politicians, including Donald Trump, want to adopt a mercantilist trade policy which favors pushing exports and protecting US industries from imports, the US politicians simply do not understand retaliation.  In this blog post, I want to restate this because the issue is not retaliation.  It is reciprocity.

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

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

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

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

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

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

TRADE IS FALLING AROUND THE WORLD

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As described in my September newsletter and uschinatradewar.com blog post, which can be found at http://uschinatradewar.com/us-china-trade-war-tpp-politics-taaf-the-answer-2-billion-missing-dumping-duties-as-cases-rise-customs-law-changes-solar-cells-337-customs-stop-infringing-imports/, free trade requires competitive US companies and industries.  For the US government to go forward with a free trade agenda and the passage of free trade agreements, it must restore the trade safety net.

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

Those programs are:

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

Economists and policy makers of all persuasions are now beginning to recognize the requirement for a robust response by this nation to foreign imports – irrespective of party affiliation or the particular free trade agreement under consideration at any given moment.  Companies, workers and Government officials need to stop blaming the foreigner and figure out what they can do to compete with the foreign imports. These two programs make US companies injured by imports competitive again.

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

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

Commerce’s Trade Adjustment Assistance for Firms (TAAF) has 11 regional (multi-state) TAAF Centers but the program has been cut to only $12.5 million annually. The system has the band-width to increase to a run rate of $50 million.  Projecting a four-year ramp up of $90 million (FY18-FY21), the TAA program could serve an additional 2,150 companies.

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

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

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

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

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

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

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

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

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

Attached is a longer proposal, taaf-2-0-white-paper, on how to expand TAA for Firms/Companies and the MEP Program to make US companies more competitive again.

UNDER TRUMP TRADE CONFLICTS WITH CHINA WILL INCREASE

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

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

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

‘Election Results:  U.S. China Relationship

Prepared by: Congressmen Don Bonker (Democrat)

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

CANDIDATES WEBSITE/POSITIONS ON CHINA

Hillary Clinton

Increase cooperation in areas of common interest

Reinforce alliances in the Asia-Pacific

Ratchet up the U.S. deterrent against Chinese cyberattacks

Take a stronger stance against China’s human rights record

Donald Trump

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

Investigate and punish China for unfair trade practices

Designate China a currency manipulator

Ratchet up the U.S. deterrent against Chinese cyberattacks

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

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

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

Immediate withdraw from TPP and a renegotiation of NAFTA.

Appoint the “toughest and smartest trade negotiators.

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

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

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

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

U.S. China Relationship

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

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

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

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

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

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

CONGRESSIONAL ELECTIONS    

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Article 1

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

In Article 2 the following paragraph 6a is inserted:

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

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

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

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

STEEL TRADE CASES

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

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

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

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

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

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

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

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

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

Because of this situation, this part of the newsletter will concentrate on antidumping and countervailing duty cases in other countries.

CHINA

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

ROLAND ZHU, ALLBRIGHT LAW FIRM

A General Description of Anti-Dumping Regulation

of the People’s Republic of China

by Roland Zhu, Allbright Law Firm

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

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

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

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

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

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

Initiation Date  Subject Merchandise  Investigation Type  Countries

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

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

4/20/2015   Vinyldine Chloride           Initial AD Review       Japan

Vinyl Chloride Copolymer Resin

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

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

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

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

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

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

Answer:  There are no such special rules in China.

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

FRANK HANG, GLOBAL LAW OFFICE

How Should Foreign Companies Respond to an Antidumping Investigation in China

  1. Definition of Dumping

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

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

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

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

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

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

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

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

  1. AD Investigating Procedures

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

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

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

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

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

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

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

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

INDIA

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

CUSTOMS LAW

ALUMINUM EXTRUSIONS

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

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

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

SECTION 337 AND IP CASES

NEW 337 CASES

OPTICAL FIBERS

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

Commodity:

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

Filed By:
Christine E. Lehman

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

Behalf Of:

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

Description:

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain UV Curable Coating for Optical Fibers, Coated Optional Fibers, and Products Containing Same. The proposed respondents are Momentive UV Coatings (Shanghai) Co., Ltd., China and OFS Fitel, LLC, Norcross, Georgia.

SWEETENERS

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

Commodity:

High-Potency Sweeteners

Filed By:

Joshua B. Pond

Firm/Organization:

Kilpatrick Townsend & Stockton LLP

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

Description:

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain High-Potency Sweeteners, Processes for Making Same, and Products Containing Same. The proposed respondents are Suzhou Hope Technology Co., Ltd., China; Anhui Jinhe Industrial Co., Ltd., China; and Vitasweet Co., Ltd.,   China.

MOBILE ELECTRONIC DEVICES

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

Received:

Friday, October 14, 2016

Commodity:

Mobile Electronic Devices

Filed By:

Blaney Harper

Firm/Organization:

Jones Day

Behalf Of:

Qualcomm Incorporated

Description:

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Mobile Electronic Devices. The proposed respondents are Zhuhai Meizu Technology Co., Ltd., China; Zhuhai Meizu Telecom Equipment Co., Ltd., China; Dest Technology Limited, China; LGYD Limited, China; and Overseas Electronics, Inc., Chicago, IL.

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

Best regards,

Bill Perry

 

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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER FEBRUARY 21, 2016

Dear Friends,

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

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

Best regards,

Bill Perry

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

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

FOUR US CASES AGAINST CHINA

GEOGRID PRODUCTS

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

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

AMORPHOUS SILICA FABRIC

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

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

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

BUS AND TRUCK TIRES

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

STAINLESS STEEL PETITION

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

MAJOR CHINESE CASE AGAINST THE US–DISTILLER DRIED GRAINS

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

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

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

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

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

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

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

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

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

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

TRADE POLICY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Republicans should look closely before they leap.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Hilary Clinton stated: that

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CHINA IS NOT HAPPY WITH THE TPP RHETORIC

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

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

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

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

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

TPP TEXT AND TRADE ADVISORY REPORTS

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

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

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

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

NEW TRADE AND CUSTOMS ENFORCEMENT BILL

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

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

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

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

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Support for Local Workers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRADE

ALUMINUM EXTRUSIONS – THE COURT OF INTERNATIONAL TRADE STRIKES BACK

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

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

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

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

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

Judge Pogue then describes the Curtain Wall Units in question:

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

Judge Pogue pointed to subassemblies stating:

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

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

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

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

THE ONGOING STEEL CASES

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER JANUARY 13, 2016

Dear Friends,

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

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

Best regards,

Bill Perry

TRADE POLICY

TPP RUNS INTO HEADWINDS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TPP TEXT AND TRADE ADVISORY REPORTS

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

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

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

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

NEW TRADE AND CUSTOMS ENFORCEMENT BILL

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

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

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dear Ambassador Froman:

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

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

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

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

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

Sincerely,

Leo W. Gerard

International President

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No wonder Boeing is going to manufacture airplanes in China.

TRADE

ALUMINUM EXTRUSIONS FINAL 2013-2014 REVIEW INVESTIGATION

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

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

MEXICO ALUMINUM EXTRUSIONS PROBLEM

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

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

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

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

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

NEW TRADE CASES COMING—RAW ALUMINUM

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

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

Dear Secretary Kerry and Minister McKenna,

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

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

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

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

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

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

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

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

THE ONGOING STEEL CASES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Article goes on to state:

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

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

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

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

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

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

SOLAR CELLS REVIEW DETERMINATION

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

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

DRAWN STAINLESS STEEL SINKS FINAL

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

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

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

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

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

As Judge Stanceu further stated:

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

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

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

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

MELAMINE FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY ORDERS

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

LARGE RESIDENTIAL WASHERS FROM CHINA

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

The specific products covered by the petition are:

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

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

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

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

NEW OFF THE REOAD TIRES CASE

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

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

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

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

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

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

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

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

JANUARY ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

GENERAL LITIGATION AND ARIBITRATION

DORSEY VICTORY IN SUPREME COURT HELPS FOREIGN COMPANIES

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

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

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

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

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

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

UKRAINE ATTACKS RUSSIA USING ARBITRATION

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

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

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

The lawyer representing the Ukrainian companies stated:

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

IP/PATENT AND 337 CASES

337

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

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

NEW 337 CASES

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

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

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

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

CRIMINAL PATENT CASES

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

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

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

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

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

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

PRODUCTS LIABILITY CASES

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

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

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

ANTITRUST

There have been developments in the antitrust area.

CHINA ANTI-MONOPOLY CASES

T&D NOVEMBER AND DECEMBER REPORT

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

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

SECURITIES

FOREIGN CORRUPT PRACTICES ACT

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

China: Setback in the Anti-Corruption Campaign

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

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

China: Corruption in the Education Sector

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

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

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

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

SECURITIES COMPLAINTS

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

 

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 28, 2015

 

Dear Friends,

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

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

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

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

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

I will also be in Hong Kong, Shanghai and Beijing, China from September 7 to 26, first in Hong Kong from Sept 7 to 12, Shanghai 12 to 18th and Beijing from 18th to the 26th. If anyone would like to talk to me about developments in trade and customs law, please feel free to contact me.

Best regards,

Bill Perry

CHINA STOCK MARKET CRASH

CHINA STOCK MARKET CRASH—STAGE 2 WORLD MARKETS CRASH

After my last post at the end of July on the Chinese stock market crash, on August 24, 2015, despite assurances from Secretary of Treasury Jack Lew, https://grabien.com/story.php?id=32165&from=allstories, that the fall in the Chinese stock market would not affect world markets, there was a sharp fall in stock exchanges around the World as China’s stock exchange started the day off by falling another 8.5% to put the Chinese exchanges in negative territory for 2015.

On August 24th, the New York Post yelled out, “Wall Street Really Freaked Out This Morning” and went on to state:

An enormous shudder swept through Wall Street on Monday as the Dow Jones industrial average cratered more than 1,000 points, or about 6.2 percent, in early trading — before leveling off at a decline of about 450 points, or 2.7 percent, as fears of a global economic slowdown once again spooked US investors.

The plunge was a wake-up call to Main Street and Wall Street alike. . . .

The huge Dow sell-off follows an 8.5 percent decline in Asia markets. In Europe, markets were down as much a 6 percent. . . . The global market sell-off began earlier this month when China — the world’s No. 2 economy behind the US — devalued its currency twice in a bid to jumpstart its economy.

China’s GDP, which was in the mid- to upper-single digits, had slowed to the lower-single digits. “Nobody really knows for sure, from fundamental perspective, will we go into recession, will China go into recession,” Stovall said. . . .

In fact, at the end of trading on August 24th, Dow Jones lost 588 points, a drop of 3.58%. to close at 15,871.

On August 24th, the Wall Street Journal also reported:

U.S. stocks pared most of Monday’s steep losses after a rocky morning during which the Dow Jones Industrial Average briefly plummeted more than 1,000 points. . . .

The Dow industrials plunged as much as 1,089 points shortly after the open, marking the index’s largest one-day point decline ever on an intraday basis, amid a selloff that has hammered stock markets from Beijing to London to New York. . . .

Fears that China’s economy is slowing dramatically sparked the heavy selling in stocks around the globe in recent days. Beijing’s unexpected move to devalue its currency two weeks ago raised the alarm that the world’s second largest economy may be in worse shape than many had thought. Since then, weak economic data have fueled worries that a drop-off in Chinese growth could cause a global slowdown. . . .

The Wall Street Journal also stated in the August 24th edition:

Beijing’s struggles this summer have spooked many investors into viewing China as a threat to, rather than a rescuer of, global growth. During the financial crisis of 2008 and early 2009, China, with a colossal stimulus plan, acted as a shock absorber. Lately, It Is China that Is providing the shocks.

Over the past week, it has grown clear how dependent a growth-starved world is on China, which accounts for 15% of global output but has contributed up to half of global growth in recent years.

Given this dependency one reason markets have been so unnerved is that China’s economy remains something of a black box. For starters, analysts have long wondered about the accuracy of government economic statistics. And levers pulled by Chinese policy makers can be unconventional.

This is seen in Beijing’s desire to micromanage the yuan’s value, which undercuts its ability to pursue an independent monetary policy because of spillover effects on domestic liquidity.

On the same day, the Washington Post reported:

China’s ‘Black Monday’ spreads stock market fears worldwide….

Stock market jitters spread throughout Asia and the rest of the world, and Wall Street sustained a major plunge, after Chinese stocks recorded their biggest slump in eight years during what China’s state media dubbed “Black Monday.”

The collapse in Chinese stocks was fueled by mounting concerns about an economic slowdown here, but it has fed into a wider sell-off in emerging markets. . . ..

“A lot of questions are being asked by investors,” said Chris Weston, chief markets strategist at IG in Melbourne. “This is a confidence game, and when you don’t have confidence, you press the sell button.” . . ..

“Markets are panicking,” Takako Masai, head of research at Shinsei Bank in Tokyo, told the Reuters news agency. “Things are starting to look like the Asian financial crisis in the late 1990s.

See also following article from Bloomberg on how the slide in the Chinese market has hit global markets– http://www.bloomberg.com/news/articles/2015-08-21/these-charts-show-how-hard-china-has-hit-global-markets.

What are the lessons to be learned from the Chinese stock market drop? There are lessons for China and the United States.

The lesson for China is that accurate economic and corporate data, including economic data from village, city and Provincial governments and corporate earnings of listed companies, are incredibly important. Many countries and investors question the accuracy of the Chinese government economic statistics. In fact, one Chinese has told me that based on electricity consumption numbers, the real China growth number is 4%. Other commentators have argued that the real number is a negative number.

The problem is that the 7% economic growth number is not based on hard economic data because Chinese governments at the village, city and the provincial level play with their economic data to make themselves look good.

In addition, as stated in my last newsletter, there is no market regulator in China to protect the integrity of the Chinese stock market, as there is in the US, Europe, Hong Kong and other countries. The market regulators, such as the US Securities and Exchange Commission (“SEC”), make sure that earnings and financial statements issued by listed companies, in fact, are accurate. There is no such assurance in the Chinese market.

Many experts in China have told me that I simply “do not understand the Chinese way.” If the “Chinese way” means having different sets of accounting books and providing different corporate data or economic data depending upon what the government authority wants, the problem with that Chinese way is that it deprives the Chinese government of accurate data it needs to manage its own economy. The Chinese way also encourages wild swings in the Chinese stock market as investors in China and abroad simply do not know what numbers are accurate.

The “Chinese way” of not having a governmental authority to ensure the accuracy of economic data from villages, cities and provinces and corporate data from listed companies has contributed to the sharp fall in the Chinese stock market and the loss of trillions of dollars. China is no longer a developing company. Economic decisions in China impact the rest of the World. Neither the World nor China can afford acting as if China is a developing country. As a modern advanced country, China needs to ensure the accuracy of its economic and corporate data.

For the United States, the lesson is that the World economy is very interrelated and interconnected, and what happens in China affects the US market. It is simply impossible for the US to cut or delink itself from China.

The US market cannot be isolated from China and the rest of the World. When one hits China and other foreign countries, as many politicians do, such as Donald Trump, that in turn can hurt the US. Ira Stoll who writes for the NY Sun blames the US market crash in part on Donald Trump http://www.nysun.com/national/the-trump-recession-markets-start-to-react-to/89263/. See also New York Sun Editorial on Donald Trump at http://www.nysun.com/editorials/an-economic-imbecile/89259/.

Trump reacted by stating that he was not to blame for just pointing out the problems and that the US should delink from China. See http://video.foxnews.com/v/4441195997001/trump-talks-stock-market-slide-biden-and-border-security/?intcmp=hpvid1#sp=show-clips. So that means, as described below, that the US should stop shipping its $123 billion plus in exports to China because it should delink from China. Correct?

Sometimes when you jump up and down on China, you end up hurting the United States. Always blaming China for the US economic problems may feel good and be good election politics, but it is not good economic policy. When Hank Paulson was the Secretary of Treasury under President George W. Bush, he firmly believed that the economic relationship between the US and China was the most important economic relationship in the World. US politicians should understand this important point.

For Republicans, the inconvenient truth is that President Ronald Reagan was a free trader. As President Ronald Reagan stated on June 28, 1986 in a speech from his California ranch, Protectionism becomes destructionism; it costs jobs.”

CHINA STOCK MARKET CRASH – STAGE 3 MOST WORLD MARKETS RECOVER BUT CHINESE STOCK MARKET CONTINUES TO FALL

On August 25, 2015, World markets, including the US, rebounded, but then fell again as the Chinese stock market continued a straight line fall. After surging through most of the trading day, the Dow Jones Industrial Average shed 205 points, or 1.29% to drop to 15,666.

On August 26, 2015, Wall Street recovered as the Dow Jones average went up 620 points to 16,285, but the Shanghai stock market fell again by 1.37% as well as Hong Kong.

After the Chinese government cut its interest rate the fifth time in nine months, on August 25th stocks went up around the World, but then fell back. But in China it continued to be a straight line decline. Shares in Shanghai closed 7.6% lower as the index fell below 3000 for the first time since December, following the worst one-day loss in more than eight years on Monday. China’s stock plunge has wiped out more than $1 trillion in value from equities over the past four days.

The Chinese government apparently has stopped trying to stop the market plunge because it simply costs too much money. As mentioned in prior newsletters, stock market bubbles get so big that no government can control the situation. The Chinese government now appears powerless to prevent a further slide in the country’s stock market, as the country’s main share index plunged for a fourth straight day.

As Wei Wei, an analyst at Huaxi Securities in Shanghai:

“At the moment there’s panic in the market, because we have lots of retail investors. We’ve never experienced anything like this in China’s stock market, the speed of the decline and the scale of it.”

Global markets have lost trillions of dollars in market value over the last few weeks, erasing all gains for the entire year and creating fears of an ever deepening loss.

When the Chinese market first started its drop, authorities unleashed a series of measures to stop the slide, establishing a $400 billion fund to buy stocks, ordering state-owned companies to buy shares, banning large shareholders from selling and even launching criminal investigations into short sellers.

Aside from the central bank’s action, however, the Chinese government authorities appear to be largely standing aside this time, partly because they know they cannot stem a global slide in equity markets, and partly because government intervention to buy shares was simply becoming too expensive.

As Li Jiange, vice chairman of state-owned investment company Central Huijin, stated:

“The trade volume of the market can reach 2 trillion yuan ($300 billion) a day, which means if it collapsed no one could save it. The issues of the market should be handled by the market itself.”

As another Chinese analyst stated:

“The authorities stepped in and tried to save the stock market once. And you can see it is not working. The authorities might step in but probably not in as high profile a way as they did last time. It’s not helpful for them to interfere like that.”

On August 26, 2015, CAIXIN, a well-known newspaper/magazine in China, issued an editorial stating:

Counting the Cost of Gov’t Intervention in Stock Market

Regulators should take a long look at their recent behavior because the bourses’ future depends on government doing its job the right way

Two months into the government’s unprecedented efforts to save the stock market – which had its most turbulent week starting on August 18 since state-backed investors intervened to end volatility in early July – it is time we consider what comes next.

On August 14, the China Securities Regulatory Commission announced that the China Securities Finance Corp. (CSF), which has played a central role in the government’s campaign to bail out the market, sold an unspecified amount of stocks it recently bought to Central Huijin Investment Ltd.

It would be wishful thinking to believe that this means the CSF has more money to continue buying stocks. Rather, the deal marked an end to operations that have plowed nearly 2 trillion yuan into the A share market since it took a nosedive in mid-June.

The sheer volume of the capital involved and the consequences that may follow over a long period demand that we seriously reflect on what was done and what should have been learned.

The money the CSF used to buy the shares primarily came from commercial banks. It will need to repay those loans quickly with the funds it received from Central Huijin, which raised the funds it needed for its purchase by issuing bonds. Costs aside, Central Huijin’s mandate is to hold stakes in financial institutions on behalf of the state. Supporting the stock market is not its job.

When announcing the share transfer, the securities regulator also said “the stock market goes up and down according to its own laws and the government will not intervene under normal circumstances.” Perhaps this statement is intended to signal that the government’s intervention has concluded.

The announcement also said that the CSF “will continue to play a stabilizing role in many ways should the market experience severe and abnormal fluctuations and possibly trigger systemic risk.” The emphasis here should fall on how the government defines “abnormal fluctuations” and “systemic risk.” Ambiguity on these two important questions will have grave consequences.

It is still too early for a thorough review of the costs and benefits of the government’s involvement in the stock market, but some judgments can be made. To start, the regulator should not have tried to get the stock index to go up. Also, the CSF seemed to have picked stocks randomly, pouring capital into valuable and worthless companies indiscriminately. Critics have questioned the wisdom of these actions, and some voiced concerns about insider trading.

Many other issues remain to be resolved. The first is defining the role of the CSF. The institution has become a de facto stock market stabilization fund in that it snaps up shares few others want, and the government has said this will remain its mission for years. Critics say the very existence of the fund distorts the market, not to mention that trillions of yuan are at stake. Deciding what the CSF can do with the money – now that its main job has changed – should be done according to the law. . . .

Also at risk is the sense of rationality that the government has tried for years to instill in stock investors.

Ever since the CSF stepped into the market, speculators have started gambling again, to the detriment of the market. The message some investors took away from the intervention is that the government will always ride to the rescue when the market collapses. The moral hazard this created backtracks on progress that has been made over many years on investor education. . . .

The capital market cannot grow in a healthy manner with the CSF playing the role of savior. It should end this role sooner rather than later. . . .

The regulator must learn the right lessons this time. Reflecting on what it did wrong would be a start. The future of the market depends upon it doing its job right.

For the full editorial, see http://english.caixin.com/2015-08-26/100843837.html.

Pointing to the factory and consumer price data, Mr. Yu Yongding, a prominent Chinese economist and a former adviser to the central bank, stated:

China’s economy will get worse before it gets better. Chinese companies are struggling with high debt loads and low prices. China has entered a stage of deflation.

Although the fundamentals are driving stock prices around the World, no one knows what the fundamentals are in China and that fuels the panic, when it comes to the Chinese stock market. As the Wall Street Journal reported on August 25th:

For All Its Heft, China’s Economy Is a Black Box

For sheer clout, China’s economy outweighs every country in the world save the U.S. But on transparency, it remains distinctly an emerging market, with murky politics, unreliable data and opaque decision making.

This veil dims the understanding of China’s economy and is an important reason its recent slowdown has produced so much turmoil.

Economists widely doubt that China grew at a robust 7% pace in the second quarter, as the country’s official statistics say. Citing other data, such as power generation and passenger travel, some think the rate might be as little as half that.

Similarly, when the People’s Bank of China devalued its currency two weeks ago, a step that sparked much of the recent market upheaval, officials couched the move as part of a long-term effort to align the yuan’s value more closely with market forces. Some outside analysts, noting that the PBOC isn’t independent, saw a more political motive: to boost exports and thus bolster the Communist Party’s credibility and hold on power. . . .

“With my G-7 and many G-20 counterparts there were frank, honest conversations, you were on the phone pretty frequently, often weekly,” recalls one former Treasury official who still deals extensively with China for the financial industry. “With China, you don’t know who to call. It’s hard to know where decision making occurs or who’s calling the shots.” . . . .

no major advanced country’s statistics are viewed as skeptically as China’s.

In 2007 Li Keqiang, now China’s premier, told the U.S. ambassador, according to a memo released by WikiLeaks, that GDP is “man-made” and therefore unreliable.

Mr. Li, who was then Communist Party chief of Liaoning province, said he looked at data on electricity, rail cargo and loans to get a better gauge on economic activity. Several analysts have since come up with indexes based on Mr. Li’s favorite stats.

In London, Capital Economics looks at freight activity, electricity, property development, passenger travel and sea shipments, and concludes China’s economy expanded much more slowly in the second quarter than China reported. Lombard Street Research, another London research outfit, uses another approach, including a different measure of inflation, and comes up with just a 3.7% growth rate.

Chinese statistics are “spookily stable from quarter to quarter,” says Capital Economics analyst Mark Williams. For instance, China’s unemployment rate registers 4.1% nearly every quarter. . . .

China’s leaders are heir to a tradition of secrecy. In 1971, when Mao Zedong’s anointed successor died, the public wasn’t told for nearly two months. In the current corruption crackdown, it can still be weeks or months after senior or retired leaders disappear before their detention is announced. . . .

Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University, in the August 25th Washington Post stated that the real scary part of the stock market crash was the reaction of the US Presidential candidates:

The truly scary thing about Black Monday

The global sell-off of stocks yesterday was a little worrying. The reaction from some candidates for president was a lot worrying. . . .

China’s Black Monday reveals something useful: how potential U.S. presidents are reacting to the market sell-off. . . .

One Republican candidate, Gov. Scott Walker of Wisconsin, called on President Obama on Monday to cancel his plans to meet in Washington next month with President Xi Jinping of China on what will be his first state visit to the United States. Mr. Walker accused Beijing of a range of offenses that have harmed American interests, including manipulating its economy and currency, carrying out cyberattacks and persecuting Christians.

Wait. What?

Frankly, at this point both U.S. and Chinese officials wish China could actively manipulate their economy. What’s happening this month is evidence, in fact, that market forces can easily override Chinese government manipulation. To be sure, Walker lists legitimate beefs with the People’s Republic, but I’m pretty sure canceling the state visit would not help at all on any of them. . . .

In response to Trump’s argument that the United States should delink from “China, Mr. Drezner stated:

Oh, for the love of –. Look, I’ll keep this simple. If American voters really want any market volatility to metastasize into an actual Great Depression, then by all means break ties with China and Asia. But the only reason the 2008 financial crisis wasn’t worse was precisely because that didn’t happen. . . .

The same is true for Sanders, who also seized on the market moment in a tweet from the populist left: “For the past 40 years, Wall Street and the billionaire class have rigged the rules to redistribute wealth to the richest among us.”….

and it would be foolish for any of the establishment candidates to go down this rabbit hole.” Except that’s what Scott Walker did. Oh, and then there’s Chris Christie:

“. . .17:08:24 Lots and lots of money from the Chinese and remember that when the Chinese hold this much of our debt, if the Chinese get a cough, we get the flu and that’s what’s happening now right now in my opinion in our financial markets.”

Let’s be clear: China owning lots of U.S. government debt has exactly zero to do with what’s happening right now. If anything, the gyrating Chinese stock market and depreciating yuan, combined with general developing country malaise, will trigger a massive surge of interest in U.S. government debt. So Christie is simply wrong here.

The scariest thing about Black Monday wasn’t the stock market fluctuations. Those will hopefully be temporary enough in the United States. No, the scariest thing was how one day of financial volatility was enough to make four presidential candidates — Christie, Sanders, Trump, and Walker — say really stupid things about the Chinese economy and the Sino-American relationship.

See https://www.washingtonpost.com/posteverything/wp/2015/08/25/the-truly-scary-thing-about-black-monday/?hpid=z3 for the full article.

From an international trade point of view, although China is important, the really scary part is not China, but the global drop in trade. On August 25, 2015 the Financial Times reported that “This year is worst for trade since crisis” of 2009

The volume of global trade fell 0.5 per cent in the three months to June compared to the first quarter . . . also revised down their result for the first quarter to a 1.5 per cent contraction, making the first half of 2015 the worst recorded since the 2009 collapse in global trade that followed the crisis.

“We have had a miserable first six months of 2015,” said Robert Koopman, chief economist of the World Trade Organization, which has forecast 3.3 per cent growth in the volume of global trade this year but is likely to revise down that estimate in the coming weeks.

Much of the slowdown in global trade this year has been due to a halting recovery in Europe as well as a slowing economy in China, Mr Koopman said.

In other words, instead of bashing China and trade in general, maybe the Presidential candidates should talk about boosting trade.

But one interesting point, on August 25, 2015, the New York Times had an article by Joe Nocera entitled The Man Who Got China Right. In the Article, Mr Nocera described Jim Chanos of Kynikos Associates, a $3 billion hedge fund that specializes in short-selling. Mr. Nocera goes on to state:

In the fall of 2009, Jim Chanos began to ask questions about the Chinese economy. What sparked his curiosity was the realization that commodity producers had been largely unaffected by the financial crisis; indeed, they had recorded big profits even as other sectors found themselves reeling in the aftermath of the crisis.

When he looked into why, he discovered that the critical factor was China’s voracious appetite for commodities: The Chinese, who had largely sidestepped the financial crisis themselves, were buying 40 percent of all copper exports; 50 percent of the available iron ore; and eye-popping quantities of just about everything else.

That insight soon led Chanos to make an audacious call: China was in the midst of an unsustainable credit bubble. . . .

Chanos and his crew at Kynikos don’t make big “macro” bets on economies; their style is more “micro”: looking at the fundamentals of individual companies or sectors. And so it was with China. “I’ll never forget the day in 2009 when my real estate guy was giving me a presentation and he said that China had 5.6 billion square meters of real estate under development, half residential and half commercial,”

Chanos told me the other day.

“I said, ‘You must mean 5.6 billion square feet.’ ”

The man replied that he hadn’t misspoken; it really was 5.6 billion square meters, which amounted to over 60 billion square feet.

For Chanos, that is when the light bulb went on. The fast-growing Chinese economy was being sustained not just by its export prowess, but by a property bubble propelled by mountains of debt, and encouraged by the government as part of an infrastructure spending strategy designed to keep the economy humming. (According to the McKinsey Global Institute, China’s debt load today is an unfathomable $28 trillion.)

Chanos soon went public with his thesis, giving interviews to CNBC and Charlie Rose, and making a speech at Oxford University. He told Rose that property speculation in China was rampant, and that because so much of the economy depended on construction — in most cases building properties that had no chance of generating enough income to pay down the debt — China was on “the treadmill to hell.”

He also pointed out that much of the construction was for high-end condos that cost over $100,000, yet the average Chinese household made less than $10,000 a year.

Can you guess how the financial establishment, convinced that the Chinese juggernaut was unstoppable, reacted to Chanos’s contrarian thesis? It scoffed. . . .

As it turns out, China’s economy began to slow right around the time Chanos first made his call. No matter: Most China experts remained bullish. Chanos, meanwhile, was shorting the stocks of a number of companies that depended on the Chinese market. . .

These days, with the markets in free-fall, it certainly looks like Chanos has been vindicated. . . . This loss of confidence in China and its leaders has spooked stock markets around the world.

The moral of today’s story is a simple one. Listen to the skeptics and the contrarians. You dismiss them at your peril.

For the full article, see http://www.nytimes.com/2015/08/25/opinion/joe-nocera-the-man-who-got-china-right.html?emc=edit_th_20150825&nl=todaysheadlines&nlid=19479910.

CHINA STOCK MARKET CRASH – STAGE 4—MARKETS RECOVER BUT CHINA IS NO LONGER A SURE BET

On August 27 and 28, 2015, World Markets recovered and the Chinese stock exchanges even went up on suspicion of Chinese government buying programs, but the new reality is that China is no longer a sure bet. The focus now is on the true state of China’s economy. As the New York Times stated on August 27th:

China Falters, and the Global Economy Is Forced to Adapt

With deepening economic fears about China, multinational corporations and countries are having to respond to a new reality as a once sure bet becomes uncertain.

China’s rapid growth over the last decade reshaped the world economy, creating a powerful driver of corporate strategies, financial markets and geopolitical decisions. China seemed to have a one-way trajectory, momentum that would provide a steady source of profit and capital.

But deepening economic fears about China, which culminated this week in a global market rout, are now forcing a broad rethinking of the conventional wisdom. Even as markets show signs of stabilizing, the resulting shock waves could be lasting, by exposing a new reality that China is no longer a sure bet.

Smartphone makers, automobile manufacturers and retailers wonder about the staying power of Chinese buyers, even if it is not shaking their bottom line at this point. General Motors and Ford factories have been shipping fewer cars to Chinese dealerships this summer. . . .

The trouble is, the true strength of the Chinese economy — and the policies the leadership will adopt to address any weaknesses — is becoming more difficult to discern.

China’s growth, which the government puts at 7 percent a year, is widely questioned. Large parts of the Chinese service sector, like restaurants and health care, continue to grow, supporting the broader economy. But the signs in industrial sectors, in which other countries and foreign companies have the greatest stake through trade, paint a bleaker picture. . . ..

For entire article, see http://www.nytimes.com/2015/08/27/business/international/china-falters-and-the-global-economy-is-forced-to-adapt.html?emc=edit_th_20150827&nl=todaysheadlines&nlid=19479910&_r=0.

 TRADE POLICY

WILL THE REAL LOSER IN THE 2016 US ELECTION BE FREE TRADE?

In my first July newsletter on Trade Policy, Trans Pacific Partnership (“TPP”) and Trade Promotion Authority (“TPA”), I asked whether the US Congress will follow the siren call of protectionism and take the US backwards or move forward with the Trans Pacific Partnership (“TPP”) to resume its free trade leadership? Truly a question.

As an observer of the Presidential primary right now, free trade and the trade agreements appear to be the latest punching bag, especially among the populist front runners, such as Donald Trump and Bernie Saunders. Using the euphemism of putting America first and protecting workers and US factories at all costs from import competition created by free trade agreements, many candidates apparently are simply engaged in protectionism.

Although the establishment Republicans, such as Jeb Bush, Marco Rubio and John Kasich, have all indicated that they are for Free but “Fair” Trade, Donald Trump, the front runner, is a different story.

When asked how the United States could create new jobs in the first Republican debate, Donald Trump, who presently leads the Republican primary field, stated during the first Republican debate, “Well for starters I would negotiate better trade deals. The Chinese are killing us.”  Trump further stated:

“This country is in big trouble. We don’t win anymore. We lose to China. We lose to Mexico both in trade and at the border. We lose to everybody,”

On August 24th, Trump warned that because of the Chinese stock market fall, China would bring the US down and the US should delink from China. See https://instagram.com/p/6xT08ZGhQc/

Trump has decreed that he will build a wall to stop illegal immigrants coming in from Mexico and the Mexican government will pay for it. Trump has stated that if the Mexican government does not pay for it, he will raise tariffs on Mexican products. But that would be a violation of the North American Free Trade Agreement (“NAFTA”).

