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

NEW UPDATE JUNE 25, 2015 US CHINA TRADE WAR — TAA PASSES HOUSE– HEAVY LIFT OF TPP NEGOTIATIONS CONTINUES

US Capitol Dome Houses of Congress Washington DC“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

NEW UPDATE US CHINA TRADE WAR JUNE 25, 2015 —TAA AND TPA PASS CONGRESS AND GO TO PRESIDENT — NOW HEAVY LIFTING OF TPP NEGOTIATIONS BEGINS

Dear Friends,

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, has been sent to President Obama. On June 24, 2015 the US Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and President Obama has signed the bill into law. As the Senate and House leadership promised, both TPA and TAA are on President’s Obama’s desk at the same time.

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.

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 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 probably into 2016, an election year.

As Senators Hatch and Wyden stated on June 24th on the Senate Floor and Representatives Ryan, Levin and Sessions stated on the House floor on June 25th and below, this is just the beginning of the process. This TPP negotiating process has a very long way to go.

Best regards,

Bill Perry

TPA AND TAA NOW LAW—THE HEAVY LIFTING NOW BEGINS AS NEGOTIATIONS CONTINUE ON TPP

As stated in the Wall Street Journal and on the Senate and House Floor, the heavy lifting now begins on Trans Pacific Partnership (“TPP”). 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.

Anyone who thinks TPP negotiations will be finished in a month is simply wishful thinking. This is just the start of the process.

As the Wall Street Journal stated today on its June 15th 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 member of House Ways and Means, stated on the House Floor today, the battle now switches 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. Supporters of trade promotion authority, T.P.A., sought vague negotiating objectives and passive role for Congress in the process was the way to go, in part because many on the majority side feel that more trade is essentially better no matter its terms or conditions. The opponents of T.P.A. wanted to ensure that T.P.P. negotiations were on the right track with no blank check to USTR and there are so many outstanding areas, where we are not satisfied with the status of negotiations, where we are uncertain of their outcome, now we can focus like a laser beam on those issues.

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. . . .

Finally this bill includes a re-authorization of trade adjustment assistance. I’m an ardent supporter and introduced a bill earlier this year with Adam Smith to re-authorize it. I support 1295. To be sure this T.A.A. is not perfect, it falls short of the high water mark we established for the program in 2009. At a time when trade is expanding and is expected to expand even further with new trade agreements, we should be ensuring adequate funding for workers who lose their jobs as a result of trade . . . . T.P.A., T.P.P., T.A.A., it might seem like a word scramble, but going forward, T.P.P. to the American people will be about jobs and wages. They expect us to work hard to get it right as it is being negotiated, not simply leaving their elected officials with a yes or no vote after T.P.P. is done. We have a lot of work to do. And there is no ducking these issues.

As Republican Congressman Pete Sessions stated on the House Floor today, 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. But, you know, I don’t believe that’s what we were elected for. I don’t believe we were elected to go and have to do all the work that is described, that the gentleman said, to get back into the fight, to go do the negotiating. But he’ll be given that chance. He’ll be given that chance every single day. As soon as it’s signed by the President, he can go at it. He can maybe even just tell the President he wants to do this for a full time job. I don’t know. But 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 and make sure these — all these big multilateral corporations that he talks about that will be in the room, which they won’t be, because that would not be the right thing, there would be ethics violations, I’m sure the White House, the executive branch can notify him on that, 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 see those arguments, watch CSPAN at http://www.c-span.org/video/?326700-1/us-house-legislative-business. 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 has gone to the 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.

US CHINA TRADE WAR JUNE 24, 2015 UPDATE — SENATE PASSES TPA AND IT GOES TO PRESIDENT FOR HIS SIGNATURE; TAA PASSES SENATE AND GOES TO THE HOUSE

Dear Friends,

As predicted, today the US Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and it has gone to President Obama’s desk for signature.  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.

Yesterday, Prime Minister Shinzo Abe of Japan predicted that with the TPA vote TPP could be finalized in a month.  I suspect not.  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 probably into 2016, an election year.

As Senators Hatch and Wyden stated today on the Floor and below, this is just the beginning of the process.

Best regards,

Bill Perry

SENATE PASSES TPA AND THE BILL GOES TO PRESIDENT OBAMA’S DESK FOR SIGNATURE

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 has 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.  The House is expected to vote on TAA tomorrow and that means it will go to the President by Friday at the latest.

All the Senators emphasized during the 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 will now go to conference in the House of Representatives to reconcile differences in the House and Senate bills.

Before the vote, Senate Majority leader Mitch McConnell stated:

Yesterday’s T.P.A. vote [was a] the 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. We’ll take another cloture vote today to that end. 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 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 will be going 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. That’s another major upgrade that responds to what we heard companies and labor folks say again and again, Mr. President. What they would say is the trade enforcement laws get there too late. They get there too late. The plant’s closed, the jobs are gone, the hopes and dreams of working families are shattered. So what we said is we’re going to start using some of the data and the information that we have to have a real trade alert so that we can spot what’s coming up, get that information in our communities, in our working families and our companies to protect our workers. This unfair trade alert is another major upgrade in how we tackle, Mr. President, enforcing our trade laws. My view is that any bill that comes out of that enforcement conference, the customs conference, needs to reflect important American priorities. And that should certainly include smart protection of our environmental treasures. When our trade agreements establish rules on environmental protection, they’ve got to be enforced with the same vigor as the rules that knock down barriers for businesses overseas.  . . .

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.  . . .

My friend and colleague on the Finance Committee, Senator Brown, offered a proposal that goes a long way, in my view, to strengthening our enforcement of key trade laws. It’s called leveling the playing field. . . .if you look at the Committee’s debate, level the playing field was a top priority for those in the unions, the steel unions and others, and it was a also a top priority for their companies. And so having this policy in the trade adjustment assistance is exactly the kind of bipartisan work that the American people want done. Business, labor, Democrats, Republicans — a strong record of evidence as to why it’s needed. This legislation is going to be the difference between steelworkers and paper workers being on the job or being laid off, because it ensures that the remedies of trade law — what’s called Counter-Veiling Duty Law, Anti-Dumping Law — is going to be available to workers and their companies earlier and in a more comprehensive way. It’s going to protect jobs, and it is a priority of both political parties.

I made mention how important this was to me. . . . Hugely important to my state. I said my first hearing was going to be on trade enforcement, and my good friends from the steel industry spoke about how American workers wants to see the Senate and the Finance Committee stand up for them and finally fix the shortcomings in our trade remedy laws. That’s what we have done now. Getting behind Sherrod Brown’s proposal to strengthen our trade laws, to stop unfair trade so that foreign companies do not undercut American workers and manufacturers ought to be an American priority, a red, white, and blue priority, a priority for every member of this body.  . . . 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 TPA 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 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. Throughout this entire debate here in the Senate, over in the House and here in the Senate again we’ve been able to maintain a bipartisan coalition in support of T.P.A., fair trade, and expanded market access for U.S. exporters. This is no small feat, Mr. President, and I’m appreciative of everyone who has worked so hard to make this possible. With this final vote, we can complete the work that we began so many years ago. 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. Mr. President, once we vote to pass T.P.A., we will then be voting to invoke cloture on the Trade Preferences Extension Act of 2015.  . . . In addition to these preferences programs, the bill we’ll be voting on includes legislation introduced by Senators Portman and Brown to strengthen the enforcement and administration of our anti-dumping and countervailing duty laws. As I have noted in the past, anti-dumping and countervailing duty laws are among the most important trade tools we have to protect U.S. companies from unfair foreign trade practices. A number of Utah companies do benefit from these laws which allow them to compete against imports that unfairly benefit from support from foreign governments. I’m pleased we were able to include this legislation in the preferences bill. 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. I won’t delve too deeply into that issue here. 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.

On June 23, 2015, former Senate Majority leaders Bob Dole and Trent Lott, in the Wall Street Journal congratulated Senator McConnell with pushing the TPA/trade legislation through the Senate stating:

It is a relief to see an institution that we both devoted so much of our lives to working again.  And it is an encouraging development for the country to see the Senate addressing big problems after years of inaction when it was controlled by Democrats.

JUNE 23, 2015 UPDATE

SENATE JUMPS OVER MAJOR PROCEDURAL HURDLE AND PUSHES TRADE PROMOTION AUTHORITY FORWARD

Dear Friends,

There was a major development in the Senate today on Trade Promotion Authority.  The Senate has jumped over a major procedural hurdle and moved the Trade Promotion Authority (“TPA”) bill forward. The final TPA vote will be tomorrow and it will pass because only a simple majority is needed. For US companies, this means now is the time to bring to the attention of US trade negotiators any export problems they have with the 12 TPP countries, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, so the issue can be included in the ongoing negotiations.

The TPA fight has also raised questions as to whether the Free Trade Agreements can actually pass Congress or whether the US will slip backward into a protectionist mindset and no longer be a free trade leader.

If you have any questions about this topics, please feel free to contact me.

Best regards,

Bill Perry

SENATE PASSES TPA PROCEDURAL HURDLE AND MOVES IT FORWARD SO THAT THE TPA BILL WILL BE ON THE PRESIDENT’S DESK BY FRIDAY

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”).  To pass cloture and bring the TPA bill up for vote, the Senate requires 60 votes.  This means that tomorrow the Senate will have the final vote on TPA and only 51 votes are required for passage.

To recap since the last blog post, 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 to come up with an alternative strategy and delinked 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/.

In response, today, June 23rd, the Senate with no extra votes, overcame the procedural hurdle of the 60 vote requirement, and voted to move forward with the House TPA Bill, which had passed on June 18th.  Tomorrow the Senate will vote on TPA and only a simple majority is required, which means TPA will pass and go to President Obama’s desk for signature by the end of the week.

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.  Prior to the vote, Republican Majority Mitch McConnell stated in part:

The Bipartisan Trade Legislation Trade Legislation we’ll vote on today.  . . . It’s demonstrating that both parties can work together to strengthen America’s National Security at home and America’s leadership abroad.  Instead of simply ceding the future and one of the World’s fastest-growing regions from Chinese aggression and it’s proven that our friends can rally with us in support of 1.4 Million additional jobs in our country, including over 18,000 in Kentucky alone. . . .

Today is a very big vote. It’s an important moment for the country. It sets in motion the completion of a project we set out on literally months ago.  Completing work on all four of the bills reported by the Finance Committee. That is what my friend on the other side said they wanted and that is what can be achieved by continuing to work together.  . . .

So this is where we are, Mr. President. Let’s vote today. Let’s vote today to move ahead on T.P.A., an important accomplishment for the country. Then we can vote to move ahead on T.A.A. and AGOA and preferences. And then we can vote to move ahead on customs. If we all keep working together and trusting each other, then by the end of the week the President will have T.P.A., T.A.A., and AGOA and preferences on his desk. With Customs in the process of heading his way as well.

As Senator Orrin Hatch, Chairman of the Senate Finance Committee, stated in part prior to the vote:

On Trade Promotion Authority, the Senate has voted on this before each time demonstrating strong bipartisan support for T.P.P. — T.P.A. My hope is we can get a similar result in the Senate. We need to be clear about what is at stake. The United States is clearly negotiating a number of trade agreements with our most important trading partners in the world.  . . .

As we all know, most of the World’s consumers live outside of our borders.  95% of them. In addition, the vast majority of economic growth in the world is likely to occur outside of the United States over the next decade if our workers, farmers, ranchers and service providers are going to be able to compete in these growing markets, we must have open access to these markets and fair trade rules to boot.  Without strong trade agreements neither is possible.  When it comes to International Trade, we cannot stand still.  If we don’t lead and set the rules of the game, other nations will and our economy will be left behind.

The United States continues to be a leader in agricultural exports throughout the World.  In fact, we still export more agricultural goods than any other country.  In addition, the United States continues to boast an enormous manufacturing base which supplies consumers in every corner of the globe.  We also lead the World in technology, digital services and innovation.  Indeed not only do we lead the World in creation of intellectual property, America essentially created the modern digital landscape.  The U.S. also continues to lead in trade and services, exporting more than $700 Billion in services in 2014 alone.  That is more than twice as much as the United Kingdom, the World’s second-highest services exporter. . . .

This [TPA] bill, which is the product of a great deal of work and a lot of bipartisan cooperation, will have a powerful and positive impact on industries throughout our economy, on consumers and of course on American workers as well.  Mr. President, in an America that embraces International Trade, I believe even those individuals who encounter temporary setbacks can find new opportunities, can outwork, out-produce and out-innovate our global competition so long as the groundwork has been laid to give them those opportunities.  That is why we need strong trade agreements and that is why we need T.P.A. . . .

I am very appreciative of all the support we have received from members on both sides of the aisle.  We couldn’t have gotten this far without that support.  Now it is time to finish the work to pass this bill and get it to the President’s desk.  We need this bill to ensure that our constituents’ voices are heard in the trade negotiating process.  We need this bill to give our trade negotiators the tools they need to get a good deal.  And we need this bill to extend access to foreign markets so we can grow our economy and create good, high-paying jobs here at home.  That, Mr. President, is what this bill is all about and why we have been working on this process for so long.  We’re very close to the finish line, Mr. President.  We need just one more burst of energy and a few more steps to get us there.

I urge all of my colleagues who support free trade, open markets, and the advancement of American values and interests abroad to join me once again in supporting T.P.A. and working with me and with my colleague, Senator Wyden, to get all the pending trade bills passed in the Senate and signed into law. . . .

Democratic Senator Ron Wyden, ranking member on the Senate Finance Committee, stated prior to vote:

If you believe that those policies of the 1990’s fail to protect American workers and strengthen our economy, this is our chance to set a new course.  This is our chance to put in place higher standards in global trade on matters like labor rights and environmental protection, shine some real sunlight on trade agreements and ensure that our country writes the rules of the road.  The fact is in 2016, globalization is a reality.  The choice is whether to sit back and allow globalization to push and pull on our economy until in effect we face some of the same kind of dictates that you see in China.  So our choice is either to move now, get into the center of the ring and fight for a stronger economic future, protect our workers and promote our values or remain tethered to many of those old policies of the 1990’s.  . . .

China is certainly not going to take up the banner for American values in trade.  So if you believe America should stop a race to the bottom on labor rights, environmental safeguards and human rights, this legislation is our chance to lift global standards up.

Now, I want to talk for a moment about the economic potential of this legislation.  What we all understand we need to do is make things here, grow things here, add value to them here and then ship them somewhere.  My state knows how to make this happen, and so do many others.  About one out of five jobs in Oregon depends on International Trade.  Almost 90% of them are small and medium-sized, and what we know is that in many instances, those jobs pay better, but the fact is if our farmers want to sell their products in Japan – and this is true of agriculture all over America, Mr. President – a lot of our farmers face average tariffs of 40%.  That’s right.  If you want to export some jam to Vietnam, it will be marked up by 90%.  If you want to sell a bottle of wine – and we’ve got wine growers with prosperous businesses all over the country, you’ve got to fork over 50% of the value to the government.  So if you believe that other countries should open their markets to American exports, like the U.S. is open to theirs, this is our chance to bring down the tariffs and other barriers . . .

While the goal of enacting trade policies is a tool to give all Americans a chance to get ahead, trade adjustment assistance is an absolute must-pass bill.  And I am confident that it is going to get through Congress and the President’s Desk.  . . .

In my view, the Congress has an opportunity with this legislation to show that it can work in a bipartisan way to take on one of the premier economic challenges of our time.  Our job is to get past the policies of the 1990’s and move towards getting trade done right.  Colleagues, let’s open – let’s pry open foreign markets and send more of our exports abroad.  Let’s fight for the American brand and the Oregon brand against the trade cheats and the bad actors who are blocking our way.  And let’s raise the bar for American values and open up our trade policies to sunlight.  I urge all in the Senate to vote “Yes” on cloture today and to support this package as it advances this week and in effect we get three of the important bills done this week and set in motion the fourth.

After winning the procedural vote today, Senator McConnell stated:

Have voted aye on the Cloture Motion.  I want to say to our colleagues this is a very important day for our country. We’ve demonstrated we can work together on a bipartisan basis to achieve something that is extremely important for America. Not only when we confirm this trade promotion authority will we have the mechanism in place for the President to finalize an extraordinarily important deal with a number of different Asian countries, it will indicate that America is back in the trade business, it will also send a message to our allies that we understand they’re somewhat wary about Chinese commercial and potentially military domination and that we intend to still be deeply involved in the Pacific.  So I want to congratulate Senator Hatch, Senator Wyden.  This has been a long and rather twisted path to where we are today, but it’s a very, very important accomplishment for the country.

In response to the Senate vote, on June 23rd Paul Ryan, Chairman of the House Ways and Means Committee, issued the following statement:

I want to congratulate my colleagues in the Senate for voting to advance TPA. Only with TPA can the U.S. win a fair deal for the American worker in trade negotiations. And only with TPA can the U.S. rebuild its credibility on the world stage. I’m proud of my colleagues—in both houses, on both sides of the aisle—for working together to promote American trade. Some work remains to complete our trade agenda, but this has been a good day.

What is the effect of this vote on companies?  The bottom line is that by the week’s end President Obama will be able to sign into law Trade Promotion Authority and the negotiations on the Trans Pacific Partnership and the TTIP negotiations with Europe will continue.

For any company facing problems with exports to the 12 countries in the TPP, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, now is the time to present your concerns to the trade negotiators in the US government and your Congressional representatives so the issue can be included in the ongoing negotiations.

WILL CONGRESS FOLLOW THE SIREN CALL OF PROTECTIONISM AND TAKE THE US BACK OR MOVE IT FORWARD TO RESUME ITS FREE TRADE LEADERSHIP

In light of the Senate vote today, one hopes that the Congress is moving away from the protectionist brink, but with a 60-37 procedural vote, 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 will pass, 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 1900s.  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.

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, 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?.

MAY 27 UPDATE

TRANSFORMATIVE POWER OF TRADE ADJUSTMENT ASSISTANCE (“TAA”) FOR COMPANIES

As the battle for Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership (TPP) moves to the House of Representatives, the merits of the Trade Adjustment Assistance for Firms/Companies program, which is linked with the TPA bill, needs to be discussed.  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 oppose TAA because they see TAA as an entitlement.  But when 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).  TAA for Companies is set at only $16 million in the Senate and $12.5 million in the House nationwide.  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.  See the attached Wall Street Journal article, REVISED FEBRUARY242011TAACLETTERWSJ – Perry.

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.

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.  See his attached 2002 obituary, JIM MUNN.

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 blog posts and as Ronald Reagan predicted in the attached 1986 speech, BETTER COPY REAGAN IT 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.

TPA UPDATE—LATEST NEWS FROM THE HOUSE

On May 28th, it was reported that the Republican leadership in the House of Representatives intends to bring up Trade Promotion Authority (“TPA”) and Trade Adjustment Assistance (“TAA”) the week of June 8th and will hold two separate votes on its constituent parts. The House is considering taking up the Senate-passed bill, H.R. 1314, which contains both the TPA and TAA renewals, but then vote on each part separately. This could be done using a parliamentary procedure called “division of the question,” which could be written into the rule governing House consideration of the legislation. This rule, however, would have to be approved on the House floor prior to the vote on the bill itself.

The reason for holding the TPA vote in the second week of June after the House returns from recess is to give both Republicans and Democrats time to increase support for TPA to ensure they have the 217 or more votes needed to pass the bill. It takes 217 votes, instead of 218 votes, to approve the bill because of two vacancies in the House. But there are indications that the vote could slip until the third week of June to provide supporters more time to gather the votes together.

Sources are stating that they expect between 40-55 Republican no votes, although the no votes could be much higher. With 245 Republicans in the House, the 40 to 55 range would require between 17-22 Democrats voting “yes” in order to get to the required 217 votes. Democratic Congressmen can provide more than 20 votes, possibly 25 or 27, given that 17 members of the caucus have already endorsed the TPA bill.

On May 27th, Washington State Democratic Congressman, Rick Larsen, came out in favor of TPA. In the announcement, Congressman Larsen stated:

“TPA is a cornerstone of the President’s trade agenda. It is the vehicle for Congress to set standards and goals for new trade agreements the President is seeking to finalize. I believe presidents should have the authority to negotiate trade agreements based on Congressional direction. The specifics of that direction are important, and they are laid out in the 2015 TPA bill.

“I have decided to support the 2015 TPA bill because trade matters for the Second Congressional District and for Washington State. Trade matters for manufacturers of all sizes in the Second Congressional District. Opening up new markets for our businesses to sell their goods and services is a key way to help them grow their operations and create jobs here at home. We have manufacturers of all sizes in my district that trade with other countries, supporting more than 68,320 jobs. That is a sizeable piece of our economy that we simply cannot ignore. Trade matters for these factories and workers.”

“Trade matters for a variety of industries in Washington State, from agriculture to electronics to tourism. In Washington State, about 40 percent of all jobs are tied to trade in some way, and the pay for these jobs is nearly 20 percent higher than the average annual wage. Our state exported more than $90 billion in goods and services in 2014, making us the largest exporting state per capita in the country.

“I agree with a comment Secretary John Kerry made during his recent visit to the Boeing factory in Renton. He said our state is a trade leader because we discovered a long time ago that it is in our best interest to do business with the world. Helping our state’s businesses sell their products in new markets worldwide means more growth, jobs and opportunity in the Pacific Northwest. . . .

A key factor in the Vote will be the positions of House Minority Leader Nancy Pelosi (D-CA) and Minority Whip Steny Hoyer (D-MD).

Before bringing the Bill to a vote, however, TPA supporters in the House will want to make sure that they have a comfortable margin of votes beyond the required 217. Ways & Means Chairman Paul Ryan (R-WI) has already agreed, that the House will consider TPA and TAA renewal on the same day as a customs and enforcement bill and legislation to renew several trade preference programs.

On May 27th, it was reported that Chairman Paul Ryan in a May 22nd letter to Senators Hatch and Wyden stated that he intended to seek to include in the House version of a customs and enforcement bill four amendments that failed to make it into the fast-track bill in the Senate. His commitment is part of an agreement with Hatch and Wyden to use the customs bill conference as a forum to resolve outstanding issues related to fast track and potentially other trade legislation, without requiring a conference on the fast-track bill itself.

The first change Ryan agreed to make is to include in the House customs bill the trade remedy law changes championed by Sens. Sherrod Brown (D-OH) and Rob Portman (R-OH), which are pending in the House as H.R. 2523. Ryan, however, did not address how he wants to reconcile another key difference in the two customs bills, which is their provisions aimed at fighting the evasion of antidumping and countervailing duties. In addition to Trade Remedy, Ryan indicated interest in including in the House customs bill amendments on human trafficking, immigration and US seafood exports.

US CHINA TRADE WAR NEWSLETTER MAY 27, 2015

Dear Friends,

Been very busy over the last two months on a number of different cases, but now I can now get back to the blog.

TRADE PROMOTION AUTHORITY (“TPA”) BILL PASSES THE SENATE AS FIGHT ON CAPITOL HILL CONTINUES

The major trade issue is Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership.

On May 22, 2015, after another close cloture vote, the TPA bill passed the Senate by a majority vote of 62 to 37 votes. The Short Title of the TPA Bill is the “Trade Act of 2015” and the long title is the “Bipartisan Congressional Trade Priorities and Accountability Act of 2015”.

The action next switches to the House of Representatives, which will take up Trade Promotion Authority in June. The fight in the House will be even more difficult than the Senate because reportedly there is more opposition to TPA, but there are no requirements for a super majority in the House.

To see the debate on the Senate Floor, see http://www.c-span.org/video/?326202-2/us-senate-debate-trade-promotion-authority.  Be prepared to move the video bar at the bottom of the screen to cycle through the trade arguments.

On May 21st in a close vote, 62-38 vote, with 60 votes required, the Senate agreed to cloture, to end debate, and to go to a final vote on the TPA bill. Two of the most important votes came from Democratic Senators Patti Murray and Maria Cantwell of Washington, who only agreed to vote to move the TPA bill forward after the Republicans agreed to a vote in June on the Ex-Im Bank, which is very important for the Boeing Company in Washington. Senator Lindsay Graham, a Republican from South Carolina, where Boeing is located, joined the Murray/Cantwell fight on the Senate Floor.

Attached is the revised TPA Bill with the Trade Adjustment Assistance (“TAA”) bill joined with it. TPA AS AMENDED MAY 22ND This combined bill happened as a result of a compromise after the Senate Democrats blocked the TPA bill on May 12th.

On May 22nd, another amendment on Currency Manipulation from Senators Wyden and Hatch was passed as a compromise. The attached Amendment Hatch-Wyden HANDWRITTEN AMENDMENT 1411 states as follows:

Foreign Currency Manipulation—The principal negotiating objective of the United States with respect to unfair currency practices is seek to establish accountability through enforceable rules, transparency, reporting, monitoring, cooperative mechanisms, or other means to address exchange rate manipulation involving protracted large scale intervention in one direction in the exchange markets and a persistently undervalued foreign exchange rate to gain an unfair competitive advantage in trade over other parties to a trade agreement consistent with existing obligations of the United States as a member of the International Monetary Fund and the World Trade Organization.

On May 22, 2015, Senator Hatch made a very strong argument against the Currency Amendment proposed by Senators Stabenow and Portman, which requires enforceable provisions, stating that the President will veto the TPA bill and if passed could lead to international sanctions against the United States by international tribunals. See Testimony of Senators Wyden and Hatch at http://www.c-span.org/video/?326202-1/us-senate-debate-trade-promotion-authority&live. See part of the speech below.

One of the key arguments for TPA was made by Democratic Senator Bill Nelson of Florida on the Senate Floor on May 22nd when he stated that a major reason for his vote was when the Joint Chiefs of Staff from the Department of Defense come to Congress and unanimously told the Armed Forces Committee that the TPA and TPP are one of the most important issues for National Security in that area of the World. As Senator Nelson stated, “I believe that this Bill will pass.”

On May 12th, after the Democrats in the Senate blocked the TPA bill from coming to the floor by a vote of 52 to 45, the TAA bill was put together with the TPA bill and started to move again. The Grand Bargain between the Democrats and Republicans is that TAA will be joined to the TPA bill. Republican Senator Hatch on the floor stated several times that although he was personally opposed to TAA, he realized that his Democratic colleagues needed TAA to vote for TPA.

Four bills have been crafted to move together. They are the TPA bill, Trade Adjustment Assistance (“TAA”) for workers and companies, Customs and Trade Enforcement Bill, formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), and the Trade Preferences Extension Act of 2015 (“TPEA”). The TFTEA Bill passed the Senate on May 11, 2015 and the TPTEA Bill passed on May 14, 2015, but both bills now go to the House where there survival is questionable.  Copies of those bills and Legislative History are attached.  TRADE PREFERENCES ACT TPA LEGISLATIVE HISTORY SENATE FINANCE TPA AS AMENDED MAY 22ND TAA LEGISLATIVE HISTORY LEGISLATIVE HISTORY TRADE AND CUSTOMS ENFORCEMENT BILL Hatch-Wyden HANDWRITTEN AMENDMENT 1411 CUSTOMS AND TRADE ENFORCEMENT BILL Preferences.Bill.fin

The key problem is the Customs TFTEA bill because Senators Brown and Portman have put in the bill a specific provision that currency manipulation can be considered a countervailable subsidy. That is a major problem for Republicans and also President Obama because a currency manipulation bill could be used to retaliate against US Exports because of the Federal Reserve Policy. Remember Quantitative Easing? Currency manipulation has not been defined and this is why Treasury Secretary Lew has been so cautious in going after China and other countries. All trade law is based on reciprocity and what the United States can do to one country, the other country can do back. President Obama has stated that if enforcement provisions regarding currency manipulation are tied to the TPA bill, he will veto the bill.

Also see speech by Senator Hatch at minute 40 at this link http://www.c-span.org/video/?325918-9/senators-mcconnell-reid-wyden-hatch-cornyn-trade-promotion-authority to get a better idea of what is going on. Senator Hatch described currency manipulation as “a killer amendment” to the TPA. See also Senator Hatch speech on the floor below.

Negotiations continued. See Paul Ryan’s response that the entire world is watching, including China http://video.cnbc.com/gallery/?video=3000379026

The key point is not the Democrats opposed to TPA, but the pro-trade Democrats. After the TPA bill was blocked in the Senate on May 12th, Obama met with a group of pro-trade Democrats at the White House in an effort to secure their support. In addition to Senator Caper from Delaware, that group includes: Sens. Michael Bennet (Colo.), Maria Cantwell (Wash.), Ben Cardin (Md.), Heidi Heitkamp (N.D.), Tim Kaine (Va.), Patty Murray (Wash.), Bill Nelson (Fla.), Mark Warner (Va.) and Ron Wyden (Ore.), the senior Democrat on the Senate Finance Committee and co-author of fast-track legislation.

That is an additional 9 votes, along with the two missing Republican votes. When the additional 11 votes are added, the TPA overcame the filibuster and passed the Senate. Now the TPA battle continues in the House.

This blog post will discuss brief various trade issues, including antidumping and customs, then discuss Trade Policy, including the TPA bill in detail, followed by sections on IP, Antitrust and Securities.

TRADE

STEEL TRADE CASES ARE COMING

A number of companies have contacted me with questions about potential Steel trade antidumping and countervailing duty cases against various countries with a primary target being China. In discussions with a number of companies, the major steel targeted products are likely to be imports of cold rolled steel and galvanized steel from China and other countries and possibly hot rolled steel from other countries because Chinese hot rolled steel is already covered by antidumping and countervailing duty orders.

On March 26, 2015, the Congressional Steel Caucus held a major hearing on Capitol Hill on the State of the Steel Industry. See https://www.youtube.com/watch?v=VFUbn6lnNFM

The announcement for the hearing described it as follows:

Amidst the ongoing market turbulence in our domestic steel industry, the bi-partisan Congressional Steel Caucus will feature testimony from steel industry leaders, including several Pittsburgh-based experts. Earlier this month, U.S. Steel announced that its Keewatin, Minnesota facility would shut down operations as a result of the US market being flooded with low-cost imported foreign steel. Anticipated questions to be discussed include international trade practices, currency valuation; meeting steel market needs.

At the March 26th hearing the large US steel companies urged Congress to take action against “illegal trade practices” threatening the domestic steel industry. At the Steel Caucus hearing, U.S. Steel President and CEO Mario Longhi and Nucor Corp. Chairman, CEO and President John Ferriola and others stated that the US government has been too easy in confronting foreign companies over unfair trade practices.

Mario Longhi of US Steel stated:

“This nation’s safety, security and prosperity depend upon indigenous capacity to respond to our essential national needs, in peacetime and in times of crisis. [However], not since the late 1990s have we witnessed the torrent of steel imports. The last time we were at these levels, nearly half of American steel companies disappeared … American steel companies are being irreparably harmed by illegal trade practices.”

Longhi called for revised injury standards in the US antidumping and countervailing duty laws arguing that the ITC is too focused on operating profit margins. At the meeting Senator Sherrod Brown of Ohio pledged to help the steel companies through his “The Leveling the Playing Field Act”.

That pledge resulted in the proposed changes to the US Antidumping and Countervailing Duty laws in the Customs Enforcement Bill formally entitled ‘‘Trade Facilitation and Trade Enforcement Act of 2015’’Act, which passed the Senate. That Bill is the one that includes the Currency Manipulation provision.

One provision in that Bill would change the way the US International Trade Commission (“ITC”) does its injury investigations. Specifically the Bill proposes to add an additional provision to the Material Injury provision used by the ITC in antidumping and countervailing duty cases to provide:

“(J) EFFECT OF PROFITABILITY.—The Commission shall not determine that there is no material injury or threat of material injury to an industry in the United States merely because that industry is profitable or because the performance of that industry has recently improved.’’

In talking with one friend at the ITC, he did not believe that the change would have that much impact on an ITC investigation, but the passage of the law will have an impact.

With this much smoke in the air regarding Steel imports, that usually means fire will follow. I suspect we will see a number of trade cases against steel imports, probably at the end of June or early July.

When looking at Steel Trade problems one should understand that the US Steel Industry has had various amounts of trade protection from steel imports for close to 40 years. Presently there are outstanding antidumping and countervailing duty orders against the following steel imports from China: Steel Concrete Reinforcing Bar (“Rebar”), Oil Country Tubular Goods (“OCTG”), Hot Rolled Carbon Steel, Carbon Steel Plate, Carbon Steel Butt-Weld Pipe Fittings, Circular Welded Carbon Quality Steel Pipe, Light-Walled Rectangular Pipe and Tube, Circular Welded Carbon Quality Steel Line Pipe, Circular Welded Austentic Stainless Pressure Pipe, Steel Threaded Rod, Prestressed Concrete Steel Wire Strand, Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe, Grain Oriented Electrical Steel, Non-Oriented Electrical Steel, and Prestressed Concrete Steel Rail Tie Wire.

Against China, it is easy to bring steel trade cases because Commerce does not use actual prices and costs in China to determine dumping. But when actual prices and costs are used against market economy countries, such as Korea, it is a much bigger problem.

When I was at the ITC in the 1980s, I was the Commission staff lawyer on the first Oil Country Tubular Goods (“OCTG”) case filed against Korea in 1984. When Commerce uses actual prices and costs against countries like Korea in antidumping cases, the companies can run computer programs and make sure that they are not dumping. Since the Korean companies know they will be targeted, they are certainly running computer programs to eliminate all dumping.

With 40 years of protection from steel imports, the question should be asked is Bethlehem Steel alive today? Did the Steel Antidumping and Countervailing Duty Cases actually protect the steel industry and allow them to grow and expand or simply delay their decline?

As advocated several times in prior posts on this blog, the only way to save companies injured by imports, such as the steel companies, is a robust trade adjustment assistance program to help the companies adjust to import competition. Antidumping and countervailing duty cases do not work. They only delay the decline because a US industry cannot put up walls to unstoppable waves of imports. Instead the US industry has to adjust and learn how to compete effectively in the US market against imports, which are often fairly traded.

COMMERCE RAISES BARRIERS TO CHINESE IMPORTS BY MAKING IT MORE DIFFICULT TO GET SEPARATE RATES IN ANTIDUMPING CASES AGAINST CHINA

As stated in prior newsletters, as a result of an appeal in the Diamond Sawblades case, Commerce has raised the bar for Chinese companies to obtain their own antidumping rates by proving that they are independent of government control. The issue is especially significant for Chinese companies, which are owned in whole or in part, by the PRC State-Owned Assets Supervision and Administration Commission (SASAC).

In the Diamond Sawblades redetermination, Commerce determined that it had “further scrutinized the record” and concluded that, because the 100 percent SASAC owned majority shareholder was the only shareholder with the right to nominate all board members, including board members active in the selection of respondent’s managers, the company was not independent from the Chinese government.

Even though there was no evidence that export prices had been affected, in an investigation involving carbon and certain alloy steel wire rod from the PRC, Commerce stated that, in light of the Diamond Sawblades case, it has “concluded that where a government entity holds a majority ownership share, either directly or indirectly, in the respondent exporter, the majority ownership holding in and of itself means that the government exercises or has the potential to exercise control over the exporter’s operations generally. … Consistent with normal business practices, we would expect any majority shareholder, including a government, to have the ability to control and an interest in controlling, the operations of the company, including the selection of management and the profitability of the company.”

Meanwhile, until recently Chinese respondent companies were given 60 days from the date of Commerce initiation of an investigation or review to submit a separate rate application (“SRA”) to show that it is independent and separate from the Chinese government. Commerce has now reduced the time period to submit the SRA to 30 days and eliminated the option for early filing that previously provided NME companies with the opportunity to clarify an application Commerce deems insufficient.

COURT OF APPEALS RULES AGAINST CHINA IN GPX CASE

On March 16, 2015, in the attached GPX International Tire Corp. and Hebei Starbright Tire Co. vs. United States, GPX CAFC DECISION the Court of Appeals for the Federal Circuit (“CAFC”) turned away the second constitutional challenge to the 2012 amendment to the Countervailing Duty law affirming the U.S. Department of Commerce’s ability to apply countervailing duties on imports from nonmarket economies like China. The CAFC held that the Amendment did not violate the U.S. Constitution’s Due Process Clause even though it applied the duties retroactively.