Trump has also threatened that if China takes actions, such as cyber-attacks, on the US, he will raise tariffs on Chinese products, but that would be a violation of the World Trade Organization (“WTO”) Agreement and the WTO Agreement between the US and China.

In other words, it sounds like Trump Administration would create a trade war or trade wars with a number of different countries.

Although Trump and Republican Senator Sessions of Alabama have argued that the US has a free trade agreement with China, it does not. All the US has with China is PNTR, which means permanent normal trade relations with China, just like the normal trade relations the United States has with Russia, Ukraine, Syria, Iran and many other countries.

Although Trump has been bashing China and trade in general, most people thought he could not be elected, but in mid-August, Bloomberg Politics Managing Editor Mark Halperin stated on MSNBC that Trump has “reached a turning point” at which “establishment candidates” think he can win Iowa and added that “most” believe he can win the nomination, and “a significant number think he could win the White House.” As Halpern further stated, “Trump may not end up as the nominee, but right now, he’s changed the race.” The latest Fox News poll shows that Trump is in first place with 25 percent support nationally, more than double the support for Ben Carson who is in second place with 12 percent. The findings mirror recent polls in Iowa.

An August 20, 2015, Rasmussen Report telephone Poll has 57% of Republican voters stating Trump is the likely to be the Republican Presidential Nominee. See http://m.rasmussenreports.com/public_content/politics/elections/election_2016/trump_change.

On August 27, 2015, Peggy Noonan, a former speechwriter for President Ronald Reagan and a committed Republican, in an article entitled “America Is So in Play” published in the Wall Street Journal stated that she was discovering a distinct change in the electorate towards Donald Trump and the Republican party because the Hispanics and  other lower income people that she knows are for Donald Trump:

Second, Mr. Trump’s support is not limited to Republicans, not by any means. . . .

Since Mr. Trump announced I’ve worked or traveled in, among other places, Southern California, Connecticut, Georgia, Virginia, New Jersey and New York’s Long Island. In all places I just talked to people. My biggest sense is that political professionals are going to have to rethink “the base,” reimagine it when they see it in their minds. . . .

Something is going on, some tectonic plates are moving in interesting ways. My friend Cesar works the deli counter at my neighborhood grocery store. He is Dominican, an immigrant, early 50s, and listens most mornings to a local Hispanic radio station, La Mega, on 97.9 FM. Their morning show is the popular “El Vacilón de la Mañana,” and after the first GOP debate, Cesar told me, they opened the lines to call-ins, asking listeners (mostly Puerto Rican, Dominican, Mexican) for their impressions. More than half called in to say they were for Mr. Trump. Their praise, Cesar told me a few weeks ago, dumbfounded the hosts. I later spoke to one of them, who identified himself as D.J. New Era. He backed Cesar’s story. “We were very surprised,” at the Trump support, he said. Why? “It’s a Latin-based market!”

“He’s the man,” Cesar said of Mr. Trump. This week I went by and Cesar told me that after Mr. Trump threw Univision’s well-known anchor and immigration activist, Jorge Ramos, out of an Iowa news conference on Tuesday evening, the “El Vacilón” hosts again threw open the phone lines the following morning and were again surprised that the majority of callers backed not Mr. Ramos but Mr. Trump. Cesar, who I should probably note sees me, I sense, as a very nice establishment person who needs to get with the new reality, was delighted.

I said: Cesar, you’re supposed to be offended by Trump, he said Mexico is sending over criminals, he has been unfriendly, you’re an immigrant. Cesar shook his head: No, you have it wrong.

Immigrants, he said, don’t like illegal immigration, and they’re with Mr. Trump on anchor babies. “They are coming in from other countries to give birth to take advantage of the system. We are saying that! When you come to this country, you pledge loyalty to the country that opened the doors to help you.”

He added, “We don’t bloc vote anymore.” The idea of a “Latin vote” is “disparate,” which he said generally translates as nonsense, but which he means as “bull—-.”

He finished, on the subject of Jorge Ramos: “The elite have different notions from the grass-roots working people.”

Old style: Jorge Ramos speaks for Hispanic America. New style: Jorge Ramos speaks for Jorge Ramos. . . .

I will throw in here that almost wherever I’ve been this summer, I kept meeting immigrants who are or have grown conservative—more men than women, but women too. America is so in play. . . .

Both sides, the elites and the non-elites, sense that things are stuck. The people hate the elites, which is not new, and very American. The elites have no faith in the people, which, actually, is new. Everything is stasis. Then Donald Trump comes, like a rock thrown through a showroom window, and the molecules start to move.

For the entire article, see http://www.wsj.com/articles/america-is-so-in-play-1440715262.

In early August at a Bellevue, Washington Republican event, I heard Congressman Dave Reichert, a former Washington State policeman and sheriff, state that he believes the major issue in the next 2016 election will be “control versus chaos”. He argues that the average American voter is looking for someone who can control the situation in the United States as compared to the chaos we see in the US with illegal immigration, foreign policy and other domestic issues. That may be a reason for Trump’s appeal to the Republican voter.

But what about Democrats? Although Hilary Clinton may be in the lead, as many political experts know, she is wounded because of a number of issues, including e-mail problems she had while Secretary of State that have morphed into a potential FBI criminal investigation. See Reuters report at http://mobile.reuters.com/article/idUSKCN0QQ0BW20150821. But Hilary has not come out in favor of the trade agreements. Why? The labor unions, which are a significant part of the Democratic base and very anti-trade.

The next candidate behind Hilary is Senator Bernie Sanders. Many Democrats are saying that Hilary is “feeling the Bern.” Sanders, however, is very close to the labor unions and, therefore, is vehemently against the Trade Agreements, China and Free Trade in general. See the June 23rd statement by Senator Bernie Sanders in which he denounced Trade Promotion Authority and the Trans Pacific Partnership on the floor of the US Senate at http://www.c-span.org/video/?c4541798/sen-bernie-sanders-tpa-disaster-america.

Bashing international trade and China in particular and blaming trade and China for all the ills in the US economy is common in US elections and may feel good. But reality soon intrudes. In 2014, total US exports, including manufactured products, agricultural products and services to other countries were $2.35 trillion, an increase over the last few years, with exports of US manufactured goods reaching $1.64 trillion. Under NAFTA in 2014 goods exported to Mexico were $240 billion and to China were $123 billion. US exports means US jobs. See https://www.census.gov/foreign-trade/balance/c5700.html.

The reality is that the United States is exporting many products to Mexico and China, including manufactured goods, agricultural products and services. What this means is that the United States is vulnerable to retaliation if it takes trade actions against other countries. Retaliation that will shut down US exports and cost US jobs.

As described above, China right now is going through an economic slowdown. As the New York Times stated on August 18th:

When Prime Minister Li Keqiang convened the Chinese cabinet last month, the troubled economy was the main topic on the agenda. The stock market had stumbled after a yearlong boom. Money was flooding out of the country. Most ominously, China’s export machine had stalled, prompting labor strikes. . . . .

Manufacturing, the core engine of growth in the world’s second-largest economy, is just too critical. And the pressures have been mounting, with exports last month plunging 8 percent compared with 2014.

Across the country, millions of workers and thousands of companies are feeling the pain, as sales slip and incomes drop. . . .Millions of Chinese are looking for work.

See http://www.nytimes.com/2015/08/18/business/international/chinas-devaluation-of-its-currency-was-a-call-to-action.html?emc=edit_th_20150818&nl=todaysheadlines&nlid=19479910&_r=0.

China’s slower economy will affect US companies and US jobs. Qualcomm, for example, is about to layoff thousands from its global workforce, many in San Diego, California. See http://www.sandiegouniontribune.com/news/2015/aug/17/Qualcomm-broadcom-nokia-layoffs-foreign-workers/.

But as people who read this newsletter know, Qualcomm was fined almost $1 billion for violations of China’s Antimonopoly law. Qualcomm also makes more than $9 billion every year, but half of that income comes from China. As people also know from this newsletter, China is going through an economic slowdown so right now a weak China market can hurt US exports. In international trade, what goes around, comes around.

The problem with protectionism is that trade is not a one way street. As Senator Marco Rubio stated on August 10th at a Republican reception in Bellevue, Washington, US consumers represent only 5% of the World Economy. 95% of consumers are outside of the US so if a US company wants to increase sales and increase jobs, it has to export.  In an August 28, 2015 opinion piece in the Wall Street Journal, entitled “How My Presidency Would Deal With China”, Senator Rubio made one of the more thoughtful points on China, stating:

My second goal is protecting the U.S. economy. For years, China has subsidized exports, devalued its currency, restricted imports and stolen technology on a massive scale. As president, I would respond not through aggressive retaliation, which would hurt the U.S. as much as China, but by greater commitment and firmer insistence on free markets and free trade. This means immediately moving forward with the Trans-Pacific Partnership and other trade agreements.

For the full opinion piece, see http://www.wsj.com/articles/how-my-presidency-would-deal-with-china-1440717685.

Republican and Democratic Senators, such as Orin Hatch, Marco Rubio and Ron Wyden, and Republican representatives, such as Paul Ryan, Dave Reichert and Pete Sessions, and free trade Democratic representatives, such as Ron Kind, Rick Larson, Derek Kilmer and Suzan DelBene, make the same argument and, therefore, understand the trade situation.

On August 19th, I met with the New Democratic Coalition of moderate Congressional Democrats, many from Washington State, who are pro-trade and pro-growth. 40% of the jobs in Washington State are tied to trade. See the Politico article, which describes the New Democrat Coalition in detail at  http://www.politico.com/story/2015/08/new-dems-plan-assertive-new-presence-in-house-121208.html. See also http://www.newdempac.com.

All the Democratic Representatives in the New Dem Coalition that I talked with were very concerned about the anti-trade rhetoric in the Presidential Primary, not only from Donald Trump but also Bernie Sanders. One Representative surprised me by talking well of Republican Senator Marco Rubio, who is pro free trade. The Democratic Representatives in the New Democratic Coalition understand how important international trade is to the economy, the companies and jobs in their states.

All of international trade is based on reciprocity. What the United States does to one country, that country can do back. If the US raises tariffs to keep imports out or puts in place trade restrictions, that country, in turn, can retaliate, raise tariffs and keep US exports out.

Several years ago, the United States determined to stop Mexican trucks from carrying freight into the United States. In return, Mexico stopped all imports of potatoes from Washington and other US states.

Just like Donald Trump, Bernie Sanders and other present day politicians, in the 1930s, as a candidate for President, Herbert Hoover promised to help the United States dig out of the recession by raising tariff walls against imports, and Congress passed the Smoot-Hawley Tariff of 1930. Countries around the World retaliated by raising barriers to US exports. Exports, imports and trade stopped and the World was plunged into the Great Depression.

As indicated below, the World economy is at a tipping point and starting a trade war with the rest of the World could hurt the United States and its economy big time. As the recent drop in the US stock market because of the China slow down indicates, the United States is no longer the big kid on the block, the only and biggest market in the World. The US, therefore, can be a target of trade actions, which will hurt US companies, US jobs and the US economy as a whole.

TPP NEGOTIATING ROUND ENDS IN HAWAII WITH NO FINAL AGREEMENT—CANADA AND JAPAN CONTINUE TO BE STICKING POINTS

In late July, after a week of negotiations in Hawaii to close the Trans-Pacific Partnership (“TPP”), negotiators were not able to close the gaps on the TPP’s most controversial provisions, including pharmaceutical patents and rules governing dairy trade. USTR Michael Froman stated that although the negotiations had resulted in “substantial progress in certain areas, final agreement remains out of reach”.

At the conclusion, trade ministers spoke optimistically:

“In this last stage of negotiations, we are more confident than ever that TPP is within reach and will support jobs and economic growth. The progress made this week reflects our longstanding commitment to deliver an ambitious, comprehensive and high-standard TPP agreement that will support jobs and economic growth across the Asia Pacific region.”

On July 9th in a Politico Morning Money speech, which can be found here http://www.c-span.org/video/?327014-1/politico-conversation-trade-representative-paul-ryan-rwi, Paul Ryan, House Ways and Means Chairman, stated that there could be a final TPP Agreement by late Fall.

Among the major obstacles are pharmaceuticals and in particular biologic drugs. The U.S. has long held that those high-value medicines, which are used to treat diseases like cancer and rheumatoid arthritis, should be given 12 years on the market before the entry of generic alternatives. But every other TPP partner has consistently pressed for a much shorter exclusivity window, with positions varying from eight years of exclusivity to no exclusivity period whatsoever.

A major problem is Canada’s barriers to agricultural goods, including its dairy and poultry market. New Zealand wants more access to the US market, but the US has stated that it will only open its market if Canada will open its market for more US dairy imports. With Parliamentary elections on October 16th, it is very difficult for Canada to give in now. Trade ministers vowed to keep working closely together to resolve their differences but did not give any details about the timing of the next official negotiating session.

By the way, which group in Canada opposes the giving in to dairy imports from the United States? The Teamsters labor union. Recently Teamsters Canada reiterated its opposition to any changes to Canada’s controversial supply management system for its dairy industry warning Canada’s political class over giving into the United States and other countries in the TPP talks.

In other words, the Teamsters and AFL-CIO in the United States oppose the TPP, but their brother union in Canada opposes lifting restrictions on dairy imports from the US. Apparently the Union’s position is let’s drive worldwide economics back decades and put all the protectionist walls back in place.

The TPP talks are at a delicate stage where much of the technical underbrush has been cleared, but parties are still faced with making calls on politically charged sectors of their economies that could make or break the deal. As Warren Maruyama, former USTR general counsel, stated:

“A lot of the issues that they had going into Maui still appear to be wide open. They are definitely in the endgame, and this is when all the hard issues have to get resolved, and I have yet to see a major trade negotiation that was resolved in one ministerial meeting.”

Another issue is the rules of origin for automobiles and auto parts, which were at the center of bilateral talks between the U.S. and Japan. Although the two countries appear to have forged a compromise on the regional content rule issue, Mexico has taken issue with that arrangement. In addition, rice is a big problem for Japan, and sugar is a big problem for the United States.

The passage of the Trade Promotion Authority (“TPA”) bill revealed a Congress still sharply divided on trade, a factor that Maruyama said USTR Froman will have to keep in mind as they bring the deal to completion. As Maruyama stated:

“USTR has to keep a close eye on the Congress. If it does something that costs votes or gets them seriously crosswise with the Republican House or Senate leadership, TPP is in big trouble. TPA is a good proxy for TPP, and it passed Congress by a very narrow margin and with mostly Republican votes.”

But any delay to TPP threatens to move such a vote deeper into the 2016 election season, where meaningful legislative action often reaches a standstill. In talking to pro-trade Democratic Representatives on August 19th in the New Dem Coalition, they are concerned that the TPP could become an election issue if the Agreement is not concluded soon. Pursuant to the TPA bill that was signed into law, once the final agreement is approved, President Obama must publish the Agreement for 60 days before he can sign it, and then the Congress must take at a minimum 30 days before they can ratify it. If the Agreement is concluded in late Fall or after October 16th, the Canadian election, for example, then that means President Obama could not sign the agreement until the end of December, and Congress would have to deal with the Agreement at the end of January, February 2016, just as the Presidential primaries are starting up in an election year.

If the TPP isn’t ratified by the end of this year, the chances of its being ratified before Obama leaves office will be slim. Congress is highly unlikely to pass a gigantic free trade agreement like the TPP during an election year. It would almost have to happen after the November Presidential election in a December lame-duck session.

Meanwhile, on August 14th, Senator Sherrod Brown, an outspoken critics on US trade policy, stated that he will block the nomination of Marisa Lago to serve as a deputy U.S. trade representative, citing the office’s failure to fully open Trans-Pacific Partnership text for viewing by congressional staff. When USTR rejected Senator Brown’s request, he stated:

“The administration would rather sacrifice a nominee for a key post than improve transparency of the largest trade agreement ever negotiated. This deal could affect more the 40 percent of our global economy, but even seasoned policy advisers with the requisite security clearance can’t review text without being accompanied by a member of Congress.”

EXIM BANK PROBLEMS

There is a major battle in the US Congress now on the Ex-Im Bank. In a victory for free market ideology over pragmatism and simple common sense, conservative members of Congress have let the charter of the EX-IM Bank expire hurting many US companies.

More specifically, Congress let federal authorization for the Ex-Im Bank expire July 1, to the cheers of conservative lawmakers who view it as a tool for crony capitalism.   As a result, credit insurance policies are starting to run out for 3,000 small businesses that rely on them to be able to export along with a number of large companies, such as Boeing. According to National Association of Manufacturers Vice President Linda Dempsey, some U.S. companies continue to compete for overseas bids that will ultimately require Ex-Im backing, in the hopes that the agency will be renewed before the deals fall through.

What is the Ex-Im Bank? According to the Export-Import Bank itself, the EXIM Bank:

is an independent, self-sustaining agency with an 80-year record of supporting U.S. jobs by financing the export of American goods and services. . . .

By financing the export of American goods and services, EXIM Bank has supported 1.3 million private-sector, American jobs since 2009, supporting 164,000 jobs in FY 2014 alone. . . .

Small business exporters need certainty and protection to tackle new markets, expand and create jobs. In FY 2014, nearly 90 percent of EXIM Bank’s transactions—more than 3,340—directly supported American small businesses. . . .

Over the past two decades, the Bank has generated nearly $7 billion more than the cost of its operations. That’s money EXIM Bank generates for the American taxpayer, to help reduce the federal deficit.

EXIM Bank argues that it:

“is vital to countering aggressive foreign competition. With nearly 60 other export credit agencies around the world trying to win jobs for their own countries, EXIM Bank helps level the playing field for American businesses. “Made in America” is still the best brand in the world, and EXIM Bank ensures that U.S. companies never lose out on a sale because of attractive financing from foreign governments.

EXIM Bank further states:

In FY 2014, Export-Import Bank financing supported $27.5 billion worth of U.S. exports. $10.7 billion of that total represents exports from U.S. small businesses, making small business exports the top category for EXIM Bank supported exports last year.

Finally, the EXIM Bank argues that it has a long history of bipartisan support:

President Dwight D. Eisenhower, February 12, 1959: “[EXIM Bank’s] record of repaid loans and repayable loans, your infinitesimal portion of written-off loans is one that I can do nothing except to say congratulations to your Directors, the President, and to all of you.”

President John F. Kennedy, July 18, 1963: “…the Export-Import Bank has created a wholly new program of export financing which now provides U.S. business with credit facilities equal to any in the world.”

President Gerald Ford, November 18, 1974: “In order for the United States to maintain its strong position in foreign markets, it is important that the Congress pass the Export-Import Bank bill and avoid attaching unnecessary encumbrances.”

President Ronald Reagan, January 30, 1984: “Exports create and sustain jobs for millions of American workers and contribute to the growth and strength of the United States economy. The Export-Import Bank contributes in a significant way to our nation’s export sales.”

President William J. Clinton, May 6, 1993: “Export expansion obviously encourages our most advanced industries. I am committed to promoting these exports, and what’s where the EXIM Bank plays an important role.”

President George W. Bush, June 14, 2002: “I have today signed into law S. 1372, the Export-Import Bank Reauthorization Act of 2002. This legislation will ensure the continued effective operation of the Export-Import Bank, which helps advance U.S. trade policy, facilitate the sale of U.S. goods and services abroad, and create jobs here at home.”

See http://www.exim.gov/about/facts-about-ex-im-bank

The decision to let the EXIM Bank expire on July 1st forces many large and small companies to make drastic changes. Despite the rhetoric of pure free market ideology, the reality is that the real winner of this decision is China, Europe and other countries. Gary Mendell, president of trade financier Meridian Finance Group, said export credit agencies in other countries are already taking advantage of EXIM’s expiration to lure away business from U.S. companies. Mendell stated:

“They’re gleeful about it, and I don’t blame them. Those foreign competitors are going to customers in other countries and saying, ‘Hey, you don’t know if your U.S. supplier is even going to be able to ship to you and give you the payment terms they’re promising in their quote, because look what’s happening with Ex-Im Bank.’”

Some companies are not going to wait for Congress. Boeing Chairman Jim McNerney has stated that the giant plane manufacturer and defense contractor is considering moving parts of its operations to other countries, where they could take advantage of those nations’ equivalents to Ex-Im to continue selling products overseas:

“We’re actively considering now moving key pieces of our company to other countries, and we would’ve never considered that before this craziness on Ex-Im.

McNerney further stated that he might have “made the wrong decision” years ago in trying to keep production in the U.S., given the newly uncertain politics surrounding export financing in Washington. “People just playing politics — they’re not connected to the real world anymore,”

But Rep. Jim Jordan (R-Ohio), a leading conservative critic of the bank, sees even a prolonged expiration for the bank as a victory, stating:

“This is great news for families and taxpayers. Every day that goes by without the Ex-Im Bank being resurrected means it is more likely that it permanently ends. … This is the kind of example of good governance that I am excited to tell my constituents about during the August recess.”

But in Ohio, a state where manufacturing is the key economic issue, the failure to keep the EXIM bank open means a loss of companies and a loss of jobs. Although politicians love to blame China, the real problem is the United States, and politicians should look at themselves in the mirror. The failure of the United States to be competitive with other countries, including China, is not China’s fault.

AGOA PASSES WITH TECHNICAL CHANGES TO THE ANTIDUMPING AND COUNTERVAILING DUTY LAW

On June 25, 2015 the African Growth and Opportunity Act (“AGOA”) with Trade Adjustment Assistance (“TAA”) passed the House by a 286 to 138 vote and went to President Obama for signature.   The AGOA includes the attached technical changes to the US Antidumping and Countervailing duty law, BILL CHANGED LAW.  See also attached explanation of the changes to the law, trade_bills_fact_sheet.

Although most of the proposed changes to the Customs and Trade law are still at Conference Committee, Congress put certain attached technical changes to the Antidumping and Countervailing Duty law, including changes to the All Facts Available and the ITC injury standard, into AGOA, which passed both Senate and the House and has been signed into law by President Obama.

With regards to the ITC, a provision was added to clarify that even though an industry is profitable, it can still be materially injured. The ITC, however, has always been able to find an industry to be injured if profits were declining.

At Commerce, the new change waters down the requirement that Commerce corroborate the rate it uses as an All Facts Available (“AFA”) rate and the requirement that Commerce show that the AFA rate represents commercial reality when determining antidumping rates for foreign companies that do not cooperate in the antidumping or countervailing duty investigation.

Commerce has issued the attached Federal Register notice, DOC FED REG EFFECTIVE DATE TRADE LAW stating that the change in law applies to determinations after the effective date of the law, August 6, 2015, as published in the Commerce notice.  But in a remand determination, which came out recently in the Aluminum Extrusions case, Commerce indicated that it could apply the new law change to remand determinations made on or after August 6, 2015.

But to further complicate the issue today, the Court of Appeals for the Federal Circuit (“CAFC”) issued the attached order on August 11th in the Ad Hoc Shrimp case, CAFC SHRIMP TRADE BILL APPLICATION, asking for further argument on whether the new law applies to future Commerce determinations or retroactively back to entries that were made prior to August 6th.  The CAFC appears to be stating that the new law does not apply to old entries, in effect, that are on appeal to the Courts because the actual determinations on appeal were made prior to August 6th

CUSTOMS AND TRADE ENFORCEMENT BILL

All the Senators emphasized during the final Trade Promotion Authority (“TPA”) debate the importance of the Customs and Trade Enforcement bill formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), which passed the Senate on May 11, 2015 and the House. This bill will crack down on US importers that attempt to evade antidumping and countervailing duty laws by importing transshipped merchandise. This Customs and Trade Enforcement Bill is directed straight at the problem of transshipment by certain Chinese companies around US antidumping and countervailing duty orders.

Because of the differences in the Senate and House Bills, the bills have gone to Conference Committee to reconcile the differences.  But since some of the most pressing provisions went through Congress attached to AGOA, there is not the same pressure on Congress to work through the differences in the two bills.

TRADE

CHINA’S WTO CASE AGAINST US COUNTERVAILING DUTY DECISIONS RESULTS IN LOWER DUTIES IN A NUMBER OF DIFFERENT ANTIDUMPING CASES FOR CHINESE EXPORTERS

On July 22, 2015, Commerce issued the attached Federal Register notice,   ,as a result of China’s victory in the World Trade Organization (“WTO”) case against Commerce Department’s antidumping duty determinations, which did not adequately reduce antidumping rates to account for export subsidies found in the companion Countervailing duty case. This WTO case and Commerce Department notice have had the effect of reducing slightly cash deposits and assessment rates in the following antidumping cases against China: Aluminum Extrusions from the People’s Republic of China; Certain Circular Welded Carbon Quality Steel Line Pipe from the People’s Republic of China; Certain Kitchen Appliance Shelving and Racks from the People’s Republic of China; Certain Magnesia Carbon Bricks from the People’s Republic of China; Certain New Pneumatic Off-The-Road Tires from the People’s Republic of China; Certain Oil Country Tubular Goods from the People’s Republic of China; Certain Potassium Phosphate Salts from the People’s Republic of China; Certain Steel Grating from the People’s Republic of China; Certain Tow Behind Lawn Groomers and Certain Parts Thereof from the People’s Republic of China; Circular Welded Austenitic Stainless Pressure Pipe from the People’s Republic of China; Citric Acid and Certain Citrate Salts from the People’s Republic of China; Lightweight Thermal Paper from the People’s Republic of China; Narrow Woven Ribbons with Woven Selvedge from the People’s Republic of China; Prestressed Concrete Steel Wire Strand from the People’s Republic of China; Raw Flexible Magnets from the People’s Republic of China; and Sodium Nitrite from the People’s Republic of China.

TIRES AD AND CVD ORDERS

On August 10, 2015, in the attached notice, TIRES AD CVD ORDER, the Commerce Department issued antidumping and countervailing duty orders against Passenger Tires from China. The Antidumping Rates range from 14.35 to 30.74% with the Chinese separate rate companies receiving 25.84%. The PRC wide rate is 87.99%. The Countervailing duty rates range from 20 to 116% with the average rate for all other Chinese companies being 30.61%.

BOLTLESS STEEL SHELVES

On August 17, 2015, in the attached decision,factsheet-prc-boltless-steel-shelving-ad-cvd-final-081715, the Commerce Department announced its affirmative final determinations in the antidumping duty (AD) and countervailing duty (CVD) investigations of imports of boltless steel shelving units prepackaged for sale from China. The antidumping rates range from 17.55% to 112.68%, but the cash deposits in the AD case are only 1.49 to 96.62% because of the countervailing duty rates ranging from 12.40 to 80.45%, which are set off in part against the antidumping rates.

UNCOATED PAPER

On August 20, 2015, in the attached decision, factsheet-multiple-uncoated-paper-ad-prelim-082015, the Commerce Department announced its affirmative preliminary determinations in the antidumping duty (AD) investigations of imports of certain uncoated paper from Australia, Brazil, China, Indonesia, and Portugal. For China, the antidumping rates are very high from 97.48% to 193.30% with all Chinese companies but one getting the 193% rate.

MORE STEEL CASES AND STAINLESS STEEL CASES COMING

After the July 28, 2015 steel case that was filed against Cold-Rolled Steel Flat Products from China, Brazil, India, Japan, Korea, Netherlands, Russia, and the United Kingdom, on August 11, 2015, a new antidumping and countervailing duty case was filed against Hot-Rolled Steel Flat Products from Australia, Brazil, Japan, Korea, the Netherlands, Turkey, and the United Kingdom.

In briefs to the ITC, the domestic steel industry in the Cold-Rolled Steel case argue that the Commission should apply the new injury provisions in the statute and find that the domestic industry is materially injured.

There are also rumors in the market that US antidumping and countervailing duty cases will be filed against stainless steel imports from a number of countries, including China. On August 26, 2015, in the attached decision, EU STAINLESS STEEL, the EC imposed antidumping on imports of stainless steel cold-rolled flat products originating in the People’s Republic of China and Taiwan.

SOLAR CELLS

CIT AFFIRMS ITC

On August 7, 2015, in the attached Changzhou Trina Solar Energy Co., Ltd. et al v. US International Trade Commission (“ITC”),CIT AFFIRMS ITC INJURY , the Court of International Trade (“CIT”) affirmed the ITC’s injury determination in the original Solar Cells antidumping case.

SOLAR CELLS—EUROPE

On August 14, 2015, Chinese exporters of specialized glass for solar panels were hit with stiffer antidumping duties by the European Union on Friday after regulators determined that a decrease in export prices had failed to protect their domestic industry. An eight-month European Commission investigation found that dipping export prices allowed Chinese solar glass producers to “absorb” the duties imposed on their products in 2009, which demands increased duties to stop the surge of cheap imports that continue to flow into the EU. The EC then stated:

“[T]he Commission concluded that the sampled exporting producers absorbed the anti-dumping duty in force. Hence, anti-dumping measures imposed on imports of solar glass originating in the [People’s Republic of China] should be amended.”

The antidumping duties in place since 2009 ranged from 0.4 percent to 36.1 percent. Under the new regulation, those numbers go up to range from 17.5 percent to 75.4 percent, with Xinyi PV Products Anhui Holdings Ltd. hit with the highest duties.

The product subject to investigation is solar glass consisting of tempered soda lime flat glass, with an iron content of less than 300 parts per million and a solar transmittance of more than 88 percent, among other technical characteristics.

COMMERCE REVOKES ANTIDUMPING ORDER ON WOVEN ELECTRIC BLANKETS FROM CHINA

On August 18, 2015, in the attached notice,BLANKETS REVOCATION AD ORDER, the Commerce Department revoked the antidumping order on Certain Woven Electric Blankets From the People’s Republic of China because of lack of interest by the US industry.

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

On August 3, 2015, Commerce published the attached Federal Register notice, AUGUST OPPTY REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of August. The specific antidumping cases against China are: Ironing Tables,     Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow-Behind Lawn Groomers and Parts Thereof. The specific countervailing duty cases are: Laminated Woven Sacks,     Light-Walled Rectangular Pipe and Tube, Sodium Nitrite.

For those US import companies that imported Ironing Tables, Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow-Behind Lawn Groomers and Parts Thereof and the other products listed above from China during the antidumping period August 1, 2014-July 31, 2015 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

This is a very important month for US importers because administrative reviews determine how much US importers actually owe in Antidumping and Countervailing Duty cases. Generally, the US industry will request a review of all Chinese companies. If a Chinese company does not respond in the Commerce Department’s Administrative Review, its antidumping and countervailing duty rate could well go to the highest level and for certain imports the US importer will be retroactively liable for the difference plus interest.

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. In the recent Solar Cells 2012-2013 final review determination, for example, the following Chinese companies were determined to no longer be eligible for a separate antidumping rate and to have the PRC antidumping rate of 238.95%:

(1) Shanghai Suntech; (2) Wuxi Sunshine; (3) Changzhou NESL Solartech Co., Ltd.; (4) CSG PVTech Co., Ltd.; (5) Era Solar Co., Ltd.; (6) Innovosolar; (7) Jiangsu Sunlink PV Technology Co., Ltd.; (8) Jiawei Solarchina Co., Ltd.; (9) Jinko Solar Co., Ltd.; (10) LDK Solar Hi-tech (Suzhou) Co., Ltd.; (11) Leye Photovoltaic Science Tech.; (12) Magi Solar Technology; (13) Ningbo ETDZ Holdings, Ltd.; (14) ReneSola; (15) Shanghai Machinery Complete Equipment (Group) Corp., Ltd.; (16) Shenglong PV-Tech; (17) Solarbest Energy-Tech (Zhejiang) Co., Ltd.; (18) Suzhou Shenglong PV–TECH Co., Ltd.; (19) Zhejiang Shuqimeng Photovoltaic Technology Co., Ltd.; (20) Zhejiang Xinshun Guangfu Science and Technology Co., Ltd.; (21) Zhejiang ZG-Cells Co., Ltd.; (22) Zhiheng Solar Inc.; and (23) LDK Hi-Tech (Nanchang Co., Ltd.

IMPORT ALLIANCE FOR AMERICA

This is also why the Import Alliance for America is so important for US importers, US end user companies and also Chinese companies. The real targets of antidumping and countervailing duty laws are not Chinese companies. The real targets are US companies, which import products into the United States from China.

As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the antidumping and countervailing duty laws against China for the benefit of US companies.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America. The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

See the Import Alliance website at http://www.importallianceforamerica.com.

We will be targeting two major issues—working for market economy treatment for China in 2016 as provided in the US China WTO Agreement for the benefit of importers and working against retroactive liability for US importers. The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.

On November 18, 2015, importers in the Alliance will be meeting Congressmen and Congressional Trade Staff in Washington DC to discuss these issues. If you are interested in this effort, please contact the Import Alliance through its website or myself directly.

For your additional information, in the attached notice, 9-14 Kilmer Save-the-Date (3), pro-trade Democratic Congressman Derek Kilmer of Tacoma, Washington will be having a reception in Seattle, Washington on September 14, 2015. Congressmen Kilmer would be interested in talking to any importers that attend the reception.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On July 30, 2015, OFAC issued an Advisory, entitled “Obfuscation of Critical Information in Financial and Trade Transactions Involving the Crimea Region of Ukraine,” to call attention to practices that have been used to circumvent or evade the Crimean sanctions. While billed as an “Advisory,” the agency’s release stands as a warning to the financial services and international trade sectors of their obligation to implement adequate controls to guard against such evasive practices and ensure compliance with their obligations under the Crimean sanctions.

On May 21, 2015, the Commerce Department filed changes to the export rules to allow unlicensed delivery of Internet technology to Crimea region of Ukraine, saying the change will allow the Crimean people to reclaim the narrative of daily life from their Russian occupants. Under a final rule, which is attached to my blog, www.uschinatradewar.com, individuals and companies may deliver source code and technology for “instant messaging, chat and email, social networking” and other programs to the region without first retaining a license from the federal government, according to Commerce’s Bureau of Industry and Security.

Commerce stated:

“Facilitating such Internet-based communication with the people located in the Crimea region of Ukraine is in the United States’ national security and foreign policy interests because it helps the people of the Crimea region of Ukraine communicate with the outside world.”

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached to my blog are copies of the PowerPoint or the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. In addition, the blog describes the various sanctions in effect against Russia.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank. The “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions can be found at www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx.

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which is attached to my blog, which President Obama signed into law on December 19, 2014. Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

“At this time, the Administration does not intend to impose sanctions under this law, but the Act gives the Administration additional authorities that could be utilized, if circumstances warranted.”

The law provides additional military and economic assistance to Ukraine. According to the White House, instead of pursuing further sanctions under the law, the administration plans to continue collaborating with its allies to respond to developments in Ukraine and adjust its sanctions based on Russia’s actions. Apparently the Administration wants its sanctions to parallel those of the EU. As President Obama stated:

“We again call on Russia to end its occupation and attempted annexation of Crimea, cease support to separatists in eastern Ukraine, and implement the obligations it signed up to under the Minsk agreements.”

Russia, however responded in defiance with President Putin blasting the sanctions and a December 20th Russian ministry statement spoke of possible retaliation.

One day after signing this bill into law, the President issued an Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (the “Crimea-related Executive Order”). President Obama described the new sanctions in a letter issued by the White House as blocking:

New investments by U.S. persons in the Crimea region of Ukraine

Importation of goods, services, or technology into the United States from the Crimea region of Ukraine

Exportation, re-exportation, sale, or supply of goods, services, or technology from the United States or by a U.S. person to the Crimea region of Ukraine

The facilitation of any such transactions.

The Crimea-related Executive Order also contains a complicated asset-blocking feature. Pursuant to this order, property and interests in property of any person may be blocked if determined by the Secretary of the Treasury, in consultation with the Secretary of State, that the person is operating in Crimea or involved in other activity in Crimea.

The EU has also issued sanctions prohibiting imports of goods originating in Crimea or Sevastopol, and providing financing or financial assistance, as well as insurance and reinsurance related to the import of such goods. In addition, the EU is blocking all foreign investment in Crimea or Sevastopol.

Thus any US, Canadian or EU party involved in commercial dealings with parties in Crimea or Sevastopol must undertake substantial due diligence to make sure that no regulations in the US or EU are being violated.

CUSTOMS

JUSTICE DEPARTMENT — IMPORTER EXECUTIVE SHOULD GO TO PRISON FOR EVADING US ANTIDUMPING LAWS

On August 21, 2015 the Justice Department requested prison time of four to five years for an executive for illegally importing magnesium from China that was later sold to the military knowing that the Chinese magnesium was covered by an antidumping order. As the US Attorney stated in its response to the Defendant’s sentencing request:

“Based on the defendant’s intentional undervaluing [of the magnesium] for his own profit, it is the position of the government that the defendant was not a minor participant in the offense.”

Prosecutors alleged that the Executive received the powder from a Chinese export dealer named Qian Chen after it was mixed with quarter-inch aluminum nuggets. Nehill then mislabeled the powder as magnesium reagent, or nonpure magnesium, which carried only a 5 percent duty, rather than the 100% plus in antidumping duties.

PRODUCTS LIABILITY

LUMBER LIQUIDATORS IS HAMMERED BY PRODUCTS LIABILITY PROBLEM CAUSED BY CHINESE IMPORTS

On August 5, 2015, it was reported that Lumber Liquidators stock continued to fall by 14 percent, despite the fact that the stock was already down 72 percent this year. The fall in the stock price was caused by a surprise quarterly loss of $23 million. Numerous executives have left the company as it faces criminal and civil investigations by several regulators as a result of the charges, as well as consumer and shareholder class action suits.

Legal costs continue to smash the company as it has already spent $9.7 million to address legal problems associated with both consumer and shareholder lawsuits and ongoing probes by the Justice Department, SEC, the Consumer Product Safety Commission and the California Air Resources Board.

PRODUCTS LIABILITY COMPLAINTS AGAINST CHINESE PRODUCTS AND COMPANIES

On August 25, 2015, Juan Pruneda and Maria Ana Pruneda filed the attached products liability complaint, for a defective metal grate that led to the death of Matias Uriel Pruneda against Honghua International Co. Ltd., Chuanyou Guanghan Honghua Co., Ltd., Sichuan Honghua Petroleum Equipment Co., Ltd., Nabors Industries, Ltd., Nabors Drilling International Ltd., and Nabors Drilling International II Ltd.

IP/PATENT AND 337 CASES

SUPREMA—CAFC AFFIRMS ITC’S AUTHORITY IN INDUCED INFRINGEMENT IN SECTION 337 CASES

On August 10, 2015 in the attached en banc decision in Suprema, Inc. v. International Trade Commission, SUPREMA CAFC, a majority of the judges in the Court of Appeal for the Federal Circuit (“CAFC”) by a 6-4 vote affirmed the ITC finding that the Commission has the authority to exclude the importation of materials that induce patent infringement even if the products are not infringing when they cross the border.

The Federal Circuit found that because Section 337 does not directly address the issue of whether the ITC can exclude articles that infringe only after importation, the ITC’s interpretation of the statute as giving it jurisdiction over such post-importation infringement should be given deference.

The case involved fingerprint scanners from Korea which at the time of importation into the United States did not infringe the patent, but when the fingerprint scanners after importation were combined with software in the United States, they did infringe the US patent.

In the original CAFC decision, the 3 judge panel held on a 2-1 basis that since the scanners did not infringe the patent at the time of importation into the United States, their importation was not a violation of section 337. The En Banc panel based on a 6-4 determination reversed the ruling of the initial 3 judge panel finding that since the statute itself does not answer the question of whether the ITC has jurisdiction over goods that infringe only after importation, deference should be given to the Commission’s reasonable interpretation of Section 337 as giving the Commission authority over goods that infringe.

As the CAFC majority stated:

We conclude that because Section 337 does not answer the question before us, the Commission’s interpretation of Section 337 is entitled to Chevron deference. We hold that the Commission’s interpretation is reasonable because it is consistent with Section 337 and Congress’ mandate to the Commission to safeguard United States commercial interests at the border. Accordingly, we return the case to the panel for further proceedings consistent with this opinion. . . .

Reading the statute unambiguously to require that infringement occur at the time of importation would have produced absurd results under the pre-1994 version of § 271(a). Such a reading would mean that Congress, when it enacted the language at issue in 1988, excluded even the ordinary case of direct infringement. . . .

For nearly 35 years, the Commission has embraced its Congressional grant as bestowing authority to investigate and take action under Section 337 based on induced infringement. At least as early as 1980, the Commission was making determinations that inducement to infringe a valid U.S. patent under 35 U.S.C. § 271(b) constituted an unfair trade act under Section 337 that could be remedied by an exclusion order. . . . The Commission has persisted in its interpretation of Section 337 to the present day. . . .

The technical interpretation adopted by the panel weakens the Commission’s overall ability to prevent unfair trade acts involving infringement of a U.S. patent. The panel’s interpretation of Section 337 would eliminate relief for a distinct unfair trade act and induced infringement.

There is no basis for curtailing the Commission’s gap-filling authority in that way. Indeed, the practical consequence would be an open invitation to foreign entities (which might for various reasons not be subject to a district court injunction) to circumvent Section 337 by importing articles in a state requiring post-importation combination or modification before direct infringement could be shown.

The Commission reasonably determined that its interpretation would further the purpose of the statute. . . .

We note that our deference to the Commission’s statutory interpretation in this case is hardly momentous. The court has consistently deferred to the Commission, recognizing the Commission’s technical expertise in deciding issues arising under Section 337, a statute Congress has entrusted the agency to administer.

The Suprema case, however, is followed by Clear Correct v. ITC, which reached the CAFC after the ITC declared that the agency has the authority to stop the importation of digital files, not just physical goods. This case is presently on appeal at the CAFC, which has specifically asked the litigants to brief the issue of the impact of the Suprema decision on “the issues in this appeal.”

NEW PATENT AND TRADEMARK COMPLAINTS AGAINST CHINESE, HONG KONG AND TAIWAN COMPANIES

On July 31, 2015, Kiss Nail Products, Inc. filed the attached patent complaint KISS TIANJIN PATENT CASE, against Tianjin Shuangrong Paper Products Co., Ltd. and Shuang Rong America LLC.

On August 4, 2015, Boehringer Ingelheim Pharmaceuticals Inc., Boehringer Ingelheim International Gmbh, Boehringer Ingelheim Corporation, and Boehringer Ingelheim Pharma GmbH & Co. Kg filed the attached patent complaint,  SMALL HEP PATENT CASE, against Chinese companies Hec Pharm Group, Hec Pharm Co., Ltd., Hec Pharm USA, Mylan Pharmaceuticals Inc., Mylan Inc., Mylan Laboratories Limited, Intas Pharmaceuticals Limited, Accord Healthcare, Inc., Aurobindo Pharma Limited, Aurobindo Pharma Usa, Inc., Dr. Reddy’s Laboratories, Ltd., Dr. Reddy’s Laboratories, Inc., Zydus Pharmaceuticals USA, Inc., Cadila Healthcare Ltd., MSN Laboratories Private Limited, MSN Pharmaceuticals, Inc., Prinston Pharmaceutical Inc., Solco Healthcare U.S., LLC, Huahai US Inc., Zhejiang Huahai Pharmaceutical Co., Ltd., Invagen Pharmaceuticals Inc., Sun Pharmaceutical Industries Ltd., Sun Pharma Global Fze, and Sun Pharmaceutical Industries, Inc.

On August 10, 2015, Hitek Software LLC filed the attached copyright complaint FOXCONN COPYRIGHT CASEagainst Foxconn Corp., Foxconn Interconnect Technology (USA), Inc., Foxconn Electronics, Inc. and Foxconn EMS Inc.

On August 18, 2015, Foshan Naibo Electric Product Co., Ltd., a Chinese company, and Xpower Manufacture, Inc. filed the attached patent case CHINA COMPAY SUING CHINA COMPANY, against another Chinese company, Ningbo A-One Industrial Co., Ltd.

CHINA IP AND PATENT LAW

Recently, AFD China Intellectual Property Law office in China issued the attached Newsletter, News August 2015 fr AFD, about developments in Chinese patent law.

ANTITRUST

There have been major developments in the antitrust area.

VITAMIN C CASE—COLLECTIONS PROBLEMS

As the Vitamin C case is on appeal to the Second Circuit, the Plaintiffs in the case seek to vigorously enforce their $160 million judgment against Hebei Welcome Pharmaceutical Co. Ltd. and North China Pharmaceutical Group Corp. On August 14, 2015, the Federal judge stated that he was tempted to place the Chinese companies, judgment debtors, into receivership because they are in contempt in contrast to continuing to beat up the US Chinese bank branches so as to get the companies’ assets in China and elsewhere.

Plaintiffs argue that the two Chinese defendants have frustrated all collection efforts to date and added that banks have used sleights of hand and hidden behind a recently strengthened “separate entity rule” to stymie subpoenas. Plaintiffs’ attorney said that the money appears to sit inside of China and pressed for a receivership as a potential new avenue to press for collection:

A receivership is materially better than sending subpoenas out [to banks] and having these fights.

In response to the Chinese argument that the two Chinese companies would face prosecution in China if the complied, the Federal judge was not willing to consider the argument:

“It is more a question of what people want at any particular time in China” and stated that it appeared the companies and the Chinese government were working together with “a nod and a wink” to frustrate collection.

The judge further stated “It’s almost like instant nationalization of a company for the protection of the local economy.”

Attached is a full transcript of the hearing, 2ND CIRCUIT LETTER THREE, before the Federal Judge, which was filed with the Second Circuit.

CHINA ANTI-MONOPOLY CASES

T&D JANUARY REPORT

In August T&D also sent us their attached July report, T&D Monthly Antitrust Report of July 2015, on Chinese competition law.

SECURITIES

On August 17, 2015, a class action securities case was filed against Chinese Mobile Co, NQ Mobile, Inc., with allegations of mismanagement and investor fraud. The allegations are that the company has hid information from investors, diluted the stock through overvalued equity purchases and refused good faith offers to buy the business. The suit said, in particular, the company has taken to buying out small Chinese Internet firms for tens of millions of dollars in equity to expand the business and dilute shareholders without further offerings.

“This company has a few mobile applications available on iTunes with no ratings or reviews, and only 100 to 500 downloads on Google Play. No independent analysis of similar companies would value such an entity, with such a small number of product purchases, anywhere near $54 million.”

According to the complaint, NQ parted ways with its prior auditor, Price Water House Coopers China, over access to documents detailing those transactions.

“NQ Mobile has not explained why the acquisitions were made in the first place, and there is no evidence that the costs were justified and in the best interest of NQ Mobile and its shareholders.”

FOREIGN CORRUPT PRACTICES ACT

Recently, Dorsey & Whitney LLP issued its attached August 2015 Anti-Corruption Digest, Anti-Corruption-Digest-Aug2015.

With regards to China, the August Digest states:

Mead Johnson Nutrition Co. Settles FCPA Charges with SEC

The Illinois-based maker of Enfamil and other infant formula products, Mead Johnson Nutrition Co., has settled civil charges of FCPA violations related to its China operations. Under the terms of the settlement with the SEC, which has been entered in an administrative order, Mead Johnson disgorged $7.77 million (£4.95 million) plus $1.26 million (£800,000) prejudgment interest, and paid a $3 million (£1.9 million) penalty. The company neither admitted nor denied the charges.

According to the SEC, Mead China, Mead Johnson’s Chinese subsidiary, paid $2 million (£1.3 million) in bribes to healthcare professionals employed by state-owned hospitals in exchange for the healthcare professionals’ recommendations of its products, and for contact information for new and expectant mothers. According to the administrative order, Mead Johnson violated the books and records provisions of the FCPA by inaccurately recording these bribes as “distributor allowances”. The SEC alleges that Mead China gave steep discounts to distributors and directed the distributors to pay the state employed health care professionals.

In its order, the SEC also alleges that Mead Johnson violated the internal controls provisions by failing to have an adequate internal accounting control system. The SEC did not allege that the U.S. parent or any U.S. person knew about or coordinated the bribes, and none of the conduct was alleged to have taken place in the U.S. This lack of U.S. nexus to the alleged violations may explain why the U.S. Department of Justice (DOJ) has informed Mead Johnson that it has closed its parallel investigation into the bribery activity.

The SEC noted in its order that Mead Johnson had conducted but not reported an internal investigation into these allegations in 2011. When the SEC approached Mead Johnson in 2013 regarding these allegations, Mead Johnson initially failed to report its internal investigation, which had not confirmed the illegal payments.

Plaintiffs Request $62 million Avon Settlement

A group of investors have reportedly requested that a federal judge in New York approve a $62 million (£40 million) settlement in a lawsuit. The shareholders allege that Avon along with its former CEO, Andrea Jung, and former CFO, Charles Cramb, misled them about the company’s compliance with the FCPA in China.

The Chinese subsidiary in question allegedly made $8 million (£5 million) worth of payments in cash, gifts, travel, and entertainment to various Chinese officials, according to the DOJ. Avon needed the approval of the officials in order to undertake direct sales in China. The matter is ongoing.

China

It has been reported that, since President Xi Jinping initiated his anti-corruption campaign in 2012, Chinese authorities have returned Rmb38.7 billion ($6.2 billion/£4 billion) of funds involved in corruption matters to the state.

The Central Commission for Discipline Inspection (the “CCDI”), China’s anti-corruption body, stated that the money had been returned to the state, without specifying which government entity received it. The sums recovered are said to include confiscated bribes in the form of cash, land, gifts and fines that have been levied.

According to Han Jinping, director-general of the CCDI’s case co-ordination department, “submitting illegally obtained money to the national coffers and recovering economic losses will help correct the economic incentives distorted through corruption”.

HIRING RELATIVES OF FOREIGN GOVERNMENT OFFICIALS BECOMES AN FCPA ISSUE

In an August issue on his securities blog, Tom Gorman, a partner in Dorsey’s Washington DC office and formerly with the SEC Enforcement division, states:

The SEC has been investigating sovereign wealth funds and issues relating to the hiring of friends and family of foreign officials for some time. Now it has filed a settled action centered on both of those issues which contains a cautionary note for those who have not updated their compliance procedures in view of these inquiries. . . .

The Commission acknowledged the cooperation of BNY Mellon and its remedial acts which, prior to the SEC’s investigation, included initiating reforms to its anticorruption policy to address the hiring of government officials’ relatives.

To resolve the case Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order.

In addition, BNY Mellon agreed to pay disgorgement of $8.3 million, prejudgment interest and a civil money penalty of $5 million. BNY Mellon acknowledged that a penalty of over $5 million was not imposed based on its cooperation.

For the full article, see http://www.secactions.com/sec-bny-mellon-settle-fcpa-charges-tied-to-hiring-relatives-of-officials.

SECURITIES COMPLAINTS

On August 14, 2015, Daniel Finocchiaro filed the attached class action securities case, Complaint (7), against NQ Mobile, Inc., Henry Yu Lin, Omar Sharif Khan, Vincent Wenyong Shi, Xu Zhou, James Ding, Jun Zhang, Roland Wu, Chun Ding, William Tiewei Li, Xiuming Tao, Max Yao, Justin Chen, Ying Han, Zemin Xu, Matthew Mathison, and Bingshi Zhang.

If you have any questions about these cases or about the US trade, trade adjustment assistance, customs, 337, patent, US/China antitrust or securities law in general, please feel free to contact me.

Best regards,

Bill Perry

 

US CHINA TRADE WAR JULY 2015 TPA, TPP, TRADE POLICY, TRADE AND CUSTOMS

US Capitol North Side Construction Night Washington DC ReflectioTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR JULY 15, 2015

 

Dear Friends,

Because of the substantial activity in May, June and July with the passage of Trade Promotion Authority (“TPA”) and the ongoing Trans Pacific Partnership (“TPP”) negotiations, this blog post is being split into two parts.  The first part will cover trade policy, trade and Customs.  The second part will cover products liability, Patent/IP, antitrust and securities.

In May and June, Congress, both the House of Representatives and Senate,  twisted and turned itself into knots to pass TPA for the President and to keep the trade negotiations on track.

But TPA is not the end of the story.  In passing TPA through the Senate and House, Congress laid down a number of stiff negotiating objectives.  Essentially, it raised the bar for the negotiations for the Trans Pacific Partnership (“TPP”) and European negotiations of the Transatlantic Trade and Investment Partnership (“TTIP”).  Congressmen and Senators indicated that they intend to be very involved personally in the negotiations so to assume that TPP negotiations will be finished in a month, as predicted by the Austrian Trade Minister and even the United States Trade Representative (“USTR”), is simply wishful thinking.

On July 9th, however, Chairman Paul Ryan stated that an agreement could be finalized by late fall.  USTR also recently announced that there will be a major TPP negotiating round between July 24-30th in Hawaii.

Now the heavy lift begins.  Now is the time for any US company that is having export problems with exports to the 12 Trans Pacific Partnership countries, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, to bring these problems to the attention of US negotiators and also their Congressional representatives so the issue can be included in the ongoing negotiations.

As Senators Hatch and Wyden stated on June 24th on the Senate Floor and below and Representatives Ryan, Levin and Sessions stated on the House floor on June 25th, this is just the beginning of the process and this process has a very long way to go.

The first half of this blog post will set out the twists and turns of the TPA negotiations in the House and the Senate, along with developments in the TPP negotiations and also developments in trade and Customs law.  The second half of the blog post will cover products liability, IP/Patent, China antidumping cases, antitrust and securities.

Best regards,

Bill Perry

TRADE POLICY

TPP NEGOTIATIONS FORGE AHEAD BUT CANADA IS A STICKING POINT

On July 7th and 9th, it was reported that TPP negotiations are into their final round, but other commentators have stated that there is still a ways to go.  On July 9th in a Politico Morning Money speech, which can be found here http://www.c-span.org/video/?327014-1/politico-conversation-trade-representative-paul-ryan-rwi, Paul Ryan, House Ways and Means Chairman, stated that there could be a final TPP Agreement by late Fall.  There appears to be a very strong push to conclude the TPP Agreement by the end of Year so it does not bleed into 2016, an election year.  If TPP becomes an election issue, it could pose a very difficult political issue, especially for the Democrats and Hilary Clinton, in particular, because much of the Democratic base, such as the Unions, strongly oppose the Trade Agreements.

On July 1st, at a Politico Playbook Discussion, USTR Michael Froman stated that they hope to complete the TPP “as soon as we possibly can,” and deliver it to Congress by the end of the year.  Froman further stated:

We’re in the final stages of negotiating the Trans-Pacific Partnership.  We’re down to a reasonable number of outstanding issues, but by definition, those issues tend to be the most difficult, whether it’s on market access or on rules like intellectual property.

Froman also stated that with Japan good progress had been made on agriculture and automobiles, and “I don’t really see that as an obstacle to other progress at the moment.”  He went on to state that other issues include access to the Canadian agricultural markets and rules on intellectual property rights, investment and state-owned enterprises.

More importantly, Froman stated that the major achievement of the TPP is that there are no product-area exemptions—all product areas will be covered.  He stated that the negotiators were committed “to ensure that our exporters have commercially meaningful market access to foreign markets.”

On July 7th USTR announced that the chief negotiators and ministers of the 12 countries engaged in the TPP trade talks will meet in Maui, Hawaii at the Westin Maui Resort and Spa, with the chief negotiators meeting July 24-27 and the ministers meeting July 28-31. USTR stated that “The upcoming ministerial provides an important opportunity to build on this progress as we work to conclude the negotiation.”

With U.S. trade promotion authority (TPA) now in place, the stage is set for the U.S. and Japan to finalize their talks on nontariff barriers to U.S. autos, which includes an auto-specific dispute settlement mechanism, and for the U.S. and Canada to begin negotiating in earnest on the roughly 100 Canadian tariff lines containing dairy, poultry and eggs—items administered by a supply management system that restricts imports to protect the domestic industry.

Japanese and Canadian government officials were waiting for TPA to pass before making final offers.

One Commentator stated, however, that she does not believe that the Maui meeting will be the final TPP negotiating round.  Lori Wallach of Public Citizen stated

“There have been seven rounds since the ‘final’ TPP negotiating round and at least three ‘final’ TPP ministerials and there are many outstanding sensitive issues and now it’s clear to the other countries just how split Congress is on TPP, so whether this really is it remains to be seen.”

Wide chasms remain within several sectors potentially impacted in the 31 negotiation areas. For example, the U.S. is demanding the quota for Japan’s food-use rice imports be increased to about 175,000 tons while Japan is insisting 50,000 tons. Japan is demanding that the U.S. eliminate tariffs on Japanese auto parts manufactured in the Southeast Asian countries with which Tokyo has an economic partnership agreement. The two countries also have yet to agree on Japanese beef and pork import tariffs, though the issue is almost settled. There are still wide gaps between the 12 countries on intellectual property rights protection of pharmaceuticals data and dispute settlement on cross-border trade and investment.

In a July 14th trade publication, former USTR general counsel Warren Maruyama reinforced the skepticism about the potential conclusion of the TPP in Hawaii, stating:

I think it’s a bit of a stretch; my understanding is there are a lot of brackets.  There’s a whole bunch of difficult things.”

Moreover, a swift conclusion of the TPP would not go well with Congress.  As Maruyama further stated:

One of the expectations coming out of TPA is there’s going to be a much better process of consultations, and it’s not necessarily going to go over well if there’s some sort of a rush to agreement without adequate consultation with the Congress, particularly when you get into these sensitive sectors.

On July 7th, at the time of the announcement of the Hawaii TPA meeting, President Obama was meeting Nguyen Phu Trong, the general secretary of Vietnam, another TPP country.   President Obama noted that the TPP talks “was an excellent opportunity for us to deepen our discussion” and the trade deal has “enormous potential” for economic growth for both countries. Trong stated that U.S. and Vietnam have been able to “rise above the past.” “What is of utmost importance is we have transformed from former enemies to friends.”

Meanwhile, the New York Times reported on July 7th:

Outstanding controversies include access to Canada’s agriculture market, Australian concerns over American pharmaceutical patent rules, Peru’s rain forest management, Chinese components in Vietnamese textile exports and labor organizing rights in Vietnam and Mexico. The dispute over access to Canada’s protected dairy and poultry markets is so fierce that some participants say they believe Canada could drop out of the talks. . . .

United States officials feel confident enough a deal is at hand that they have scheduled a meeting among the chief negotiators at the Westin Maui Resort & Spa in Hawaii during the last four days in July and have notified Congress that they expect this to be the last one.

But on July 7th, the Canadian government restated its support for the TPP deal, with Finance Minister Joe Oliver saying increased trade and investment will benefit the economy.  Oliver further stated that Canada has “come a long way from the free trade bogeyman” era of the 1980s, when the North American Free Trade Agreement was negotiated.”  The TPP deal “will unlock the Pacific powerhouse” and create jobs in Canada.  Canada is under pressure to open up its dairy and poultry sectors, where production is controlled through quotas and imports are restricted with high tariffs. Dismantling that system, known as supply management, may become an election issue in rural districts for Conservatives in the hard fought fall election.

Oliver further stated, “Free trade is at the heart of the Canadian advantage. It is the heart of Canada’s future.  Canada must build on the free trade empire we have forged.”

But on July 13th the Huffington Post reported that US Congressmen and Senators are pressuring the Administration to push Canada out of the TPP if it does not agree to deregulate its dairy and poultry industries and open them up to import competition.  This point, however, is not new.  Several months ago while discussing the TPP negotiations with Congressional trade staff on Capitol Hill, they made the same point.  If Canada does not give in on dairy and poultry, they will be dropped from the negotiations.

To stay in the TPP, the Canadian government must agree to dismantle the supply management system that protects Canada’s dairy and poultry industry.  In addition to the US, Australia and probably New Zealand are pushing Canada to open up.  In the past the Canadian government has broken up supply management system for certain products, dismantling the Canadian Wheat Board in 2011.  But it is reluctant to do so with the dairy industry because of the upcoming Canadian elections.

In addition to dairy and poultry, lumber is also a target.  Another target should be the Canadian Provincial restrictions on wine imports.  British Columbia, for example, levies an 89% tariff, higher than China, on US wine imports.

But Canada’s National elections are also an issue.  They take place on October 19, 2015 so the present Canadian government may want to wait to make major concessions until after the National election in Canada.

Because of these problems, many Trade Commentators, including John Brinkley of Forbes, believe that TPP still have a long way to go.  As John Brinkley stated in his column on July 7th:

Negotiations over the TPP among and between the 12 parties to it are not as close to completion as Obama and U.S. Trade Representative Michael Froman would like you to believe. There are enough unresolved issues in the text to keep the negotiators at the table for a long time.

To be fair, the 11 other TPP parties know they need to finish it and get it to the U.S. Congress for a vote by the end of the year. If it drags into the 2016 election year, all bets are off. That fact, along with Congress having given Obama fast-track authority, may soften their negotiating positions on some issues.

For the full article, see http://www.forbes.com/sites/johnbrinkley/2015/07/07/tpp-still-has-a-long-way-to-go/.

TPP NEGOTIATIONS BECOME MORE TRANSPARENT

As promised on the House and Senate floors the passage of TPA has led to more transparency. On July 9, 2015, the United States Trade Representative’s office (“USTR”) announced that members of its various advisory committees, including labor unions, industry experts and environmental groups, can now see the negotiating text of the TPP.

USTR specifically stated:

This week, a diverse group of trade advisers — including labor unions, industry experts, environmental groups and public advocates — will begin viewing draft TPP negotiating text as part of the congressionally established trade advisory process.  These advisors will receive full and equal access to the draft negotiation text in an effort to ensure that they can adequately prepare congressionally mandated reports on TPP.

The Obama administration firmly believes that the input of a wide array of voices is integral to trade negotiations, which is why we have grown the size and membership of our trade advisory committees.

TPA AND TAA NOW LAW—THE HEAVY LIFTING NOW BEGINS AS NEGOTIATIONS CONTINUE ON TPP

On June 25, 2015, the House of Representatives passed the African Growth and Opportunity Act (“AGO”) by a vote of 286 to 138, which includes Trade Adjustment Assistance (“TAA”), and the bill, was sent to President Obama.  See House Debate on TPA at http://www.c-span.org/video/?326582-4/house-debate-trade-promotion-authority.  On June 24, 2015 the US Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 for President Obama’s signature.  See the Senate debates at http://www.c-span.org/video/?326681-5/senate-debate-trade-promotion-authority.  As the Senate and House leadership promised, both TPA and TAA were on President’s Obama’s desk at the same time.  To see President Obama sign the Trade Bills, watch CSPAN at http://www.c-span.org/video/?326821-2/president-obama-bill-signing-ceremony.

Now the heavy lift begins.  On June 23, 2015, Prime Minister Shinzo Abe of Japan predicted that with the TPA vote TPP could be finalized in a month.  That simply is not going to happen. With all the negotiating objectives in the TPA bill, including currency manipulation, I firmly believe that TPP negotiations will go on until at least the end of the year and possibly into 2016, an election year.

In light of numerous Congressional negotiating objectives, the TPP negotiations are going to take time and will not be an easy lift.  Congress will be involved in the negotiations every step of the way so this will not be simple.

As Paul Ryan, Chairman of the House Ways and Means, stated on President Obama’s signature of TPA:

“With TPA in place, our attention shifts to the trade agreements currently being negotiated with our friends in the Asia-Pacific region and Europe. Just as TPA allows greater oversight of the process, it requires the administration to follow Congress’s priorities and achieve high-standard agreements. We have a great opportunity ahead of us, and Congress and the administration both must do their parts to seize it.”

Anyone who thinks TPP negotiations will be finished in a month is simply wishful thinking.  This will be a difficult set of negotiations.  As the Wall Street Journal stated on its June 25th front page:

The White House and Republican leaders notched a significant victory Wednesday with the Senate’s passage of divisive trade legislation, but the win kicks off a grueling, months long process to complete a Pacific trade pact that still faces domestic opposition and must win final congressional approval.

As Democratic Congressman Sander Levin, ranking Democratic member of House Ways and Means, stated on June 25th on the House Floor, the battle now switches from TPA to the actual negotiations and words in the TPP itself:

The debate these last weeks and months has been about how do we get a strong and effective trade policy and trade agreement. That debate only intensifies now.  . . . The argument about the process of T.P.A. is now behind us. And the challenge of the substance of T.P.P. smack in front of us. Automatic embrace of centuries’ old doctrines does not meet the challenges of intensifying globalization. So we will continue to shine a bright light on the critical issues like market access, state-owned enterprises, intellectual property and access to medicines, worker rights, environment, currency manipulation and investment provisions that could put at risk domestic regulations.

Our calls for improvements to the negotiations will only grow louder. In order for T.P.P. to gain the support of the American people, it will need to gain the votes of a much broader coalition of members of Congress than voted for T.P.A. the issue is not pro-trade versus anti-trade, but whether we shape trade agreements to spread the benefits broadly, including the middle class of Americans.  . . .

As Republican Congressman Pete Sessions stated on June 25th on the House Floor, Congressional Representatives will have their chance and these negotiations are going to take time:

But I would respond and say to the gentleman, you’re going to have an opportunity and I can’t wait to get you invited to every single round of these and have you find time to go do exactly what you think members of Congress ought to be doing. Because in fact that’s the way the T.P.A. is written.  . . . But this whole process — as soon as that takes place, the gentleman will have all the opportunity he wants to go and take part of every round of the discussions. . . . As soon as it’s signed by the President, he can go at it.  . . . he will have that opportunity and every member of this body will have that same chance. He and every member will have a chance to go and negotiate, be in the room, be a part of the discussion . . . but he will be allowed as a member of Congress.

So, Mr. Speaker, the things which are being talked about most as negative points about this bill, there’s already an answer to it. That’s what Republicans did. This is a Republican bill. This is about the authority of the House of Representatives, the United States Congress, to make sure we are involved. That has never been allowed before. Fast track is what we used to have. That’s what we did have. We now have a bill before us today which will help us complete the entire process, to make sure members of Congress are involved, not just the United States negotiators, but all the world will know . . . the parts about how we’re going to negotiate the trade deal and if it doesn’t come back that way, we’ll vote it down. Do we need to second guess them now today? I don’t think so. But if any member wants to be involved in this, they can just get on their plane and go wherever they want and get it done. And by law they’ll be allowed that opportunity.

All those pundits that say the TPP negotiations will be concluded in a month simply have not listened to the arguments on the House and Senate Floor.  To get a TPP, which will pass Congress, will require much more negotiation and a much longer time.  The TPP negotiations will not conclude until the end of the year at the earliest and possibly 2016, an election year.

HOUSE VOTES TO PASS AGOA AND TAA ON JUNE 25, 2015 AND BILL GOES TO THE PRESIDENT

On June 25, 2015 the African Growth and Opportunity Act (“AGOA”) with Trade Adjustment Assistance (“TAA”) passed the House by a 286 to 138 vote and went to President Obama for signature.   As promised by House Speaker John Boehner and House Ways and Means Chairman Paul Ryan, TAA was brought to the floor of the House and passed.  As Republican Congressman Dave Reichert, a co-sponsor of the TAA bill, stated on the House Floor:

Also included in this legislation is a renewal of trade adjustment assistance and I’m proud as Mr. Ryan said, to sponsor the House legislation to renew it because there is a need for this program. I believe increased trade is good for all Americans and it creates jobs. It makes America stronger. But I also understand that among and along the way, as we create jobs and trade and our jobs change over the next few years, along the way, some workers may need extra assistance and additional training. That’s why T.A.A. is so important. We’ve made great strides this past week by sending T.P.A. to the President’s desk . . . So now, Mr. Speaker, we must move forward, pass T.A.A. and AGOA today.