PROPOSED CHANGES TO ANTIDUMPING AND COUNTERVAILING DUTY LAW IN CUSTOMS TRADE ENFORCEMENT BILL

Accompanying the Trade Promotion Authority Bill is the attached Customs Enforcement Bill, the ‘‘Trade Facilitation and Trade Enforcement Act of 2015,” and its legislative history which includes minor changes to the antidumping and countervailing law and significant changes to the US Customs law to stop evasion of antidumping and countervailing duty law. LEGISLATIVE HISTORY TRADE AND CUSTOMS ENFORCEMENT BILL CUSTOMS AND TRADE ENFORCEMENT BILL

Although the bill has passed the Senate, there is a substantial question whether the House of Representatives will agree. One House aide expressed confidence that the provision would eventually become law. But Congressional and business sources have pointed out the possibility that the customs bill was merely a tool that Senate Finance leaders used to funnel amendments away from Trade Promotion Authority and other bills, and that it will never become law.

This is in part because there are key differences between the House and Senate bills, meaning the Senate and House will go to conference to negotiate a comprimise bill. Among these differences in the Customs/Trade bills are the ways the two bills address the evasion of antidumping and countervailing duties, and the inclusion in the Senate bill of changes to trade remedy law that make it easier for petitioners to secure the affirmative determination necessary for duties to be imposed. On April 29th, Finance Chairman Orrin Hatch (R-UT) told reporters that he hoped the customs bill would become law, but did not provide strong assurances.

But on May 20, 2015, Senator Ron Wyden stated on the floor of the Senate that Chairman Paul Ryan has already agreed that there will be a conference committee on the Customs Enforcement Bill so a bill will pass both the Senate and the House, but what is that final bill after conference committee is still an open issue.

One key provision in the Customs and Trade Enforcement bill, however, would make currency manipulation a countervailable subsidy. Chairman Hatch has already stated on the Senate Floor if that provision is in the TPA bill it would not pass the House and would be vetoed by President Obama. If it passes the Senate, that provision will be thrown out by the House at the Conference Committee so the situation regarding this Customs and Trade Enforcement Bill is still very fluid and not settled yet in the Congress.

AMERICAN LAWYER ARTICLE ABOUT US TRADE ACTIONS AGAINST CHINA

On March 12, 2015, the American Lawyer published the attached article on The U.S. Offensive in the China Trade War, which quotes me extensively.  BETTER COPY The U.S. Offensive in the China Trade War _ The American Lawyer

STAINLESS STEEL SINKS

On April 30, 2015, the Commerce Department published the attached preliminary determination in the Stainless Steel Sinks case with dumping margins ranging from 0.81 to 5.55 %. DOC STEEL SINKS PRELIM Specifically the rates ranged from 0.81% for Guangdong Dongyuan Kitchenware Industrial Co., Ltd. to 5.55% for Guangdong Yingao Kitchen Utensils Co. with separate rates companies obtaining 2.14%.

The final determination will be in October. Attached is the Federal Register notice initiating the second antidumping and countervailing duty review investigations in the Stainless Steel Sinks case covering Chinese sinks imported during the antidumping review period April 1, 2014 through March 31, 2015 and 2014, the countervailing duty review period. MAY INITIATIONS COMMERCE REVIEWS

BOLTLESS STEEL SHELVING

On March 25, 2015, in the attached factsheet, factsheet-prc-boltless-steel-shelving-ad-prelim-032515 the Commerce Department announced an affirmative preliminary determination in the antidumping (AD) case on Boltless Steel Shelving Units from China. Commerce found preliminary antidumping rates ranging from 22.64 percent to 112.68 percent.

ITC GOES NEGATIVE NO INJURY IN 53 FOOT DRY CONTAINERS ANTIDUMPING CASE AGAINST CHINA

On May 19, 2015, the United States International Trade Commission (USITC) determined that the establishment of a U.S. industry is not materially retarded by reason of imports of 53-foot domestic dry containers from China that Commerce determined are subsidized and sold in the United States at less than fair value. As a result of the ITC negative determinations no antidumping or countervailing duty orders will be issued on imports of these products from China.

COURT OF INTERNATIONAL TRADE RULES FOR CHINA IN TAISHAN KAM KIU AND SINCE HARDWARE CASES

In the attached two determinations, Since Hardware v. United States and Taishan Kam Kiu v. United States, SINCE HARDWARE TAISHAN CITY KAM KIU the Court of International Trade remanded the Ironing Tables and Aluminum Extrusions antidumping and countervailing duty determinations back to Commerce.

SOLAR PRODUCTS ANTIDUMPING AND COUNTERVAILING DUTY ORDERS

On February 18, 2015, the attached final antidumping and countervailing duty orders in the Solar Products cases from China and Taiwan were issued. SOLAR PRODUCTS TAIWAN AD ORDER AD CVD ORDERS SOLAR PRODUCTS CHINA

MAY ANTIDUMPING ADMINISTRATIVE REVIEWS

On May 1, 2015, Commerce published the attached Federal Register notice, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of May. MAY REVIEWS The specific antidumping cases against China are: Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Citrate Salt, Iron Construction Castings, Oil Country Tubular Goods, Pure Magnesium, and Stilbenic Optical Brightening Agents. The specific countervailing duty cases are: Aluminum Extrusions, Citric Acid and Citrate Salt, and Wind Towers.

For those US import companies that imported Aluminum Extrusions, Circular Steel Line Pipe, Citric Acid, Iron Construction Castings, Oil Country Tubular Goods, and Pure Magnesium and the other products listed above from China during the antidumping period May 1, 2014-April 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.

Attached is the May 26th Federal Register notice initiating antidumping and countervailing duty review investigations against steel sinks, activated carbon, magnesium metal and steel threaded rod for imports during the period April 1, 2014 through March 31, 2015.  MAY INITIATIONS COMMERCE REVIEWS

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.

TRADE POLITICS AND TRADE AGREEMENTS

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

TRADE PROMOTION AUTHORITY (“TPA”) BATTLE IN THE SENATE

As stated above, with the passage of the TPA Bill at 9PM at night on May 22nd, the TPA battle moves to the House of Representatives. This section of the newsletter will provide more background on the TPA bill and the pressure on both the Senate and the House as the bill moves through Congress.

During the Senate debate, Senate Finance Committee Chairman Senator Orrin Hatch of Utah spoke against the enforcement provisions of the proposed currency manipulation amendment to the TPA bill because it will “kill” TPA. Instead, the Senate TPA bill would make currency manipulation a major negotiating objective.

But Democrats want more. They want enforcement actions against currency manipulation. But Senator Hatch is concerned that such a provision could be used against the United States.

Other Senators are worried about possible changes to US immigration laws, environmental and labor issues. USTR has been told in no uncertain terms that touching immigration is a third rail for trade policy, and USTR has stated during Hearings on Capitol Hill that there is nothing that would “change laws and regulations with respect to immigration,”

Although TPA passed the Senate, the vote in the U.S. House of Representatives is far more uncertain. Paul Ryan, however, Chairman of the House Ways and Means Committee and former Republican Vice Presidential candidate, has pledged to take the TPA bill across the Finish Line so his credibility is riding on the bill.  That means the TPA bill should pass in the House, probably in June.

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

This has been a problem because the protectionism is coming from the Democratic side of the aisle. Democratic Senators and Congressmen are supported by labor unions. Although Democratic Congressmen have expressed interest in the TPP, to date, President Obama could not get one Democratic Congressman in the House of Representatives to openly co-sponsor 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 as soft on trade.

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

But then came the November 4th Republican wave election changing Trade Politics dramatically in Washington DC. Elections have consequences and in 2015 Republicans have taken the Senate and increased their numbers in House. The TPA Bill has now passed the Senate. The Title of the Bill is the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, which is posted above. The short tile of the bill is the Trade Act of 2015. The bill has been revised on the Senate Floor to add Trade Adjustment Assistance and a currency amendment, which are set forth above.

There are changes in the bill as compared to original 2014 Bill to increase transparency, but the major objective of the two bills is the same. 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.

One should understand that 90% of the negotiations of these Agreements are not conducted by political appointees of President Obama. Other than United States Trade Representative Michael Froman, who is respected by both Democrats and Republicans, most of the negotiators have been at the Office of USTR for years, if not decades, and are truly professional trade negotiators. So TPA does not truly cede power to President Obama. In fact, there will be substantial oversight of the trade negotiations by Congress.

Since my last blog post in mid-February, many groups, including 35 religious groups, labor unions, environmental and consumer advocacy organizations, complained that the Trade Negotiations are too secret and not subject to public scrutiny. At the same time, President Obama and the Administration have put on a full court press to pass the TPA.  As early as February 23, 2015, President Barack Obama used his national weekend address to repeat his call on Congress to give him Trade Promotion Authority (TPA), arguing that “95 percent of the world’s potential customers” live outside the U.S.:

“Many of them live in the Asia-Pacific — the world’s fastest-growing region. And as we speak, China is trying to write the rules for trade in the 21st century. That would put our workers and our businesses at a massive disadvantage. We can’t let that happen. We should write those rules. That’s why Congress should act on something called ‘trade promotion authority.”

“This is bipartisan legislation that would protect American workers, and promote American businesses, with strong new trade deals from Asia to Europe that aren’t just free, but are fair. It would level the playing field for American workers. It would hold all countries to the same high labor and environmental standards to which we hold ourselves.”

On March 11, 2015, the AFL-CIO upped the cost to Democrats of supporting the TPA legislation and the TPP deal, stating that it would freeze all political action committee donations to federal candidates until further notice. While Paul Ryan and President Obama were talking up TPA, on March 18, 2015 AFL-CIO President Richard Trumka vowed to kill the “rotten”.   As Trumka stated:

“Every single thing in our trade deals should be openly discussed and subject to public oversight and the full legislative process. There should be no question about that. Fast track is wrong and undemocratic, it’s a rotten process, and the American labor movement intends to kill it.”

In response to the Congressional criticism on transparency, on March 19, 2015 the Obama Administration announced new measures to provide lawmakers and their staff members the opportunity to review the TPP negotiating text. USTR set forth several changes to the USTR’s policies, the most important being placing the TPP text in the Capitol for members to view at their leisure without an administration official in attendance. Congressional members are also allowed to review the text with a personal staff member with security clearance.

Complaints, however, about access to the details of trade negotiating texts grew louder because the massive TPP deal would encompass 40 percent of global commerce. On March 26, 2015, it was reported that the protracted standoff between Wyden and Hatch centered around this very issue, transparency and oversight, with Wyden pushing for language that would make it easier for Congress to essentially “turn off” fast track with a resolution of disapproval if the negotiating standards are not met.

On March 25th, Wikileaks released a draft treaty of the TPP from the Investment Group, which led to a strong debate on Investor Arbitration Panels. This led to Senator Warren introducing an amendment to do away with investment panels, which was defeated on May 22nd, prior to the vote on the TPA. Public Citizen argued that the Investor State Dispute Settlement (“ISDS”) system provides foreign investors with more rights than those given to domestic firms and that the mechanism stands as an affront to a government’s right to regulate in the public’s interest.

On the other side, the National Association of Manufacturers praised the text and stated that the U.S. approach to investment talks has been a matter of public record for three years. As the NAM Vice President for International Economic Affairs Linda Dempsey stated:

“The investment provisions of our trade agreements, which are backed up by the neutral and well respected ISDS dispute settlement mechanism, are an important tool particularly for small and medium-size businesses that have been the most prevalent users of the ISDS dispute settlement mechanism.”

On March 26, 2016, Secretary of Defense, Ashton Carter, called for a “full-court press” on TPA, TPP, TTIP because expanding and deepening trade relationships provides stronger national security, stating:

“We also need Congress’ support for some of the most important investments we can make in our future prosperity—new trade agreements, including Trade Promotion Authority for the President. We must be allowed to clinch new and historic trade agreements spanning from Europe to Asia.

I offer this as a Secretary of Defense, convinced that a full-court press to strengthen our nation’s trade relationships will reinforce our nation’s security—while neglecting them could undercut it.

The arithmetic is straightforward.

We know that 95% of the world’s customers live beyond our borders, and the spending power of middle-class consumers in today’s emerging markets is expected to increase by 20 trillion dollars over the next decade. . . . And this trend will continue as Asia’s 570 million-strong middle class grows to about 2.7 billion consumers over the next 15 years. . . .

The bottom line is that, as global trade intensifies, we need to be both at the helm, and in the thick of it. Three years ago, trade accounted for about a third of global GDP. In a decade, it could approach half of global GDP. America’s economy, and our security that depends on it, cannot afford to be left behind. . . .

Shared growth generates magnetism: attracting new partners from around the region. While far from a guarantee, strong trade patterns also help build trust and raise the cost of conflict, while assuring our allies and partners of our long-term commitment to a shared and interdependent future…something that Secretary and General Marshall clearly understood.”

On March 26, 2015, former Republican and Democratic Commerce Secretaries, including Pete Peterson, Frederick Dent, Barbara Franklin, Mickey Kantor, William Daley, Norman Mineta, Donald Evans, Carlos Gutierrez, Gary Locke and John Bryson, urged Congress to pass the TPA Bill, but also argued that anti-currency manipulation should not be tied to trade deals.

On March 31, 2015, House Ways and Means Committee Chairman Paul Ryan, R-Wis., on Tuesday mounted a strong defense of the investor-state dispute settlement mechanism, blasting the system’s critics as “doomsayers” attempting to thwart the U.S. trade agenda with hyperbolic arguments, stating:

“The way [the critics] tell it, ISDS panels are corporate shills that gut public-safety regulations and undermine U.S. sovereignty. The truth is, there are few better tools for holding other countries accountable to the agreements they make — especially when they harm American job creators.”

Calling ISDS “one of the more mundane procedures of trade law,” Ryan stated that there is some version of the mechanism on the books in more than 3,000 trade and investment agreements around the globe, 90 percent of which have never even seen an investor dispute arise. Ryan also stated an ISDS panel does not have the power to change a country’s laws and can only fault the application of a given law.

On April 6, 2015, Defense Secretary Carter warned that “time’s running out” for the TPP deal. Failing to pass the proposed trade deal would cause the U.S. to “take ourselves out of the game”:

You may not expect to hear this from a Secretary of Defense, but in terms of our rebalance in the broadest sense, passing TPP is as important to me as another aircraft carrier. It would deepen our alliances and partnerships abroad and underscore our lasting commitment to the Asia-Pacific. And it would help us promote a global order that reflects both our interests and our values.”

On April 6, 2015, a bipartisan coalition of 76 U.S. Congress members in a letter to Representative Michael Froman and U.S. Secretary of Agriculture Tom Vilsack urged the Obama administration to ensure that the final deal opens new doors for the dairy industry, particularly in Canada and Japan.

On April 16, 2015, Senators Hatch and Wyden introduced the final bipartisan TPA Bill, the “Bipartisan Congressional Trade Priorities and Accountability Act of 2015”.

The 2015 TPA bill creates a new “transparency officer” in the USTR and establishes House and Senate advisory groups to oversee ongoing negotiations. Under the 2015 TPA bill, the Administration would also be required to make finalized trade deals available to the public for 60 days before Presidential signature and up to four months before a Congressional vote. If the deal does not meet Congressional objectives, a 60-vote majority in the Senate would strip the deal of fast-track protection and allow amendments.

But critics continued to attack the bill with AFL-CIO President Richard Trumka stating:

“We can’t afford another bad deal that lowers wages and outsources jobs,” That’s why Congress must reject Fast Track and maintain its constitutional authority and leverage to improve the TPP and other trade deals.”

On April 16th, USTR Froman made clear that the Trans Pacific Partnership (“TPP”) did not contain any changes to the US immigration system, telling lawmakers that no such modifications would be made, even though other nations involved in the negotiations are making temporary entry deals.

Although critics attacked the new TPA bill, American Agriculture Associations praised the new bill with one magazine reporting:

“Pork, corn, dairy, wheatyou name itthe American agriculture industry is standing firmly behind a new bipartisan trade promotion authority bill introduced last week.”

The Agriculture Associations supporting the bill include the American Farm Bureau, The National Association of Wheat Growers, The National Chicken Council, The National Pork Producers Council, The American Feed Industry Association, The National Cattlemen’s Beef Association, The National Milk Producers Federation and the U.S. Dairy Export Council, The Corn Refiners Association, the Corn Growers Association, the American Soybean Association, and the USA Rice Federation.

On April 20, 2015, House Ways and Means released an e-mail stating:

TPA: Good for the Farm and Ranch

Support for TPA is strong among the American agriculture industry. Industry after industry has talked about how breaking down trade barriers is critical to selling more U.S. grown and raised food abroad. But the industry also supports TPA because of the important negotiating objectives that it lays out. These guidelines help ensure that the administration is making progress on issues important to American agriculture, like directing it to:

Obtain Enforceable SPS-Plus Rules: Directs the Administration to obtain robust and enforceable rules on sanitary and phytosanitary measures and require the use of science based standards.

End Improper Use of Geographical Indications: Seeks elimination of the improper use of GIs, including registration of generic terms, which undermine market access for U.S. products.

Maintain Domestic Protections: Ensures that countries may protect human, animal, or plant life or health, consistent with international obligations.

Address Tariff and Non-Tariff Barriers: Instructs USTR to reduce or eliminate tariff and non-tariff barriers, as well as subsidies that decrease market opportunities for U.S. exports.

Preserve Family Farm Supports: Includes provisions seeking preservation of family farms and rural communities.

Facilitate Import Relief: Ensures that import relief mechanisms for perishable and cyclical products are accessible and timely.

Assess Compliance with Existing Obligations: Requires USTR to evaluate whether countries have made meaningful agriculture commitments in the WTO and whether they are living up to their commitments in the WTO and under other trade agreements.

Ensure Special Consultations on Import-Sensitive Products: Takes into account the effect of trade agreements and negotiations on import-sensitive products, and requires additional Congressional consultations on such products.

Make Tariff-Rate Quota (TRQ) Administration Transparent: Ensures transparency in the administration of TRQ programs.

On April 21, 2015, Senator Orrin Hatch, Senate Finance Chairman, called arguments by Democratic Senators that Republicans were trying to ram the Bill through the Committee “nonsense”:

“This is well-covered territory for this committee. So, while I understand and respect that there are sincerely held views on this topic, some of which are different than mine, any arguments that we’ve been less than forthcoming and transparent with this TPA legislation are, not to put too fine a point on it, nonsense.”

Hatch further stated that the Finance Committee convened nine total trade hearings during the last session of Congress and has already held three such hearings in the 2015 session. Hatch also stated that the new TPA bill closely mirrors the bipartisan TPA legislation introduced in 2014 stating:

“True enough, in our discussions, Sen. Wyden, Chairman Ryan and I made some improvements to that original bill. But, the fundamentals remain the same, and we’ve been very transparent as to what the changes have been.”

On April 21, 2015 the American Textile Industry endorsed the TPA. The National Council of Textile Organizations announced, “We are pleased to lend our support to this renewal of Trade Promotion Authority.” The Council specifically stated that the US government supports a balanced outcome, including the yarn-forward rule of origin, which requires that the yarn production and all operations forward occur in either the United States or the territory of our trading partner.

On April 22, 2015, the TPA bill cleared the Senate Finance Committee and proceeded to a fight on Senate floor. Senator Ron Wyden, ranking Democratic Member, showing a profile in courage, led the negotiations with Paul Ryan in the House, and stated after the passage of the TPA Bill in the Committee:

“The U.S. is going to aim higher in trade deals, our enforcement will be much tougher, and the process of negotiating and voting on agreements will be more transparent and more democratic. This legislation will safeguard American sovereignty and promote American values. Congress will be sending U.S. trade policy in a more progressive direction than it ever has before.”

On April 23, 2015, President Obama stated that TPP will correct the shortcomings of the North American Free Trade Agreement (“NAFTA”) because TPP would put in place tough labor and environmental standards that NAFTA did not. TPP would also contain provisions fighting illegal wildlife trafficking and logging, and protecting oceans and against overfishing. Additionally, it would ensure an open Internet, protect consumers from fraud and deception, require anti-corruption and transparency measures and simplify export rules for small businesses. As President Obama stated,

“Trade has always been tough, and it’s always been tough especially in the Democratic Party. A lot of people are skeptical of trade deals, and a lot of times it’s for good reason. For decades now, technology made good jobs obsolete, global competition meant jobs were being shipped overseas, past trade deals didn’t always live up to the hype.

“[But] we’re not going to stop a global economy at our shores. That’s the wrong lesson to draw. We can’t go back to the past.”

Meanwhile, on April 23, 2015, the TPA bill cleared the House Ways and Means Committee with Chairman Paul Ryan stating:

“We have a unique opportunity to write the rules of these trade deals to tear down those barriers and open markets for American products. TPA will increase our bargaining power so we get the most effective trade deals possible — so we tear down more trade barriers and create more opportunity right here in America.”

In the Ways and Means Committee, Democrats were unable to amend the TPA’s language on foreign currency manipulation to enact enforceable rules that would punish trading partners for manipulating their currency to gain a competitive advantage.

On April 27, 2015, the House Ways and Means Committee announced that the High Tech Industry Backs TPA:

“There’s no doubt about it: The tech industry is going big for the Trade Priorities and Accountability Act. . . .These are America’s moviemakers, software developers, and computer manufacturers—the people who drive American innovation. They understand that promoting American trade requires protecting American intellectual property. That’s the only way to keep our competitive edge in the 21st century. And that’s exactly what TPA will do.

TPA lays out almost 150 negotiating objectives for the administration to pursue in trade deals. Among them is to “ensure that governments refrain from implementing trade-related measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data.” . . . .

Microsoft’s general counsel Brad Smith echoed this sentiment:

“Passage of renewed TPA, with its updated objectives for digital trade, is critical for America to be able to pursue its interests. And passage is important for Microsoft and our network of more than 400,000 partners, the majority of which are small businesses, to compete in the global economy.”

On April 27, 2015, House Ways and Means announced that more Conservative organizations are speaking out in favor of TPA, stating in part:

“Just last week, Americans for Tax Reform and 19 other conservative groups signed a letter in support of TPA. . . . The American Conservative Union, Citizens for Limited Taxation, Americans for Job Security, the National Taxpayers Union, the Competitive Enterprise Institute—all voiced their support for expanding American trade.

The editors at Investor’s Business Daily echo this argument:

[TPP] also would reinforce the American presence on the Pacific Rim through economic strengthening, offsetting at least to some extent President Obama’s deep naval defense cuts.

But the main thing is, for every party involved, it would contribute to decades of prosperity and economic growth, as study after study on the impact of free trade agreements has found.”

On April 27, 2015, from a Ways and Means Press Release, Paul Ryan in a radio address, on the show Morning in America, made the case for TPA, stating:

“The reason we need trade agreements with other countries is twofold.

Ninety six percent of the world’s consumers live in other countries; they don’t live in our country. And if we want to have a mature economy where we have more jobs, higher-paying jobs, we have to make and grow more things in America and sell them overseas so we can keep full employment—you know, more people working. So we have to open [markets] to our products. That’s point number one.

“Point number two is all these other countries are going around getting trade agreements for their countries that are better, that give them more access to these foreign markets. And, as a result, Americans don’t get access to those markets, which means we face higher barriers and we can’t sell our products to other markets. China is a perfect example. They’re running around the world right now trying to get better trade agreements to meet China’s needs, to run by China’s rules. And so, right now what’s happening in this global economy is the rules of the global economy are being written, and the question for us is: ‘Who writes those rules?’ Is it China writing those rules, for China’s benefit? Or are we going to write the rules, for our benefit?”

On holding the administration accountable:

“Trade promotion authority is done in a way this time very differently than others because of our mistrust of the executive. So, we tell the executive—meaning, in this case, Obama—and the next president: Here’s what you need to put in a trade agreement, here’s how you go about getting it. You have to be transparent. Members of Congress have to see it. The public has to see these agreements before they’re signed to. And Congress reserves the power to veto it. Congress gets the final say. Congress has to approve it. And if the president doesn’t put together the kind of trade agreement, the process we spell out, then we can say: ‘You didn’t do it the right way.’ And we can revoke trade promotion authority and that trade agreement. So, we’re putting sort of a belts-and suspenders approach to making Congress, the legislative branch, in charge of this so that the executive cannot go beyond his reach.”

On leveling the playing field for American workers and job creators:

“[W]e think we have done this in the right way, and the president has to go out and get the right kind of an agreement. We want to open our dairy markets. We want to open our agriculture markets, our manufacturing. Here’s the deal . … We already give these countries—in this particular case I’m talking about Asia, non-China Asian countries—we already give them pretty good access to our country. Just walk into Wal-Mart or Farm & Fleet or wherever you go, and you’ll see a bunch of goods made in Asian countries. The problem is they don’t give us the same kind of access to their markets. So what we’re trying to get here is the same kind of access to their markets that they have to ours and to give us zero tariffs.”

In response to the TPA movement, however, on April 28th, AFL-CIO President Richard Trumka repeated labor’s stance against TPA, TPP and all free trade agreements:

“All across the country, workers are leading a fierce and broad social movement to defeat fast track. We are rebelling against corporate-written free trade agreements — and we are succeeding.”

The labor movement opposes fast-track. We expect those who seek to lead our nation forward to oppose fast-track. There is no middle ground … [and] in the 2016 campaign, there will be no place to hide for those who aspire to lead America.”

On April 30th Paul Ryan issued another press release from the House Ways and Means Committee stating that the way to hold President Obama accountable is TPA:

The bottom line is, TPA will make the trade negotiations much more transparent and hold the president accountable. Here are the top eight ways TPA will empower Congress:

  • Read the negotiating text

Right now, nothing requires the administration to allow a member of Congress to read the negotiating text of an agreement. But under TPA, every member will be able to read the text of the agreement all throughout the talks.

  1. Receive up-to-date briefings

Sometimes, reading the text isn’t enough. A member of Congress wants to know where the talks are headed. TPA will require the U.S. trade representative’s (USTR) office to brief any member who asks on the status of the negotiations.

  1. Attend negotiating rounds

If that’s not enough, how about actually attending the talks? Under TPA, any interested member will be able to become a “congressional adviser” to U.S. negotiators. All designated congressional advisers will be able to attend negotiating rounds.

  1. Consult with negotiators

TPA will also create House and Senate Advisory Groups on Negotiations to oversee the talks and receive regular briefings, according to a fixed timetable. Any member will be able to submit his or her views to the group.

  1. Provide public summaries

Right now, there’s little public information about how an agreement is shaping up. TPA will require USTR to post up-to-date summaries of each chapter of the agreement so people can see what’s up.

  1. Create a new transparency officer

TPA will create a chief transparency officer at USTR that will consult with Congress and the public on transparency policies.

  1. Make the text public

The ultimate judge is the American people, so they should be able to read the text themselves. For the first time ever, TPA will codify in law the public’s right to review the agreement before the President puts his signature on it. TPA will require the administration to publish the text of a completed trade agreement at least 60 days before agreeing to it. That’s even before Congress considers a vote.

  1. Tell Congress how he will implement the agreement

Finally, at least 30 days before Congress considers the final bill, the president must tell Congress how he intends to enact the agreement if Congress passes the implementing bill.

All of these tools will shed greater light on the negotiations. We need them to get the most effective trade deals possible. We need them to hold the president accountable. And that’s why we need to establish TPA.

Meanwhile on May 5, 2015, Senator Harry Reed announced that he would convince his fellow Democrats to hold off on a TPA vote until the passage of highway infrastructure funding and surveillance legislation. Senate Majority Leader Mitch McConnell, however, rejected the Reid motion and pushed on.

On May 6, 2015, a Press Release from the House Ways and Means Committee stated:

Opponents of free trade agreements are raising a stink about transparency in trade negotiations. But the truth is, if they really want to shed light on the negotiations, the best thing they can do is pass trade promotion authority (TPA). . . .

Most notably, TPA requires the president to make public the text of a trade agreement at least 60 days before he finalizes it. And at least 30 days before he submits an implementing bill to Congress, the president must send the final legal text of the agreement and a description of how he proposes to implement the agreement. So long before the agreement comes up for a vote, the American people will have plenty of time to read and debate it. . . .

So, question: How can we make trade negotiations more transparent?

Answer: Pass TPA.

On May 8th, a bipartisan collection of former US defense secretaries, including Harold Brown, William S. Cohen, Robert M. Gates, Chuck Hagel, Leon E. Panetta, William J. Perry, Donald H. Rumsfeld along with well-known Generals, such as General David H. Petraeus and General Colin Powell, called for passage of TPA, stating:

We write to express our strongest possible support for the enactment of Trade Promotion Authority legislation, which is critical to the successful conclusion of two vital trade agreements: the . . . TPP . . . and the TTIP.

While the economic benefits of both these agreements would be substantial, as former Secretaries of Defense and military leaders we believe there is an equally compelling strategic rationale for TPP and TTIP.

First and foremost, the conclusion of these agreements would be a powerful symbol of continued U.S. leadership and engagement globally. They would reinforce relationships with important allies and partners in critical regions of the world. 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 both Asia-Pacific and the Atlantic, our allies and partners would question our commitments, doubt our resolve, and inevitably look to other partners. America’s prestige, influence, and leadership are on the line. With TPP originating in the Bush administration, these agreements are fundamentally bipartisan in nature and squarely in our national security interest. It is vitally important that we seize the new strategic opportunities these agreements offer our nation.

Despite criticism from fellow Democrats, on May 8, 2015, President Obama responded to the Democratic critics of the TPA bill at Nike’s headquarters in Oregon, home state for Senator Ron Wyden, stating:

“Vietnam would actually for the first time have to raise its labor standards. It would have to set a minimum wage. It would have to pass safe workplace laws to protect its workers. It would even have to protect workers’ freedom to form unions for the very first time. That would make a difference.”

On May 22, 2015, just prior to the passage of the TPA, on the Senate Floor Senator Orrin Hatch, in the attached speech, HATCH SPEECH ON CURRENCY MANIPULATION responded to the attempt to amend the TPA bill and add the Currency Amendment of Senators Portman and Stabenow.  Senator Hatch stated in part:

Mr. President, I want to take some time today to talk about proposals to include a currency manipulation negotiating objective in trade negotiations and the impact this issue is having on the debate over renewing Trade Promotion Authority, or TPA.

Currency manipulation has, for many, become the primary issue in the TPA debate. . . .However, I want to be as plain as I can be on this issue: While currency manipulation is an important issue, it is inappropriate and counterproductive to try to solve this problem solely through free trade agreements.

Nonetheless, I do not believe we should ignore currency manipulation, which is why, for the very first time, our TPA bill would elevate currency practices to a principal negotiation objective. This is important. It means that, if the administration fails to make progress in achieving this or any other objectives laid out in the bill, then the relevant trade agreement is subject to a procedural disapproval resolution . . . .

Of course, I understand that a number of my colleagues want to see more prescriptive language, which would limit the range of tools available and require that trade sanctions be used to keep monetary policies in line. . . .

But, first, I think we need to step back and take a look at the big picture. I think I can boil this very complicated issue down to a single point: The Portman-Stabenow Amendment will kill TPA.

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

Yesterday, I received a letter from Treasury Secretary Lew outlining the Obama Administration’s opposition to this amendment. The letter addresses a number of issues, some which I’ll discuss later. But, most importantly, at the end of the letter, Secretary Lew stated very plainly that he would recommend that the President veto a TPA bill that included this amendment.

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

at this point, it is difficult – very difficult, in fact – for anyone in this chamber to claim that they support TPA and still vote in favor of the Portman-Stabenow Amendment. The two, as of yesterday, have officially become mutually exclusive. . . .

But, regardless of what you think of Secretary Lew’s letter, the Portman-Stabenow Amendment raises enough substantive policy concerns to warrant opposition on its own. Offhand, I can think of four separate consequences that we’d run into if the Senate were to adopt this amendment, and all of them would have a negative impact on U.S. economic interests.

First, the Portman-Stabenow negotiating objective would put the TPP, agreement at grave risk, meaning that our farmers, ranchers, and manufactures – not to mention the workers they employ – would not get access to these important foreign markets, resulting in fewer good, high-paying jobs for American workers.

We know this is the case, Mr. President. Virtually all of our major negotiating partners, most notably Japan, have already made clear that they will not agree to an enforceable provisions like the one required by the Portman-Stabenow Amendment. No country that I am aware of, including the United States, has ever shown the willingness to have their monetary policies subject to potential trade sanctions. Adopting this amendment will have, at best, an immediate chilling effect on the TPP negotiations, and, at worst, it will stop them in their tracks.

If you don’t believe me, then take a look at the letter we received from 26 leading food and agriculture organizations . . . urging Congress to reject the Portman-Stabenow amendment because it will, in their words, “most likely kill the TPP negotiations” Put simply, not only will this amendment kill TPA, it will very likely kill TPP as well.

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

Requiring the inclusion of enforceable rules on currency manipulation and subsequent trade sanctions in our free trade agreements would provide other countries with a template for targeting U.S. monetary policies, subjecting our own agencies and policies to trade disputes and adjudication in international trade tribunals. We have already heard accusations in international commentaries by foreign finance ministers and central bankers that our own Fed has manipulated the value of the dollar to gain trade advantage.

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

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

While we may not agree with those allegations, the point is that, under the Portman-Stabenow formulation, judgments and verdicts on our policies will be taken out of our hands and, rather, can be rendered by international trade tribunals. . . .

Put simply, we cannot enforce rules against unfair exchange rate practices if we do not have information about them. Under the Portman-Stabenow Amendment, our trading partners are far more likely to engage in interventions in the shadows, hiding from detection out of fear that they could end up being subjected to trade sanctions.

Mr. President, for these reasons and others, the Portman-Stabenow Amendment is the wrong approach. Still, I do recognize that currency manipulation is a legitimate concern, and one that we need to address in a serious, thoughtful way.

Toward that end, Senator Wyden and I have filed an amendment that would expand on the currency negotiating objective that is already in the TPA bill to give our country more tools to address currency manipulation without the problems and risks that would come part and parcel with the Portman-Stabenow Amendment. . . .

TRADE ADJUSTMENT ASSITANCE PROGRAM—REAUTHORIZATION

As stated in my last blog posts, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which has been cut to $12.5 million nationwide. The TAA Bill, which is attached to the TPA bill, in the Senate brings the TAA for Firms program back to $16 million. In the House, however, TAA has been cut to $12.5 million. So the question is what happens in the Conference Committee?

To summarize the history, at the end of 2014, because of the efforts of Senator Sherrod Brown and Congressmen Adam Smith, Derek Kilmer and Sander Levin in the House, the TAA for Firms/Companies program was reauthorized in the Cromnibus Bill, which went through the Senate and the House and was signed into law by President Obama. Although Senator Brown advocated that the assistance for US companies in the TAA for Firms program be increased to $50 million, in fact, the program was cut from $16 million to $12.5M.

As the TPP, TTIP and other trade agreements come into force changing the US market by government action with the force of a government tsunami, TAA for firms/companies is the only program that will give companies the tools they need to adjust to increased trade/import competition from so many different countries.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On May 21, 2015, the Commerce Department announced 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 the attached final rule, FINAL COMMERCE RULE, 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

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. Some of those provisions include tough enforcement provisions for evasion of US antidumping and countervailing duty laws. The question, however, is whether these changes will ever become law because the Bill has to pass the House and then go to Conference Committee.

PRODUCTS LIABILITY AND TRADE—HOW CHINESE ACTIONS CAN DESTROY LARGE US IMPORT COMPANIES/RETAILERS

Quality problems with Chinese imported products can hit US import companies and retailers like a trade tsunami, potentially driving large US companies out of business. Nothing illustrates this problem better than the major issues facing Lumber Liquidators because of imports of low quality, high formaldehyde laminate flooring from China.