As Democratic Congressman Earl Blumenauer on the House Floor stated today, the Republican leaders kept their promise on TPA and TAA:

It’s at times trust is in short supply in this institution for a whole host of reasons but we were given ironclad assurances from the Speaker, from the President, from the Chairman, from Senator Wyden, Senator Hatch, Leader McConnell that T.A.A. would come back to this floor to be voted on. And I think it’s important that that has in fact occurred. Because to adapt, respond and grow a 21st century work force we need trade adjustment assistance. And what we have before us is an improvement over current law. It’s not as good as what we had in 2009, and I hope that we will be able to build on this and move forward, but this program has helped more than 100,000 Americans, including 3,000 of my fellow Oregonians who received job training and financial support. And there will continue to be winners and losers in the global economy. Whether we have trade agreements with countries or not like with pressures from China, it’s important that we provide this for our workers. With our vote today we do so.

The funding for TAA for companies, however, remains very low.  As one TAAC director told me:

Due to the Appropriations error of funding the program at $12.5M, our TAAC will have a budget of less than $3,000.00 per company this next year.   Obviously, we can’t provide much serious technical assistance for $3,000 per company, and worse, it disrupts the momentum we’ve established for facilitating their recovery.   Worse yet, this happens at a time when we should be building the program in anticipation of TPP and TTIP!

 It’s frustrating to know that the TAA for Worker’s program net cost annually per individual worker is $53,802.00* – just think what we could do if we had that kind of budget annually for companies!

* A 2012 cost-benefit evaluation commissioned by the Department of Labor found a net cost to society of $53,802 for each person who enrolled in the program between November 2005 and October 2006.

At that rate, if the TAA for Firms program prevented just 300 workers per year from enrolling in TAA for Workers because we saved their jobs instead (what a concept!), we would have generated more than enough cost savings to fund the TAAF program’s national annual budget of $16M (300 workers x $53,802 = $16,140,600).   That’s an incredibly low bar to meet on a national basis – it’s one that each of the 11 regional TAAF Centers could meet quite easily, resulting in net cost savings of more than $175M!

 When you look at it from that perspective, it shows the kind of  “no brainer” decision it is to fund the TAA for Companies program.  It’s really hard to understand why we can’t gain some traction with that elementary logic.

SENATE PASSES TPA AND THE BILL GOES TO PRESIDENT OBAMA’S DESK FOR SIGNATURE—THE INS AND OUTS OF THE NEGOTIATIONS

After jumping over a major procedural hurdle on June 23rd, on June 24th the Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and the House sent the bill to President Obama for his signature. Set forth below are some of the major statements by the proponents and one opponent of the bill. To see the entire debate, watch CSPAN.org at http://www.c-span.org/video/?326775-1/us-senate-advances-taa-passes-tpa&live.

Trade Adjustment Assistance (“TAA”) also passed the Senate by an overwhelming vote of 77 to 23 votes, which then went to the House for final passage on June 25th.

To recap, after passing the Senate on May 22nd, the linked TPA and Trade Adjustment Assistance (“TAA”) bills went to the House of Representatives. Despite Herculean efforts by House Ways and Means Chairman Paul Ryan, on June 12th progressive Democrats and tea party protectionist conservative Republicans joined together to defeat Trade Adjustment Assistance and pursuant to the procedural rules kill TPA. But pro-trade Republicans and Democrats in the Senate and the House worked with President Obama over the weekend to come up with an alternative strategy and delink TAA from TPA.

On June 18th, the House passed the TPA as a stand-alone bill. See Paul Ryan’s statement on the House Floor at http://waysandmeans.house.gov/.

On June 23, 2015, in a key procedural vote in the Senate, which required a minimum of 60 votes to pass, the Senate passed cloture 60-37 for Trade Promotion Authority (“TPA”) and essentially agreed to move forward with the stand alone House TPA Bill, which had passed on June 18th.  One can see the Senate vote and the entire speeches up to and after the vote on Cspan at http://www.c-span.org/video/?326681-1/us-senate-debate-trade-promotion-authority.

All the Senators emphasized during the final TPA debate the importance of the Customs and Trade Enforcement bill going through Congress. This bill will crack down on US importers that attempt to evade antidumping and countervailing duty laws by importing transshipped merchandise. This Customs and Trade Enforcement Bill is directed straight at the problem of transshipment by certain Chinese companies around US antidumping and countervailing duty orders. That bill has now gone to conference where representatives of the House of Representatives and Senate will reconcile differences between the House and Senate bills.

Before the TPA final vote on June 24th, Senate Majority leader Mitch McConnell stated:

Yesterday’s T.P.A. [procedural] vote [was a] long overdue victory for the American worker and the American middle class. It wasn’t easy. Many thought it would never happen. We even saw corks pop in the facts optional lobby a few weeks ago, but that proved to be premature because here’s what we’ve always known about the legislation we’ll vote to send to the President today. It’s underpinned by a simple but powerful idea, for American workers to have a fair shot in the 21st century economy, it just makes sense to remove the unfair barriers that discriminate against them and the products that they make. Some may disagree. They certainly weren’t quiet in voicing their opinions. It’s okay if they don’t share our passion for ending this unfair discrimination against American workers. It’s okay if they would rather rail against tomorrow.

But a bipartisan coalition in the House and the Senate thought it was time for forward progress instead. We were really pleased to see President Obama pursue an idea we’ve long believed in. We thank him for his efforts to help us advance this measure. We thank all of our friends across the aisle for their efforts too. Senator Wyden, most of all. Over in the house, I commend Speaker Boehner and Chairman Ryan for everything they’ve done. It hasn’t been easy, and without them it wouldn’t have been possible. And of course let me thank Chairman Orrin Hatch for demonstrating such patience, persistence and determination throughout this process. He never lost sight of the goal, never gave up. The people of Utah are lucky to have him.

The Senate’s work on trade doesn’t end today. I said the Senate would finish pursuing the rest of the full trade package, and it will. . . That process continues. But the key victory for American workers and products stamped “Made in the U.S.A.” comes today. The bill we’re about to pass will assert Congress’s authority throughout the trade negotiation process. It will ensure we have the tools we need to properly scrutinize whatever trade agreements are ultimately negotiated and it will make clear that the final say rests with us. We had plenty of bumps along the road. Frankly, a few big potholes too. But we worked across the aisle to get through all of them. That’s an example of how a new Congress is back to work for the American people. I thank everyone who helped us get where we are. Now let’s vote again to support the American worker and American middle class by approving the bipartisan T.P.A. bill.

Before the final TPA vote, ranking Democratic Senator Ron Wyden of the Senate Finance Committee emphasized that the TPA bill would go through along with a Customs and Trade Enforcement bill, which includes major changes to the US Customs and Trade laws, including a sharp crack down on transshipment around US antidumping and countervailing duty laws. As I have stated many times on this blog, the transshipment issue is a burning issue in Washington DC and now it has resulted in legislation, which has gone to Conference Committee with the House of Representatives. Senator Wyden stated today on the Floor:

Mr. President, today the Senate is taking major steps towards a new, more progressive trade policy that will shut the door on the 1990’s North American Free Trade Agreement once and for all. One of the major ways this overall package accomplishes this goal is by kicking in place a tough new regime of enforcing our trade laws. . . . And it has long been my view, Mr. President, that vigorous enforcement of our trade laws must be at the forefront of any modern approach to trade at this unique time in history. One of the first questions many citizens ask is, I hear there’s talk in Washington, D.C. about passing a new trade law. How about first enforcing the laws that are on the books? And this has been an area that I long have sought to change, and we’re beginning to do this with this legislation, and I want to describe it. And for me, Mr. President, this goes back to the days when I chaired the Senate Finance Subcommittee on International Trade and Competitiveness, and we saw such widespread cheating, such widespread flouting of our trade laws, my staff and I set up a sting operation. We set up a sting operation to catch the cheats. In effect, almost inviting these people to try to use a web site to evade the laws. And they came out of nowhere because they said cheating has gotten pretty easy, let’s sign up. And we caught a lot of people. So we said from that point on that we were going to make sure that any new trade legislation took right at the center an approach that would protect hardworking Americans from the misdeeds of trade cheats.

And in fact, the core of the bipartisan legislation that heads into conference is a jobs bill, a jobs bill that will protect American workers and our exporters from those kind of rip-offs by those who would flout the trade laws. And the fact is, Mr. President, when you finally get tough enforcement of our trade laws, it is a jobs bill. A true jobs bill, because you are doing a better job of enforcing the laws that protect the jobs, the good-paying jobs of American workers. And I guess some people think that you’re going to get that tougher enforcement by osmosis. We’re going to get it because we’re going to pass a law starting today with the Conference Agreement that’s going to have real teeth in it. Real teeth in it to enforce our trade laws. Foreign companies and nations employ a whole host of complicated schemes and shadowy tactics to break the trade rules. And they bully American businesses and undercut our workers.

So what we said in the Finance Committee on a bipartisan basis, that the name of the game would be to stay out in front of these unfair trade practices that cost our workers good-paying jobs. My colleagues and I believe that the Senate has offered now the right plan to fight back against the trade cheats and protect American jobs and protect our companies from abuse. It really starts with what’s called the Enforce Act, which is a proposal I first offered years ago that will give our customs agency more tools to crack down on the cheaters. Then we have a bipartisan, bicameral agreement on the need for an unfair trade alert.  . . .

And it’s been too hard, too hard in the past for our businesses, particularly our small businesses, to get the enforcement that matters, the enforcement with teeth, the enforcement that serves as a real deterrent to cheating. So this legislation is our chance to demonstrate that strengthening trade enforcement, enforcement of the trade laws, will now be an integral part of a new modern approach to trade, an approach that says, we’re not part of the 1990’s on trade where nobody had web sites and iPhones and the like; we’ve got a modern trade policy with the centerpiece enforcing our trade laws. Our policies are going to give America’s trade enforcers the tools they need to fight on behalf of American jobs and American workers and stop the trade cheats who seek to undercut them. I strongly urge my colleagues to vote “yes” later today on the motion to send the enforcement bill to conference and work on a bipartisan basis, as we did in the Finance Committee, to put strong trade enforcement legislation on the President’s desk. . . .

The three programs — the trade adjustment assistance program, the health coverage tax credit, Senator Brown’s leveling the playing field act — are now moving through the Senate alongside legislation that creates new economic opportunities for impoverished countries in Africa and other places around the world. . . . I urge all of my colleagues to vote yes to support these important programs when we vote later today.

Senator Sherrod Brown of Ohio speaking against the final TPA vote pounded on the enforcement bill:

Its authority to amend trade agreements, should not pave the way for a trade deal that looks like it’s going to be more of the same. Corporate handouts, worker sellouts. We’ve seen it with NAFTA. We saw a similar kind of move on PNTR with China where the trade deficit, our bilateral trade deficit has almost literally exploded since 2000, when this body and the other body moved forward on PNTR. . . . . We also have a responsibility to look out for the American worker who we know will be hurt by this deal. . . . Last, Mr. President, we have an opportunity in this bill today to once again support the level the playing field act to make sure it gets to the President’s desk. This will be the vote after this — after the T.P.A. vote. This vote is essential to protecting our manufacturers from illegal foreign competition. We can’t have trade promotion without trade enforcement. It shouldn’t be bipartisan, regardless of how you vote on T.A.A. we need to make sure our deals are enforced. Level the playing field to against unfair trade practices, it’s critical for our businesses, our workers who drown in the flood of illegally subsidized import. It has the full support of business and workers, Republicans and Democrats. . . . No matter where you stand on T.P.A. we should be able to come together to have enforce — enforceable laws. We have trade. We know these agreements cause wages to stagnate, we know these agreements cause factories to close . . . This is a terrible mistake we will make which we’ve made over and over and over and over if we pass this today. If we pass T.P.A. it’s the same mistake we made with NAFTA. Big promises, job increases, wages going up, bad results. We did it when we passed PNTR, when we passed CAFTA, the Central American Free Trade Agreement, with the Korean Free Trade Agreement, we’re about to do it again, shame on us. At least take care of workers if we’re going to pass this legislation.

Prior to the final TPA vote, Senator Orrin Hatch, Chairman of the Senate Finance Committee, called the TPA bill and accompanying trade legislation the most important bill to pass in the Senate this year. Senator Hatch stated:

This is a critical day for our country. In fact I’d call it an historic day. It’s taken us awhile to get there, longer than many of us would have liked but we all know anything worth having takes effort and this bill is worth the effort. This is perhaps the most important bill we’ll pass in the Senate this year. It will help reassert Congress’s role over U.S. trade negotiations and reestablish the United States as a strong player in international trade.

Renewing T.P.A. has been a top priority for me for many years and as Chairman of the Senate Finance Committee, I am pleased that with the help of ranking member Wyden, we’ve been able to deliver a robust and bipartisan bill. It’s also been a high priority for the Senate Majority Leader. And thanks to his strong support and leadership, we’re one step away from completing this important task. This bill will help farmers, ranchers, manufacturers and entrepreneurs throughout our country get better access to foreign markets and allow them to compete on a level playing field. This bill will help give these job creators and the workers they employ greater opportunities to grow their businesses which will help create a healthier American economy. The business and agricultural communities understand the importance of strong trade agreements. That is why they came together in strong support of this important legislation. We’ve heard from all of them throughout this debate, and I appreciate their enthusiasm and support.

This has from the outset been a bipartisan effort, and I’m glad it remained that way.  . . .

But let’s be clear, passing T.P.A. is not the end of the story. It’s just the beginning. As Chairman of the Finance Committee, I intend to remain vigilant in our oversight as the administration pursues the negotiating objectives that Congress has set with this legislation. And if they fall short, I will be among the first to hold them accountable. But that is for another day. Today I urge my colleagues to help us finalize this historic achievement and join me in voting in favor of this bipartisan T.P.A. bill. If the vote goes the way I think it will today, today will be remembered as a good day for the Senate, the President, and the American people.

Finally, also included in this bill is an extension of the Trade Adjustment Assistance, or T.A.A. program. I think I’ve said enough about my opposition to this program here on the floor over the past several weeks. . . . However, I do understand that for many of my colleagues who want to support T.P.A. and free trade, passage of T.A.A. is a prerequisite. From the outset of this debate over trade promotion authority, I’ve committed to my colleagues to working to ensure that both T.A.A. and T.P.A. move on parallel tracks. I plan to make good on this commitment and today will show that. That is why despite my misgivings about T.A.A. and with the entire picture in view, I plan to vote for this latest version of the trade preferences bill.

WILL CONGRESS FOLLOW THE SIREN CALL OF PROTECTIONISM AND TAKE THE US BACKWARDS OR MOVE FORWARD WITH TPP TO RESUME ITS FREE TRADE LEADERSHIP

In light of the Congressional votes for TPA, one hopes that the Congress is moving away from the protectionist brink, but with a 60-37 procedural vote in the Senate on June 23rd, when 60 votes were required, nothing can be taken for granted. Listening to the anti-trade rhetoric in the US Senate and House of Representatives one is reminded of the original Greek tale in which Ulysses on his way back home had to pass the Siren rocks. The Greek Sirens would cry so sweetly they lured sailors and ships to their doom.

Many Democrats and some Republicans are now listening to the Sirens of protectionism from the labor unions and other activists that the US should move inward, put America first and protect workers and US factories at all costs from import competition created by free trade agreements. Although trade pundits acknowledge that TPA has passed, they argue that the Agreements, the TPP and TTIP Agreement with the EC, will die because the United States simply cannot withstand the protectionist attacks. If that is true, the US will give up trade leadership and could well return back to the 1930s. See the statement by Senator Bernie Sanders on June 23rd on the floor of the US Senate at http://www.c-span.org/video/?326681-1/us-senate-debate-trade-promotion-authority&live.

As John Brinkley, a Forbes commentator, stated on June 22, 2015, the day before the vote in the Senate on TPA:

Whether the Trans-Pacific Partnership lives or dies, it will probably be America’s last free trade agreement for a very long time.

No future Congress will want to walk into a war zone like the one now extant to pass a trade deal based on nebulous benefits. You may have noticed that the Obama administration has offered no estimate of how many jobs the TPP would create. Rather, its strategy has been to say that ratifying the TPP would empower the United States to write the rules of global trade and not ratifying it would cede that power to China. . . .

If the administration and Congress can’t convince people that free trade will facilitate those things – and they can’t – why should people care?

The next free trade agreement in the queue is the Trans-Atlantic Trade and Investment Partnership, or TTIP, which would connect the economies of the United States and the European Union. Given the amount of combat that’s been waged over the TPP, you wouldn’t want to bet on ratification of the TTIP.

Congressional leaders don’t want to put their members through another grueling trade fight like they one they’re in now, and they have no doubt made that clear to Obama. If the next president is a Democrat, he or she won’t touch the TTIP with a ten foot pole. A Republican president might ignore the opposition and try to get it done, but he’d probably lose. . . .

The TPP’s detractors have been louder and more prolific in attacking it than its proponents have been in defending it. And most of what they’ve been saying is exaggerated or wrong. They’ll probably fail to derail the TPP. But they’ve probably already succeeded in killing the TTIP and any future trade agreement that the next president or two might envision.

For Mr. Brinkley’s entire article see http://www.forbes.com/sites/johnbrinkley/2015/06/22/farewell-free-trade.

Another commentator predicted that the real impact of the Trade fight will be on the Democratic Party stating:

Just as the tea party wing of the Republican Party has pulled the entire GOP to the right and hampered attempts at compromise on Capitol Hill, some now fear a similar dynamic is taking shape on the left. . . .

The revival of the trade package inflamed labor unions and liberal groups that had fought ferociously to block it, including by running ads against otherwise friendly House Democrats and threatening to mount primary campaigns against them. Unions say past trade deals bled American jobs and tanked wages. They argue that granting Obama the power to finalize trade deals that Congress can accept or reject, but not amend, would lead to more of the same, including the 12-nation Trans-Pacific Partnership the White House has worked on for years.

“Democrats who allowed the passage of fast-track authority for the job-killing TPP, should know that we will not lift a finger or raise a penny to protect you when you’re attacked in 2016, we will encourage our progressive allies to join us in leaving you to rot, and we will actively search for opportunities to primary you with a real Democrat,” Jim Dean, head of Democracy for America, said in a statement following Thursday’s House vote. . . .

http://apnews.myway.com/article/20150620/us–congress-democrats-ad8fbb804c.html or http://tiny.iavian.net/5mkd.

To illustrate the pressure on Congressional lawmakers, in discussing the situation with knowledgeable trade professionals, they mentioned that a Union sent demonstrators to the school where one Democratic Congressman placed his kids.

Why is the protectionist America first trade policy wrong policy? Because all of “international/WTO” trade law is based on reciprocity. What the United States can do to other countries, those countries can do back to the United States. In effect, the United States can be hoisted by its own petard, killed by its own knife.

That is the reason Senator Orrin Hatch, Chairman of the Senate Finance Committee, and Congressman Paul Ryan, Chairman of the House Ways and Means Committee, are so concerned about currency manipulation. Yes, currency manipulation is now a negotiating objective as set forth in the TPA. But enforcing currency manipulation is a problem because there is no internationally accepted definition of currency manipulation. When the US Federal Reserve used quantitative easing in the last financial crisis, was that currency manipulation? Could other countries retaliate against the US for using quantitative easing? That is the fear of free traders. In international trade what goes around comes around.

The Siren Call of protectionism of putting America first by protecting companies and worker job from imports, the vast majority of which “must be unfairly traded”, however, has echoed throughout American history. Many politicians apparently have not learned the lessons of history. In the 1930s, President Hubert Hoover promised to help the United States dig out of the recession by raising tariff walls against imports and Congress passed the Smoot-Hawley Tariff of 1930. Countries around the World retaliated by raising barriers to imports from the United States. Exports and imports stopped and the World was plunged in the depression, which, in turn, was one of reasons for the rise of Adolf Hitler and the cause of the Second World War.

As one article on Capitalism states:

What was the end-result of the Smoot-Hawley Tariff Act? As other countries placed tariffs on American exports in retaliation, these tariffs actually led to the reduction of American exports and thus jobs: With the reduction of American exports came also the destruction of American jobs, as unemployment levels which were 6.3% (June 1930) jumped to 11.6% a few months later (November 1930). As farmers were unable to pay back their loans to banks, their loan defaults led to increasing bank crashes, particularly in the West and Mid-West.

See http://capitalism.org/free-trade/what-was-the-end-result-of-the-smoot-hawley-tariff-act/

The State Department itself states on its website:

The Smoot-Hawley Tariff Act of June 1930 raised U.S. tariffs to historically high levels. The original intention behind the legislation was to increase the protection afforded domestic farmers against foreign agricultural imports. . . . During the 1928 election campaign, Republican presidential candidate Herbert Hoover pledged to help the beleaguered farmer by, among other things, raising tariff levels on agricultural products. But once the tariff schedule revision process got started, it proved impossible to stop. Calls for increased protection flooded in from industrial sector special interest groups, and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy. When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history.

The Smoot-Hawley Tariff was more a consequence of the onset of the Great Depression than an initial cause. But while the tariff might not have caused the Depression, it certainly did not make it any better. It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the “beggar-thy neighbor” policies (policies designed to improve one’s own lot at the expense of that of others) of the 1930s. Such policies contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932. Overall, world trade declined by some 66% between 1929 and 1934. More generally, Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations.

The Smoot-Hawley tariff represents the high-water mark of U.S. protectionism in the 20th century. Thereafter, beginning with the 1934 Reciprocal Trade Agreements Act, American commercial policy generally emphasized trade liberalization over protectionism. The United States generally assumed the mantle of champion of freer international trade . . . .

See http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html.  It should be noted that the US antidumping and countervailing duty laws are in the Tariff Act of 1930 today.

In fact, it is the political impact and the security implications of the trade agreements, that has caused Secretary of Defense Carter and on May 8th, a bipartisan collection of 7 former US defense secretaries, including Harold Brown, William S. Cohen, Robert M. Gates, Chuck Hagel, Leon E. Panetta, William J. Perry, and Donald H. Rumsfeld along with well-known Generals, such as General David H. Petraeus and General Colin Powell, to call for the passage of TPA, stating:

By binding us closer together with Japan, Vietnam, Malaysia and Australia, among others, TPP would strengthen existing and emerging security relationships in the Asia-Pacific, and reassure the region of America’s long-term staying power. In Europe, TTIP would reinvigorate the transatlantic partnership and send an equally strong signal about the commitment of the United States to our European allies.

The successful conclusion of TPP and TTIP would also draw in other nations and encourage them to undertake political and economic reforms. The result will be deeper regional economic integration, increased political cooperation, and ultimately greater stability in the two regions of the world that will have the greatest long-term impact on U.S. prosperity and security.

Indeed, TPP in particular will shape an economic dynamic over the next several decades that will link the United States with one of the world’s most vibrant and dynamic regions. If, however, we fail to move forward with TPP, Asian economies will almost certainly develop along a China-centric model. In fact, China is already pursuing an alternative regional free trade initiative. TPP, combined with T-TIP, would allow the United States and our closest allies to help shape the rules and standards for global trade.

The stakes are clear. There are tremendous strategic benefits to TPP and TTIP, and there would be harmful strategic consequences if we fail to secure these agreements.

In a June 28, 1986 speech President Ronald Reagan indicated that he had learned the Smoot Hawley lesson stating:

Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake. That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flimflammery in American politics. But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth.

You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. . . .

As many famous statesmen have stated in the past, those who do not learn from history are doomed to repeat it.

With the extreme rhetoric in the international trade area, however, the question is whether the United States truly has learned its lesson or whether it will raise the protectionist walls, and give up on free trade. So the question is does the United States give up on Free Trade and ignore the historical lesson or does it move forward with these free trade agreements, open up markets around the World, and retake its leadership position in international trade?.

WASHINGTON CONGRESSIONAL DELEGATION SPLITS ON TPA BILL

To see the powerful impact of Union and protectionist arguments on Congress, one need look no further than my state of Washington where the Washington Congressional delegation was split.  Although Senators Patty Murray and Maria Cantwell voted for TPA, along with Republicans in the House, the Washington State Democrats in the House were split.

Congressmen Rick Larson and Derek Kilmer along with Congresswoman Susan delBene voted in favor of TPA,  but Democratic Congressmen Adam Smith, Denny Heck and Jim McDermott wilted under substantial pressure from the Unions and voted against TPA.

In voting for TPA, in the attached statement, Larsen_ TPA Is Right For Pacific Northwest Economy _ Congressman Rick Larsen, Congressman Rick Larson sets forth his arguments in favor of TPA, stating in part:

I understand many people want the content of trade negotiations to be public. But opening up negotiations would give other countries a clear view of U.S. positions and lessen our ability to push for the best deal for our workers, environment and economy. I think the transparency provisions in the TPA bill will enable the public to have more and better information about the content of trade agreements. . . .

The North American Free Trade Agreement (NAFTA) is a 20-year-old agreement, and our country has learned a lot about trade agreements since then. The TPP negotiations are much stronger than NAFTA for several reasons. TPP includes strong requirements that other countries involved in the negotiations live up to high standards for workers, the environment and human rights. NAFTA did not. And TPP puts in place penalties, so if other countries involved in the agreement do not live up to these high standards, they will be sanctioned. NAFTA did not include sanctions for violating the terms of the agreement.

TPP is not yet finalized. I have been reviewing the sections on labor, the environment, and investor-state dispute settlement as negotiations have progressed, and I will continue to do so.

Another reason TPP is much stronger than NAFTA is that Congress is working to hold the President to higher standards for all trade agreements. The 2015 Trade Promotion Authority (TPA) bill that the House is set to vote on as soon as this week provides Congressional direction to the Administration for trade agreements the President is seeking to finalize. The 2015 TPA bill is much more stringent than its predecessor, which Congress passed in 2002. Let me explain why.

The 2015 TPA bill (which you can read here: http://1.usa.gov/1T1afiY) directs trading partners to adopt and maintain core international labor standards and multilateral environmental agreements, and calls for sanctions if they do not comply. The 2002 TPA law did not require compliance or provide enforcement tools with core international labor and environmental standards. The 2015 bill requires several levels of transparency for the public . . . The 2002 bill required no transparency. The 2015 bill makes clear that trade agreements cannot change U.S. law without Congressional approval. The 2002 law did not include this level of Congressional oversight.

In the attached letter, KILMER STATEMENT ON TPA, Congressman Derek Kilmer sets forth his arguments in favor of TPA, stating in part:

This is a particularly hot topic as the Administration continues negotiations of the Trans-Pacific Partnership, a 12-nation trade agreement that would involve 40% of the world’s economy.  Suffice it to say, it’s important that America gets this right.

Trade is an essential part of Washington state’s economy. Generally, our state does well when we’re able to sell our apples, our wood products, our airplanes, our software, and other products overseas. Exports from just Washington’s Sixth Congressional District, which I represent, totaled more than $2.2 billion in 2013, supporting more than 67,000 jobs.

With that in mind, I appreciate President Obama’s suggestion that trade agreements – if done right – could expand opportunities to export our goods to growing markets like those in Asia and benefit Washington state’s employers and workers.

In addition, it’s worth acknowledging that global trade is a reality. The United States makes up just 4% of the world population – so global trade is going to happen regardless of whether Congress passes trade legislation. In making his case to Congress, the President has asked a key question: do we want America to sit back as China negotiates trade agreements around the world and seeks to set the rules of trade (leading to a race to the bottom on worker standards, environmental standards, and consumer protections) or do we want the United States to be involved in setting the rules and establishing high standards?

It’s a reasonable concern.   Earlier this year, I spoke with a manufacturer in Tacoma whose company makes American products made by American workers. But when that company tries to sell goods to Asia, their products consistently face high tariffs. The owner explained to me that he’s been told numerous times that he could avoid tariffs if he would only move his jobs to China. If we can see more American products made by American workers have the opportunity to enter new markets without these barriers, it could lead to economic opportunities.

Trade agreements with adequate protections for American companies could help reduce those tariffs, and boost sales –enabling American companies like this to expand production or hire more workers. But only if they are done right.

With that in mind, I believe that we need better trade deals than the ones we’ve had in the past. I do not want –nor would I support – an agreement that I believe would lead to American jobs going overseas or that would put corporate profits above the rights of workers or the health of our environment.

It’s critically important that we have a trade policy that reflects our region’s priorities and values. Above all, it is important to me that any trade agreement that Congress considers must ensure that we are exporting our products – not exporting our jobs.

That also means that any trade agreement needs to meet high labor standards that must be enforced. . . .

Unlike NAFTA – which failed to include labor or environmental standards as a core, enforceable part of the agreement – future agreements must have high standards that must be enforced.

Sens. Orrin Hatch (Utah) and Ron Wyden (Ore.), along with Rep. Paul Ryan (Wis.) jointly introduced the Bipartisan Congressional Trade Priorities and Accountability Act of 2015. This legislation would establish congressional trade negotiating objectives and enhanced consultation requirements for trade negotiations as well as allow for trade deals to be submitted to Congress for an up-or-down vote should they meet the United States’ objectives and Congress be sufficiently consulted.

This bill represents a departure from so-called “fast track” laws of the past. For example, it includes greater transparency, accountability, and Congressional oversight.   …This bill also includes stronger labor and environmental standards and unlike previous so-called “fast track” legislation, this bill demands that before countries can expand their trading relationship with the U.S., they have to maintain a core set of international labor and environmental standards.  . . .

Finally, it also would make clear that trade agreements cannot by themselves change U.S. law. Under the U.S. Constitution, Congress has to have a say regarding how our nation’s laws are changed, and I think it’s important that any legislation related to trade agreements makes that very clear. . . .

With or without trade agreements, global competition is a reality in today’s economy. And when companies and workers need to adapt to a changing marketplace, we need to make sure that they can get the resources that they need to get back to work and keep our economy growing. That’s why I support strong Trade Adjustment Assistance. I’m also pushing for Congress to reauthorize the Export-Import Bank, which helps finance U.S. exports of manufactured goods and services and create jobs through direct loans, loan guarantees, working capital finance, and export credit insurance.

While I will continue to fight to improve the Hatch-Wyden TPA bill as it moves through Congress, I support these bills because I believe that, together, they have the potential to expand jobs and economic opportunities here in America while at the same time fostering the development of higher environmental, worker safety, and consumer protection standards abroad. . . .

In the attached statement, DelBene Statement on Trade Promotion Authority _ Congresswoman Suzan DelBene, Congresswoman Suzan DelBene states why she is voting for TPA:

The reason to pass Trade Promotion Authority is to require negotiators to develop the strongest and most progressive trade deal possible. This TPA bill is the best Congress has ever had in terms of setting high and enforceable environmental and labor standards, as well as bringing more transparency to trade negotiations.  This bipartisan bill directs the administration to meet nearly 150 congressionally mandated negotiating objectives, including standards on labor protections, the environment, human rights, congressional consultation and transparency.

I’ve talked to large and small businesses, I’ve talked to labor and I’ve talked to environmentalists. It’s my job to weigh the concerns and needs on all sides and then do what’s best for Washington’s First District, which is why I supported the TPA legislation. I didn’t come to the decision lightly – Washington is the most trade dependent state in the nation and 40 percent of our jobs depend on trade. However, I will not hesitate to vote against a trade deal if it fails to meet the needs of our region and the high standards described in this TPA.

In voting against TPA, in the attached statement, ADAM SMITH NO TPA, Congressman Adam Smith sets forth his arguments against TPA, stating in part:

“Trade Promotion Authority (TPA) and the Trans Pacific Partnership (TPP), as they are currently being discussed, do not do enough to protect workers and the environment at home and abroad “The biggest problem facing our economy is a vanishing middle class. Corporations are incentivized to value customers, shareholders, and executives over their workers resulting in less take home pay and benefits. This is evidenced by the bottom 90 percent of Americans owning just 23 percent of total U.S. wealth. TPA and TPP are far from the only or even largest contributors, but they provide the wrong incentives allowing corporations to grow and benefit from undervaluing workers both here and abroad. . . .

“I often hear an argument in support of TPA and TPP that if we don’t set the rules in Asia and the Pacific, China will do so. Although clearly better than China’s, our record is not stellar either. . . .

“Currency manipulation is another problem that remains unaddressed. . . .

“These concerns aside, I would be more inclined to support a trade deal if I believed that American and global corporate culture was committed to paying workers fairly and ensuring their safety in the workplace. However, skyrocketing executive pay and huge stock buybacks at the expense of worker compensation convince me that there is an insufficient commitment to preserving the middle class. . . .

“Trade agreements should create sound incentives and reinforce business cultures that value workers, as they have the ability to help spread these practices worldwide. We must do more to support the companies in the 9th District and around the country that are doing so already.

Unfortunately, Wall Street and trade deals too often reward these companies’ competitors that improve their bottom line by shortchanging their employees–many of whom are not being adequately compensated for their work.

In voting against TPA, it is my hope the Administration will take a step back and better engage on strengthening compliance with worker and environmental protections through trade agreements. . . .

In the attached statement, Congressman Denny Heck announces decision on trade promotion authority _ Con, Congressman Denny Heck sets forth his argument opposing TPA:

Trade is a vital part of Washington’s economy. There is no doubt about that. Trade does not, however, exist in a vacuum, and for any agreement to be successful, we need to think bigger picture. Investing in our infrastructure, implementing comprehensive immigration reform, and reauthorizing the Export-Import Bank are some of the priorities that are being ignored during this debate. If we want to build an economy ready to compete with the rest of the world, we need to broaden this trade effort to include a commitment to actions that will bolster our economy back home.

“Accordingly, and after a great amount of input from constituents in the 10th District, I will vote no on trade promotion authority, known as fast track. I am open to trade legislation that enhances our ability to better compete in a global economy, but this approach is piecemeal and does not do enough to advance the interests and potential of the hard-working Americans I represent. We can do better.