Lumber Liquidators Inc. has been hit with close to a hundred class action complaints for products liability, consumer actions and even securities cases because of its sale of formaldehyde-laden Chinese flooring. The Actions accuse Lumber Liquidators of defrauding US consumers by falsely stating that its Laminate Flooring meet state emissions standards for the toxic Formaldehyde chemical.

The Complaints allege that Lumber Liquidators routinely sells Chinese-made flooring that greatly exceeds California and other State Air Resource Board standards for safe formaldehyde emissions. Yet Lumber Liquidators advertises on its website and elsewhere that it ensures all of its suppliers comply with California’s “advanced environmental requirements,” even for products sold in other states.

These Actions have originated from a 60 Minutes program, a well-known nationwide news investigative program, which revealed that independent testing of dozens of boxes of Chinese flooring from Lumber Liquidators stores in four states, revealed that all but one of the samples surpassed the California Formaldehyde limit and some went more than 13 times beyond the mark. This 60 Minutes New Report led to the filing of dozens of lawsuits against Lumber Liquidators under Products Liability law and consumer protection/false advertising law. Reportedly the number of complaints is now over one hundred.

Meanwhile, in Sept. 2013, the U.S. Fish and Wildlife Service and the U.S. Department of Homeland Security’s Immigration and Customs Enforcement service carried out a search warrant at Lumber Liquidator’s corporate offices in Richmond, Virginia.  Multiple media reports have reported that the raid was linked to wood suspected of having originated from the Siberian tiger’s habitat.

On March 25, 2015, the U.S. Consumer Protection Safety Commission (“CSPC”) announced that it was investigating the formaldehyde content of Chinese laminate tile flooring imported by Lumber Liquidators Inc. following the 60 Minutes investigation. In a 2013 report, the CPSC said formaldehyde has been linked to cancer in humans and lab animals but added that some people are more susceptible to the chemical effects than others. In response to the announcement, Lumber Liquidators reported that it was cooperating with other agencies, including the U.S. Environmental Protection Agency, Centers for Disease Control, Federal Trade Commission and others.

On April 29th, Lumber Liquidators announced that in addition to the more than 100 class action cases filed against it, the US Justice Department (“DOJ”) will seek criminal charges against Lumber Liquidators for violating a conservation law in connection with imported wood flooring products. Specifically the DOJ stated that it is seeking criminal charges under the Lacey Act, a conservation law that prohibits import of products made from illegally logged woods.

With all the class action cases, earnings fell, which resulted in a Securities Class Action against Lumber Liquidators by stock investors alleging securities fraud, arguing that its record-high profits were based on creative “sourcing initiatives” when in fact they came from illegal wood harvesting and the sale of cheap formaldehyde laced floors. The company and its entire board of directors were named as defendants in the April 15 derivative complaint by Amalgamated Bank, the trustee for an index fund that has invested in Lumber Liquidators stock. See actual complaint below.

Specifically, the securities complaint alleged that Lumber Liquidators reported gross margins that were significantly higher than those of its major competitors, Home Depot and Lowe’s Companies Inc., because partnerships in China allowed it to cut out middlemen and work directly with suppliers. In reality, the company was buying engineered and laminate flooring manufactured in China that contained and emitted dangerously high and illegal levels of formaldehyde, as well as wood that had been illegally harvested from protected forests in the Russia, home to the critically endangered Siberian tiger and Far East leopard.

According to the suit, the directors breached their duties to shareholders by failing to prevent possible violations of environmental and consumer protection laws and by failing to disclose the illicit practices in public U.S. Securities and Exchange Commission filings. As the Complaint states at paragraph 14:

“Moreover, as a result of defendants’ breaches of their fiduciary duties, the Company is now subject to several complex and expensive securities class action lawsuits alleging violations of the CARB Regulations; the Lacey Act; the Racketeer Influenced & Corrupt Organizations Act (“RICO”); the Magnuson -Moss Warranty Act; breach of express and implied warranties; violation of Consumer Protection/Deceptive Practices acts; unjust enrichment; and lawsuits alleging violations of California’s Proposition 65. On March 10, 2015, The New York Times reported that the Attorney General of New York, Eric T. Schneiderman, had opened an inquiry into whether the Company violated safety standards and that officials in California are also likely to investigate.”

According to paragraph 17 of the complaint,

“Although Lumber Liquidators has been severely injured, defendants [Board Members] have not fared nearly so badly. During the relevant time period, defendants collectively pocketed millions in salaries, fees, stock options, illicit insider trading profits and other payments that were not justified in light of the violations of state and federal law at Lumber Liquidators that occurred on their watch. . . .”

According to the shareholders, the scandals have exposed Lumber Liquidators to “millions of dollars in potential liability” from various investigators and allegedly wiped out more than $1.2 billion in shareholder equity. As further stated in paragraph 116 of the complaint:

“Moreover, these actions have irreparably damaged Lumber Liquidators’ ‘environmentally conscientious’ corporate image. For at least the foreseeable future, Lumber Liquidators will suffer from what is known as the ‘liar’s discount,’ a term applied to the stocks of companies that have been implicated in improper behavior and have misled the investing public, such that Lumber Liquidators’ ability to raise equity capital or debt on favorable terms in the future is now impaired.”

The Complaint also details the allegations against Lumber Liquidator’s Chinese suppliers at paragraphs 82-96, stating in part in paragraph 98:

Moreover, defendants were fully aware of the risks of importing wood from China-a country often associated with the export of wood products with excess formaldehyde levels and illegally sourced timber. For example, in February 2012, the leading Chinese hardwood flooring company, Anxin Weiguang Flooring, was forced to pull its wood flooring products from shelves pending an investigation by Shanghai’s Bureau of Supervision, Inspection and Quarantine because of claims that the flooring emitted excessive levels of formaldehyde. One study, entitled “Formaldehyde in China: Production, consumption, exposure levels, and health effects,” 35 Environment Int’l (Nov. 2009), found that over the last 20 years, China’s formaldehyde industry has experienced unprecedented growth, and now produces and consumes one-third of the world’s formaldehyde. More than 65% of the Chinese formaldehyde output is used to produce resins which are mainly found in wood products. These are also the major source of indoor air pollution in China. The study documented numerous instances of hazardous occupational exposure to formaldehyde in Chinese wood workers.

On May 7, 2015, Lumber Liquidators announced that it was suspending sales of laminate flooring from China that prosecutors and consumers have alleged contain toxic levels of the building chemical formaldehyde, and will conduct a review of its suppliers who had labeled the product as meeting California’s limits for the carcinogenic chemical. Lumber Liquidators also hired former Federal Bureau of Investigation director Louis Freeh’s consulting firm to advise it on compliance issues.

On May 21, 2015, Lumber Liquidators announced that its CEO Robert M. Lynch has resigned “unexpectedly”.

The Lumber Liquidators problems illustrate the importance of quality control of Chinese products and how actions in China can seriously damage, if not destroy, their US customers, well-known US companies and brands.

SOME OF THE LUMBER LIQUIDATOR COMPLAINTS

False Advertising and Consumer Protection

On March 6, 2015 Sara Latta filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. LATTALL

On March 9, 2015, Jerry Green and Twala Scott filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. GREEN LL

On March 12, 2015, Mary Kleinsasser filed the attached class action case against Lumber Liquidators for false advertising and consumer protection violations. KLEINASSERLL

On March 12, 2015, Adam White and Julia White a class action case against Lumber Liquidators for false advertising and consumer protection violations. WHITE LUMBER

On March 27, 2015, Thomas P. Phelan filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. PHELAN LUMBER LIQUIDATORS

On March 27, 2015, James Silverthorn filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. SILVERTHORN LUMBER

SECURITIES CASES AGAINST LUMBER LIQUIDATORS

On April 15, 2015, Amalgamated Bank filed the attached shareholder derivative complaint for breach of fiduciary duty, corporate waste and unjust enrichment against Lumber Liquidators and its directors and officer. AMALGAMATED BANK LUMBER LIQUIDATORS CASE

IP/PATENT AND 337 CASES

CAFC MAKES DOMESTIC INDUSTRY AN ISSUE IN 337 CASES

Under section 337, owners of US patents, trademarks and copyrights can filed a case against infringing imports. After a year-long proceeding before an Administrative Law Judge and the ITC itself, if the Commission finds that these unfair imports have injured a US industry, it can issue an exclusion order and the infringing imports will be kept out at the border.

On May 11, 2015 in the attached decision, Lelo Inc, v, International Trade Commission, CAFC LELO DOMESTIC INDUSTRY, the Court of Appeals for the Federal Circuit (“CAFC”) increased the domestic industry standard, reversing the ITC and determining that there was no domestic industry in a section 337 case, stating:

In Certain Kinesiotherapy Devices and Components Thereof, Inv. No. 337-TA-823, Initial Determination at 50 (Jan. 8, 2013) (“Initial Determination”), “the Administrative Law Judge determined initially that the domestic industry requirement had not been met because the ALJ rejected Plaintiff’s arguments that its U.S. purchase of the four components constituted a “significant investment in plant and equipment,” or a “substantial investment in its exploitation, including engineering, research and development, or licensing,” under prongs (A) and (C), respectively, of the § 337 domestic industry requirement.”

Specifically, the ALJ concluded that Standard Innovation’s U.S. purchases were not relevant to a prong (A) analysis because Standard Innovation failed to establish what portion, if any, the purchase price actually contributed towards a domestic investment in plant or equipment. . . . The ALJ also decided that the components were off-the-shelf items and not relevant to prong (C) because there was no proof that the components were developed specifically for Standard Innovation’s devices, or what portion, if any, of the purchase price was allocable to research and development costs incurred in the development of the components.

Further, the ALJ determined that even if the purchases were relevant, they were neither “substantial” nor “significant” under prongs (A) or (C). . . . . The total purchase prices accounted for less than five percent of the total raw cost of the devices.

The CAFC went on to state:

The Commission, however, reversed the ALJ’s domestic industry determination, finding that “Standard Innovation has satisfied the domestic industry requirement based on its expenditures on components produced domestically that are critical to [its devices].” . . .The Commission rejected the ALJ’s economic prong analysis because Standard Innovation “established that the components were critical for [its devices], which the ALJ found to be protected by the patent. This is sufficient for us to consider the component expenses in our economic prong analysis.”

The CAFC found:

The Commission determined that Standard Innovation’s investment and employment under prongs (A) and (B) were quantitatively “modest,” . . ., which we take to mean “insignificant.” The Commission also found that Standard Innovation did not establish prong (C). . . . We agree with the Commission’s finding that investment and employment under prongs (A) and (B) were modest and insignificant. The Commission erred when it disregarded the quantitative data to reach its domestic industry finding based on qualitative factors. Qualitative factors cannot compensate for quantitative data that indicate insignificant investment and employment. As such, Standard Innovation did not establish a “significant” “investment” or “employment” under prongs (A) or (B), and did not set forth evidence of relevant investments under prong (C). Accordingly, Standard Innovation did not satisfy the domestic industry requirement of § 337.

The CAFC then determined:

We hold that qualitative factors alone are insufficient to show “significant investment in plant and equipment” and “significant employment of labor or capital” under prongs (A) and (B) of the § 337 domestic industry requirements. The purchase of so called “crucial” components from third-party U.S. suppliers are insufficient to satisfy the “significant investment” or “significant employment of labor or capital” criteria of § 337 where there is an absence of evidence that connects the cost of the components to an increase of investment or employment in the United States.

NEW 337 COMPLAINTS

On April 30, 2015, Pacific Bioscience Laboratories, Inc. filed a new section 337 case at the ITC against imports of Electric Skin Care Devices, Brushes, Chargers and Kits Containing Same from the follow companies:

Our Family Jewels, Inc. d/b/a Epipur Skincare, Parker, CO; Accord Media, LLC d/b/a Truth in Aging, New York, NY; Xnovi Electronic Co., Ltd., China; Michael Todd True Organics LP. Port St. Lucie, FL; Mtto LLC, Fort St. Lucie, FL; Shanghai Anzikang Electronic Co., Ltd., China; Nutra-Luxe M.D., LLC, Fort Myers, FL; Beauty Tech, Inc., Coral Gables, FL; Anex Corporation, Korea; RN Ventures Ltd., United Kingdom; Korean Beauty Co., Ltd., Korea; H2Pro Beautylife, Inc., Placentia, CA; Serious Skin Care, Inc., Carson City, NV; Home Skinovations Inc., Canada; Home Skinovations Ltd., Israel; Wenzhou AI ER Electrical Technology Co., Ltd. d/b/a Cnaier, China; Coreana Cosmetics Co., Ltd., Korea; and Flageoli Classic Limited, Las Vegas, NV

PATENT AND OTHER INTELLECTUAL PROPERTY CASES

SIX CHINESE CITIZENS CHARGED WITH ECONOMIC ESPIONAGE

On May 19, 2015, the US Justice Department announced that it has indicted six Chinese individuals for economic espionage. The Justice Department stated in the attached announcement, DOJ CHINA PROFESSORS:

Chinese Professors Among Six Defendants Charged with Economic Espionage and Theft Of Trade Secrets for Benefit of People’s Republic of China

Chinese Professors Alleged to Have Stolen Valuable Technology from Avago Technologies and Skyworks Solutions to Benefit a PRC University

On May 16, 2015, Tianjin University Professor Hao Zhang was arrested upon entry into the United States from the People’s Republic of China (PRC) in connection with a recent superseding indictment in the Northern District of California . . . .

The 32-count indictment, which had previously been sealed, charges a total of six individuals with economic espionage and theft of trade secrets for their roles in a long-running effort to obtain U.S. trade secrets for the benefit of universities and companies controlled by the PRC government.

“According to the charges in the indictment, the defendants leveraged their access to and knowledge of sensitive U.S. technologies to illegally obtain and share U.S. trade secrets with the PRC for economic advantage,” said Assistant Attorney General Carlin. “Economic espionage imposes great costs on American businesses, weakens the global marketplace and ultimately harms U.S. interests worldwide. The National Security Division will continue to relentlessly identify, pursue and prosecute offenders wherever the evidence leads. . . .

“As today’s case demonstrates, sensitive technology developed by U.S. companies in Silicon Valley and throughout California continues to be vulnerable to coordinated and complex efforts sponsored by foreign governments to steal that technology,” said U.S. Attorney Haag. “Combating economic espionage and trade secret theft remains one of the top priorities of this Office.” . . .

According to the indictment, PRC nationals Wei Pang and Hao Zhang met at a U.S. university in Southern California during their doctoral studies in electrical engineering. While there, Pang and Zhang conducted research and development on thin-film bulk acoustic resonator (FBAR) technology under funding from U.S. Defense Advanced Research Projects Agency (DARPA). After earning their doctorate in approximately 2005, Pang accepted employment as an FBAR engineer with Avago Technologies (Avago) in Colorado and Zhang accepted employment as an FBAR engineer with Skyworks Solutions Inc. (Skyworks) in Massachusetts. The stolen trade secrets alleged in the indictment belong to Avago or Skyworks.

Avago is a designer, developer and global supplier of FBAR technology, which is a specific type of radio frequency (RF) filter.

Throughout Zhang’s employment, Skyworks was also a designer and developer of FBAR technology. FBAR technology is primarily used in mobile devices like cellular telephones, tablets and GPS devices. FBAR technology filters incoming and outgoing wireless signals so that a user only receives and transmits the specific communications intended by the user. Apart from consumer applications, FBAR technology has numerous applications for a variety of military and defense communications technologies.

According to the indictment, in 2006 and 2007, Pang, Zhang and other co-conspirators prepared a business plan and began soliciting PRC universities and others, seeking opportunities to start manufacturing FBAR technology in China. Through efforts outlined in the superseding indictment, Pang, Zhang and others established relationships with officials from Tianjin University. Tianjin University is a leading PRC Ministry of Education University located in the PRC and one of the oldest universities in China.

As set forth in the indictment, in 2008, officials from Tianjin University flew to San Jose, California, to meet with Pang, Zhang and other co-conspirators. Shortly thereafter, Tianjin University agreed to support Pang, Zhang and others in establishing an FBAR fabrication facility in the PRC. Pang and Zhang continued to work for Avago and Skyworks in close coordination with Tianjin University. In mid-2009, both Pang and Zhang simultaneously resigned from the U.S. companies and accepted positions as full professors at Tianjin University. Tianjin University later formed a joint venture with Pang, Zhang and others under the company name ROFS Microsystem intending to mass produce FBARs.

The indictment alleges that Pang, Zhang and other co-conspirators stole recipes, source code, specifications, presentations, design layouts and other documents marked as confidential and proprietary from the victim companies and shared the information with one another and with individuals working for Tianjin University.

The six indicted defendants include: Tianjin University Professor Hao Zhang, Professor Wei Pang, Professor Jinping Chen, Huisui Zhang (Huisui), and Chong Zhou, a Tianjin University graduate student, and Zhao Gang, the General Manager of ROFS Microsystems.

The maximum statutory penalty for each one of these violations is more than 10 years imprisonment and 100s of thousands of dollars in fines. The case is USA v. Wei Pang.

On May 21, 2015, Tianjin University denied the charges against the three professors, pledged legal support to the professors and accused U.S. officials of “politicizing” the issue and endangering academic exchanges between the two countries.

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

Complaints are attached to each citation.