FORMER DEMOCRATIC CONGRESSMAN DON BONKER’S ARTICLE ON THE TRADE DEBACLE IN THE HOUSE

On June 16, 2015, former Democratic Congressman Don Bonker described the initial trade defeat for President Obama on the TPA Bill in the House of Representatives in the China Daily:

Trade deal defeat, a form of Protectionism

By Don Bonker (China Daily)Updated: 2015-06-16 05:20

The scene in Washington, DC this week was not unlike a House of Cards episode that typically portrays high drama, political mischief and irony, involving the White House and Capitol Hill. The issue, the Trans-Pacific Partnership (TPP), is key to President Obama’s Asia strategy to strengthen economic relations and provide a shield from China’s growing influence in the region.

But like the House of Cards series, it’s more about politics than the merits of the issue. Here we saw President Obama’s usual adversaries, Republican and business leaders rallying support for his trade deal while his own party and traditional allies were fiercely opposing it.

Signs of this were played out at the annual Congressional baseball game, when the President was greeted by Democrats, chanting “O-ba-ma!, O-ba-ma!” then unexpectedly Republicans responded with “TPA, TPA!” that flipped what was intended to demonstrate unity.

The following day, President Obama met with his chief ally in Congress, Minority Leader Nancy Pelosi, who hinted that she would support the measure only to march onto the House floor and declare that “I will be voting to slow down fast-track,” a fatal setback for the president.

Most TV narratives are complex and full of suspense. Vote on June 12 in the House of Representatives was not a simple up or down vote but a bundling of related issues called TAA, TPA and TPP. One was voted down, a second narrowly passed and no action on the third. The result was a stunning defeat for President Obama, yet House Speaker John Boehner allows it will be taken up again.

Despite all the political rhetoric about saving American jobs or Obama’s weak leadership, what it comes down to is old fashion protectionism.  Protectionism is an attempt to prevent foreign imports from threatening US jobs, often by increasing tariffs and limiting market access in a variety of ways, including anti-dumping and countervailing duties even if they aren’t warranted.

Today the battleground is the Trans-Pacific Partnership (TPP), a trade pact involving 12 countries that has been enduring negotiations for two years. Bilateral and multi-lateral trade pacts have always prompted strong opposition, especially from Democrats given their close ties to labor unions. It is a populist issue that resonates at the grassroot level, therefore a difficult vote for most Congressmen.

As former US Trade Representative, Robert Zoellick, who presided over five bilateral trade agreements, once noted, these “trade agreements are more about politics than economics”. While his successors may put in a star performance as Chief Negotiators, they can only initial the final document since the US Constitution makes clear that Congress “regulates interstate and foreign commerce” and has the final say.

What gets lost in the debate is the greater significance of the issue, which is America’s leadership in today’s global economy. The Obama Administration earlier portrayed the TPP as a geopolitical strategy that would give the US a stronger presence in Asia and provide a protective shield for Asian countries feeling threatened by China’s enormous growth and influence in the region. Now this initiative and America’s leadership in achieving these goals, plus the mutual benefits that come with trade deals, are at risk not because of China or the lack of effective negotiations but the political forces in play on Capitol Hill.

America is also being challenged by China in today’s global economy. If Congress disapproves either the fast-track legislation or TPP, guess who will step in and become the mighty economic power in Southeast Asia? Another sign of America’s declining influence as it becomes preoccupied with the escalating conflicts and chaos in the Middle East.

Protectionism has consequences. In the 1928 presidential election, Herbert Hoover campaigned on advocating higher tariffs that set the stage for an eager Republican Congress to indulge as never before, triggering an unbridled frenzy of log-rolling — jockeying for maximum protection of commodity and industry producers leading to enactment of the Smoot-Hawley Tariff Act that hiked import fees up to 100 percent on over twenty thousand imported products.

After President Hoover signed the monumental tariff bill, within months America’s leading trade partners – Canada, France, Mexico, Italy, in all 26 countries – retaliated causing the world trade to plummet by more than half of the pre-1929 totals, one of several factors that precipitated the Great Depression.

Today the call for protectionism is not coming from the Chamber of Commerce and business advocates but the nation’s most powerful union leaders. The Democrats, abandoning their own president, are running for cover, fearful of losing support of union leaders who have made it clear that any Congressman who dares to vote for fast track (Trade Promotion Authority) legislation that “we will cut the spigot off on future donations to your campaign”.

As in any House of Cards program, the drama continues with no certainty about the outcome. Yet failure to approve the Trans-Pacific Partnerships puts in jeopardy the next trade agreement (Transatlantic Trade & Investment Partnership) and the upcoming US-China Bilateral Investment Treaty, as well as undermining America’s leadership internationally.

The author is former US congressman and chaired House Foreign Affairs Subcommittee on International Economy.

AUSTRALIA FTA WITH CHINA

On June 17, 2015, Australia and China signed a free trade agreement.  See https://www.austrade.gov.au/Export/Free-Trade-Agreements/chafta.  As Paul Ryan stated in the House, if the United States does not lead on trade, China will.

TRADE

SED TALKS

On June 23, 2015, the attached remarks, BIDEN REMARKS SED, were made by Vice President  Joe Biden and Vice Premier Liu Yandong in the U.S.-China Strategic & Economic Dialogue  in Washington DC.  

Vice President Joe Biden stated in part:

And there’s an urgent need to agree on a rule-based system for rapidly evolving areas ranging from cyber space to outer space – a new set of rules. Together, collaboratively, we have an obligation –China and the United States – to shape these rules. And let me be clear: The United States believes strongly that whenever possible, China needs to be at the table as these new rules are written.  Responsible competition, adhering to these common rules – both old and new – in my view will be the essential ingredient necessary to manage areas of disagreement, and to build the long-term sustainable U.S.-China relationship.

As President Xi has said, “There’s competition in cooperation.” Yet such competition is healthy, based on mutual learning and mutual reinforcement. It’s a fundamental sense. It is conducive to our common development.  . . .

Responsible competitors help to sustain the system where research and development are rewarded, where intellectual property is protected, and the rule of law is upheld, because nations that use cyber technology as an economic weapon or profits from the theft of intellectual property are sacrificing tomorrow’s gains for short-term gains today. They diminish the innovative drive and determination of their own people when they do not reward and protect intellectual property. . . .

And let me be crystal clear . . .: We do not fear China’s rise. We want to see China rise, to continue to rise in a responsible way that will benefit you most, China, because you have an important role to play. A rising China can be a significant asset for the region and the world, and selfishly, for the United States.

China, like all nations in Asia, benefits from stability and prosperity – a stability and prosperity that, quite frankly, has been maintained over – since the end of the World War II by the United States of America for 60 years. We’re going to continue to play a role for decades to come, but don’t misunderstand it: We are a Pacific nation. 7,632 miles of our shoreline breaks on the Pacific Ocean.

We are a Pacific nation. What happens anywhere in the Pacific affects the United States as much as – more than any other portion of the world. And now we are a Pacific power, and we’re going to continue to remain a Pacific power. To respond to the changing world, the Administration has set in motion an institutionalized rebalance policy of the Asian Pacific region, not to contain but to expand all of our opportunities.

We believe this is important because the Pacific and every nation along its shore from Chile to China will form the economic engine that drives the economies of the 21st century. That’s where the action will be. As part of that rebalanced strategy, we’ve strengthened and modernized our alliances and our partnerships throughout the region. As part of that strategy, we have deepened our support for important regional institutions like ASEAN, and we’re continuing to work on the Trans-Pacific Partnership, which I predict we will succeed in getting done – the most progressive trade agreement in American history, and history, period. It boosts economic growth at home and abroad.

And as part of that strategy, we’re working to build more constructive and productive ties with China. But we all know this relationship is complicated and consequential, to say the least. And we all know, like a good marriage, it requires an awful lot of hard, hard work, an awful lot of attention.  . . .

There will be intense competition. We will have intense disagreements. That’s the nature of international relations. But there are important issues where we don’t see eye to eye, but it doesn’t mean we should stop working hand in hand because we don’t see eye to eye.  . . . I believe that all politics, especially international politics, is personal. It’s all personal. And – because only by building a personal relationship – that’s the only vehicle by which you can build trust.

VICE PREMIER LIU: . . .

President Xi Jinping takes this S&ED and CPE very close to his heart . . . . He believes that the new model of major country relations featuring mutual benefits, win-win cooperation, non- confrontation is the priority of China’s foreign policy. Facing complicated and volatile international situation, China and the United States should work together. They can work together in a wide range of areas. The two sides should keep the bilateral ties on the right track. As long as our two countries adopt an overall perspective, respect and accommodate each other’s core interests and be committed to a constructive approach to reduce misunderstanding and miscalculations, we can manage our differences and maintain our common interests. . . .

VICE PREMIER WANG:

Today more than 10,000 Chinese and Americans travel across the Pacific every day, and the number keeps growing at a double-digit rate. Two-way trade has exceeded U.S. $550 billion, and China has become one of the fastest-growing export markets for the United States. U.S. exports to China have helped to create nearly 1 million jobs in the U.S. Accumulated mutual investment topped U.S. $120 billion. And Chinese businesses have so far made investment in 44 states of America, with total investment reaching U.S. $46 billion and creating 80,000 jobs for America, and the numbers are still growing. . . .

Some people believe that the Thucydides trap between major countries is insurmountable. Some even want China and the United States to confront each other. In any case, decision-makers of both countries must always remember that confrontation is a negative sum game in which both sides will pay heavy prices and the world will suffer too.

Talking to each other does not create win-win all the time, but both sides will lose in a case of confrontation. Our dialogue mechanism may not be perfect, but it is an indispensable platform for the two countries to increase mutual trust, deepen cooperation, and manage differences.

History teaches us that China and the United States must not follow the old path of confrontation and conflict between major countries. Building a new model of major country relations is an effort to explore a new path towards peaceful coexistence. This path may not be smooth and the journey could be bumpy, but as a great Chinese writer said: “Originally there is no path – but as people walk down the same track and again, a path appears.” I’m convinced that we are on the right track.

INTERNATIONAL MONETARY FUND (“IMF”)— THE CHINESE YUAN IS NOT UNDERVALUED

On May 26, 2015, in the attached report, IMF CHINA CURRENCY NOT UNDERVALUED, the International Monetary Fund (“IMF”) determined that China’s currency is no longer unvalued.  The IMF specifically stated:

“On the external side, China has made good progress in recent years in reducing the very large current account surplus and accumulation of foreign exchange reserves.

Nevertheless, staff projections for 2015 suggest that China’s external position is still moderately stronger than consistent with medium term fundamentals and desirable policies. There are several factors influencing a country’s external position, with the exchange rate being one of them. While undervaluation of the Renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective  appreciation over the past year has brought the exchange rate to a level that is no longer undervalued. However, the still too strong external position highlights the need for other policy reforms—which are indeed part of the authorities’ agenda—to reduce excess savings and achieve sustained external balance. This will also require that, going forward, the exchange rate adjusts with changes in fundamentals and, for example, appreciates in line with faster productivity growth in China (relative to its trading partners).

On the exchange rate system, we urge the authorities to make rapid progress toward greater exchange rate flexibility, a key requirement for a large economy like China’s that strives for market based pricing and is integrating rapidly in global financial markets.  Greater flexibility, with intervention limited to avoiding disorderly market conditions or excessive volatility, will also be key to prevent the exchange rate from moving away from equilibrium in the future. We believe that China should aim to achieve an effectively floating exchange rate within 2–3 years.

On June 10, 2015, Senators Charles Schumer (D-NY) and Lindsey Graham (R-SC) urged the IMF to not recognize the Chinese yuan as a global reserve currency.  They argued that the fact that Chinese hackers had gained access to the personal records of at least 4 million U.S. government workers, and months earlier that hackers in China had broken into the computer systems of two U.S. healthcare giants are:

just the latest in a litany of egregious actions, or inactions, that reflect the government’s lack of an ability to participate in an honest and transparent manner on the global stage. This behavior cannot be rewarded by the international community, but more importantly, the Chinese government cannot be trusted to uphold international market standards without demonstrated evidence of a commitment to reform.”

In addition to the cyber attacks, Schumer and Graham claim that Beijing continues to undervalue its currency and lacks the necessary regulatory protections that are necessary to:

ensure the security of global financial markets.  While we support China’s efforts to modernize its currency and agree that its efforts to be eligible for the SDR basket are in line with financial liberalization standards that prevent currency manipulation, we do not believe that China’s efforts have been substantial enough, nor do we believe that their commitment has been demonstrated in a way that can be counted on consistently, especially when market pressure for the yuan to be strengthened increases.

SOLAR CELLS—EC AGREEMENT GOES DOWN FOR THREE COMPANIES, COMMERCE ISSUED FINAL SOLAR CELLS AD AND CVD REVIEW DETERMINATIONS AND CANADA FINDS INJURY FROM DUMPED/SUBSIDIZED CHINESE SOLAR PANELS

EC ABROGATES AGREEMENT ON SOLAR CELLS FOR THREE CHINESE COMPANIES

On June 4, 2015, in the attached notice, EC WITHDRAWS UNDERTAKING GO TO DUTIES, the European Union (“EU”) announced that it was cancelling its agreement with China in the Solar Cells antidumping and countervailing duty case with regard to three Chinese exporting producers companies: Canadian Solar, ET Solar, and ReneSola.  In the notice, the EU stated:

COMMISSION IMPLEMENTING REGULATION (EU)  . . . of 4 June 2015 withdrawing the acceptance of the undertaking for three exporting producers under Implementing Decision . . . confirming the acceptance of an undertaking offered in connection with the anti-dumping and anti-subsidy proceedings concerning imports of crystalline silicon photovoltaic modules and key components (i.e. cells) originating in or consigned from  . . . China . .  . .

Following the notification of an amended version of the price undertaking by a group of exporting producers (‘the exporting producers’) together with the CCCME, the Commission confirmed . . . (1) the acceptance of the price undertaking as amended (‘the undertaking’) for the period of application of definitive measures. The Annex to this Decision lists the exporting producers for whom the undertaking was accepted, including: (a) CSI Solar Power (China) Inc., Canadian Solar Manufacturing (Changshu) Inc., Canadian Solar Manufacturing (Luoyang) Inc., and CSI Cells Co. Ltd together with their related company in the European Union  . . .(‘Canadian Solar’); (b) ET Solar Industry Limited and ET Energy Co. Ltd together with their related companies in the European Union . . . (‘ET Solar’); and (c) Renesola Zhejiang Ltd and Renesola Jiangsu Ltd  . . .(‘ReneSola’). ….

The findings of breaches of the undertaking and its impracticability established for Canadian Solar, ET Solar, and ReneSola require the withdrawal of the acceptances of the undertaking for those three exporting producers  . . . In addition, the Commission analyzed the implications of actions by Canadian Solar, ET Solar, and ReneSola listed  . . . above on their relationships of trust established with the Commission at the acceptance of the undertaking. The Commission concluded that the combination of these actions harmed the relationship of trust with these three exporting producers. Therefore, this accumulation of breaches also justifies the withdrawal of acceptances of the undertaking for those three exporting producers . . . .

The undertaking stipulates that any breach by an individual exporting producer does not automatically lead to the withdrawal of the acceptance of the undertaking for all exporting producers.  In such a case, the Commission shall assess the impact of that particular breach on the practicability of the undertaking with the effect for all exporting producers and the CCCME.  . . . The Commission has accordingly assessed the impact of the breaches by Canadian Solar, ET Solar, and ReneSola on the practicability of the undertaking with the effect for all exporting producers and the CCCME.  . . . The responsibility for those breaches lies alone with the three exporting producers in question; the monitoring and the verifications have not revealed any systematic breaches by a major number of exporting producers or the CCCME.  . . . The Commission therefore concludes that the overall functioning of the undertaking is not affected and that there are no grounds for withdrawal of the acceptance of the undertaking for all exporting producers and the CCCME.

FINAL SOLAR CELLS REVIEW DETERMINATION BY COMMERCE

On July 7, 2015, in the attached Federal Register notices and decision memos, SOLAR CELLS FINAL DECISION MEMO SOLAR CELLS AD FINAL FED FINAL CVD FED REG SOLAR CELLS C-570-980 Final Results Notice 7-8-15 (3) Final CVD Decision Memo SOLAR CELLS 7-8-15, the Commerce Department issued final Solar Cells AD and CVD Review determinations in the May 25, 2012 to Nov 30, 2013 AD review period and the 2012 CVD Review period.  In the AD review determination, the AD rates ranged from 0.79% to 33.08% with the average separate rate being 9.67% and in the CVD review determination the CVD rates ranging from 15.43 to 23.28% and the non-reviewed companies receiving 20.94%.

CANADA FINDS INJURY IN ITS SOLAR CELLS CASE

ON July 7, 2014, in the attached statement, SOLAR CELLS CANADA, the Canadian International Trade Tribunal announced its final determination that imports of dumped and subsidized Chinese solar energy equipment exports are a threat of injury to Canadian producers.  AD and CVD orders will now be issued in Canada with AD rates ranging from 9.14 percent to 202.5 percent for the nine exporters who responded to its questionnaire and at 286.1 percent for all other Chinese exporters and an estimated subsidy amount of 84.1 percent.

TIRES FINAL DETERMINATION

COMMERCE DEPARTMENT FINAL DETERMINATION AND ITC FINAL THREAT OF MATERIAL INJURY DETERMINATION

On June 12, 2015, in the attached fact sheet, ITA FINAL FACT TIRES, and Federal Register notices, FINAL DOC FED REG CVD TIRES FINAL DOC FED REG AD TIRES, Commerce announced its affirmative final antidumping (AD) and countervailing duty (CVD) determinations regarding imports of certain passenger vehicle and light truck tires from the China.  The AD rates ranged from 14.35 to 87.99% and the CVD rates from 20.73% to 100.77%.

In response to the Commerce Department final determination, on June 17, 2015 in the attached statement, MOFCOM TIRES, the Chinese Ministry of Commerce (“MOFCOM”) stated:

The Head of the Trade Remedy and Investigation Bureau of the Ministry of Commerce said that the Department of Commerce of the United States launched the antidumping and anti-subsidy investigation against Chinese tire products,  adopted a lot of unfair and discriminatory practice during the investigation, especially refused to give Chinese state owned enterprises the separate rates, and deliberately raised the dumping and subsidy tax rates of Chinese products. Chinese government is paying close attention to it.

On July 14, 2015, in the attached announcement, Certain Passenger Vehicle and Light Truck Tires from China Injure U.S. Indus, the US International Trade Commission (“ITC”) reached an affirmative injury determination in a 3-3 tie vote in the Tires case.  The ITC reached a negative critical circumstances decision.  As a result of the ITC decision, antidumping and countervailing duty orders will be issued.

CAFC DISMISSES AN ACTIVATED CARBON APPEAL BECAUSE IMPORTER DID NOT PROTEST IN TIME

On June 26, 2015, in the attached Carbon Activated Carbon v. United States, CAFC ACTIVATED CARBON, the Court of Appeals for the Federal Circuit (“CAFC”) dismissed an antidumping appeal by importer because of failure to file protest in time.

CAFC AFFIRMS ITC INJURY DETERMINATION IN WOODFLOORING CASE

On July 15, 2015, in Swiff-Train Co. v. United States, in the attached decision, the CAFC affirmed the US International Trade Commission’s injury decision in the Wood Flooring from China antidumping and countervailing duty case.

COMMERCE DEPARTMENT FINAL CVD AND AD REVIEW DETERMINATION IN WOOD FLOORING CASE

On July 6, 2015, in the attached final determination, CVD FINAL WOODFLOORING, Commerce announced a CVD rate of only 0.99% in the 2012 Countervailing Duty review investigation on Multilayered Wood Flooring From China.

On July 8, 2015, in the attached final determination, WOODFLOORING AD FED REG, Commerce  announced its final AD rate of 0 to 58.84, with the separate rate companies receiving 13.74% for the administrative review period December 1, 2012 to November 30, 2013.

FIRST STEEL TRADE CASE FILED

As mentioned in prior newsletters, Steel Trade cases are coming, and on June 3, 2015 the first Steel Antidumping and Countervailing Duty case was filed against Corrosion-Resistant (Galvanized) Steel Products from China, India, Italy, Korea and Taiwan.  The details of the filing are set forth below in the ITC Filing notice:

Docket Number DN 3069

Received: Wednesday, June 3, 2015

Commodity: Certain Corrosion-Resistant Steel Products from China, India, Italy, Korea and Taiwan

Investigation Number: 701-TA-534-538 and 731-TA-1274-1278

Filed By: Alan H. Price, Jeffrey D. Gerrish, Robert B. Schagrin, Paul C. Rosenthal and Joseph W. Dorn Firm/Organization: Wiley Rein LLP; Skadden, Arps, Slate, Meagher & Flom LLP; Schagrin Associates; Kelley Drye & Warren LLP and King & Spalding LLP

Behalf Of: United States Steel Corporation, Nucor Corporation, Steel Dynamics Inc., California Steel Industries, ArcelorMittal USA LLC and AK Steel Corporation

Country: China, Korea, India, Italy, and Taiwan

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and anti-dumping duties on Certain Corrosion-Resistant Steel Products from China, India, Italy Korea and Taiwan.

NEW ANTIDUMPING CASE HYDROFLUROCARBONS FROM CHINA

On June 25th, a new antidumping petition was filed against hydrofluorocarbon blends from China.  The alleged antidumping rate is more than 200%.  See ITC Notice below:

Docket Number 3073

Received: Thursday, June 25, 2015

Commodity:  Hydrofluorocarbon Blends

Investigation Number: 731-TA-1279

Filed By: James R. Cannon, Jr.

Firm/Organization: Cassidy Levy Kent (USA) LLP

Behalf Of: The American HFC Coalition

Country: China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under section 731 of the Tariff Act of 1930 regarding the Imposition of Antidumping Duties on Imports of Hydrofluorocarbon Blends and Components Thereof from the People’s Republic of China.

JULY ANTIDUMPING ADMINISTRATIVE REVIEWS

On July 1, 2015, Commerce published the attached Federal Register notice, REQUEST REVIEW JULY, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of July. The specific antidumping cases against China are: Carbon Steel Butt-Weld Pipe Fittings, Certain Potassium Phosphate Salts, Certain Steel Grating, Circular Welded Carbon Quality Steel Pipe, Persulfates, and Xanthan Gum.  The specific countervailing duty cases are: Certain Potassium Phosphate Salts, Certain Steel Grating, Circular Welded Carbon Quality Steel Pipe, and Prestressed Concrete Steel Wire Strand.

For those US import companies that imported Carbon Steel Butt-Weld Pipe Fittings, Potassium Phosphate Salts, Steel Grating, Circular Welded Carbon Quality Steel Pipe, Persulfates, and Xanthan Gum and the other products listed above from China during the antidumping period July 1, 2014-June 30, 2015 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

This is a very important month for US importers because administrative reviews determine how much US importers actually owe in Antidumping and Countervailing Duty cases. Generally, the US industry will request a review of all Chinese companies. If a Chinese company does not respond in the Commerce Department’s Administrative Review, its antidumping and countervailing duty rate could well go to the highest level and for certain imports the US importer will be retroactively liable for the difference plus interest.

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over.  Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability.  In the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

TRANSFORMATIVE POWER OF TRADE ADJUSTMENT ASSISTANCE (“TAA”) FOR COMPANIES

A major part of the battle for Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership (TPP) was the merits of Trade Adjustment Assistance (“TAA”). Many Republican Senators and Representatives oppose TAA. On the Senate Floor, Senate Finance Committee (“SFC”) Chairman Orrin Hatch stated that he was “generally opposed” to TAA, but realized that his Democratic colleagues, led by SFC Ranking member Senator Ron Wyden, needed TAA to support TPA.

In the House, however, many Republican Representatives opposed TAA because they see TAA as an entitlement. But in talking to Republican staff in the House, it soon becomes apparent that many Representatives do not understand that there are two TAA programs. The first TAA program is TAA for Workers (“TAAW”), which is a $450 million job retraining program for workers that have been displaced by international trade. That is the program, Democratic Senators and Representatives need to support, to help the Unions, their constituents.

The second TAA program, however, is TAA for Companies (also called TAA for Firms or TAAF).  In the Bill signed by the President into law  TAA for Companies is set at only $15 million.  TAA for Companies targets small and medium size business (SMEs) and helps them adjust to import competition. The irony is that SMEs are the Republican sweet spot. These companies are Republican constituents.

What are the Republican arguments against TAA for Companies? The first argument is that the program does not work. To the contrary, the Northwest Trade Adjustment Assistance Center (“NWTAAC”), which I have been working with, has an 80% survival rate since 1984. In other words, NWTAAC has saved 80% of the companies that got into the program since 1984..

The transformative power of TAA for Companies is illustrated by this video from the Mid-Atlantic TAA Center with statements from four small business owners on how TAA For Companies has saved their business– http://mataac.org/media. See also the video at https://www.youtube.com/watch?v=tCef23LqDVs&feature=youtu.be&a.  In that video, the director of MATAAC directly asks whether US companies are ready to give up on international trade victimhood.

If you save the company, you save the jobs that go with the company and all the tax revenue paid into the Federal, State and Local governments. This is the Transformative Power of TAA for Companies. TAA for Companies does not cost the government money. It makes money for the government.

In fact, I truly believe that President Ronald Reagan himself endorsed the TAA for Companies program. Why? Jim Munn. I started working with NWTAAC because Ronald Reagan himself asked Jim Munn to look into the program in the early 80’s. Who was Jim Munn? He was a Republican organizer, a criminal lawyer in Seattle who won every case that he handled, and yes a personal friend of Ronald Reagan.

What did Jim Munn find out when he investigated the program? Lo and behold the program works. Companies are saved, and Jim Munn stayed around as the NWTAAC board chairman for 22 years.

TAA for Companies will be a very important program that Congress can use to help their constituent businesses that will be hurt in the future by trade agreements. The Trans Pacific Partnership will create many winners, such as agriculture, but losers too, and those losing companies will need help adjusting to the trade tsunami of imports created by the TPP.

The other Republican argument against TAAF is that this program is another Solyndra and picks winners and losers. Nothing could be further from the truth. First, TAA for Companies does not provide money directly to companies. TAA provides matching funds to consultants to work with companies to help them create and implement strategic plans to compete effectively in a trade intensive environment.

Second, there is no picking winners and losers. Companies have to meet certain statutory criteria (including a decline in business). Company plans are then vetted by business experts at regional TAAF centers, which helps create a business recovery or adjustment plan. TAAF then provides a matching fund for outside expertise to help implement that adjustment plan. When companies are helped at the local level with an adjustment plan created specifically for that company, even companies facing severe import competition can survive and can prosper.

The only limitation on TAA for Companies is the low level of financial support in the Congress. Many companies wait for long periods of time to get into the program because there simply is no funding. In five states in the Pacific Northwest, for example, only about 10 companies begin the program each year, which is only a small fraction of the companies facing strong import competition.

Another argument made by Senator Hatch’s Legislative staff is that TAAF is duplicative of other Federal business programs. That again is not true. Helping companies that have been injured by imports is an entirely different objective from other business programs.

In the first place, Trade injured companies must change their business significantly to adapt to the new intensive trade environment in order to survive and grow. While there are other programs that offer business planning help, such as SBDC, they generally focus on very small business (often retail or services). TAAF specializes in helping larger trade injured companies, often manufacturers (as well as agricultural and some services companies).

Whereas other programs offer a fixed set of services or specific solutions (e.g. manufacturing technology or lean practices), a one size fits all, from a narrow pool of consultants, TAAF offers a highly flexible solution linking a consultant to a company to solve its specific import problem. Often the consultant hired by TAAF is one that the company already knows but simply does not have the resources to hire.

Today’s SMEs are lean operations, which rely on a network of project based specialists to keep them competitive. TAAF’s strength is the flexibility of linking a specific service provider with a specific skill, matched to the individual needs of the company facing immediate threat from import competition. TAAF does not compete with the private consulting industry, but facilitates access to it. This is the power of the market working to cure the disease and is perfectly in line with Republican principles.

The Transformative Power of TAA for Companies is illustrated by companies in Senator Hatch’s Utah saved by the program. Today there are 19 Utah companies active in TAAF, including a medical device, a precision metals, a furniture and an aluminum extrusions manufacturer. Because of TAAF, these 19 companies with a total of more $2 billion in sales have retained 1000s of high paid manufacturing jobs and added 1000s more jobs. Total cost to the US tax payer for these 19 companies – $1.2 million over a five year period. But saving those 19 companies and the jobs associated with them has resulted in substantial tax revenue at the Federal, state and local level. What TAAF has done in Utah, it has also done throughout the United States.

In addition to TAA for Companies, there are a number of other amendments to the trade laws going through the US Congress with TPA, including changes to the US antidumping law to make it easier to bring trade cases. As stated in past newsletters and as Ronald Reagan predicted in the attached 1986 speech, the problem with antidumping and countervailing duty cases is that they do not work. The Steel Industry has had protection from steel imports under US antidumping and countervailing duty laws for 40 years. Have the cases worked? Is the US Steel Industry prospering today?

All US antidumping and other trade cases can do is slow the decline in an industry. The only program that cures the disease is the TAA for Companies program and with the trade tsunami created by the TPP, this program will be needed to teach companies how to swim in the new competitive environment. That is why this program should be supported by both Republicans and Democrats in the upcoming votes in Congress. TAAF is better targeted and more effective than any other trade remedy available today.

IMPORT ALLIANCE FOR AMERICA

This is also why the Import Alliance for America is so important for US importers, US end user companies and also Chinese companies.  The real targets of antidumping and countervailing duty laws are not Chinese companies.  The real targets are US companies, which import products into the United States from China.

As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the antidumping and countervailing duty laws against China for the benefit of US companies.

On September 18, 2013, ten US Importers agreed to form the Import Alliance for America.  The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

See the Import Alliance website at http://www.importallianceforamerica.com.

We will be targeting two major issues—working for market economy treatment for China in 2016 as provided in the US China WTO Agreement for the benefit of importers and working against retroactive liability for US importers.  The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.

We are now in the process of trying to gather importers to meet with various Congressional trade staff as soon as possible to discuss these issues.  If you are interested, please contact the Import Alliance through its website or myself directly.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On May 21, 2015, the Commerce Department filed changes to the export rules to allow unlicensed delivery of Internet technology to Crimea region of Ukraine, saying the change will allow the Crimean people to reclaim the narrative of daily life from their Russian occupants. Under a final rule, which will be attached to my blog, www.uschinatradewar.com, individuals and companies may deliver source code and technology for “instant messaging, chat and email, social networking” and other programs to the region without first retaining a license from the federal government, according to Commerce’s Bureau of Industry and Security.

Commerce stated:

“Facilitating such Internet-based communication with the people located in the Crimea region of Ukraine is in the United States’ national security and foreign policy interests because it helps the people of the Crimea region of Ukraine communicate with the outside world.”

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached to my blog are copies of the PowerPoint or the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. In addition, the blog describes the various sanctions in effect against Russia.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank. The “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions can be found at www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx.

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which is attached to my blog, which President Obama signed into law on December 19, 2014.  Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

“At this time, the Administration does not intend to impose sanctions under this law, but the Act gives the Administration additional authorities that could be utilized, if circumstances warranted.”

The law provides additional military and economic assistance to Ukraine. According to the White House, instead of pursuing further sanctions under the law, the administration plans to continue collaborating with its allies to respond to developments in Ukraine and adjust its sanctions based on Russia’s actions. Apparently the Administration wants its sanctions to parallel those of the EU. As President Obama stated:

“We again call on Russia to end its occupation and attempted annexation of Crimea, cease support to separatists in eastern Ukraine, and implement the obligations it signed up to under the Minsk agreements.”

Russia, however responded in defiance with President Putin blasting the sanctions and a December 20th Russian ministry statement spoke of possible retaliation.

One day after signing this bill into law, the President issued an Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (the “Crimea-related Executive Order”). President Obama described the new sanctions in a letter issued by the White House as blocking:

New investments by U.S. persons in the Crimea region of Ukraine

Importation of goods, services, or technology into the United States from the Crimea region of Ukraine

Exportation, re-exportation, sale, or supply of goods, services, or technology from the United States or by a U.S. person to the Crimea region of Ukraine

The facilitation of any such transactions.

The Crimea-related Executive Order also contains a complicated asset-blocking feature. Pursuant to this order, property and interests in property of any person may be blocked if determined by the Secretary of the Treasury, in consultation with the Secretary of State, that the person is operating in Crimea or involved in other activity in Crimea.

The EU has also issued sanctions prohibiting imports of goods originating in Crimea or Sevastopol, and providing financing or financial assistance, as well as insurance and reinsurance related to the import of such goods. In addition, the EU is blocking all foreign investment in Crimea or Sevastopol.

Thus any US, Canadian or EU party involved in commercial dealings with parties in Crimea or Sevastopol must undertake substantial due diligence to make sure that no regulations in the US or EU are being violated.

CUSTOMS

CUSTOMS CRACKS DOWN ON CHINESE HONG KONG SMUGGLING RING

On July 7, 2015, US Customs and Border Protection announced that four persons have been indicted for criminal violations in smuggling thousands of counterfeit Sony Corp. and Apple Inc. products, including iPhones and iPads, into the U.S. from China.  U.S. Immigration and Customs Enforcement stated that Andreina Beccerra of Venezuela, Roberto Volpe of Italy, Jianhua Li of China and Rosario La Marca, also of Italy, stand accused of a nearly five-year conspiracy to smuggle more than 40,000 phony electronic gadgets past U.S. customs officials, with most of the devices marked with false Apple and Sony trademarks. Most of the counterfeit products were made by Hong Kong-based Dream Digitals Technology (HK) Co. Ltd., where Li served as a sales manager.

CUSTOMS AND TRADE ENFORCEMENT BILL

There are significant changes to Customs law in the Customs and Trade Enforcement Bill, formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”),  which passed the Senate on May 11, 2015 and the House and have now gone to Conference Committee to smooth out differences between the Senate and House bills.  Some of those provisions include tough enforcement provisions for evasion of US antidumping and countervailing duty laws.