On February 13, 2015, e.Digital Corporation filed the attached patent case against Shenzhen Gospell Smarthome Electronic Co., Ltd. (dba Oco Camera); Ivideon LLC (dba Oco Camera); Global Innovations; and, New Sight Devices Corp. SHENZHEN GOSPELL

On February 17, 2015, Parthenon Unified Memory Architecture LLC filed a patent complaint against ZTE. PARTHENON ZTE COMPLAINT

On February 27, 2015, Innovation Works, Inc. filed a trademark case against Innovation Works (Beijing) Ltd., IW North America. INNOV BEIJING

On March 2, 2015, Optis Wireless Technology LLC et al filed a patent case against ZTE Corporation et al. OPTIS ZTE

On March 2, 2015, Skyworks Solutions, Inc. filed a patent complaint against Kinetic Technologies, Kinetic Technologies Hong Kong and China. SKYWORKSKIN

On March 4, 2015, Petmatrix LLC filed a patent complaint against Wenzhou Yuxiang Pet Product Co., Ltd. WENZHOU PATENT CASE

On March 5, 2015, Magnet Products International Group filed a trade secrets fraud case against Maghold LLC, Mary Zhang, and Dongguan Maghard Flexible Magnet Co, and Xiaodong Wang. MAGNET TRADE

On March 9, 2015, Orlando Communications LLC filed a patent case against ZTE Corp., et al. ZTE ORLANDO

On March 10, 2015, Saint Lawrence Communications filed a patent complaint against ZTE.  STLAWRENCE ZTE

On March 12, 2015, Anki Inc. filed a patent case against China Industries Ltd T?A Wow Stuff. ANKI CHINA INDUSTRIES

On March 13, 2015, China Central Television, Dish Network LLC et al filed a copyright and trademark case against Create New Technology (HK) Ltd., Hua Yang International Technology Ltd., Shenzhen GreatVision Network Technology Co., Ltd., Club TVPAD, Inc., Bennet Wong, Asha Media Group Inc. d/b/a TVPAD.com, Amit Bhalla, NewTVPad Ltd., Liangzhong Zhou, and Honghui Chen.  CCTV

On March 18, 2015, Lilith Games (Shanghai) Co., Ltd. filed a copyright case against uCool, Inc. and uCool Ltd. LILLITH GAMES SHANGHAI

On March 24, 2015, Wetro Lan filed a patent complaint against Huawei. HUAWEI PATENT COMPLAINT

On March 25, 2015, Streamlight Inc. filed a patent complaint Ningbo Highlite Technical Co., Ltd. NINGBO PATENT

On March 26, 2015, Tianhai Lace, a Chinese company, filed a copyright case against Posh Shop, a US company. TIANHAI COPYRIGHT

On April 1, 2015, Crafty Productions, Inc. et al filed a copyright and fraud case against Fuqing Sanxing Crafts Co. Ltd., a China company, Tony Zhu, MRF Associates, Inc., Michelle Faherty, The Michaels Companies, Inc., Michaels Stores, Inc., ZheJiang HongYe Co. Ltd., a China company, Fuzhou Bomy Trading Co., Ltd., a China company, Fuzhou Great Suns Co. Ltd., a China company, Sunface Crafts Co. Ltd., a China company, and a number of other US retail companies. CRAFTY COPYRIGHT

On April 2, 2015, Trans-Texas Tire, LLC filed an unfair competition and breach of contract case for unfair misappropriation of molds against Tianjin Wanda Tyre Group Co., Ltd, and Zhang Guanghhui and Li Xue Yong. TIRE MOLDS UNFAIR COMPETITION

On April 6, 2015, Express Mobile filed a patent case against Alibaba Group Holding Ltd. ALIBABA EXPRESS

On April 9, 2015, Nonend Inventions, N. V. filed patent complaints against Huawei and ZTE and multiple other high tech clients. NONENDZTE NONENDHUAWEI

On April 17, 2015, Synaptics Inc. filed a patent case against Goodix Technology Inc., Shenzhen Huiding Technology Co., Ltd. a/k/a Shenzhen Goodix Technology Co., Ltd. and Blu Products, Inc. SHENZHEN PATENT

On April 24, 2015 Nova Intellectual Solutions LLC filed a patent complaint against ZTE. NOVA ZTE CASE

On April 30, 2015, Cellular Communications Equipment LLC filed a patent case against ZTE Corp and a number of other companies. CELL ZTE

On May 1, 2015, Pacific Bioscience Laboratories, Inc. filed patent complaints against Wenzhou Ai ER Electrical Technology Co., Ltd. dba Cnaier and Shanghai Anzikang Electric Co., Ltd. PACIFIC BIO WENZHOU PACIFIC BIOSCIENCE

On May 4, 2015, Ti Beverage Group, Ltd. and Michael Machat filed a trademark infringement case against Alibaba Group Holding Ltd., and Ebay Inc. TIBEV ALIBABA

On May 4, 2015, Anthony California, Inc, filed a copyright and trade secret case against Fire Power Co., Ltd., New Bright Jet Lighting (Shenzhen) Co., Ltd., Interest Plus Investments Ltd., Chien Tsai Tsai, Chien Ho Tsia, James Moran and M&M Sales, and Direct Lighting LLC. CHINA SHEN NEW BRIGHT

On May 8, 2015, Frequency Systems, LLC filed patent complaints against Huawei and ZTE. ZTE FREQ HUAEWEI AGAIN

On May 12, 2015, Nuhertz Technologies, LLC filed a copyright and trademark case for software piracy against Alibaba Group Holding Ltd., Alibaba.Com Hong Kong Ltd., Alibaba. Com Ltd., Alibaba.Com Investment Holding Ltd., Other Alibaba Companies, Taobao Holding Ltd., Taobao China Holding Ltd., Taobao (China) Software Co., Ltd., and Alipay.Com Co., Ltd. NUEHERTZ ALIBABA

On May 15, 2015, Gucci filed a major trademark and counterfeiting case against Alibaba. Specifically, on May 15, 2015, Gucci America, Inc., Balenciaga S.A., Balenciaga America, Inc., Bottega Veneta S.A., Bottega Veneta Inc., Yves Saint Laurent America, Inc. Luxury Goods International (L.G.I.) S.A. and Kering S.A. filed the trademark and counterfeiting case against Alibaba Group Holding Ltd., Alibaba.Com Hong Kong Ltd., Alibaba. Com Ltd., Alibaba.Com Investment Holding Ltd., Other Alibaba Companies, Taobao Holding Ltd., Taobao China Holding Ltd., Taobao (China) Software Co., Ltd., and Alipay.Com Co., Ltd. GUCCI ALIBABA

Complaints will be posted on my blog, www.uschinatradewar.com.

ANTITRUST

There have been major developments in the antitrust area in China.

CHINA ANTI-MONOPOLY CASES

DORSEY ARTICLE BY PETER CORNE

Peter Corne, who heads Dorsey’s Shanghai office, published the following article on March 13, 2015 about China’s antimonopoly law:

NDRC’s Qualcomm Decision Sends Mixed Messages

Chinese New Year celebrations culminated in a big way for foreign multinationals in China with the news at the end of February that the head of the National Development and Reform Commission’s (“NDRC’s”) Antitrust Bureau had been removed. Xu Kunlin had made his name by initiating numerous investigations against sectors involving multinationals such as auto parts and bearings, cars, and contact lenses. Former Director Xu (who is still director of the NDRC’s Price Department) was widely regarded as a fine leader, and his Antitrust Bureau hit monopolies with hefty penalties of RMB 7.9 Billion (US$1.29 Billion) from 2014 through February 10, the date the Qualcomm decision was announced as discussed below. He has been replaced by Zhang Handong (former deputy director of the Healthcare Reform Office under the State Council), whom we presume will take time to settle into his new position. Based on his familiarity with the medical sector, we would caution clients in that sector to continue to pay close attention to antitrust compliance.

The full content of the long-awaited result of the Qualcomm decision was published in early March (following the February 10 announcement of the result). In only three prior cases has the NDRC published the full content of an antitrust decision. Qualcomm was ordered to cease its infringing activities and was assessed a fine of RMB 6.1 billion (US$975 million), which represented about 8% of its 2013 revenue in China. The NDRC found Qualcomm guilty of abuse of market dominance and implementing monopolistic activities that eliminate and restrict competition. The following activities were deemed illegal: (1) charging unfairly excessive patent royalties, (2) tying patents that are not standard-essential patents in the telecom industry without a legitimate reason, and (3) imposing unreasonable conditions in the sale of baseband chips. During the investigation Qualcomm cooperated with the authorities and raised a series of rectification measures including the following:

(1) calculating patent royalties on the basis of 65% of net wholesale price of the device sold in China,

(2) when Qualcomm licenses its patent to Chinese licensees it will provide a list of patents and not charge royalties over patents that have already expired,

(3) Qualcomm will no longer require that Chinese licensees provide a compulsory (and royalty-free) cross-license for Qualcomm customers,

(4) where wireless standard-essential patents are concerned, Qualcomm will not tie in non-standard-essential patents without a legitimate reason, and

(5) unreasonable conditions will not be included in the license agreements when selling baseband chips, such as conditions prohibiting licensees from challenging the terms in the license agreement.

The Chinese press celebrated the decision as a victory for China. But Qualcomm was not forced to change its business model by the NDRC, so the decision could have been far worse for Qualcomm, reflected in a rise in the stock price of Qualcomm by 4.69% on the second day after the decision was announced.

Qualcomm’s core business model is to impose royalties on the net selling price of the entire device rather than the chips or other components, so it need now only change the calculation of the royalty base rather than the business model itself, leading some commentators to claim that the decision was a victory for Qualcomm.

Although the media claims victory for both sides, many problems seem to have been forgotten. For example, why was a formal investigation only initiated at the end of 2013 when publicly-available information indicates that the first complaint was made as early as 2008 by Texas Instruments? Further, under the Chinese Anti-Monopoly Law a guilty decision requires that illegal gains be confiscated, but this case resulted only in the imposition of a fine.

The NDRC required such a confiscation in the LCD maker case. So if the NDRC agreed that 65% (mentioned above in Qualcomm’s rectification plan) was the correct calculation base, then Qualcomm should at least have been asked to return the portion of royalties calculated on the other 35% (which could amount to billions of dollars). In addition, the law provides that a fine should be charged on the basis of the revenue of the previous year, i.e. 2014, and not 2013, which was used in the decision. Some even questioned the jurisdiction of the NDRC in the first place because, judging from the decision, most of the illegal activities listed were not price-related, indicating that it would have been more appropriate for SAIC to launch the investigation.

On the other hand, Qualcomm dropped its request for a hearing at the last minute, and paid up the fine in only three days. All of the above clues lead us to believe that the decision was the result of a compromise between the investigator and the investigated, in the context of which the investigator somehow lost sight of the fact that it was deviating from the national law. But we have seen this before. For example, in the Liquor Case involving Chinese spirits (Moutai and Wuliangye), the NDRC limited its investigation to provincial level, only in Guizhou and Sichuan.

The moral of the story seems to be to make sure that you proactively engage the authorities up front. It may be best to do so before any investigation is even contemplated. Regardless of the timing, it appears that open engagement during an investigation should lead to a much better result.

ANJIE LAW FIRM

On March 16, 2015, Michael Gu, a Chinese antitrust lawyer at the Anjie Law Firm in Beijing, sent out the attached 014 review of Chinese anti-monopoly law. Public competition enforcement_China 2015_AnJie_20150316.

T&D JANUARY REPORT

On May 2, 2015 T&D also sent us the attached April report on Chinese competition law. T&D Monthly Antitrust Report of April 2015

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

DORSEY MAY ANTI-CORRUPTION DIGEST

Dorsey recently published its attached May anti-corruption digest.  Anti-Corruption-Digest-May2015  With regards to China and Ukraine, the Digest states:

China

China has continued with its ongoing anti-corruption campaign.

In the energy sector, a senior executive at the state energy firm China Sinopec Group is reportedly under investigation for suspected “serious disciplinary violations”, a phrase which has become synonymous with allegations of corruption. China’s Central Commission for Discipline Inspection has reportedly confirmed the investigation but has not disclosed further details about the case. The Chairman of Sinopec, Fu Chengyu, said in an interview with Chinese media that the company supports “the government’s long-term anti-corruption effort, not just cracking down on illegal acts but disciplinary wrongdoings as well”.

In the healthcare sector, it has been reported that the head of Yunnan’s No. 1 People’s hospital is under investigation for allegedly receiving bribes of ¥35 million ($5.6 million/£3.6 million) in cash, 100 properties worth approximately $13 million (£8 million) and a number of car parking spaces. It is alleged that Dr. Wang Tianchao used his position to seek bribes related to medical device procurement and employment positions. Dr. Wang, who was reportedly in the running to become the head of the region’s food and drug regulator, has been removed from his post.

In the retail motor industry, a former top executive at Volkswagen’s joint venture with FAW Group Corporation has been sentenced to life in prison for allegedly accepting bribes. Shi Tao was reportedly convicted of taking ¥33 million ($5 million/£3.2 million) in bribes in exchange for giving business to advertisers and car dealers from FAW-Volkswagen. In a statement, Volkswagen said that it was aware of the case, noting that “globally, Volkswagen is strictly against any kind of illegal conduct, and attaches great importance that all applicable anti-corruption laws are adhered to”.

In its global efforts to trace alleged “economic fugitives”, the Chinese government has published a list of 100 individuals suspected of corruption. The “most wanted” list, which displays the individuals’ photographs, identification numbers and likely whereabouts, is said to be composed of former local government officials, police officers and accountants who are suspected of accepting bribes, misappropriating funds and money laundering.

Ukraine

A new law has been enacted requiring companies to have compliance programs in place. The law applies to most companies participating in public tenders and state-owned enterprises over a certain size and in essence requires companies to appoint a compliance officer with responsibility for implementing the compliance program and reporting to shareholders. The law does not include penalties for failing to implement a compliance program; however companies are encouraged to:

 Conduct regular risk assessments.

 Develop programs to raise employee awareness of anti-corruption.

 Include compliance provisions in contracts with third parties.

Despite the apparent lack of enforcement in place, it is said that officials may consider the establishment of a compliance program when deciding whether to pursue an action against a company.

SECURITIES COMPLAINTS

On February 11, 2015, Claire Rand filed a class action securities case against Alibaba Group Holding Ltd., Jack Yun Ma, Joseph C. Tsai, Jonathan Lu and Maggie Wu. RANDALIBABA

On March 3, 2015, the SEC filed a securities case against China Infrastructure Investment Corp., Li Xipeng and Wang Feng. SEC CHINA INFRASTRUCTURE

On March 13, 2015, Felipe Garcia filed a class action securities case against Lentuo International, Inc, Hetong Guo, Jing Yang and Yang Jiangyuluo. GARCIA LENTUO

On March 24, 2015, Placidius Silva filed a class action securities case against Alibaba Group Holding Ltd., Jack Yun Ma, Joseph C. Tsai, Jonathan Lu and Maggie Wu. ALIBABA PLACIDUSE

On March 25, 2015 Qiang Wang filed a class action securities case against Yoliku Tudou, Inc., Victor Wind, Chelfng Koo, and Michael Gexu. WANG YOKOU

On March 26, 2015 Edward Martindale filed a class action securities case against Yoliku Tudou, Inc., Victor Wind, Chelfng Koo, and Michael Gexu. MARTINDALEYOKOU TUDOU

On March 27, 2015, the SEC brought an action against Macquarie Capital (USA), Inc., Aaron Black, and William Fang, the Underwriters of Puda Coal, a Chinese company. SECPUDA COAL

On April 2, 2015, Troy Hung filed a class action securities case against Idreamsky Technology Ltd., Michael Xiangyu Chen, Jun Zou, Anfernee Song Guan, Jeffrey Lyndon, Ko, Steven Xiaoyi Ma, Erhai Liu, Mingyao Wang, David Yuan, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Stifel Nicolas & Company, In Corpora Ted, and Piper Jaffra. HUNGIDREAMY

On April 14, 2015 Rashid Jahm filed a class action securities case against Yoliku Tudou, Inc., Victor Wind, Chelfng Koo, and Michael Gexu. JAHM YOKOU

On April 15, 2015, James Patrick Griffith filed a class action securities case against Idreamsky Technology Ltd., Michael Xiangyu Chen, Jun Zou, Anfernee Song Guan, Jeffrey Lyndon, Ko, Steven Xiaoyi Ma, Erhai Liu, Mingyao Wang, David Yuan, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Stifel Nicolas & Company, In Corpora Ted, and Piper Jaffra. GRIFFITHIDREAM

On April 21, 2015, Francis J. Bonanno filed a class action securities case against Cellular Biomedicine Group, Inc., Wei Cao and Tony Liu. CELLULAR SECURITIES

On April 29, 2015, the SEC filed an insider trading case against two Chinese nationals, Xiaoyu Xia and Yangting Hu. SECHUAXU

On May 5, 2015, Abraham Jeremias, Roger Mariani and Michael Rubin filed a class action securities case against Idreamsky Technology Ltd., Michael Xiangyu Chen, Jun Zou, Anfernee Song Guan, Jeffrey Lyndon, Ko, Steven Xiaoyi Ma, Erhai Liu, Mingyao Wang, David Yuan, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Stifel Nicolas & Company, In Corpora Ted, and Piper Jaffra. JEREMIASIDREAM

On May 8, 2015, Steve Surrey filed a class action securities case against Alibaba Group Holding Ltd., Jack Yun Ma, Joseph C. Tsai, Jonathan Lu, Masayoshi Son, Daniel Young, Chee Hwa Tung, Walter The, Ming Kwauk, J. Michael Evans, and Jerry Yang. SURREY ALIBABA

On May 19, 2015, Paul Heller filed a class action securities case against Vishop Holding Ltd., Ya Shen and Donghao Yang. HELLERVISHOP

If you have any questions about these cases or about the trade politics, US trade law, 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–DEFAULT DANGERS, TRANS PACIFIC PARTNERSHIP IN JEOPARDY, TRADE, CUSTOMS ANTITRUST AND SECURITIES

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER

Dear Friends,

There have been some major developments in litigation, including dangers of default judgments, trade, Solar Cells, Chinese Antidumping, patents, US/Chinese antitrust, and securities areas.

January was a very important month for US Trade Policy because of the problems with the Trade Promotion Authority/Fast Track Trade Bill and the Trans Pacific Partnership (“TPP”) and Trans- Atlantic (“TA”) Trade Agreements in Congress.  Literally there have been day to day developments culminating with President Obama’s January 28th State of the Union address followed by the January 29th decision of Senate Majority leader Harry Reid to oppose the Trade Promotion Authority (“TPA”) Bill and the TPP and TA Negotiations.

As described below, Senator Reid’s decision to not allow the TPA bill to be introduced in the Senate may be the day free trade died.  If Senator Reid’s decision becomes final, this will have a dramatic impact on all trade relations, including trade relations with China, as the United States becomes more and more protectionist.