US CHINA TRADE WAR–TRADE, SOLAR, CUSTOMS, PATENTS, BANKING, ANTITRUST AND SECURITIES

Washington Monument Vietnam Memorial Black Wall, Night Washingto“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—JUNE 18, 2014

Dear Friends,

There have been major developments in the trade, solar cells, tires, banking, US/Chinese antitrust, and securities areas. In addition to the trade area, the banking and China antitrust areas have had important developments this month.

TRADE

SOLAR CASES

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice are attached.  CVD PRELIM FED REG factsheet-prc-crystalline-silicon-photovoltaic-prod-cvd-prelim-060314

The Countervailing Duty Rates were much higher than expected with Trina getting 18.56%, Wuxi Suntech 35.21% and all other Chinese companies getting 26.89%. In the Solar Cells case, the average preliminary countervailing duty rate was only 3.61%.

Contrary to articles in the Press, however, this was just the countervailing duty/anti-subsidy determination against China. At the present time, Commerce has issued no determination regarding Taiwan. The Antidumping Preliminary determinations against China and Taiwan are not due to come out until July 24th.

The big issue, however, right now is Scope of the imported products covered by the preliminary determination. What specific products are covered by this decision? It is simply not clear yet. Clearly Chinese Solar Cells and Chinese products with solar cells that are partially produced in China and Taiwan are covered.

What is not clear is whether Chinese solar panels and modules with solar cells that are totally produced in Taiwan or solar cells that are produced in third countries are out of the case. Commerce issued a supplemental questionnaire to all the companies in the China case asking them whether the Solar Cells are partially produced in China. Many Chinese companies have their solar cells totally produced in Taiwan. Apparently, Chinese modules and panels with solar cells totally produced in Taiwan may be out of the China case.

If the modules and panels are produced in Taiwan or Third Countries with Taiwan solar cells, those products are not covered yet, because the Taiwan prelim has not come out yet. Taiwan is not covered until July 24th or slightly thereafter.

Another question is whether Chinese modules and panels that have solar cells from third countries, such as Korea or European countries, are covered by the Chinese case or not. We have heard of companies in China producing modules and panels using solar cells from Solar World in Germany. Are those Chinese modules and panels covered by the case? Not clear at the present time.

Recently, while in China, I met with Hanergy, a Chinese Photovoltaic Film producer. Hanergy told us that they can produce solar panels with the same power as the Polysilicon solar cell panels. If true, that is a game changer because the film is totally out of the case. Technology may be what makes the Solar World antidumping and countervailing duty actions against China irrelevant over time. For more information on Hanergy, see the video at https://www.dropbox.com/sh/v78cu853pdgncsq/AAAWisz0nNkCHRUp8XgTjW-fa.

Finally, as mentioned in my last blog, in April seven US Senators from Montana, Washington State and other States sent a letter to Vice President Biden asking for help in settling the Solar Cells and Solar Products antidumping and countervailing duty cases against China. As mentioned, however, although there have been efforts to negotiate a settlement with the Chinese government, to date the effort has failed.

Under US Antidumping and Countervailing Duty Law, the petitioner, SolarWorld, would ultimately have to agree to any settlement/suspension agreement reached between the U.S. and China. Moreover, in contrast to the EU, Canada and China, there is no public interest test in US antidumping and countervailing duty law. Thus, the U.S. government cannot legally compel SolarWorld to accept the Agreement.

Persuading Solar World to agree to a suspension agreement in the US cases, however, is going to become much more difficult because of a filing on June 5th by the European Union solar panel manufacturers in the European Solar case alleging that over a hundred Chinese companies are violating the terms of a price undertaking arrangement, negotiated by the European Commission. EU ProSun President Milan Nitzschke said he believed every one of the Chinese exporters is breaching the undertaking.

One US Industry source reportedly stated, “It’s certainly raises concerns about the ability of the Chinese government or the Chinese producers to guarantee they will abide by any kind of an agreement. It would emphasize the need for very strong monitoring provisions and very strong enforcement by all of the U.S. government agencies.”

ANOTHER BLOCKBUSTER $2 BILLION ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST TIRES FROM CHINA

On June 3, 2014, a union, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, filed an antidumping and countervailing duty case aimed at $2 billion in imports of automobile and truck tires from China. The case is specifically described as Certain Passenger Vehicle and Light Truck Tires from the People’s Republic of China.

Attached is a short form of the petition.  USITC PUB Petition Tires-Shortest Version-6-4-14 (2) The case targets about 60 to over 100 Chinese tire producers and exporters and well over 1,000 US importers. Under US antidumping and countervailing duty law, unions have standing to file cases, not just producers.

The Commerce Department preliminary countervailing duty determination will come out as soon as October 31, 2014, exposing the US importers to liability for Chinese tire imports, followed by the antidumping preliminary determination on December 30, 2014.

SRAS—NOT FILL IN THE FORMS EXERCISE—HARD NOSED LITIGATION

In the recent Tires case, the rumors are that Chinese law firms are charging as low as $6,000 to $10,000 for a separate rates application (“SRA”) at the Commerce Department for Chinese companies that are shipping $10s, if not 100s, of millions of dollars of tires to the United States. The problem with these legal fee quotes is that SRAs in antidumping and countervailing duty cases in the United States are not a fill in the form exercise. This is litigation against hard-nosed US trade litigators, who have been paid more than $1 to $3 million to throw as many Chinese companies as possible out of the US market.

Under the US antidumping law, the Commerce Department issues two questionnaires to Chinese producers and export companies. One questionnaire is a quantity and value questionnaire listing the total quantity and value of the Chinese company’s exports to the United States during the period of investigation, which in the Tires case is October 1, 2013 to March 31, 2014.

From the Chinese companies’ responses to the quantity and value questionnaires, the Commerce Department will create a list and will chose the top 2 to 5 companies out of the more than 50 to 100 companies in the investigation as “mandatory” respondents. In the Tires case, there will probably be more than 50 companies, but in the Wooden Bedroom Furniture case, it was close to 200 companies.

The 2 to 5 companies selected as mandatory respondents must respond to the entire 100 page antidumping questionnaire from Commerce, respond to numerous supplemental questionnaires, and be subject to verification. Chinese companies selected as mandatory respondents must pay very high legal fees in the $100,000 to $300,000 range depending upon the nature of the product subject to investigation. But there is a benefit to being a mandatory respondent. Only mandatory respondents can prove that they are not dumping and get completely out of the antidumping investigation.

The rest of Chinese companies must submit a separate rates application (“SRA”), which is long and detailed, to prove that the Chinese company is separate and independent from the Chinese Government. Based on the SRA, if accepted, the Commerce Department will give the Chinese company a separate dumping margin, which will usually be the weighted average rate of the Chinese companies selected as mandatory respondent.

If all mandatory companies are 0%, however, pursuant to section 735(c)(5) of the US antidumping law, 19 USC 1673d(c)(5), the Department excludes any rates that were zero when calculating the weighted-average rate assigned to non-mandatory respondents. If all the mandatory respondents get 0, the Commerce Department gets to pick an antidumping rate out of thin air. In preliminary Wood Flooring initial investigation, all three mandatory respondents received dumping rates of 0. What did the separate rate companies get–22.14%.

But if a Chinese company does not get a separate rate, Commerce assumes that it is part of the Chinese entity and gets the highest dumping rate. In the Wood Flooring case, the China wide rate is 63.96%, but in the Solar Cells case, the China wide rate is 250%, and in Wooden Bedroom Furniture the China wide rate is 216%

More importantly, preparing a SRA is not a fill in the forms exercise. The Commerce Department can reject SRAs. The SRA is reviewed by the law firm representing the US industry or union, and the lawyers will look for a reason to attack the SRA and throw the Chinese company out of the US market.

From comments on the SRA, Commerce will issue supplemental questionnaires to the separate rate companies and even conduct verification of the separate rate companies. In almost every single antidumping and countervailing duty case, the Commerce Department throws out a number of Chinese companies and refuses to give them separate rates. So in the Solar Cells case, those companies denied a separate rate or that simply did not get around to filing a SRA got a rate of 250% and were excluded from the US market for at least 2 and a half years.

The problem is the mindset. For the Chinese companies the SRA is a simple form that has to be filed out so the lowest price is the better price. Lawyers, however, do not sell commodities; they sell a service. I talked with one Chinese company in an antidumping case, who hired a very low cost Chinese lawyer to do the SRA. The Chinese law firm sent a young associate to do the SRA and then the Chinese company never saw or talked to the Chinese lawyer again. If a Chinese company that is selling 10s or 100s of millions of dollars in products to the US does not talk/meet with a US lawyer, it should start asking questions.

Meanwhile, US lawyers representing the US industry in antidumping and countervailing duty cases look at the case very differently. Recently, an article was published on how US lawyers look at representing the US industry in antidumping and countervailing duty cases. As one US lawyer stated: “You can’t cut corners . . . . The key to having as much control as you can in the case is knowing the record of evidence better than anyone in the case. You’ve got to take the time and put in the time to sit down and really soak in and understand the record.”

So US lawyers are paid enough to take the time to learn about the record and attack the Chinese companies, when the Chinese companies think this is a fill in the forms exercise and they are buying a commodity. The US lawyers representing the domestic industry are bringing cannons/big guns to the trade war when the Chinese companies are bringing pop guns/ toy guns to the trade war. No wonder so many Chinese companies get killed in US antidumping and countervailing duty cases creating enormous liability for US importers.

Old Chinese saying—This is truly picking up the sesame and losing the watermelon.

ALUMINUM EXTRUSIONS—CAFC OVERTURNS COMMERCE

Another problem for the non-mandatory Chinese companies and their US importers is the Aluminum Extrusions case. In the Aluminum Extrusions initial investigation, in the Countervailing duty (“CVD”) case, Commerce used Customs statistics to determine the mandatory respondents. Aluminum extrusions, however, is a very difficult commodity and imports come into the United States in basket tariff categories. All three Chinese mandatory respondent companies refused to respond to the Commerce Department CVD questionnaire, possibly because they were not exporting the product in question.

But two Chinese companies submitted voluntary responses and Commerce gave them 8 to 9% CVD rates. What did the rest of China get as the China Wide Countervailing Duty Rate—374%!!

Commerce took the position that it would not take the CVD rates for voluntary respondents into account in determining the CVD China Wide rate. Since the three mandatory respondents refused to respond, the rest of China got 374%.

This has become extremely dangerous because as explained in past blog posts, Commerce is expanding the Antidumping and Countervailing Duty orders to apply to downstream products and US importers of these downstream products could be exposed to retroactive liability or as much as 374% CVD rates on past imports.

Importers appealed, and on appeal the Court of International Trade forced China wide CVD rate down to about 137%, arguing that the All Facts Available Rate by Commerce was punitive and simply not commercially reasonable.

On June 3, 2014, in Maclean-Fogg Company v. United States, the Court of Appeals for the Federal Circuit (“CAFC”) in the attached 2-1 split decision reversed, holding that the Commerce Department must use the countervailing duty rates assigned to voluntary respondent companies to determine the China-wide rate.  MACLEAN FOGG

As the CAFC stated:

“The statute is clear that voluntary respondents are “exporters or producers” subject to “individual examination.” The rates calculated for them are “individual countervailable subsidy rate[s].” Within the countervailing duty statute, “investigation”/”examination” and “investigated”/“ examined” are used interchangeably. . . .

This reasoning lacks support because the general rule itself specifies its own exclusions: “any zero and de minimis margins, and any margins determined entirely on the basis of the facts available.” § 1671d(c)(5)(A)(i). The existence of exclusions means that Congress intended all “weighted average countervailable subsidy rates established for exporters and producers individually investigated” be factored into the calculation unless the conditions for exclusion are met. . . .

We thus conclude that the Court of International Trade erred in holding that the statute is ambiguous on the question of whether the countervailing duty rates (other than zero or de minimis) of voluntary respondents must be included in the general rule for calculation of the all-others rate. Because the statute is clear that such voluntary respondent rates must be included in the general all-others rate calculation, Commerce’s regulatory interpretation to the exact contrary is invalid. Commerce’s rationale for its regulation is therefore irrelevant and cannot serve to create ambiguity where none exists.

Accordingly, “exporters and producers individually investigated” in the context of 19 U.S.C. § 1671d(c)(5)(A) must be read to encompass the voluntary respondents. On the current facts, the precondition for invoking the exception provision, that “the countervailable subsidy rates established for all exporters and producers individually investigated are zero or de minimis rates, or are determined entirely under section 1677e of this title,” has not been met. §1671d(c)(5)(A)(ii). We reverse the decision of the Court of International Trade and remand for determination of the all-others rate under the general rule, § 1671d(c)(5)(A)(i).

REVERSED AND REMANDED”

In commenting on this decision, several trade lawyers have stated that since the Commerce Department takes so few voluntary respondents in cases, this decision will not have that much effect on future Commerce Department antidumping and countervailing duty cases. Commerce is simply individually investigating so few respondent companies these days that this decision will simply not have any impact.

AD ORDERS ON FRONT SEATING VALVES AND HEDP ACID LIFTED

In May and June, the Commerce Department lifted antidumping orders against front seating valves and 1-Hydroxyethiylidene-1,1-Diphosphonic Acid (HEDP) from China. See the attached notices.  FRONT SEATING VALVES ORDER REVOKED HEDP REVOKED

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 WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations.  These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

This is particularly a problem because the protectionism is coming from the Democratic side of the aisle. Democratic Senators and Congressmen are supported by labor unions. To date, President Obama cannot get one Democratic Congressman to support Trade Promotion Authority (“TPA”) in Congress. Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the mid-term elections as soft on trade.

As mentioned in the February post, 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 attached to the February post on my blog, was introduced into Congress. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

Under the US Constitution, Congress, not the President has the power to regulate trade with foreign countries. Article 1, Section 8, Clause 3, of the Constitution empowers Congress “to regulate Commerce with foreign nations” Thus to negotiate a trade agreement, the Congress gives the Executive Branch, the Administration/The President and United States Trade Representative (“USTR”), the Power to negotiate trade deals.

Because trade deals are negotiated with the foreign countries, the only way to make the system work is that under the TPA law when the Trade Agreement is negotiated, the Congress will agree to have an up or down vote on the entire Agreement and no amendments to the Agreement that has already been negotiated will be allowed.

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track. But to date no details have been given about exactly what Smart Track will mean, other than more oversight by Congress and input by the Public in the trade negotiations.

Now the story continues . . . .

As the negotiations continue, there appear to be major differences between the United States, Japan and Canada on various agricultural products. On June 3, 2014, representatives of 39 Dairy Companies stated that they would withdraw their support for a Trans-Pacific Partnership deal if Canada and Japan do not open their markets to more US dairy products. As stated in the attached June 3rd letter, Dairy_Letter_0603:

“ It is clear, however, that Japan, as well as Canada, continues to strongly resist living up to the ambitious trade goals it obligated itself to undertake upon joining TPP negotiations. The U.S. dairy industry has been a leading and long‐standing advocate for comprehensive market access and the inclusion of Japan and Canada in TPP.

Yet, we have held realistic expectations and recognize that the perfect should not be the enemy of the good. However, as reported in the media, Japan’s recent comments on market access progress show appallingly little substantive movement, and come nowhere close to our expectations. Canada will likely try to base its decisions on dairy market access off of what Japan commits to do for its most sensitive agricultural sectors, thus heightening the importance of achieving meaningful dairy market access to Japan.

We urge you to insist that TPP must remain a high standard trade agreement that can be used as a model for future U.S. free trade agreements. All TPP countries must do their part to ensure this undertaking lives up to its founding goals of comprehensive and meaningful market access. We are prepared to match the level of ambition of Japan and Canada, and urge you to press both to provide a very strong dairy package. Our industry must not provide any new access in this agreement that has not been given by those countries.

In addition, it is vital that TPP address serious non‐tariff policies by the New Zealand government that have uniquely advantaged the largest dairy exporting company in both the TPP region and the world. Tariffs are a critical component of this agreement, but not the only element.

It remains our hope that TPP negotiations with Japan and Canada can be concluded in a manner that will allow for strong support across our industry. However, our support for TPP is not unconditional. The elements cited here, which largely remain unresolved, must be concluded in a positive manner or our industry will find it difficult to support the final agreement.

Similarly, our industry has been a strong supporter of Trade Promotion Authority (TPA) and would expect to continue to support it in the future. However, should Japan and Canada not commit to minimum standards and basic market‐based principles as many other TPP countries have done, we would need to re‐examine our support for TPA.”

On June 10th, Hiroyuki Ishige, chairman of the Japanese External Trade Organization, a Japanese trade official, reportedly told a Washington think tank that resolving the issues keeping the pact from moving forward would take compromise on both sides, and that there was no such thing as a “perfect” TPP.

On June 11, 2014, Congressman Devin Nunes, a Republican Congressman from California, who is Chairman of the House Ways and Means Committee, Subcommittee on Trade, responded Nunes Opening Statement_ Hearing on Advancing the U.S. Trade Agenda_ Benefits of Expanding U.S. Agriculture Trade and Eliminating Barriers to U.S. Exports:

“Third, we must tear down tariff and non-tariff barriers to U.S. agriculture. Tariffs must be eliminated without exclusion. In negotiations for the Trans-Pacific Partnership, or TPP, I am concerned that the Administration is not holding Japan and Canada to the level of ambition that Congress has demanded. In some cases a long time frame may be warranted, but there has to be a path to zero. If any countries insist on retaining tariffs, then we must complete the negotiations without them and allow them to rejoin when they can commit to full tariff elimination.

A growing concern is non-tariff barriers, particularly unwarranted sanitary and phytosanitary or SPS measures. While countries can implement measures to protect human, animal, and plant health, many measures are actually thinly veiled protectionist barriers that ignore science and international standards, and do not enhance food safety in any way. I’m pleased that the Administration has heard Congress’s message that only strong, enforceable rules will ensure that SPS measures are transparent, science-based, and are not unduly restrictive. I am particularly concerned by European restrictions on the use of generic food names, which the EU improperly designates as geographical indications. This threatens the U.S. dairy industry and cannot be tolerated. The TPP and U.S.-EU trade negotiations are good opportunities to reduce both tariff and non-tariff barriers. To gain support in Congress, these agreements must result in complete market access.

Fourth, to strengthen USTR’s position in trade negotiations, we must pass Trade Promotion Authority without delay. The Bipartisan Congressional Trade Priorities Act introduced earlier this year would establish clear direction to open agriculture markets and address unwarranted SPS measures and other trade barriers. If the Administration finishes these negotiations before TPA is granted, it will not get the best deal for our farmers or other exporters. Therefore, I call on the Administration to focus on passing TPA in Congress before completing TPP.”

On June 10, 2014, after a trip to China, Congressman Aaron Shock, Republican from Illinois, stated that the Trans-Pacific Partnership (TPP) is the best way to motivate China to make reforms needed for it to be ready to join the deal. Schock said negotiating a “level playing field” with China would be a good thing, but Beijing is not yet ready to meet the standards of the TPP deal under negotiation. Shock further stated at a Washington DC think tank, “But there’s nothing like competition to get your act in order.”

On June 16,2014, Ways and Means Committee Chairman Dave Camp (R-MI) and Trade Subcommittee Chairman Devin Nunes (R-CA) released the following statements on the 80th anniversary of Trade Promotion Authority (TPA) WAYS AND MEANS ANNOUNCE:

Chairman Camp stated, “This month marks the 80th anniversary of the enactment of the Reciprocal Trade Agreements Act. Since its passage, every President, until now, has partnered with Congress to have this powerful tool to negotiate the best possible trade deals for America. I urge the Administration to pull out the stops to assure passage of the Bipartisan Congressional Trade Priorities Act of 2014, which strengthens the role of Congress in trade negotiations and gives the President the ability to negotiate the very best deals for U.S. exporters, creating good jobs that pay well.”

Chairman Nunes added, “History is on our side. TPA-style legislation has worked for 80 years to produce high quality agreements that create U.S. jobs. But this President doesn’t have this valuable tool. Unless he acts quickly to work with us to pass the Bipartisan Congressional Trade Promotion Authority Act of 2014, he will be unable to deliver ambitious trade agreements that benefit our economy.”

JUNE ANTIDUMPING ADMINISTRATIVE REVIEWS

On June 2, 2014, Commerce published in the Federal Register the attached notice JUNE REVIEWS COMMERCE regarding antidumping and countervailing duty cases for which reviews can be requested in the month of June. The specific antidumping and countervailing duty cases against China are: Artist Canvas, Chlorinated Isocyanurates, Furfuryl Alcohol, High Pressure Steel Cylinders, Polyester Staple Fiber, Prestressed Concrete Steel Wire Strand, Silicon Metal, and Tapered Roller Bearings (TRB).

For those US import companies that imported chlorinated iscocyanurates, polyester staple fiber, silicon metal and TRBs and the other products listed above from China during the period June 1, 2013-May 31, 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed 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 Administrative Review, their 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.

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 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.

Two Congressmen have now agreed to meet importers in the New Jersey/NY area and in the Long Beach area to listen to their grievances regarding the US antidumping and countervailing duty laws. We are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce apparently takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement. 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.

At the end of July, we plan an organizational meeting in Beijing, China with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help contacting US importers about the Alliance.

CUSTOMS—FALSE CLAIMS ACT

On May 15, 2014, in the attached decision, ORDER 2 SOUTHEASTERN in United States, ex rel and James Valenti vs. Robert Wingfield, Northeastern Aluminum Corp., William Ma, Southeastern Aluminum Products, Waterfall Group and C. R. Lawrence, a Federal District Judge denied a motion to dismiss in a false claims act targeting imports of Chinese aluminum extrusions transshipped through Malaysia. U.S. District Judge Brian J. Davis denied the motion from C.R. Laurence Company Inc. and Southeastern Aluminum Products Inc., which had argued that the government failed to sufficiently allege that they knowingly submitted false statements to U.S. Customs and Border Protection to avoid paying duties on imports of aluminum extrusions.

As Judge Davis stated, “These facts, accepted as true, provided a sufficient basis for the government’s claim that CRL conspired … to avoid duties on the aluminum exports and imports in violation of the [False Claims Act].”

In a separate order, the judge issued a similar denial of Southeastern’s dismissal motion, finding that the company’s claims that it was merely a buyer did not shield it from the government’s allegations.

According to the government and whistleblower James Valenti, who helps U.S. companies find foreign sources of aluminum extrusions, C.R. Laurence, Southeastern and several other companies and individuals conspired to ship Chinese-made aluminum extrusions through Malaysia in order to avoid the duties. Valenti filed his suit under seal in April 2013, and the government chose to intervene roughly six months later, although it dropped several defendants.

In its intervening complaint, the government alleged that a sales director for Chinese manufacturer Tai Shan Golden Gain Aluminum Products Ltd. conspired with C.R. Laurence, Southeastern and Waterfall Group LLC to avoid the countervailing duties by shipping the aluminum extrusion products though Malaysia.

A purportedly Malaysian subsidiary of Tai Shan also allegedly undervalued the imported aluminum, causing the amount of declared duties to be lower. According to the government, by submitting inaccurate country of origin and import value information to Customs, the companies committed Customs fraud and violated the FCA.

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

With regards to the Chinese ban on shellfish from the West Coast, on June 10, 2014, the Washington State Department of Health announced that China recently advised the NOAA at Commerce that it was lifting the ban on imports of live shellfish from Washington and Alaska stating:

June 10, 2014 update

Areas Cleared for Geoduck Export to China

Officials from China recently advised NOAA that they lifted the ban on imports of live shellfish from Washington and Alaska. The Department of Health provided NOAA with a summary of the results of inorganic arsenic testing in Washington State to date and NOAA has agreed to “clear” [certain] areas for geoduck export to China.  See http://www.doh.wa.gov/CommunityandEnvironment/Shellfish/CommercialShellfish/ChinaBan.aspx.

PATENT/IP AND 337 CASES

337 CASES

On June 13, 2014, the US International Trade Commission (“ITC”) issued a notice in the 337 patent enforcement proceeding, Certain Two-Way Global Satellite Communication Devices, System and Components Thereof, announcing the issuance of a civil penalty of $6,242,500 for violation of the Consent Order on 227 separate days by a US importer.  VIOLATION OF CONSENT ORDER 337 $6 MILLION FINE

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

On May 13, 2014, SAWT Inc. and Shanghai Aeolus Windpower Technology Co. sued Joe Moore Construction Inc. d /b/a Wind Sun Energy Systems and Urban Green Energy Inc. for infringement of US patents.  CHINA WIND CASE

On May 13, 2014, SHM International Corp. sued Chant Heat Energy Science & Technology (Zhongshan) Co., Ltd. and Guangdong Chang Group Inc. for breach of contract, breach of a confidentiality agreement, interference with customers, and unfair competition.  GRILL EQUIPMENT

On June 12, 2014, Parthenon Unified Memory Architecture LLC sued Huawei Technologies Co., Ltd., Huawei Technologies USA, Inc. and Huawei Device USA, Inc. for patent infringement.  HUAWEI

BANKING

On June 16, 2014, the US U.S. Supreme Court issued a 7-1 decision in Republic of Argentina v. NML Capital Ltd., which will send a shiver through many foreign banks, including Chinese banks. In the atthached decision, SUPREME COURT ARGENTINA CASE the Supreme Court held no provision in the Foreign Sovereign Immunities Act (“FSIA”) immunizes a foreign-sovereign judg­ment debtor from post judgment discovery of information concerning its extraterritorial assets. In other words, third parties can engage in broad discovery of a foreign sovereign’s assets in third countries.

Specifically, the Supreme Court upheld lower court rulings allowing hedge fund, NML Capital Ltd. to engage in broad discovery as part of its long-running case dispute with the Republic of Argentina over a 2001 bond default, including allowing the fund to review Argentine military records. The Supreme Court affirmed decisions at the district court and Second Circuit levels that required two third-party banks to comply with subpoenas related to Argentina’s assets held outside of U.S. courts’ jurisdiction as part of the discovery process in the dispute between Argentina and NML. As Justice Scalia writing for the Court majority stated “The prospect that NML’s general request for information about Argentina’s worldwide assets may turn up information about property that Argentina regards as immune does not mean that NML cannot pursue discovery of it.” Although discovery of Argentine assets in third countries may turn up property that Argentina regards as immune, according to the Supreme Court, that is an issue for the relevant Federal district lower court to settle.

It is interesting to note that the Court rejected the position of the US government, which had backed Argentine’s position. The US fears that if U.S. courts are allowed to call for broad discovery rulings against assets held by foreign governments held outside of U.S jurisdiction, then foreign courts may attempt the same with U.S. assets around the world. According to the Court, these areas of law are to be left for Congress to change, if it chooses, not the courts.

At the same time, the Supreme Court denied Argentina’s attempt to appeal of a lower court’s ruling that it has to pay $1.4 billion owed to hedge fund NML, despite the country’s warning that the payment could force it into another default.  In its cert petition, Argentina argued the high court must intervene in its dispute with NML because the lower court decisions violate Argentina’s sovereignty.

The Second Circuit Court of Appeals had found that Argentina, which has repeatedly said it will not pay the holdout bondholders no matter what the U.S. courts decide, was bound by the terms of the original bond offering and had to pay debt holders that didn’t participate in the restructuring in full whenever it made payments to those bondholders that had agreed to the restructuring.  Argentina argued that it “must reward NML with a massive litigation windfall or face a court-ordered default, which could trigger a renewed economic catastrophe with severe consequences for millions of ordinary Argentine citizens.”

In response to the Court decision, Argentina’s President Kirchner stated that Argentina will respect its debt, but will not accept any extortion by holdout bond holders.

ANTITRUST

In the attached series of antitrust cases, companies are suing banks, including the Hong Kong Exchanges & Clearing Ltd, for triple damages under Section 1 and Section 2 of the Sherman act for conspiring to drive up prices of aluminum and zinc through the London Metal Exchange.  IOWA HK EXCHANGE HONG KONG EXCHANGE

On June 16th, the Hong Kong Exchange filed the attached motion, HKEX BRIEF OUT OF LITIGATION arguing that the New York Federal District Court should throw out the complaint against the Hong Kong Exchange because the court has no jurisdiction because the Exchange has little to no connections with the United States.

Reportedly the US Justice Department is also looking at the alleged price fixing scheme.

On June 12, 2014, Leslie Overton, the Deputy Assistant Attorney General of the Antitrust Division at the US Justice Department gave the attached speech Leslie C Overton – International Antitrust Engagement -Benefits and Opportunities 6-12-14 on international antitrust engagement, benefits and opportunities.  In that speech Overton stated:

“Both older and newer antitrust agencies have come to regard cooperation with their international counterparts as an important tool in ensuring effective competition enforcement. . . . Similarly, in the cartel context, the interaction between U.S. antitrust enforcers and their international counterparts continues to increase as more countries – including emerging economies – have come to understand the significant harm inflicted by hard core cartels, such that international cartels are likely to be pursued and prosecuted by more than one antitrust authority.

What explains this trend towards increased cooperation in antitrust enforcement?  For the antitrust agencies, the benefits of cooperation are significant. Cooperation increases the efficiency of enforcement efforts by facilitating the ability of agencies to exchange information and evidence. . . . Open and candid dialogue among enforcers helps us better understand competitive dynamics worldwide, and provides opportunities to discuss theories of harm and best practices.  It facilitates the transfer of knowledge and experience from more established agencies to newer agencies, and may help newer agencies avoid reinventing the wheel when confronting issues for the first time.

The growing incidence of effective case cooperation strengthens close ties between many enforcement agencies, at both the staff and senior manager levels.  Additionally, many of our international counterparts have told us they value having “front office” to “front office” contacts.  To this end, the Antitrust Division’s Director of Civil Enforcement, Patty Brink, is responsible for day-to-day international case cooperation in the civil context. Her direct, sometimes daily, contact with her international counterparts has helped keep several investigations on track to successful conclusion. . . .

Turning to the Antitrust Division’s criminal antitrust enforcement program, as former Deputy Assistant Attorney General (DAAG) Scott Hammond explained last fall, the Division has cooperated extensively in recent years with the Japanese Fair Trade Commission (JFTC) on investigations and prosecutions of Japanese companies and executives accused of fixing prices for auto parts installed in U.S. cars, including seat belts, air bags and steering wheels.  The JFTC has substantially assisted the Antitrust Division in its investigation, which has thus far resulted in 24 individuals and 27 companies agreeing to plead guilty and more than $2 billion in criminal fines.  Former DAAG Hammond noted that “[w]e are grateful for [the JFTC’s] assistance [in this investigation] as it has benefitted both Japanese and American businesses and consumers.”

We also engage in important international cooperation beyond the case-specific context.  We have a number of bilateral cooperation agreements where the U.S. government or U.S. antitrust agencies are parties. For example, in 2011, the DOJ and the FTC entered a memorandum of understanding (MOU) with the three agencies that enforce the Chinese anti-monopoly law, as well as an MOU with the Indian competition agencies in 2012.

We had our second annual bilateral consultation with the Chinese anti-monopoly law agencies in Beijing this past January, and planning is well underway for the third later this year in Washington.  This past November, the U.S. agencies had their first official bilateral consultation with the Indian agencies.

We and the FTC have had valuable bilateral discussions with these and other counterparts about a number of issues, such as the importance of sound economics-based analysis, transparency, and procedural fairness, which are in the interest of our consumers and theirs.  I can tell you that such bilateral discussions are quite candid, and where we have concerns we raise them with our international counterparts, while still respecting appropriate confidentiality regarding such enforcer-to-enforcer exchanges.”

 

Recently, this international cooperation was on display in Beijing on May 21-23, 2014 at an ABA Conference on Antitrust in Asia: China, at which speakers from the US FTC, Justice Department, the Chinese government’s NDRC and Ministry of Commerce and Competition Agencies from Japan, Korea, Singapore, and Australia to name a few spoke about various antitrust issues, including cartels. The point is that international cartels are now the target of not only US antitrust actions, but antitrust actions all over the world and the various competition agencies in a number of different countries are talking to each other. Companies can run, but they can no longer hide from antitrust cases.

COMPLAINTS

On May 30, 2014, Viewsonic filed the attached antitrust case against a number of Japanese, Korean and Chinese companies alleging that the companies had created a cartel to fix the prices of cathode ray tubes.   Some of the Chinese target companies are Chunghwa Picture Tubes, Beijing Matsushita and Samsung China Companies.  TELEVISIONS ANTITRUST

CHINA ANTITRUST CASES

As US antitrust cases have been on the rise in the United States, they are also rising in China. On June 17, 2014, in direct contrast to the US and EC, which had approved the merger, China’s Merger Office in the Ministry of Commerce known as MOFCOM blocked a proposed alliance among Danish shipping giant A.P. Moller-Maersk A/S and two of its partners to pool ships used on Eurasian trade routes.

MOFCOM declared that the merger agreement violated China’s anti-monopoly law because it excludes the effect of restricting competition in the European container liner shipping routes services market.  As a result, Maersk and its partners agreed to stop work on the merger.

MOFCOM’s decision to not allow the alliance marked the culmination of a review under China’s merger-control rules over the effect the agreement would have on trade routes that involve Chinese ports. Other shipping routes that did not involve ports in China were not considered as part of the review.  The Chinese regulatory body said that the proposed deal would have significantly enhanced the market power of Maersk and its partners, led to greater concentration in the relevant market and raised barriers to companies seeking to enter the market.

Maersk and its partners announced the agreement to establish the P3 network in June 2013.  The overall aim of the alliance was to make container liner shipping more efficient and improve service quality for the shippers due to more frequent and reliable services.

MOFCOM’s decision to block the merger marks the first time it has stopped a merger since 2009, when it stopped Coca-Cola Co.’s $2.5 billion bid to buy Chinese juice and beverage company Huiyuan Juice Group Ltd., which was the first time China had halted any proposed acquisition after the country’s antimonopoly law took effect in 2008.

On June 9, 2014, MOFCOM reported that China has launched a review into potential anticompetitive behavior across 80 major industries, including autos, pharmaceuticals and alcoholic drinks. Beijing last year stepped up a crackdown on antitrust practices. The Commerce Ministry’s review is part of a campaign launched last December targeting practices that hinder free market competition, such as setting up protectionist policies against companies from other cities and provinces, and granting unfair subsidies.

On June 16, 2014, it was reported that in reviewing the Microsoft Nokia merger, MOFCOM had revealed 310 Microsoft patents used in Android licensing Agreements. Up to that date Microsoft had never revealed the patents and fees in the licensing deals, unless required to do so in a courtroom. However, documents posted on the Chinese Ministry of Commerce (MOFCOM)’s website detail the full range of patents (http://www.mofcom.gov.cn/article/difang/henan/201404/20140400547823.shtml) included within licensing agreements. A list detailing all 310 patents can be found here http://images.mofcom.gov.cn/pep/201404/20140408143159274.docx).

Attached is the May Antitrust Report by T&D Associates, a Chinese law firm.  TD Monthly Antitrust Report of May 2014 One article in the report states that the NDRC has suspended its antitrust investigation of the US company, Interdigital:

“The NDRC decided to suspend the price monopoly investigation of IDC Co., US, and is continuing to supervise the fulfillment of the IDC’s promises to eliminate monopolistic conduct and its results.

According to reports, the NDRC initially launched an antitrust investigation of IDC in June 2013, and obtained evidence of IDC’s monopolistic price conduct. The related persons in charge of IDC came to the NDRC to participate in the inquiry twice, in July 2013 and January 2014. IDC was suspected of being involved in abusing their dominant position in the wireless communication standard-essential-patent market. This monopolistic conduct included setting unfair high licensing fees for Chinese corporations, requiring the reverse free licensing of corporations patents, bundling non standard-essential-patents licenses, and bundling standard-essential-patents, etc.

In the period of the investigation, the IDC actively cooperated with the authorities and reached a settlement agreement with Hua Wei on licensing fees and other clauses, and stated that it would negotiate with other Chinese corporations using the conditions agreed upon with Hua Wei as a standard. IDC submitted a petition to suspend the investigation and presented the specific measures for eliminating the results of monopolistic conduct, including not setting unfairly high licensing fees for Chinese corporations, not bundling the licensing of non standard-essential-patents and standard-essential-patents, not requiring the reverse licensing of patents of the corporations freely and not forcing Chinese corporations to accept unreasonable licensing conditions through direct lawsuits.

Concerning that the measures submitted by IDC can eliminate the results of the monopolistic conduct that originally invited suspicion, ensuring that Chinese corporations can compete fairly in the market and market competition order can be restored, the NDRC made the decision to suspend the investigation pursuant to Article 45 of the Antitrust Law and will ensure that IDC will fulfill its promises. NDRC will resume the investigation if IDC fails to fulfill its promises or other legal conditions occur.”

In the United States, in the attached response to written questions from the Senate Finance Committee, FROMAN RESPONSE specifically Senator Sherrod Brown, who raised questions about Chinese government’s enforcement of its anti-monopoly laws as a tool to pursue its industrial policy, USTR Froman stated recently:

“Sen. Sherrod Brown:

Question 6

The government of China is increasingly using its anti-monopoly laws as a tool for pursuing its nationalist industrial policies. As noted in USTR’s most recent National Trade Estimates report, China’s NDRC has in the past year significantly increased its anti-monopoly activity especially against foreign companies. As the report notes, there is significant concern about abuses of the antimonopoly law by the NDRC, including intimidation and pressure on U.S. companies to cooperate in the face of unspecified allegations, steep fines, and other forms of coercion. Does USTR have adequate legal authority and tools to address such forms of unfair competition, which do not fall neatly into the categories of prohibited activities embodied in the WTO agreements? What other tools would you find useful to address such practices?

Answer

USTR is working intensively, in cooperation with other U.S. government agencies and key trading partners, via both bilateral and multilateral engagement, to combat China’s use of the anti-monopoly law as a tool for pursuing industrial policies. We are pressing China hard, building on China’s leaders’ stated commitments to a level playing field and the rule of law. We are committed to continued intensive engagement on this important concern.”

 

It is interesting to note that Shang Ming, DJ Shang, the present Director-General of the Anti-Monopoly Bureau of MOFCOM’s merger office, used to be the Director of the Bureau of Treaties and Law at MOFCOM. Treaties and Law at one point in time was in charge of the Chinese government’s response to US and other foreign antidumping and countervailing duty cases. In other words, Shang Ming had to deal with the protectionist policies of the US Commerce Department in antidumping and countervailing duty cases. What goes around does indeed come around.

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

In the the attached May edition of the FCPA Digest, May_2014_Digest_052814 Dorsey lawyers report on several corruption investigations involving China and Hong Kong stating:

“Johnson Controls Discloses FCPA Investigation in China

In a recent SEC filing, Johnson Controls, Inc. announced that it had self-reported to the United States Department of Justice and the Securities Exchange Commission that it commenced an internal investigation in July of 2013 into possible FCPA violations in China. The possible violations date back to 2007.

Johnson Controls is one of the world’s largest manufacturers of building maintenance systems and controls, which include temperature and air regulation controls found in most large-scale buildings and industrial facilities. The company also manufactures temperature control systems for vehicles and boats, among others.  According to Johnson Control’s disclosure, the focus of the investigation is Johnson Control’s “Building Efficiency marine business in China, dating back to 2007,” which reported annual sales ranging from $20 million to $50 million during this period. No further information has been provided regarding the nature of the possible FCPA violations.

Avon Settles FCPA Allegations for $135 Million

On May 1, the beauty products company Avon announced that it had “reached an understanding” with the Department of Justice and SEC to resolve allegations that the company had violated the FCPA. Of the $135 million, $68 million will go to the DOJ, and $67 million to the SEC. The deal includes a three-year deferred prosecution agreement with the DOJ, and the institution of a compliance monitor for at least 18 months.

The agreement resolves charges relating to alleged bribes of Chinese foreign officials as evidenced by a 2005 internal audit report that concluded Avon employees may have been engaging in conduct in China that violated the FCPA relating to dollars spent on “travel, entertainment and other expenses” in convincing Chinese officials to allow the door-to-door direct marketer to enter the Chinese market.

By the end of 2013, Avon had reportedly spent approximately $300 million on its internal FCPA investigation, and as a result of the fallout after its initial disclosure in 2012, CEO Andrea Jung was asked to leave the company in 2012.

SEC Threatens Enforcement Action against Qualcomm

On April 24, Qualcomm, Inc., the world’s largest mobile chipmaker, disclosed in an SEC filing that it was the subject of an SEC investigation relating to allegations that the microchip giant had bribed officials in China’s state-owned firms. The disclosure announced that Qualcomm had received a Wells Notice from the SEC on March 13, recommending an enforcement action against the company.

The Wells Note stems from an SEC investigation that started in 2012 after a whistleblower complaint informed the SEC that Qualcomm had conducted an internal investigation and unearthed evidence of “special hiring consideration, and gifts or other benefits” provided to Chinese officials. Qualcomm’s disclosure estimates the value of the possible benefits in question to be “less than $250,000, excluding employment compensation.”

Goldman Sachs Being Probed For Hiring Practices

Earlier this month Goldman Sachs Group, Inc. disclosed in its Form 10-Q that it was the subject of an ongoing FCPA investigation by the SEC regarding its hiring practices outside the United States. The investigation centers around Goldman’s practice of hiring relatives of well-connected officials in Asia, and whether such hiring may run afoul of the FCPA.

The inquiry into Goldman’s hiring practices is part of a larger investigation into the hiring practices of other international banks, including Credit Suisse, Morgan Stanley, Citigroup, and UBS AG. In 2013, several news reports surfaced regarding the hiring practices of Wall Street banks in China.

A recent example is JP Morgan’s hiring of Wen Ruchun, the daughter of Wen Jiaboa, a former Chinese prime minister. Wen Ruchun allegedly received $75,000 per month from JP Morgan via a consulting company – Fullmark Consultants. Last year, The New York Times reported that the “practice of hiring the children of government officials was so widespread that banks competed to see who could hire the most politically connected recent college graduates.” . . . .

Hong Kong

According to reports, two of Hong Kong’s wealthiest tycoons went on trial on Thursday 8 May 2014 in the city’s biggest corruption case to date.

Brothers Thomas and Raymond Kwok, who jointly chair the development company Sun Hung Kai Properties, and Hong Kong’s former chief secretary Rafael Hui were arrested in connection with alleged bribes payments and unsecured loans amounting to HK$34 million (c.$4.38 million).

According to reports, five people were arrested in connection with the payments. The others include another Sun Hung Kai director, Thomas Chan, and Francis Kwan, the former non-executive director of the investment company, New Environmental Energy Holdings.

As stated in a Department of Justice indictment, Sun Hung Hui, faces eight charges, some of which relate to receiving payments in return for being “favourably disposed to Sun Hung Kai Properties… and Thomas Kwok and Raymond Kwok” while in office. The charges against Sun Hung Hui reportedly also relate to rent-free use of luxury apartments and acceptance of unsecured loans.

Thomas Kwok, is reported to face three charges of conspiracy to commit misconduct in public office and his brother Raymond to have been charged with four offences including furnishing false information, according to the document.

The arrests have renewed discussion on links between wealthy tycoons and officials in the Asian financial centre that have raised public suspicion for some time. The head of Social Sciences at the Hong Kong Institute of Education told AFP is quoted saying: “This case will reinforce the public perception that the Hong Kong government has been vulnerable to the possible influence of the capitalist class”.

It is said that former Hong Kong chief executive Donald Tsang ended his term in June 2012 after admitting to accepting gifts from tycoons such as trips on luxury yachts and private jets. According to reports, Hong Kong billionaire Joseph Lau was found guilty in March of this year of bribing a former minister in the gambling district of Macau in an attempt to purchase a prime development site.

The hearing took place at Hong Kong’s High Court on 8 May 2014.”

SECURITIES COMPLAINTS

On May 7, 2014, a class action securities complaint was filed by Jeffrey Grodko versus Lihua International Inc., Jianhua Zhu, and Daphne Yan Huang.  LIHUA COMPLAINT

On May 25, 2014, a class action securities complaint was filed by Ming Yang against Tibet Pharmaceuticals, Hong Yu, Taylor Z. Guo, Sabrina Y. Ren, Wenbo Chen, Youhang Pen, Solomen Chen, Anderson & Strudwick Inc., Sterne Agee Group, Inc., Hayden Zou and L. McCarthy Downs III. TIBET PHARMACEUTICALS

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–DEVELOPMENTS IN TRADE, CUSTOMS, PATENTS, ANTITRUST AND SECURITIES

Houhai Lake at Night With Drum and Bell Tower Beijing, China TraDear Friends,

There have been some major developments in the trade, solar cells, Customs, 337/patents, antitrust and securities areas.

TRADE

SOLAR CELLS—BEAT GOES ON

On September 26th there were reports that the United States and China have been negotiating for the past several weeks toward a settlement of existing trade remedy cases affecting Chinese solar cells that would set a minimum floor price and limit Chinese imports.   Apparently, the arrangement would be similar to the one China reached with the European Union, which also included a floor price and provisions aimed at limiting Chinese imports.  Another US objective is to remove Chinese duties affecting U.S. exports of solar-grade polysilicon to China.

Apparently, negotiations have taken place, but it is still unclear how intense the talks are at this time or whether they are anywhere close to a breakthrough.   Sources report that the U.S. Trade Representative (“USTR”), which is leading the negotiations for the U.S. side, has been talking to the domestic manufacturing industury.  As mentioned before since antidumping and countervailing duty orders have already been issued, there cannot be a suspension agreement.

One speculation is that the US and Chinese government could enter into a memorandum of understanding like the U.S-Canada lumber agreement.   Regarding who has more leverage in the negotiations, as described below, with the third country loophole in place, since the Chinese companies can source the cells from Taiwan, Chinese companies may not be that affected by the Trade Remedy orders.  But certain Chinese producers make most of their money by producing solar cells in China, not the modules and panels.

Furhter increasing the pressure, there was quite a flurry in the newspapers as the Chinese Ministry of Commerce (“MOFCOM”) announced on September 20th its preliminary countervailing duty of 6.5% against Polysilicon from the United States against Hemlock and AE Polysilicon.  Other US producers, such as REC Silicon, received a 0% CVD rate. The CVD duty is in addition to the antidumping rates on polysilicon from 53 to over 60% on certain exporters.  See attached announcement.  MOFCOM ANNOUNCEMENT POLYSILICON

One trade publication quoted me stating that “I really think the United States, for the first time, has encountered a trade war,” Perry said. “All of a sudden, when it throws a rock at China, China throws two or three back.”

In addition, certain newspaper assumed that the countervailing duty replaced the antidumping duty against US polysilicon and the newspapers declared victory for the US side.  See http://www.renewableenergyworld.com/rea/blog/post/print/2013/09/china-escalates-trade-war-with-us-over-polysilicon-upping-tariffs-to-63-5

But the reality is quite different.  Just like the United States, the Chinese countervailing duty is added to the antidumping duty against US polysilicon so US producers/exporters are still under enormous pressure because of the Chinese trade case.  The U.S. imports of polysilicon into China were roughly $2 billion, while the imports of Chinese solar cells to the U.S. were roughly $4 billion.  The looming uncertainty has already cost the U.S. manufacturing jobs.  As mentioned in my last post, an August 18th article in the Seattle Times stated that Hemlock Semiconductor, the third-largest polysilicon producer, announced plans in January to lay off 400 employees at its Michigan and Tennessee plants, citing an oversupply of solar panels because of the potential for Chinese tariffs.  The article also stated that REC Silicon said the trade issues caused it enough uncertainty as far back as January of 2013 to delay a $1 billion capacity expansion at its Moses Lake plant in Washington.

The MOFCOM Polysilicon Decision increased pressure on the United States to negotiate a settlement agreement.  On September 23rd, a US solar industry association, the Solar Energy Industrial Association, released a proposed settlement of the solar cells and polysilicon trade cases.  SEIA SETTLEMENT PROPOSAL  In the attached announcement issued on September 23rd, the SEIA states:

“With no end in sight to the ongoing solar trade dispute between the United States and China, the Solar Energy Industries Association (SEIA) is offering an industry compromise between the U.S. and Chinese solar industries, which could serve as the centerpiece for a fair, negotiated settlement of outstanding issues, benefit end users, and encourage the proliferation of solar energy in the United States and globally. . . .

For months, SEIA has been working behind the scenes in Washington and Beijing to resolve the current conflict and head off an escalation of trade sanctions. SEIA has warned U.S. negotiators that any settlement similar to the recently announced EU-China agreement would represent a blow to the U.S. solar industry because of an expected increase in solar prices. SEIA also believes that any resolution of the U.S.-China solar dispute must recognize the interests of all stakeholders, including American consumers, and not just one segment of the industry.

Highlights of SEIA’s proposed solution include:

• Chinese companies would agree to create a fund that would benefit U.S. solar manufacturers directly and help to grow the U.S. market. Money for the fund would come from a percentage of the price premium Chinese companies are currently paying to third-country cell producers to get around U.S. trade sanctions, reducing costs and supply chain distortion for Chinese companies.

• The Chinese government would also agree to end its antidumping and countervailing duty investigations on U.S. polysilicon exports to China, and remove the threat of artificial cost increases in a key raw material in the solar value chain, benefiting not just Chinese solar companies but all users of solar energy.

• In return, the U.S. antidumping and countervailing duties orders would be phased out.”

In other words, the SEIA is proposing that the US Solar Industry and the Chinese solar industry simply come together and sing Kumbhaya, a let’s get together song, and everything will be fine again.  The reality is much different.

Although the United States and Chinese governments apparently are negotiating, the first problem with any settlement agreement is that the Chinese government has to agree.  With the Third Country loophole in place, that is if foreign solar cells are put in Chinese panels and modules, the panels and modules are not in the antidumping and countervailing duty case, Chinese modules and panels are not shut out of the US.  In fact, estimates are that the price difference between Chinese and Taiwan solar cells is an estimated 5 to 10 cents so the prices for modules and panels in the United States have only gone up by about $10.  Such a small prices increase has no impact on the US market.  So unless Commerce closes the loophole on its own or because of Court appeals, the Chinese government has no incentive to enter into such a settlement agreement.

Moreover, the US Solar Cell industry has no interest in such a settlement agreement.  In response to SEIA proposal, US counsel representing the US solar cell producers, including Solar World, indicated that they did not have any any intention of giving up unless and until China’s unfair trade practices have stopped.

Counsel for the US industry indicated that his clients are highly skeptical of any arrangement or settlement with China given its history of predatory trade pract1ces.  Since no agreement was negotiated in the initial investigation, getting the US industry’s agreement will be critical to any Solar Cells agreement because the Petitioners, including Solar World, must agree to withdraw their complaint.

This fight will definitely go on.

HARDWOOD PLYWOOD CASE

Another major trade fight is the antidumping and countervailing duty case against Hardwood Plywood from China.  On September 17, 2013, the Commerce Department issued its final antidumping and countervailing duty determinations in the Hardwood Plywood from China case.  As indicated in the attached notice, COMMERCE DEPARTMENT FACT SHEET HARDWOOD PLYWOOD the Antidumping rates range from 55.76% to 62.55% for the mandatory respondents and 59.46% for the rest of the Chinese companies that cooperated in the investigation and 121% for the Chinese companies that did not cooperate.

In the Countervailing Duty case, the three companies that were chosen as mandatory respondents received 0%.  But as mentioned before, even though the Chinese companies that were individually examined received 0%, the Commerce Department’s methodology does not let the Department go negative on the rest of China.  Despite the 0% dumping rates for the mandatory Chinese respondent companies, all other Chinese companies, more than 100 companies, received a 13.58% Countervailing Duty rate.  Fairness Commerce style.

In addition, how did the Commerce Department calculate an antidumping rates of approximately 55 to 62% for Chinese companies?  By using Bulgaria as the surrogate country.  Do you really think that Bulgaria is a more market driven economy than China?  Of course not, but that is not the point.

On September 19, 2013 at the ITC injury hearing Senator Wyden from Oregon testified for the US Industry stating:

“The growing tide of Chinese imports is sinking the boat of the American hardwood plywood industry . . .Left unchecked, these illegal trade practices undermine economic growth, struggling Oregon communities, and encourage more of these unacceptable trade practices by China and others who seek to play by their own rules. . .  American communities that are reliant on manufacturing had been brought “to the brink of economic collapse because of unfair trade.”

But who is the real loser in the Hardwood Plywood case, not the Chinese nor the US hardwood plywood industry.  The real losers in the Hardwood Plywood case are the downstream US producers of cabinets, furniture, boats, paneling and in home construction, crating and packaging, store fixtures, flooring underlayment and many other products, some of which are located in Oregon.

As Mr. Simon, the co-chairman of American Alliance and for Hardwood Plywood, and Mr. Titus, the executive vice president of the US Kitchen Cabinet Manufacturers Association, state in the attached article from the Wall Street Journal, “Protectionists Pick Your Pocket Again, You’ll Pay More for Cabinets, and Anything Made with Chinese Plywood and US jobs will be lost too” WSJ ARTICLE:

“Many thousands of U.S. factories depend on a steady, affordable supply of this plywood for the products they will sell at home and abroad.  Whether those downstream manufacturers sink or swim may be determined in Washington this week in two separate events—a ruling and a hearing.

The damage to U.S. manufacturers that rely on hardwood plywood has already begun. The combined tariffs have jolted supply chains, spiking the cost of imported hardwood plywood and creating painful shortages due to a lack of domestic supply. The first to suffer will be American jobs in manufacturing and woodworking. .. . Today, many U.S. manufacturers that depend on imported Chinese hardwood plywood fear that the tariffs will force the production of cabinets, furniture and other products now made in the U.S. to sites overseas. The domestic kitchen and bath-cabinet industries alone have $8.2 billion in annual sales. But how will the U.S. industry, hit by tariffs, compete with kitchen cabinets and other products made abroad—that can be shipped to the U.S. free of import duties? Competition will come from Canada and Mexico as well as China. . . .

This point was reinforced by Mr. Carl Spencer of Spencer Cabinetry, who testified at the ITC on behalf of the Kitchen Cabinetry industry in the attached article from Woodworking Network, ” Plywood Antidumping Ruling: Upside-Down System of Justice”  See  http://www.woodworkingnetwork.com/wood-blogs/industrial-woodworker/production-industry-guest-blogs/Upside-Down-System-of-Justice-226075531.html?page=2#sthash.wgd6pcex.dpbs

In the Article, Mr. Spencer states:

“My in-depth exposure has convinced me that a lot more American cabinetmakers need to get involved right away. This isn’t just someone else’s issue — our own very existence may be at stake, and it’s ten seconds to midnight. . . .”

“It’s a serious mistake for your readers to think this will not greatly affect them. Whether we buy any imported plywood or not, restricting the longstanding pipeline of hardwood plywood imported for use as secondary wood will trigger spot shortages and drive up prices of all domestic material for everyone.  That is the whole reason the Cartel of Six filed their complaint in the first place. . . .

“even though our hardwood plywood prices will go up a lot, they will not go up for our direct cabinetmaking competitors in China, Canada, Mexico, or elsewhere. As an example, we are already competing every day with Canadian companies, whose primary market is the United States.”

“From our point of view, our own government’s actions amount to a de facto stimulus, not for Americans, but instead for the Chinese, Canadian, and Mexican cabinet industries — all of whom can still buy plywood from China at the true world price. In the end, it is the American cabinet companies that will be punished, especially the small ones, and American jobs that will be lost.” . . .

“As it stands now, over 9,300 of us cabinet companies must now pay them for it for as long as we survive . .  .”

“The handwriting is on the wall. It might be well for the woodworking press to move their headquarters to Canada and have staff who speak Mandarin in order to better keep up with the new American cabinet industry.”

 

When the US government imposes antidumping and countervailing duties on US imports using an unfair process that is tilted in favor of US producers, the Government creates little monopolies.  When the products at issue are raw materials, the real losers are US producers of downstream products, which are either driven out of business because they cannot compete in the downstream market with imports that have access to the cheaper raw materials or forced to close their US production facilities and move to China.

NEW ANTIDUMPING AND COUNTERVAILING DUTY INVESTIGATIONS

MSG

On September 16, 2013, the Commerce Department initiated antidumping and countervailing duty review investigations on Monosodium Glutamate (“MSG”) from China. ITC Notice and Chinese companies in the review are listed below:

ITC NOTICE

Docket No: 2979

Document Type: 701 & 731 Petition

Filed By: Iain R. McPhie

Firm/Org: Squire Sanders (US) LLP

Behalf Of: Ajinomoto North America Inc.

Date Received: September 16, 2013

Commodity: Monosodium Glutamate (MSG)

Country: China and Indonesia

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of antidumping and countervailing duties on imports of Monosodium Glutamate (MSG) from People’s Republic of China and Republic of Indonesia.

Status: 701-TA-503-504 and 731-TA-1229-1230 (Preliminary)

The Chinese respondent producers and exporters in the MSG case are: Fufeng Group, Meihua Holdings Group, Henan Lotus Flower Gourmet Powder Co., Ltd, COFCO Biochemical (Anhui) Co. Ltd.), Shandong Linghua Monosodium Glutamate Incorporated Co. , Jining Jusheng Gourmet Powder Food Co., Ltd., Shandong Xinle Monosodium Glutamate Foods Co. Ltd.,  COFCO Limited, Ningxia Eppen Bio-Tech Co., Ltd., Huanyu Gelin Food Development Co Ltd., Haerbing Juhua Biotech Co. Ltd, Fujian Province Jianyang Wuyi MSG Co., Ltd., and Shandong Qilu MSG Group Co.,

GOES

On September 18, 2013, an antidumping and countervailing duty petition was filed against Grain Oriented Electrical Steel from China.   Notice and Chinese companies are listed below:

ITC NOTICE

Docket No: 2980

Document Type: 701 & 731 Petition

Filed By: John M. Herrmann

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: AK Steel Corporation, Allegheny Ludlum LLC, and the United

Steelworkers

Date Received: September 18, 2013

Commodity: Grain-Oriented Electrical Steel

Countries: People’s Republic of China, The Czech Republic, The Federal Republic of Germany, Japan, The Republic of Korea, Poland, and the Russian Federation.

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of antidumping and countervailing duties on imports of Grain-Oriented Electrical Steel from the People’s Republic of China, The Czech Republic, The Federal Republic of Germany, Japan, The Republic of Korea, Poland, and The Russian Federation.

Status:  701-TA-505 & 731-TA-1231-1238

The Chinese respondents in the GOES case are: Anshan Iron & Steel Group Corporation, Hebei Shougang Qian’an Iron & Steel Co., Ltd. (subsidiary of Beijing Shougang Co. Ltd.), Baoshan Iron & Steel Co., Ltd. (subsidiary of Baosteel Group headed by parent company Shanghai Baosteel Group Corporation) (“Baosteel”), and Wuhan Iron & Steel Co. Ltd. (”Wuhan” or “WISCO”).

As indicated below, the ironic point is that the Chinese Government has levied antidumping and countervailing duties on US exports of GOES to China.  Although the US has taken the GOES case to the WTO and won a victory, the orders stay in place in China.  The 3 plus years that the orders have been in place, however, have allowed the Chinese GOES industry to catch up and now export GOES to the US, which is causing problems for the US GOES industry.

In the Steel Antidumping and Countervailing Duty Wars between the US and China, what goes around, comes around.

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.

If anyone is interested in the Alliance, please feel free to contact me.

CHINESE ANTIDUMPING AND COUNTERVAILING DUTY LAW

POLYSILICON

Attached is the Chinese Government’s Ministry of Commerce (“MOFCOM”) September 20th announcement of preliminary countervailing duties to be levied on polysilicon imports from the US.  MOFCOM ANNOUNCEMENT POLYSILICON

SILICON STEEL—GOES

The US battle with the Chinese government on its antidumping and countervailing duty orders against GOES from the US is still being fought out.  In response to the August 12th announcement by MOFCOM that it had met its WTO obligations in the GOES case, on September 11, 2013, the USTR stated that it is “currently evaluating China’s re-determination of antidumping and countervailing duties on GOES from the United States” and that if the Chinese government’s actions are not sufficient to comply with the WTO’s recommendations and rulings, the US could initiate further proceedings at the WTO.

As the recent US antidumping and countervailing petitions against GOES from  China indicate, however, the US GOES industry has already lost its technical/tactical advantage.

Although the US Steel industry complains about Chinese antidumping and countervailing duty cases against US GOES exports, in light of US refusal to use actual prices and cost in China calculate dumping rates and the Commerce Department’s methodology that finds dumping and subsidization in 100% of the cases against China, such criticism has a very hollow ring.

CUSTOMS

HONEY CASE

On September 30, 2013, a US agent for a dozen Chinese honey importers was sentenced to three years in prison for her role in smuggling operations that allegedly avoided nearly $40 million in US antidumping duties. At a federal court hearing in Chicago, Hung Yi lin -who pled guilty last year to three counts of entry of goods into the U.S. by means of false statements- was also ordered to pay $512,852 in restitution, but avoided the six-year prison sentence sought by prosecutors.

Lin, 43, also known as Katy Lin, allegedly played a pivotal role in helping her clients falsify documents on shipping containers loaded with Chinese-origin honey from 2009 to 2012, making it appear that they were filled with sugars or syrups. Through her California-based company KBB Express, Lin brought in $11.5 million of honey into the US avoiding almost $40 million in antidumping duties.

Ms. Lin’s attorney argued that his client was simply a hardworking immigrant, who was merely a freight forwarder and did not profit from the scheme.  Ms. Lin in tears told the US Judge Milton I. Shadur that she was not attempting to flee prosecution, when she was arrested on her way out of the country.  “I’m really sorry if anything I did hurt this country. I came here for my dream . . . .”

In response, however, the Assistant US Attorney argued that the Mr. Lin’s role was absolutely critical in the sophisticated scheme.  The Assistant U.S. Attorney also stressed the damage to the U.S. honey industry when the price of honey collapsed due to the smuggling operation and other similar schemes.

PATENTS

337 CASES

CAFC DETERMINATION –MICROSOFT NO DOMESTIC INDUSTRY UNDER 337

On October 3, 2013, the third day of the Government shutdown, we can say that at least the Courts are open. Today the Court of Appeals for the Federal Circuit (“CAFC”) issued its attached decision in Microsoft v. US International Trade Commission (“ITC”) and Motorola in which Microsoft appealed an ITC determination of no violation in a 337 case.  MICROSOFT DOMESTIC INDUSTRY  The CAFC affirmed the ITC on almost every part of the decision, remanding on one small aspect of one patent back to the ITC.  The most important issue is the its decision on domestic industry, which will effect future 337 cases against China.

In that decision, which is attached, the CAFC dismissed one part of Microsoft’s patent case becasue Microsofit did not establish that the patented invention, the specific patent in question, was actually practiced in the United States and, therefore, there was no domestic US industry with regards to this patented product.  The CAFC stated:

“Microsoft’s failing was simple. Although Dr. Olivier purported to identify “client applications” in an example application that Microsoft provides to third party phone manufacturers, Microsoft failed to show that any such “client applications” are actually implemented on any third-party mobile device.  .  .  According to the ALJ, because Microsoft did not point to evidence that its expert examined client applications in fact running on third-party mobile phones or confirmed how they operated, Microsoft failed to show that there is a domestic industry product that actually practices the ’376 patent.  . . .In this appeal, we do not reach Microsoft’s challenge to the non-infringement determination because we find substantial evidence to support the Commission’s finding of no domestic industry, which suffices to support its finding of no violation based on this patent. There is no question about the substantiality of Microsoft’s investment in its operating system or about the importance of that operating system to mobile phones on which it runs.”

“But that is not enough under the statute. Section 337, though not requiring that an article protected by the patent be produced in the United States, unmistakably requires that the domestic company’s substantial investments relate to actual “articles protected by the patent.”  19 U.S.C. §§ 1337(a)(2), (3). A company seeking section 337 protection must therefore provide evidence that its substantial domestic investment—e.g., in research and development—relates to an actual article that practices the patent, regardless of whether or not that article is manufactured domestically or abroad. . . .”

“We conclude that there is substantial evidence to support the Commission’s determination that Microsoft failed to meet that requirement. . . . The Commission did not lack substantial evidence to support its finding that Microsoft simply failed to identify any actual phones with the required components performing as required.  . . .”

“On that basis, the Commission could find that Microsoft failed to show that any Microsoft-supported products practiced the ’376 patent. We therefore affirm the Commission’s finding of no proven domestic industry, and hence no section 337 violation, involving this patent.”

SUPREME COURT ARGUMENTS ON DOMESTIC INDUSTRY

On September 9, 2013, in Nokia v. US International Trade Commission, Nokia attempted to persuade the Supreme Court to take jurisdiction and overturn the CAFC’s January 2013 decision in Interdigitial Communications LLC et al v.  International Trade Commission and Nokia Inc. that licensing of specific patents by InterDigital in the United States was enough to be a domestic industry under section 337.  Nokia argued that nonpracticing entities should not be considered a domestic industry under section 337.

In response, according to InterDigital, when it ruled that it had satisfied the domestic industry requirement, the CAFC simply followed “the intent of Congress to enlarge the domestic industry requirement to cover licensing activities – when those activities are substantial and connected to exploitation of the patents at issue. . . .”  InterDig Brief

In the attached Supreme Court brief, the ITC sided with InterDigital.  ITC BRIEF  19 USC 1337(a)(3) (C) specifically provides that a domestic industry “shall be considered to exist if there is in the United States with respect to the articles protected by the patent, “substantial investment in the patent’s exploitation, including engineering, research and development or licensing”.  The ITC pointed to record evidence that InterDigitial had “invested a total of approximately $7.6 million in salaries and benefits for employees engaged in its licensing activities, and it received almost $1 billion in revenues from portfolio licenses (including the patents in suit) related to its cellular technology. . . .”

In addition, the ITC pointed to the CAFC’s explanation that in 19 1337(a)(3)(C) Congress intended to protect “innovators who did not actually produce goods in this country, but who were injured by the importation of goods that incorporated the technology that they had invented or sought to license”.

NEW 337 CASE

HANDHELD MAGNIFIERS

On September 26, 2013, a new 337 case was filed against Aumed Group Corp. in China on handheld magnifiers. See notice below:

Docket No: 2984

Document Type: 337 Complaint

Filed By: Matthew B. Lowrie

Firm/Org: Foley & Lardner

Behalf Of: Freedom Scientific, Inc

Date Received: September 26, 2013

Commodity: Handheld Magnifiers

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 Handheld Magnifiers and Products Containing Same. The proposed respondents are Aumed Group Corp., China; and Aumed Inc., San Carlos, CA.

MARINE SONAR DEVICES AGAINST HONG KONG

On September 20, 2013, a new 337 case was filed on Marine Sonar Imaging Devices against a Hong Kong company.  See notice below.

Docket No: 2981

Document Type: 337 Complaint

Filed By: M. Scott Stevens

Firm/Org: Alston and Bird LLP

Behalf Of: Navico Inc. and Navico Holding AS

Date Received: September 20, 2013

Commodity: Marine Sonar Imaging Devices

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 Marine Sonar Imaging Devices, Products  Containing the Same, and Components Thereof. The proposed respondents are: Raymarine Inc., Nashua, New Hampshire; Raymarine UK Ltd., United Kingdom;  and In-Tech Electronics Ltd, Hong Kong.