US LITIGATION AGAINST CHINESE COMPANIES—DANGERS OF DEFAULT

Recently through a Chinese law firm a Chinese company approached us because they were facing a US trademark case brought by a competitor in the United States.  The company’s question, why respond?  We are a Chinese company and you cannot catch us and make us pay damages in the United States.

We pointed out that the trademark case in question is a tough case for the Plaintiffs to prove because the trademarks in question are not registered marks and are common law marks.  If the Chinese company fights the case, it would have a good chance of winning the case.  But if the Chinese company defaults, it loses the right to contest the merits of the case.

In antidumping and countervailing duty cases, Chinese companies with US import operations have also told us, “Don’t worry.  We will never pay antidumping and countervailing duties; they cannot catch us in China.”  The times, however, are changing.

In many US cases against Chinese companies in Federal District Court, Plaintiffs are asking for damages, an injunction and punitive damages.  If the Chinese company wants to sell its products in the United States again, it has to fight.  If it does not fight, when the Chinese company sells its products in the United States, those products, including all inventory and accounts receivable, can be attached to satisfy the judgment.

Moreover, when a default judgment is for money damages, the US company is seeking to collect actual damages, interest from the date of the judgment or before, statutory damages, possibly punitive damages and attorney’s fees, which eventually will total millions of dollars.  If the Chinese company has a strong legal argument against the US Plaintiff, when it defaults, the Chinese company loses the right to make those legal arguments.

Moreover, this is no longer the 1990s or even early 2,000s.  Over the last two decades, Chinese companies have grown up and have bank accounts and assets/money and subsidiaries all over the world.  But that means it is easier for US judgment holders to collect money on their default judgments against Chinese companies.

If the Chinese company continues to do business in the US in the face of a default judgment, Plaintiffs can attach the company’s assets.  U.S. Marshalls can show up at a U.S. trade show and take all the company’s trade show materials to satisfy the judgment.  US Marshalls can go to warehouses where the company stores its products and take them.  US plaintiffs can go after the Chinese company’s accounts receivable.  The US Plaintiffs and their US lawyers can attach or garnish the Chinese company’s bank accounts–in the U.S., Hong Kong, the EC, Taiwan and countries all over the World where US judgments are enforceable and also now in China itself.

If the Chinese company banks with a Chinese bank that has a branch in the U.S., such as New York, Plaintiffs will garnish that branch bank and go after the China company’s  assets/bank accounts located in any of the bank’s other branches, wherever located, including China.

In 2010 a US inventor sued Chinese tire companies in Shandong Province for patent infringement and unfair competition in a Federal District Court in Virginia.  The Chinese companies did not fight the case and the Federal District Court entered a default judgment for $26 million.

In September 2013, in the attached complaint TIRES COLLECTION CASE the US law firm and inventor sued the Chinese Industrial and Commercial Bank Branch in New York City, saying give the US Plaintiffs the records and assets of these companies in China to satisfy the US $26 million judgment.  If the Chinese bank branch refuses to pay, the Bank could face fines of $100,000 a day, as an example.

Under the Single Entity Doctrine, US Federal Courts have held that if the Court has jurisdiction over the Chinese bank branch, it has jurisdiction over the bank worldwide.  If a Chinese company has any bank accounts in Chinese banks, such as the Bank of China or the Industrial and Commerce Bank, those banks have branches in New York City and the Chinese company can be attacked through its bank.  We are presently representing a Chinese Bank in a similar case and have 30 lawyers working full time on the case in Guangzhou on discovery.

The point is that Chinese companies can run, but they cannot hide.  If a Chinese company defaults in US litigation, it can be attacked in the US, Hong Kong, Taiwan, EC, Canada and many other countries, and now China through Chinese bank branches in the US.  So when a Chinese company defaults in US litigation, it puts the entire company at risk.

On the other hand, if the Chinese company decides to fight the case and hire a US lawyer, it may be able to pay a small amount of money as compensation or simply change its product or trade dress slightly and settle the entire case.  In many cases, if the Chinese company fights, it may be able to win the entire case and in certain situations get money from the US company bringing the case.

Ignoring US litigation is like picking up the sesame and losing the watermelon.  If the Chinese company does business in the United States and intends to continue to do business in the United States, trying to avoid service or defaulting after service may materially damage its business.  It will certainly materially damage its ability to do business in the United States.  The costs of default may be significant and far greater than that which would be necessary to defend against the US lawsuit.

TRADE

TRADE NEGOTIATIONS—TPP AND BALI/DOHA ROUND

As mentioned in my past newsletter, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA) negotiations with the EC.  Experts have estimated that TPP and TA Agreements could increase global business by several trillion dollars, if they can be concluded and implemented. These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

This is particularly a problem because the protectionism is coming from the Democratic side of the aisle.  Democratic Senators and Congressmen are supported by labor unions.  Although companies see the substantial increase in business from the TPP and TA Trade Agreements, unions only see a loss of US manufacturing jobs.  To date, President Obama cannot get one Democratic Congressman to support Trade Promotion Authority (“TPA”) in Congress.  Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the mid-term elections as soft on trade.

This rising protectionism in Congress directly threatens the TPP and all future trade deals with China and many other countries.

TPP NEGOTIATIONS MAY END AS SENATOR MAJORITY LEADER HARRY REID REFUSES TO LET THE TPA BILL GET TO THE SENATE FLOOR

As the Doha Round chances went up, the chance of TPP and TA Agreements fell down and may have fallen down completely.  As mentioned in my last post, USTR and US government officials were predicting that the TPP negotiations would conclude at the end of the year with an Agreement.  That is not going to happen.  The Congressional problems regarding the TPP have grown larger and larger and, in fact, may now be insurmountable.

Although the TPP does not include China, China is the elephant in the room and so its presence is very much in the mind of all the negotiators and the political powers in the United States.  The public reaction to TPP and the TPA, which is needed to conclude the TPP agreement, in part, is a reaction to trade with China and is a reflection of public and political attitudes in the United States to trade with China.

In January the TPP and Trans-Atlantic Agreements have created high drama on Capitol Hill as there have been literally day to day developments.

TRADE PROMOTION AUTHORITY (“TPA”)

On January 9, 2014, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014. HOUSE FAST TRACK BILL The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

In introducing the new Trade Priorities Act, Senator Baucus stated that “This is our opportunity to tell the Administration – and our trading partners – what Congress’ negotiating priorities are.  TPA legislation is critical to a successful trade agenda. It is critical to boosting U.S. exports and creating jobs. And it’s critical to fueling America’s growing economy.”

According to Senator Hatch, “Every President since FDR has sought trade promotion authority from Congress because of the job-creating benefits of trade. Renewing TPA will help advance a robust trade agenda that will help American businesses, workers, farmers and ranchers by giving them greater access to overseas markets.”

The TPA Bill set out a clear directive on currency manipulation, provided greater transparency and gave Congress greater oversight of the Administration’s trade negotiations.

Both Senators Baucus and Hatch and Congressman Camp called TPA a “vital tool” as the U.S. continues TPP negotiations as well as free trade TA agreement talks with the European Union (EU).   The National Association of Manufacturers and the National Retail Federation quickly got behind the proposal and urged Congress to quickly pass it

As mentioned in past posts, however, the Administration considers the TPP negotiations to be secret and has not released any official negotiating texts.  Thus opposition is growing in Congress.  In November 2013, a group of over 170 lawmakers in the House sent letters to the President saying they opposed fast-track authority because modern trade agreements affect so many policies under Congress’ purview, and it should have much larger role in shaping the terms of the Agreements.

Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, stated that he was developing alternative legislation

On January 10th, it was reported that with opposition growing in Congress and the upcoming midterm elections, President Obama was going to have to mount a very serious lobbying effort to move the TPA legislation through Congress.  The proposed TPA legislation has drawn strong opposition from labor unions, including the AFL-CIO, which vowed to “actively work to block its passage,” and also environmental groups like the Sierra Club and consumer advocacy groups like Public Citizen.  Many Congressmen and Senators, especially on the Republican side of the aisle, stated that moving the TPA bill through Congress would require a strong lobbying effort on the part of the Obama administration, possibly even including remarks about TPA in the 2014 State of the Union address.

Prospects for a fast-track bill moving forward in 2014 are further complicated by the Congressional elections in November.  The TPA Bill is a test of the administration’s influence and clout on Capitol Hill and right now the Administration’s clout on Capitol Hill is very weak.  The TPA fight is a fight over a number of different issues and the extent to which Congress can influence the negotiating process.

Typically multi-national corporations strongly back free-trade agreements. The Chamber of Commerce, which sometimes spends more than $100 million lobbying a year, and the Business Roundtable, were quick to put out statements supporting the legislation. Also weighing in was a coalition called Trade Benefits America, which includes companies ranging from General Electric Corp. to Wal-Mart Stores Inc.

On January 15th it was reported that President Obama could not find one Democratic Congressman in the House of Representatives to co-sponsor the TPA bill. Meanwhile, the bill’s main Democratic backer in the Senate, Finance Committee Chairman Max Baucus, is retiring from the Senate and on his way out to be Ambassador to China, and key senior Democratic Senators on the committee, including Senator Wyden, its incoming chairman, say they either don’t support the bill or want to change it.

Democratic Reps. George Miller of California, Louise Slaughter of New York and Rosa DeLauro of Connecticut said of the proposed TPA Bill: “Our constituents did not send us to Washington to ship their jobs overseas, and Congress will not be a rubber stamp for another flawed trade deal that will hang the middle class out to dry.”

The free-trade push joins a growing list of policies Obama has championed that are unpopular with Democrats.  Both Republican and Democratic Members complained that the Obama administration’s outreach on trade has been disorganized.

Another Democratic complaint is that the negotiations for both trade deals are confidential and too far along for Congress to play a meaningful role in their outcome. Five influential Senate Democrats told U.S. Trade Representative Michael Froman that they won’t support the trade promotion authority bill without assurances that Congress can hold U.S. trade negotiators “more accountable” during the talks, rather than after a deal is finished and lawmakers can only cast up-or-down votes.

For Republicans, Democrats used pro-trade votes to blast GOP presidential candidate Mitt Romney and House Republicans in the Midwest states and elsewhere as supporters of outsourcing jobs.  According to one GOP leader in the House, given Obama’s political problems within his own party, House Republicans are insisting that Democrats deliver at least 50 votes in support of the bill, including at least one from the party’s leadership, before they’ll bring it to the floor.

On January 16, 2013, the Senate Finance Committee held a hearing on the TPA Bill and the TPP and TA negotiations, but USTR refused to send a witness.  Many industry witnesses did appear, however.  See http://www.finance.senate.gov/hearings/hearing/?id=bd99ab08-5056-a032-523f-27ddae65e3d0 for a video of the hearing.  The failure of USTR to show up at the hearing illustrated the difficulty ahead for the TPP.

At the hearing in the attached statement LARRY COHEN TESTIMONY TPP DIFFICULTY Labor Leader Larry Cohen, President of the Communications Workers of America, a union, spoke against the TPP, stating:

 

“Free trade agreements have been devastating for our balance of trade. In 1993, the year before the North American Free Trade Agreement (“NAFTA”), our trade deficit in goods was -$132 billion or -1.9 percent of our GDP. By 2012, our trade deficit ballooned to -$741 billion or -4.6 percent of our GDP. The growth of our trade deficit to such levels has been a strong drag on our economy and especially in terms of jobs and wages.

And specific trade deals have been most at fault for the increased trade deficit. Here are three examples. In 1993, the U.S. had a trade surplus in goods with Mexico of $1.66 billion. By 1995, just one year after NAFTA, this had changed to a $15.8 billion deficit and by 2012 the deficit with Mexico had increased even further to $62 billion.

Allowing China into the WTO also has been disastrous. The U.S. had a trade deficit in goods with China of $83 billion in 2001 when China was admitted to the WTO. This deficit has ballooned to $315 billion in 2012. And for a most recent example, in just one year after the U.S.-Korea trade agreement took effect, our trade deficit in goods with South Korea increased by $5.5 billion or 46%.

Last year, our federal budget deficit was more than $680 billion. But our trade deficit in goods for 2012 was $741 billion. While a lot of attention in Congress and in Washington, DC has focused on the federal deficit, little attention has been focused on our trade deficit and its negative impact on our economy, jobs and wages. If we had trade deals that actually led to balanced trade, our economy would generate more than 3 million more jobs. Unfortunately, our current model for free trade agreements increases our trade deficits and reduces our employment. . . .

In the economy as a whole, average real weekly take home pay for a U.S. worker today is $637 compared to where it was 40 years ago at $731 a week — $100 less.  . . .

Trade agreements have become the new tool in the arsenal for the unfettered corporate attack on collective bargaining rights. With trade agreements, threats to offshore work and actually offshoring the work in highly unionized industries has increased. The result — the share of the private sector workforce protected by a collective bargaining agreement has declined from a high of 35.7 percent to just 6.6 percent today. This is another direct link cited by most economists as a factor in the rising inequality in our country today.  . . .

In telecommunications, we have seen the virtual elimination of telecom manufacturing equipment in the US, the elimination of a U.S. national company, and hundreds of thousands of lost jobs in that supply chain.  . . .

Many groups representing U.S. consumers are especially concerned with how trade agreements can be used to degrade our food safety protections. Allowing for Fast Track consideration of TPP would further jeopardize the safety of the food consumed in the U.S. Seafood standards in particular could be challenged through the TPP. The FDA has detained hundreds of seafood exports from TPP countries because they were contaminated. For example in Fiscal Year 2012, the FDA detained 206 imported seafood products from Vietnam alone because of concerns including salmonella, e-coli, methyl mercury, filth and residues from drugs that are banned in the U.S.  Currently the FDA is only able to inspect between 1-2 percent of our food imports.  The TPP, by greatly expanding our food imports (especially seafood) would result in an even lower percentage of inspections.  . . . .

Trade agreements are no longer just about tariffs and quotas – they are about the food we eat, the air we breathe, the jobs we hold. Congress needs to have an enhanced and enforceable role in this new era when massive trade agreements can cover so many policy issues. We cannot abdicate the legislative and policy formation process to the USTR and non-elected representatives. Or, we would argue that trade policy should commence with the Congress adopting policy priorities and the countries with whom we will negotiate. It’s clear that this is not what has happened.  . . .

For example, we are concerned that Vietnam has been chosen as a trade partner. In Vietnam which has a population of 90 million people, the minimum wage is $0.28 per hour and the average wage is $0.75 an hour. There is no right to free association or expression. Our own Department of Labor has placed garments made in Vietnam on the federal “Do Not Procure” list for documented use of forced child labor in apparel production.  Vietnam’s extremely low wages, non-existent workers’ rights, and extensive roster of human rights violations will only further exacerbate the already strong downward pressure on U.S. wages.  We should not enter into trade agreements with countries with such records. . . .

Shouldn’t this proposition of including countries with such abysmal records like Vietnams be debated? Shouldn’t the U.S. Congress determine if that approach is appropriate? Shouldn’t the US Trade Representative further consult with Congress as negotiations progress?  . . . .”

 

For more details, see also video on CWA website http://action.cwa-union.org/c/1372/p/dia/action3/common/public/?action_KEY=7357

Yet at the same time, Senator Portman of Ohio, who was formerly USTR under President Bush, noted at the Senate Finance hearing that in terms of exports, in ranking of countries the US rates just above Ethiopia and that 40% of US exports were to countries that had signed trade agreements with the US.

After the hearing, Republicans, including House Speaker Boehner, and free trade Democrats urged President Obama to get more involved saying that the President has to become personally involved in pushing the TPA or the new Bill will simply not pass Congress.  As mentioned, in the House, President Obama faces the problem that not one Democratic Congressman is willing to co-sponsor a TPA Bill.

On January 16th, there were also reports that Congressional Democrats were very upset about the draft environmental provisions of the TPP that had been leaked by Wikileaks.  The draft environmental chapter of the TPP agreement and a report by negotiators from the 12 countries involved in the talks, show that the pact would fall short in enforcing the higher environmental standards of other recent U.S. trade deals. Those pacts threaten sanctions against trading partners that violate international agreements to protect endangered species, prevent overfishing and regulate chemicals that deplete the ozone layer.

Immediately, Sen. Bob Casey (D-Pa.), a member of the Senate Finance Committee, which oversees Trade, stated ““It’s of grave concern. It’s as if our negotiators, decade after decade, have to walk into the door and … say, ‘Yes, we have concerns about leveling the playing field on labor and environment protections,’ but by the end of it, we say, don’t worry about it.”

Although the United States is pushing for robust environmental provisions, apparently the 11 other countries are all opposed to more strict environmental standards.  The inability of the U.S. to secure its key environmental demands made it even more difficult for the TPA bill.

According to Rep. Rosa DeLauro (D-Conn.),” As more information about the Trans-Pacific Partnership being negotiated in secret is revealed, the more the public can see how clearly this potential agreement, which is unprecedented in scope, would not only lead to the outsourcing of jobs, but also harm American consumers and the environment.”   All of this did little to help Obama persuade liberal Democrats on the TPA Bill

On January 17, 2013, it was reported that progressive advocacy groups were ramping up efforts to oppose the TPP and TPA legislation urging their members to push their representatives in Congress to fight the trade policies.

The progressive-leaning Democracy for America sent an email to its members saying they should call their local congressional representatives and urge them to vote down a proposal that would grant trade promotion, or “fast-track,” authority to the Obama administration.

On Monday, January 27th, 550 labor, environmental and consumer advocacy groups, including the United Autoworkers, which provided President Obama critical support on previous trade pacts, such as the South Korea FTA, sent a letter to Congress urging them to reject the fast-track bill.

The email campaign comes two days after a dozen Senators, comprised of 11 Democrats and Sen. Bernie Sanders, an independent from Vermont, wrote to Senate Majority Leader Harry Reid, D-Nev., expressing “deep concern” over the chance that trade promotion authority would be renewed.

JANUARY 28 — STATE OF THE UNION

In response to the Republicans call in Congress for the Administration to do more regarding the TPA bill, President Obama responded in his State of the Union pushing the TPA bill and TPP and the TA Agreements.  President Obama stated:

“We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA”.  Look China and Europe aren’t standing on the sidelines.  Neither should we.”