NEW PATENT BILL PROPOSES TO MAKE IT MORE DIFFICULT FOR NPES/PATENT TROLLS

The House of Representatives released the attached draft patent bill on September 23, 2013 aimed at making it more difficult for patent trolls, non-practicing entities (“NPEs”), to bring patent cases.  HOUSE PATENT BILL  The bill will raise the pleading requirements, making it more difficult for NPEs to file frivolous suits.  The pleading requirements would also increase the cost and complexity of patent cases.

The bill would also require the losing party in patent cases to pay the costs of the prevailing party unless the judge finds that the suit was “substantially justified,” creating an exception in patent cases to the “American rule” that parties are generally responsible for paying their own attorney’s fees.

NEW PATENT CASES AGAINST HUAWEI, ZTE, HANGZHOU COMPANY AND OTHER CHINESE COMPANIES

On September 9, 2013, ACQIS filed a patent complaint against Huawei.  ACQIS HUAWEI

On September 17, 2013, C. B. Worldwide Inc. filed a patent complaint against Chinese companies, Hangzhou Yizhan Pet Products, Allara China Ltd., Shanghai ITCPC Import and Export Co. and Petlike.  The complaint alleges misappropriation of technology, patent infringement and breach of contract.  CHINA TOYS HANGZHOU

On September 25, 2013, Nidec Motor Corporation filed a patent complaint in the Federal District Court in Missouri against Broad Ocean Motor, Broad Ocean Technologies and Zhongshan Broad Ocean Motor Co., Ltd.

On September 26, 2013, James Grove and LF Products filed a patent case against COSTCO and Global Furniture (Zhejiang) Co. Ltd.  ZHEJIANG COSTCO

On September 26, 2013, SPH America filed patent complaints against Huawei and ZTE.  SPH ZTE   SPH HUAWEI

On September 30, 2013 and October 1, 2013, Super Interconnect Technologies filed patent complaints against Huawei and ZTE.  SUPER INTERCONNECT ZTE   SUPER INTERCONNECT HUAWEI

ANTITRUST

JUSTICE DEPARTMENT’S SYSTEMATIC INVESTIGATION OF ASIAN CARTELS

To illustrate that antitrust cases against Chinese companies for price fixing are not just China bashing, the following are additional examples of the major movement by the Justice Department and private plaintiffs in the United States to go after cartels, price fixing by foreign companies, aimed at the US market.  Well known antitrust experts have told me that Justice is targeting foreign cartels, especially Asian cartels, and is systematically going through industry after industry looking for evidence of price fixing.

In light of the ongoing cases against Vitamin C, Magnesium and Bauxite from China, it is just a matter of time before the Justice Department and Private Plaintiffs start to target Chinese companies for price fixing on various products.  One of the first targets of such price fixing investigations may be auto parts.

NINE JAPANESE AUTO PARTS COMPANIES PLEAD GUILTY TO PRICE FIXING CARTEL

On September 26th, the Justice Department issued the attached announcement that Nine automobile parts manufacturers and two executives agreed to plead guilty to fixing prices on automobile parts sold to U.S. car manufacturers and installed in U.S. cars.  FULL DOJ NOTICE AUTO PARTS SEPT 26  NINE JAPANESE AUTO PARTS COMPANIES PLEAD GUILTY

 The nine Japanese Companies agreed to pay a total of more than $740 million in Criminal fines.  The September 26th announcement states as follows:

“Nine Japan-based companies and two executives have agreed to plead guilty and to pay a total of more than $740 million in criminal fines for their roles in separate conspiracies to fix the prices of more than 30 different products sold to U.S. car manufacturers and installed in cars sold in the United States and elsewhere . . .  The department said that price-fixed automobile parts were sold to Chrysler, Ford and General Motors, as well as to the U.S. subsidiaries of Honda, Mazda, Mitsubishi, Nissan, Toyota and Fuji Heavy Industries–more commonly known by its brand name, Subaru.”

“These international price-fixing conspiracies affected more than $5 billion in automobile parts sold to U.S. car manufacturers, and more than 25 million cars purchased by American consumers were affected by the illegal conduct,” said Attorney General Eric Holder. “The Department of Justice will continue to crack down on cartel behavior that causes American consumers and businesses to pay higher prices for the products and services they rely upon in their everyday lives.”

“Some of the price-fixing conspiracies lasted for a decade or longer, and many car models were fitted with multiple parts that were fixed by the auto parts suppliers,” said Scott D. Hammond, Deputy Assistant Attorney General of the Antitrust Division’s criminal enforcement program. “The Antitrust Division has worked hand in hand with its international competition colleagues who have provided invaluable assistance to the Justice Department in breaking up these worldwide price-fixing cartels.”

“Today’s charges should send a message to companies who believe they don’t need to follow the rules,” said Ronald Hosko, Assistant Director of the FBI’s Criminal Division. “If you violate the laws of this country, the FBI will investigate and put a stop to the threat you pose to our commercial system. The integrity of our markets is a part of the foundation of a free society.”

“Including those announced today, 20 companies and 21 executives have been charged in the Antitrust Division’s ongoing investigation into price fixing and bid rigging in the auto parts industry. All 20 companies have either pleaded guilty or have agreed to plead guilty and have agreed to pay more than $1.6 billion in criminal fines. Seventeen of the 21 executives have been sentenced to serve time in U.S. prisons or have entered into plea agreements calling for significant prison sentences.”

“Each of the companies and executives charged today has agreed to cooperate with the department’s ongoing antitrust investigation. The plea agreements are subject to court approval. The companies’ and executives’ agreed-upon fines and sentences are:

• Hitachi Automotive Systems Ltd. to pay a $195 million criminal fine;

• Jtekt Corporation to pay a $103.27 million criminal fine;

• Mitsuba Corporation to pay a $135 million criminal fine;

• Mitsubishi Electric Corporation (MELCO) to pay a $190 million criminal fine;

• Mitsubishi Heavy Industries Ltd. to pay a $14.5 million criminal fine;

• NSK Ltd. to pay a $68.2 million criminal fine;

• T.RAD Co. Ltd. to pay a $13.75 criminal fine;

• Valeo Japan Co. Ltd. to pay a $13.6 million criminal fine;

• Yamashita Rubber Co. Ltd. to pay a $11 million criminal fine;

• Tetsuya Kunida, a Japanese citizen, to serve 12 months and one day in a U.S. prison, and to pay a $20,000 criminal fine; and

• Gary Walker, a U.S. citizen and former executive of a U.S. subsidiary of a Japan-based automotive products supplier to serve 14 months in a U.S. prison, and to pay a $20,000 criminal fine.”

 

At a news conference about the guilty plea, Scott D. Hammond, Assistant Attorney General of the Antitrust Division’s Criminal Enforcement Program, stated as follows in the attached statement:

“We have seen a pattern during the course of this investigation. The detection of one auto part conspiracy has led to the discovery of other conspiracies involving a new set of products, a new group of conspirators and a new list of victims. And as the Attorney General said, our work isn’t done. . . .”

“The companies and executives charged today will pay a heavy price for their conduct. As of today, more than $1.6 billion in criminal fines have been obtained thus far and 17 auto parts executives are currently serving prison time or are awaiting sentencing. The deterrent impact of their sentences should resonate in boardrooms around the world.”

“As today’s charges demonstrate, global cartels operating largely outside of our borders often constitute the biggest competitive threat to our economy, our businesses and our consumers. The Antitrust Division and the FBI have worked closely with our international competition colleagues to break up these worldwide price-fixing cartels.”

SCOTT HAMOND SPEECH

LIQUID CRYSTAL DISPLAY (LCDS) FROM TAIWAN

In San Francisco, a criminal antitrust trial is proceeding against Borlong Bai of AU Optronics in Taiwan for his involvement in a cartel to price liquid crystal displays.  AUO, its US subsidiary  and two executives were convicted of price fixing last year and two other executives were found not guilty.  Bai’s attorneys are arguing that although he was a manager of AUO’s division that sold LCDs to laptop computer companies, Bai simply used the information he received to outmaneuver his rivals and not to fix prices.

The Justice Department is arguing that Bai was essential to the global conspiracy to fix prices of LCDs.

ANTITRUST AG BILL BAER SPEECH ON CRIMINAL ANTITRUST CASES LCDS FROM TAIWAN

On September 25, 2013, Bill Baer, the Assistant Attorney General for the Antitrust Division at the Justice Department spoke to the Georgetown Law’s 7th Annual Global Antitrust Enforcement Symposium on the importance of the lesson from the LCDs case against Taiwan companies.  BAER DOJ STATEMENT  Mr. Baer stated in the attached speech:

“Criminal enforcement is a large part of what we do at the Division. Effective sanctions matter there too. Guided by the federal Sentencing Guidelines, our prosecutors seek criminal sentences that are consistent with statutory considerations and reflect the seriousness of the offense, promote respect for the law, provide just punishment, afford deterrence, protect the public, and offer defendants an opportunity for effective rehabilitation.”

“Last year, for the first time, the division recommended that a criminal antitrust defendant be required, as a condition of its probation, to retain an independent corporate monitor to develop and implement an effective antitrust compliance program. The defendant, AU Optronics Corporation (AUO), its U.S. subsidiary, and two of its top executives, had been convicted at trial for their role in a conspiracy to fix the price of liquid crystal display (LCD) panels – a conspiracy that had a significant impact on U.S. commerce.”

“Rarely has a company needed an effective antitrust compliance program as much as AUO. AUO was founded the very month the LCD conspiracy began. From its inception, AUO’s standard operating procedure was collusion. “Antitrust compliance program” was not in its lexicon. Even after conviction, AUO continued to employ convicted price-fixers and indicted fugitives. As a result, the division argued that there was no reason to believe that AUO’s conviction and the imposition of a criminal fine – even a large fine – would deter AUO from engaging in future collusive conduct.”

“The court agreed.  In addition to a $500 million fine, the court sentenced AUO and its subsidiary to three years of probation during which the companies are required to develop, adopt, and implement an effective compliance and ethics program, and to retain an independent monitor to oversee that program. Consistent with the division’s willingness to request external monitors in the civil context, the division will consider seeking conditions of criminal probation that include independent monitors when faced with circumstances in which the division is not persuaded that penalties alone will deter future illegal behavior.”

Attached are two class action complaints filed in October against Japanese auto parts.  As a result of the Justice Department plea agreements, Japanese auto parts companies and probably eventually Taiwan auto parts companies are exposed to $100s of millions, if not billions of dollars in liability under private right of action triple damage antitrust cases.  AUTO PARTS SWITCHES PANASONIC  DIAMOND AUTO PARTS AT CASE

US FTC CHAIRWOMAN STATES THAT CHINA NEEDS TO ENSURE PROCEDURAL FAIRNESS IN ITS ANTITRUST PROCEEDINGS

On September 25, 2013, at a conference in Washington DC, FTC Chairwoman Edith Ramirez questioned the Chinese Government’s fairness in antitrust proceedings.  Ms. Ramirez stated:

“While every country must determine its own competition policy, we believe consumers and competition policy are best served when competition enforcement is based solely on economic analysis of effects on competition.  But if other factors nonetheless enter into competition decisions, their nature and effect should be transparent.”

The problem with Ms. Ramirez’s statement is that the Chinese government’s first experience with US government fairness is through the US antidumping laws.  For decades, the Chinese companies and government have been subjected to Commerce Department antidumping and countervailing duty proceedings, which are clearly not fair and transparent.  With its surrogate country and surrogate value analysis, Commerce Department determinations in antidumping cases on their face are arbitrary and capricious.  Using Bulgaria as a surrogate country in the Hardwood Plywood case is just such an example.

The procedural unfairness inherent in US antidumping and countervailing duty laws affects the entire legal relationship between the US and China.  Chinese government officials and many Chinese companies sincerely believe that the United States is simply out to bash Chinese companies and procedural fairness be damned.

What is sauce for the goose is sauce for the gander.  If the Commerce Department uses inherently unfair procedures in its antidumping and countervailing duty investigations, which have no basis in economic reality, from the Chinese government’s point of view why should it base its competition policy on “economic analysis of effects of competition.”

CLASS ACTION ANTITRUST CASE AGAINST KOREAN NOODLE COMPANIES

On September 5, 2013, the attached class action antitrust case complaint was filed in Federal District Court in California by Stephen Fenerjian against Korean noodle companies for price fixing on exports of noodles to the United States.  The target companies are: Nong Shim Company Ltd., Nong Shim America Inc., Ottogi Company Ltd., Ottogi America, Inc., Samyang Foods Company Ltd., Samyang (USA) Inc., Korea Yakult Co., Ltd., and Paldo Company Ltd.  KOREAN NOODLES ANTITRUST CASE

SECURITIES

SEC GRANTS DELAY IN PROCEEDING AGAINST US ACCOUNTING FIRMS FOR REFUSING TO RELEASE AUDIT DOCUMENTS OF CHINESE COMPANIES

On October 2, 2013, in the attached order, SEC ORDER ACCOUNTING FIRMS the U.S. Securities and Exchange Commission (“SEC”) granted a request from an administrative law judge to give an additional 100 days to determine whether top accounting firms, such as Ernst & Young, Deloitte and Price, Waterhouse, have to produce audit document of Chinese company clients that are suspected of defrauding their US investors through reverse mergers.  In December 2012 the SEC started this case because it believes the accounting firms, including the Big 4, have refused to to cooperate with document requests in an investigation into China-based companies whose securities are publicly traded in the U.S. in violation of US security laws.  The accounting firms argue that they fear violating Chinese secrecy laws.  As evidenced by the complaints on this site, the SEC has cracked down in the last few years on fraudulent reverse mergers, in which Chinese companies have used existing public shell company to merge with a private operating company, leaving the shell company as the surviving legal entity.  The crackdown, however, has been delayed by the Chinese privacy laws, which bar China-based auditors, including the subsidiaries of US accounting firms, from turning over Chinese client information.

The accounting firms have been fighting requests for audit paperwork related to Chinese companies accused of fraud on US investors.  In July, following bilateral investment talks, the U.S. announced that China had agreed to turn over certain audit documents to the SEC and the Public Company Accounting Oversight Board.  That deal came shortly after the PCAOB announced a memorandum of understanding with the China Securities Regulatory Commission and the country’s Ministry of Finance to ease restrictions on release of audit information in fraud investigations.

COMPLAINTS

A number of new securities complaints cases have been filed against Chinese companies.

On September 26, 2013, the Securities and Exchange Commission (“SEC”) filed the attached  securities fraud complaint against Lee Chi Ling (“Lee”) and Perfect Genius Limited (“Perfect Genius”), alleging securities fraud in a classic “pump and dump”scheme from at least June 2004 through at least February 2006 to manipulate the price of the common stock of China Energy Savings Technology, Inc.   PERFECT GENIUS

On September 26, 2013, the SEC filed a securities fraud complaint against defendants Chan Tze Ngon, a/k/a Chen Zi Ang and Ron Chan, (“Chan”), and Jiang Xiangyuan (“Jiang”).  The case involves two securities fraud schemes engineered by former high level officials of ChinaCast Education Corporation (“ChinaCast”) to steal about $100 million out of the company by diverting monety to their private accounts.  CHINA CAST

On September 27, 2013, the SEC filed a securities fraud complaint against Universal Travel Group (UTG), a China-based travel company, UTG’s former ChiefExecutive Officer Jiangping Jiang (“Jiang”); and UTG’s former Chief Financial Officer, Jing Xie (“Xie”) for diverting $41 million in public and private stock offerings in the United States to numerous unknown parties in Hong Kong and the PRC. In an interesting note, the attached complaint also includes consent judgements by UTG, Jian and Xie in which they agree to the SEC charges and agree to pay fines and penalties.  Even in China, you can run, but not hide.  UNIVARSAL TRAVEL

On September 30, 2013, Another class action securities case was filed against Light in the Box Holding, a Beijing company, and two Chinese individuals for securities fraud.  LIGHT IN THE BOX

 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, 337 Patent, Customs and Securities

Wushu in Park, Practicing Tai Chi, Temple of Sun pavilionDear Friends,

There have been some major developments in the trade, solar cells, 337/patents, and securities areas.

TRADE

SOLAR CELLS NEGOTIATIONS—PRICE UNDERTAKING/SETTLEMENT IN EC CHINA CASE

The Chinese government and the EU Trade Commission announced on July 27th an agreement to settle the EC antidumping and countervailing duty case on solar cells from China.  But that agreement was immediately attacked by both sides.  Attached are the official announcements of the Agreement.  EC COMM ANNOUNCESEC OFFICIAL ANNOUNCE SOLAR DEAL PRO SUN REACTION SOLAR CELLS FACTS

The settlement— known as a “price undertaking” —replaces EU antidumping (AD) and countervailing duty (CVD) duties with a minimum floor price for solar panels, cells and silicon wafers imported from China, which is valid as long as those imports do not exceed 70 percent of the EU market for those products. Above that, the normal AD duty of 47.6 percent would apply.

The European Commission, which brokered the deal, has not yet disclosed the floor price, but informed sources said it will start at 0.56 euros per watt. Given that prices for solar products have been steadily declining, observers also said the floor price would likely be gradually reduced to respond to market shifts before the deal’s expiration at the end of 2015.

Commentators have stated that the floor price would amount to an increase of about 0.10 euros per watt over the prices that Chinese producers were selling at in early 2013. But according to one analyst, that price is still significantly below what EU competitors, who sell at between 0.60 and 0.80 euros per watt, are typically able to offer.  At the price of 55-56 euro cents, many European manufacturers are not yet competitive.

The main outcome of the deal, the analyst said, is that Chinese exporters will be able to pocket additional profit rather than paying it in duties, making large producers even stronger. The analyst also said that the price undertaking’s cap of 70 percent of the EU market will not act as a barrier to Chinese exports to Europe. Not all of China’s suppliers are participating in the price undertaking — only about 70 percent of all Chinese solar companies.

All of this points to the new deal having limited spillover effect on the U.S. market. Chinese solar panels already face antidumping and countervailing duties in the U.S., although the scope of those trade remedies is more limited because of the third country loophole.  If the Chinese panels and modules contain third country solar cells, they are not cover by the US antidumping and countervailing duty order.  But see information about Commerce Department investigation below.

The EC case already had Chinese solar companies looking elsewhere — including the U.S. — but also increasingly to other Asian markets like Japan. By individual country, the largest consumers of solar panels this year are expected to be China (6.9 GW), Japan (5.3 GW), the U.S. (4.9 GW), Germany (4.3 GW), and Italy.

Meanwhile, the U.S. government and China have held informal discussions about a potential settlement of the U.S. solar case, so the EU-China deal could influence a potential agreement between the U.S. and China. However, because the nature and scope of their cases are different, there is no indication that the U.S. would be party to the EU-China deal.

Sen. Ron Wyden (D-OR), who chairs the Senate Finance Committee, Subcommittee on Trade, criticized the EU settlement in a statement. “It’s hard to see how this decision helps anyone except companies in China and Taiwan,” Wyden said. “In the end, the E.U. will not have just sold out its workers and companies that produce solar panels, but U.S. workers and employers as well.”

An aide to Wyden said the senator believed that the EU had failed to exert maximum leverage over China by not including the U.S. at the negotiating table. In addition, by agreeing to a “low bar” deal, the EU has weakened the chances that the U.S. will be able to secure a meaningful agreement in its own negotiations with China.

U.S. Trade Representative Michael Froman said in a statement that the U.S. is still aiming for some kind of world-wide deal to end the Solar Cells trade problems but did not elaborate on how that could be achieved. “We believe there needs to be a global solution, consistent with our trade laws, that creates stability and certainty in the various components of the solar sector,” Froman said. “We look forward to working toward that objective.”

 Meanwhile, on July 20, 2013 the Chinese government imposed preliminary antidumping duties ranging from of 53.3 to 57% on US imports of Polysilicon.  See the attached notice form MOFCOM. MOFCOM POLYSILICON ENGLISH ANNOUNCEMENT

In addition, the Press is reporting major problems in the Chinese polysilicon industry with three-quarters of Chinese polysilicon producers facing closure.  As Reuters reports:

“As smaller polysilicon producers, with average annual capacity of a few thousand metric tons, are pushed out, the likely winners will be larger producers such as GCL Poly, TBEA Co Ltd, China Silicon Corp and Daqo New Energy Corp. The shake-out is already underway as polysilicon prices have plunged to below $20 per kg from a 2008 peak of almost $400, forcing some producers in the northwestern province of Ningxia and eastern China’s Zhejiang province to file for bankruptcy.”

“Their plight is made worse by cheaper, and better quality, imports from producers such as MEMC Pasadena Inc and Michigan-based Hemlock Semiconductor Group – a venture of Dow Corning, Shin-Etsu Handotai and Mitsubishi Materials Corp – and Norway’s Renewable Energy.”

See http://www.reuters.com/article/2013/07/31/us-china-solar-polysilicon-idUSBRE96U1CD20130731.  From the face of it, this looks like a domestic industry in China facing material injury, which makes it a potentially more dangerous case for antidumping and countervailing duties against Korean and US imports.

The EC has indicated that the Solar Cells agreement is linked to other EU-China talks on Chinese plans to impose AD duties against EU polysilicon exports and wine. The preliminary date for imposition of antidumping duties on polysilicon from the EC is February 2014, with final duties due out two months later. For wine, a decision on provisional duties is due out at the end of April 2014, and final measures are due in June 2014.

On the US side, one of the key technical 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, 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 deal would also close the third country loophole in the US Solar Cells case, 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 produced polysilicon.

COMMERCE CRACKS DOWN ON THIRD COUNTRY SOLAR CELLS

On August 6, 2013, the Commerce Department initiated an inquiry into whether major Chinese solar panel manufacturers selling to the United States have evaded trade remedy orders by falsely claiming that their panels are assembled from cells made in third countries.

If Chinese produced solar panels and modules contain solar cells from third countries, such as Taiwan or Malaysia, the solar panels and modules are considered not within the scope of the Solar Cells antidumping and countervailing duty orders and out of the case.  As a result of this decision, many Chinese solar companies developed tolling operations under which Chinese companies produce the polysilicon wafers and ship them to another country for transformation into solar cells.  Commerce is now investigating to what degree those solar cells were actually produced in a third country.

In the attached August 6th letter from Commerce to Renesola Ltd., one of the Chinese solar companies, DOC Second Letter to Renesola Commerce states:

“As stated in the required importer and exporter certifications introduced in the underlying investigations, any failure to substantiate a claim that panels/modules imported into the United States do not contain solar cells produced in the PRC will result in suspension of all unliquidated entries for which these requirements were not met and the requirement that the importer post an AD cash deposit or, where applicable, a bond, on those entries equal to the PRC-wide rate in effect at the time of the entry and a CVD cash deposit, or where applicable, a bond rate equal to the all-others rate in effect at the time of the entry. Furthermore, as noted in the required importer and exporter certifications, records pertaining to such certifications may be subject to verification by Department of Commerce officials.”

Petitioners allege that in many instances Chinese companies are shipping almost completed cells, rather than simple wafers, for minimal processing outside of China.  In certain extreme cases, the allegation is that a Taiwanese company may just stamp its name on a solar cell before shipping it back to a Chinese firm for final assembly. Chinese companies may be tempted to undertake such practices because the majority of the value in creating a solar panel comes from the manufacturing of the cell.

If Commerce finds that this kind of circumvention is taking place, it could mean that new duties would be leveled against the imports of modules and panels with the third country cells in them.  Apparently Petitioners have provided evidence of these practices to Customs.  In the spring Commerce sent out inquiries to six Chinese companies — Trina Solar, Yingli, Wuxi Suntech, Renesola, Talesun and LDK — asking them for detailed information about their sales and supply chains. Some of those companies have already responded, while others have until early August to do so.  Rensola and Talesun are facing antidumping rates of 250% on their imports.

In theory, Chinese exporters and U.S. importers of solar panels and cells should have all of the information on hand already. Commerce instituted a certification requirement at the time it issued the final trade remedy orders which required them — if they believed the goods were not subject to the orders — to state that “that these solar panels/modules do not contain solar cells produced in the People’s Republic of China.”

Importers and exporters also had to acknowledge in their certification that relevant records may be requested by CBP at any time, and that failure to be able to substantiate the claims that they were not shipping subject merchandise could result in the processing of customs paperwork — or liquidation — being suspended for further scrutiny.

COMMERCE CHANGES THE ANTIDUMPING RULES AGAIN TO MAKE IT TOUGHER—MARKET ECONOMY INPUTS AND SEPARATE RATES

One would think that since the US-China WTO Agreement provides that China is to be made a market economy country by November 2016, just about three years away, Commerce would set up a transition period.  Just the opposite is happening as Commerce is doubling down on its nonmarket economy methodology.

On August 1st, Commerce published in the Federal Register its final regulation regarding using imports from market economy countries to value factors of production in nonmarket economy antidumping cases, especially against China and Vietnam.  See the attached notice.  DOC REGS NME INPUT PRICES

In prior cases, if the Chinese company imported inputs from a market economy country, Commerce would use the actual market price, rather than surrogate values to value the specific input if the percentage of imports of the specific input were “meaningful”, more than 33%.  Under the new regulation, the percentage of imports of the specific input must account for substantially all of the input used or 85% or more of the input.  This rule will be effective as of September 3rd, meaning that all investigations or reviews that are initiated after September 3rd will be subject to the new rule.

COMMERCE DEPARTMENT SEPARATE RATES REGULATIONS

On July 5th the Commerce Department issued the attached final rule regulatory announcement in the Federal Register 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 separate rates. See the attached Federal Register notice.  COMMERCE DE FACTO REGULATION

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.

ALUMINUM EXTRUSIONS—QV QUESTIONNAIRES ISSUED IN AD AND CVD REVIEWS

On August 6, 2013, the Commerce Department issued quantity and value questionnaires in the Aluminum Extrusions Antidumping and Countervailing Duty cases to Chinese exporters to be used to determine the mandatory respondents in the new Antidumping and Countervailing Duty review investigations.  There could easily be 50 respondents in the review investigation and yet the Commerce Department will look at only 2 to 3 companies as mandatory respondents.  Only those companies have the right to prove that they are not dumping or receiving subsidies.  The other 48 plus Chinese companies will get affirmative rates.

These review investigations have also become very complicated because of the Commerce Department’s decision in many instances to expand the scope of the orders and include finished products, such as curtain walls, the sides of buildings, auto and refrigerator parts, in the scope of the antidumping and countervailing duty orders.

IMPORTERS’ LOBBYING COALITION/AMERICAN IMPORT 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.  Our first organizational meeting was held on July 24th in Washington DC.  Sixteen US importer/end user companies have agreed to join the Coalition and were at the meeting in person or on a conference call.

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.

If anyone is interested in the Coalition, please feel free to contact me.

CHINESE ANTIDUMPING AND COUNTERVAILING DUTY LAW

US WTO VICTORY AGAINST CHINA IN CHICKEN WARS

On August 2, 2013, the WTO agreed with the US in most aspects of its challenge against antidumping and countervailing duties imposed by the Chinese government on US exports, Chinese imports, of US chicken broiler products.  In the attached announcement, the USTR announced that it won on most of the important issues.  USTR STATEMENT CHICKEN  See also the attached WTO conclusions in the Chicken case.  WTO CHICKEN CONCLUSIONS

USTR pointed to several reasons why the victory is important.  First, the WTO sided with the United States in arguing that the Chinese government should not have used the “average cost of production” methodology to calculate AD duties on poultry products.

“For years, we’ve been concerned about other countries rejecting costs based on U.S. producers books and records [and] instead using the weight of a product to allocate production costs,” USTR Mike Froman said at an Aug. 2 press conference, in reference to this methodology. “This methodology artificially inflates and creates antidumping margins.”

The United States argued that China’s methodology dramatically overestimated the cost of production for relatively cheap parts of a chicken, such as the chicken feet. The panel agreed that the approach China took to estimate the cost for producing chicken feet factored additional costs not actually associated with production of feet –such as skinning and removal of bones and veins from breast meat — into the cost of producing feet. Therefore, China’s straight, weight-based allocation does not meet the obligation to arrive at a “proper allocation of costs” for the products under investigation, the panel concluded.

Second, USTR stressed that this was the second convincing win against China’s use of antidumping and countervailing duty investigations against the US.  USTR stated that it hoped that this would force Beijing to fundamentally re-evaluate how it proceeds in AD and CVD investigations.

Third, Commerce Secretary Penny Pritzker suggested that this case underscores the U.S. resolve to not allow China to get away with throwing up unjustified trade remedies in response to U.S. trade policy actions. ”

Fourth, a USTR attorney noted that the panel sided with the U.S. in many aspects of the challenge related to the transparency of China’s procedures for calculating trade remedies.

China now has 60 days to determine whether it wants to appeal the ruling. The U.S. also has a chance to appeal any aspects of the panel ruling with which it disagrees, and a USTR attorney declined to say if the U.S. would exercise this right.

As the attached WTO Conclusions from its decision states, in part:

“China acted inconsistently with the first sentence of Article 2.2.1.1 of the Anti-dumping Agreement when MOFCOM declined to use Tyson and Keystone’s books and records in calculating the cost of production for determining normal value. With respect to Pilgrim’s Pride, the United States has not established that China acted inconsistently with the first sentence of Article 2.2.1.1.”

“v. China acted inconsistently with the second sentence of Article 2.2.1.1 because: (i) there was insufficient evidence of its consideration of the alternative allocation methodologies presented by the respondents; (ii) MOFCOM improperly allocated all processing costs to all products; and (iii) MOFCOM allocated Tyson’s costs to produce non-exported products to the normal value of the products for which MOFCOM was calculating a dumping margin.”

The WTO concluded:

“Pursuant to Article 19.1 of the DSU, we recommend that China bring its measures into  conformity with its obligations under the Anti-Dumping Agreement and the SCM Agreement.”

Although the US government has been able to prevail at the WTO, it should be noted that the Chinese government imposed the very high antidumping and countervailing duties on imports US chicken for three years with a potential loss to US producers of $3 billion.  The WTO recommendation is that China bring its Chicken case into conformity with its obligations under the WTO Anti-Dumping Agreement.  That does not mean that Chinese antidumping and countervailing duties on US chicken will be lifted tomorrow. There is still a long way to go in this case and US chicken will continue to be pushed out of the Chinese market.

The Chicken case is an outgrowth of the US government’s decision to use the special 421 investigation to block lower cost Chinese tires from being imported into the United States.  In addition, since Commerce considers China to be nonmarket economy country, Commerce refuses to use actual prices and costs in China to determine whether a Chinese company is dumping so one can understand why the Chinese government might play around with prices and costs in the US with regard to Chinese antidumping and countervailing duty cases against US companies. Both governments are firing the trade guns in this war.

SILICON STEEL—GOES

The limitation on the US pressure on the Chinese government’s implementation of its antidumping and countervailing duty laws is indicated by the August 6th announcement by the Chinese government that it has fully complied with the WTO rulings against the Chinese government’s determinations in the antidumping and countervailing duty case aimed at imports of US grain-oriented flat rolled electrical steel (GOES).  The US industry disagrees.

In response to the WTO decision, China lowered the CVD rate facing AK Steel from 11.7 percent to 3.4 percent, sources said. One source said Beijing also lowered the CVD rate facing ATI Allegheny Ludlum, the other main company affected by the case, down from its previous rate of 12 percent.

Concerning AD rates, China did not alter the AD duties of 7.9 percent and 19.9 percent on steel exports from AK Steel and Allegheny Ludlum, respectively, although it did lower the “all others” AD rate from 64.8 percent to 13.8 percent.

China maintains that the Appellate Body ruling did not require it to alter the AD rates facing the two primary steel companie.

This dispute between the US and China on US exports of GOES has been going on for years.  Meanwhile, however, the United States has imposed numerous antidumping and countervailing duties on imports of Chinese steel.

In addition, because US importers are exposed to retroactive liability on Chinese imports under the US antidumping and countervailing duty laws, no US importer dares to keep importing Chinese steel once cases are filed.  So the real effect of steel antidumping and countervailing duty cases against China is to shut out Chinese steel imports into the United States.

No other country exposes its importers to retroactive liability under the antidumping and countervailing duty laws.  Only the United States.

When viewed in this context, it is easier to understand why the Chinese government is playing the trade game in the GOES case.

CUSTOMS

JOINT CHINA US STING COUNTERFEIT GOODS

On July 31st, Customs and Border Protection (“CBP”) announced the first joint intellectual property enforcement action.  See the attached announcement.  The month-long operation resulted in the seizure of over 243,000 counterfeit consumer electronics products including popular trademarks such as Apple, Beats by Dr. Dre, Blackberry, Samsung, Sony, and UL.

“The success of this joint operation fully proves that earnest and effective cooperation cross the border is needed to curb the movement of counterfeit products”, said Zou Zhiwu, Vice Minister of the General Administration of China Customs (GACC). “IPR infringement is a global issue involving not only the process of production and export, but also that of import and circulation. It not only harms the order of global trade, but also threatens the health and safety of consumers. Enforcement agencies around the world should work more closely to crack down on these illegal activities. China Customs has been making unremitting efforts to promote international cooperation in this field. The results of this joint operation are very inspiring and have consolidated our confidence and resolve to jointly fight against IPR violations under the framework of Memorandum of Cooperation on Strengthened Cooperation in Border Protection Enforcement of IPR between GACC and CBP.”

PATENTS

ITC MAKES DOMESTIC INDUSTRY REQUIREMENT MORE TOUGH IN 337 CASES

The US International Trade Commission (“ITC”) has created a new procedure to deal with the situation of Patent Trolls or Non Practicing Entities (NPEs).  That is companies that do not practice the patent in the United States.

Section 337, 19 USC 1337, provides that for there to be a violation the unfair acts, such as infringement of a US patent, the threat or the effect of the importation of articles into the United States must “be to destroy or substantially injure an industry in the United States.”  Thus 1337 has an injury to a US industry requirement in the statute.  The economic part of section 1337, however, has not been as important because 1337(a)(3) provides that an industry in the United States is considered to exist “if there is in the United States, with respect to the articles protected by the patent, copyright, trademark or mask work concerned—(A) significant investment in