What was very interesting about this point is that in contrast to almost every other point made in the State of the Union, when President Obama spoke about Trade, the Republicans cheered, but the Democrats in President Obama’s own party were silent.

JANUARY 29TH—THE DAY FREE TRADE MAY HAVE DIED

But the next day, Senator Harry Reid, the Senate Majority Leader, the head Democrat in the Senate, came out against TPA, stating:

“Everyone knows how I feel about this.  Senator Baucus knows.  Senator Wyden knows.  The White House knows.  Everyone would be well-advised to not push this right now.”

As Majority Leader, Senator Harry Reid controls the bills that are allowed on the Senate Floor.  With Senator Harry Reid’s opposition, the TPA bill is dead in the Congress, which means that the President’s trade agenda and his push for these agreements are also dead.  In an ironic point, this situation will probably only change if the Republicans take over the Senate in 2014.

The lawmakers opposed to the TPA Bill argue that in light of the top secret nature of the negotiations, multiparty trade deals go far beyond the scope of the smaller, typically single-nation trade accords that were done in the past.  These new multinational deals affect larger portions of the U.S. and global economies and touch on many policies under Congressional jurisdiction.  Congress, therefore, should have a greater say on trade deals beyond the ability to accept or reject them.

On January 29, 2014, David Bonior, a former Michigan Congressman, who voted for NAFTA, in an article entitled Obama’s Free-Trade Conundrum stated:

 

“But Mr. Obama’s desire for fast-track authority on the T.P.P. and other agreements clashes with another priority in his speech: reducing income inequality.

This month is the 20th anniversary of the North American Free Trade Agreement, which significantly eliminated tariffs and other trade barriers across the continent and has been used as a model for the T.P.P.  Anyone looking for evidence on what this new agreement will do to income inequality in America needs to consider Nafta’s 20-year record. . . .

The result is downward pressure on middle-class wages as manufacturing workers are forced to compete with imports made by poorly paid workers abroad. . . .The shift in employment from high-paying manufacturing jobs to low paying service jobs has contributed to overall wage stagnation. The average American wage has grown less than 1 percent annually in real terms since Nafta, even as productivity grew three times faster. . . .

The Nafta data poses a significant challenge for President Obama. As he said on Tuesday, he wants to battle the plague of income inequality and he wants to expand the Nafta model with T.P.P.  But he cannot have it both ways.”

 

In response to Senator Reid’s statement, it was reported that Sen. John Cornyn  (R., Texas.) stated “You can kiss any new trade deals goodbye. . . I think the majority leader’s focus is on the November elections and he doesn’t want to expose his vulnerable members to controversial votes.”

The latest developments come amid growing skepticism in Japan about the U.S.’s commitment to free trade. “It’s up to the resolve of the U.S. government,” Japan’s economy minister, Akira Amari, told reporters in Tokyo. “If the president comes to the negotiating table with a strong enough determination to wrap it up by spring, other countries will follow suit.”

Sen. Chuck Schumer (D., N.Y.) stated “I think there’s a lot of dubiousness in our caucus to fast track, given that every time we sign a free-trade agreement it seems other countries violate the rules and we don’t”.

Unions opposing the trade deals were happy with the outcome.   According to Larry Cohen, head of the Communications Workers of America, “For those of us who want to have a progressive trade agenda, it means that we’re encouraged.”

On January 30th, House Speaker John Boehner spoke out against President Obama suggesting that he needs to push Senate Majority Leader Harry Reid to get the TPA bill through Congress.

On February 3rd, President Obama met with Senate Majority Leader Harry Reid but the President did not bring up the trade issue and made no effort at the meeting to change Senator Reid’s mind on the TPA bill.

On February 4th, it was reported that StopFastTrack.com, a new coalition opposed to the TPA bill and the TPP and TA Trade Agreements is building grassroots support, gathering more than a half a million signatures and making tens of thousands of calls to Senators and Congressmen lawmakers to argue against trade legislation in Congress.

According to the report, unions, environmental groups, and political organizations—working under the umbrella site —have nearly 600,000 supporters  and made more than 40,000 phone calls to Congress, opposing the trade measures.

Another political organization, Democracy for America, has obtained 125,000 electronic signatures on a petition requesting that Nancy Pelosi, top House Democrat, follow Senator Reid’s lead and stop the TPA bill in the House.

Many trade experts believe that Senate Majority Leader Harry Reid’s decision not to bring the TPA bill to the Senate Floor casts substantial doubt over the negotiations for the TPP and the TA deals.  Most commentators are stating that all these Agreements are at risk right now.

White House press secretary Jay Carney stated on Wednesday, January 29th,

“Leader Reid has always been clear on his position on this particular issue.  As the President said in the State of the Union address, he will continue to work to enact bipartisan trade promotion authority to protect our workers and environment and to open markets to new goods stamped ‘Made in the U.S.A.’ And we will not cede this important opportunity for American workers and businesses to our competitors.”

Harry Reid’s decision could be a critical tipping point in US trade policy as the US becomes more and more protectionist.  It took a President Bill Clinton with his tremendous political ability to persuade Democratic Senators and Congressmen “to do the right thing” on NAFTA and enact it into law.  But President Obama is not Bill Clinton.

DOHA ROUND-BALI

As mentioned in the last newsletter, much to the surprise of many Government officials and companies, in December the WTO round in Bali resulted in all the WTO countries agreeing to Trade Facilitation Agreement to modernize customs procedures, as well as provisions on agriculture and economic development.  If there had been no Agreement in Bali, it could very well have meant the end of the multilateral effort to lower trade barriers through negotiations.

On January 7, 2014 WTO Director-General Roberto Azevedo stated:

“Just six weeks ago, the fate of the multilateral trading system hung in the balance. Today, we can talk with confidence about how we can continue to develop and strengthen the system for the future.”

According to Azevedo, the Bali Trade Facilitation Agreement could possibly add as much as $1 trillion to the world’s economy each year.

The question now is what happens in the future.  Most experts believe that the WTO members will in the short term pursue agreements that affect only certain sectors or include only some countries.  Thus, there will probably be sector-by-sector trade negotiations at the WTO.

Agreements affecting trade of environmental goods and services might be one of the likely near-term targets.  But the Trade Facilitation Agreement still must be implemented as the details have to be ironed out, including Customs procedures in developing countries and other issues.  Implementation also means the Agreement must go through Congress and without TPA, it will be difficult for Bali Agreement to get through Congress.

Azevedo himself realizes the problems stating, “The task of strengthening the multilateral system and moving towards delivering on the[Doha Development Agenda] will be difficult, but it is not impossible.”

SOLAR PRODUCTS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN–QUANTITY AND VALUE QUESTIONNAIRE DUE FEBRUARY 13TH AT COMMERCE

Commerce has issued a quantity and value questionnaire in the new Solar Products/Modules/Panels antidumping case/initial investigation against China.  The deadline for the response to the Quantity and Value Questionnaire is February 13, 2014.

Attached are the quantity and value questionnaire and the fact sheet that was issued by Commerce. factsheet-multiple-solar-products-initiation-012313   prc-qv-solar-products-012714

The quantity and value questionnaire requires the Chinese exporter to report all sales during the period April 1, 2013 to September 30, 2013.  Specifically, Commerce is requiring the Chinese exporter to report the total number of modules, panels or laminates during that period, the total number of megawatts, the terms of sale and the total value of sales.

A Chinese exporter/producer must submit a response to this quantity and value questionnaire by February 13th.  If not, it will receive the highest dumping rate of 165%.

SOLAR CELLS REVIEW INVESTIGATION

To further complicate the Solar case, on February 3rd Commerce published in the attached Federal Register notice initiating the first Solar Cells review investigation.  This case will cover imports of Chinese solar cells during the review period.

So to be clear, the Solar Cells Review Investigation covers Chinese solar cells.  The Solar Products new investigation covers imports of Chinese modules and panels with Taiwan and other solar cells in them.

For the first Solar Cells Review Investigation, attached are the notice, in which many Chinese companies are named, and the Quantity and Value questionnaire.  Solar Cells AD CVD Initiation Notice 1st Review (2) SOLAR CELLS REVIEW QV Chinese companies named in the Solar Cells Review investigation need to file the QV questionnaire response on February 19th .   Chinese companies also need to file separate rate applications or certifications on or before April 4, 2014 at Commerce in first review investigation to keep their separate rate from the Solar Cells initial investigation.  Failure to file these documents meand that imports of Chinese solar cells will be assessed a rate of 250%.

Solar Trade problems with China are getting complicated.

SOLAR PRODUCTS INITIAL INVESTIGATION

As mentioned in my last post, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  The Scope of the Merchandise, the specific products covered by the new antidumping and countervailing duty investigations, are described in the attached notice and petition:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

See the injury petition in my last post on this blog.

In the subsequent Commerce Department initiation notice, which is attached, however, in contrast to the petition, solar consumer products are specifically excluded:

“Also excluded from the scope of this investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm2 in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.”

Initiation Notice – Certain Crystalline Silicon Photovoltaic Products 1-24-14

In addition, Commerce reduced the All Others/Facts available rate in the China case from 298% to 165%, but raised the antidumping rate for Taiwan to 75.68% from 39%.  The trade volume is large.  According to Commerce, imports of the subject merchandise from China and Taiwan were valued at $2.1 billion and $513.5 million, respectively.

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days, when the Commerce Department’s preliminary determinations are due on May 30, 2014 (CVD) and July 29, 2014 (AD).  Commerce Department investigations almost always are extended out to the full time.

Chinese companies also must submit their response to the quantity and value questionnaire by February 13th and be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 22nd, the day after the Government was closed, the ITC held a preliminary conference.  The Commission’s preliminary injury determination is due February 14th.

Meanwhile, many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

The Solar Energy Industries Association (SEIA) has announced that it is opposed to the case, calling it an “escalation” of the U.S.-China solar trade conflict.  Experts also stated that the duties could cripple the end user portion of the solar Industry, which is far larger than the domestic production industry.  As the SEIA stated, “From past experiences, we have learned that a conflict within one segment of the solar industry ripples across the entire solar supply chain.”

The market pressure driving solar prices downward is not caused by dumping, but the industry’s efforts to achieve so-called grid parity, where the price for solar power is comparable to that for traditional-source power.  But prices for US oil and natural gas are falling fast.  With falling costs for traditional forms of energy, it is very difficult for solar energy to be competitive.

The effect of this case, however, will be to drive up the costs of solar products,

Although the SEIA and some members of Congress have called for a settlement of the solar trade dispute, Solar World has expressed skepticism about such a deal, making it more difficult to conclude a government to government deal settling the case.  As mentioned in a prior post, there is no public interest standard in US antidumping and countervailing duty law, as compared to EC, Canada and China.  Also End Users have no standing in US antidumping and countervailing duty cases.  Thus it is difficult for the US Government to pressure Solar World to drop its case.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases stating:

 

“The two parties should follow the trend and make efforts to promote cooperation proceeding from the overall interests of clean energy development, so as to ensure the steady development, rather than restricting competition and cooperation by frequently taking trade remedy measures. It is proved that, that U.S. initiated investigations and levy high anti-dumping and countervailing duties in 2011 not only failed to change the situation of poor operation and lacking of competitiveness of its domestic industries, resulting in significant negative impacts on downstream industries including the assembly industry and services sector, but also triggered a worldwide chain reaction of trade disputes on PV products, which caused chaos in the whole industry.  . . .”

 

See attached statement MOFCOM STATEMENT

CURTAIN WALL UNITS ARE COVERED BY THE ALUMINUM EXTRUSIONS CASE

On January 30, 2014, in Shenyang Yuanda Aluminum Industry Engineering Co. v. United States, Judge Eaton in the Court of International Trade affirmed the Commerce Department’s determination that Curtain Wall Units, the sides of buildings, are with the scope of the AD and CVD orders on aluminum extrusions from China.  The Court stated in part;

“Because curtain wall units are “parts for” a finished curtain wall, the court’s primary holding is that curtain wall units and other parts of curtain wall systems fall within the scope of the Orders.”

See the attached decision.  SHENYANG YUANDA

As a result of the Court’s and the Commerce Department’s determination, the sides of buildings from China are now covered by US antidumping and countervailing duty orders with duties as high as over 100 to 300% for certain imports.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

WIRE ROD

On January 31, 2014, a new antidumping and countervailing duty case was filed against carbon steel wire rod from China.  See notice below.

Docket No: 3000

Document Type: 701 & 731 Petition

Filed By: Kathleen Cannon

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: ArceloMittal USA LLC, Charter Steel, Evraz Rocky Mountain Steel, Gerdau Ameristeel US Inc., and Keystone Consolidated Industries Inc, and Nucor Corporation.

Date Received: January 31, 2014

Confidential: Yes

Commodity: Carbon and Certain Alloy Steel Wire Rod

Country: People’s Republic of China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and antidumping duties on Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China.

Status: 701-TA-512 & 731-TA-1248

ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

In February Chinese producers and exporters, US importers and US producers have the opportunity to request an antidumping and/or countervailing duty review investigation of certain outstanding AD and CVD orders by filing a review request at Commerce by the last day of February for the following cases against China :

Period of review ————————————————————————              Antidumping Duty Proceedings

The People’s Republic of China:

Certain Preserved Mushrooms, A-570-851………..     2/1/13-1/31/14

Folding Metal Tables and Chairs \2\, A-570-868…     6/1/12-11/5/12

Frozen Warmwater Shrimp, A-570-893……………     2/1/13-1/31/14

Heavy Forged Hand Tools, With or Without Handles,     2/1/13-1/31/14      A-570-803…………………………………

Small Diameter Graphite Electrodes, A-570-929….     2/1/13-1/31/14

Uncovered Innerspring Units, A-570-928………..     2/1/13-1/31/14

Utility Scale Wind Towers, A-570-981………….    2/13/13-1/31/13

Countervailing Duty Proceedings

The People’s Republic of China:

Utility Scale Wind      2/13/13-12/31/13  Towers, C-570-982.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

As mentioned in prior posts, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.

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

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

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

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

In forthcoming posts we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

CHINESE ANTIDUMPING CASE

POLYSILICON

On January 20, 2014, China issued final antidumping and countervailing duties against solar-grade polysilicon imported from the U.S.  Under the Chinese polysilicon antidumping duty order, US companies face dumping rates ranging from 53% to 57%.  On the Countervailing Duty side, US companies face rates from 0 to 2.1%.

On January 26, 2014, MOFCOM announced that given “the special market conditions” it has decided not to carry out antidumping and anti-subsidy measures for the moment.  Apparently, MOFCOM is hoping for a negotiated suspension agreement in the new Solar Products case.

FDA—FOOD PROBLEMS

CHINESE CHICKEN

On December 19, 2013, fourteen Congressmen circulated a letter in Congress asking their Congressional colleagues to ensure Chinese-processed chicken is kept out of the school lunch and other child nutrition programs. The letter also states that chicken slaughtered in China should be banned from the US market.  The letter states:

“It is because we are deeply concerned about the safety of the food served to the American people, especially our children, that we write to express our serious apprehension about the Food Safety and Inspection Service (FSIS) recent decision to allow China to process chicken raised in the United States, as well as Canada and Chile, to then export to the United States. Furthermore, we believe FSIS is likely to eventually allow China to export its own raw poultry to the United States.”

CHINA CHICKEN PROBLEM CONG LETTER

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

On December 5th, the Washington State Government reported that on December 3rd the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Washington, Oregon, and northern California. China reported a shipment of geoduck clams tested high in paralytic shellfish poison (PSP) and arsenic.  See my past post on this blog for more on this fight and the attached announcement.

The ban has already devastated shellfish growers in Washington, Alaska, Oregon and Northern California.  It also affects clams, oysters and other shellfish from U.S. waters.

China is the world’s largest importer of geoducks (pronounced “gooey duck”), with more than half of all the harvest from Washington, British Columbia and Alaska getting shipped to China. With China cut off, there are few places for the harvest to go.

Test results showed that, on average, arsenic was present in the geoduck bodies at a level of 0.327 parts per million (ppm), which falls below China’s legal limit of 0.5 ppm. Arsenic in the actual meat of the geoducks registered at 0.063 ppm, eight times lower than the limit.

On January 9th it was reported that Laboratory tests on Washington State’s exports of geoduck clams, found no evidence of unsafe or excessive levels of arsenic.  Although the test results have been sent to China, to date they have not yet received a response, and the ban remains in place.

The problem, however, arises from US export forms for the geoduck shipment.  The form does not allow for more specificity in identifying the source from which the shellfish were harvested.  While the problem shipments of shellfish came from isolated areas in Washington and Alaska, “Area 67″ encompasses all the coastal regions from Northern California through Alaska’s Pacific Coast. As a result, Chinese authorities were forced to ban shellfish from all of Area 67.

National shellfish programs provide forms that set forth specific shippers and harvest locations, which allow the governmental authorities to easily trace shipments back to specific shippers and harvest locations. If there’s a contamination problem domestically, shellfish growers can easily isolate the problem instead of shutting down the entire industry.

The World Health Organization is said to be considering setting safe levels for
inorganic arsenic in food in the .2-.3 ppm range in 2014. The Washington geoduck claims that tested high for inorganic arsenic in China, however, were harvested from a tract of land managed by the Department of Natural Resources that has since been closed. The tract is within the shadow of a copper smelter that was operated near Tacoma for 100 years.   According to Marian Abbett, manager of the Tacoma smelter clean up for the Washington Department of Ecology, “Well we know that arsenic levels are elevated in the surface soils in that area.  Soil samples from the surrounding land show levels of arsenic between 40 and 200 ppm, though that number does not directly equate to levels of arsenic that will end up in the water, or in shellfish.”

The area was closed to all shellfish harvest until 2007, when the Puyallup Tribe petitioned state agencies to reopen the tract for geoduck harvest. At that time the Department of Health conducted tests on geoduck in the area and found levels of .05 ppm. That’s an order of magnitude below the amount found by the Chinese in October of 2013 and well within the safety parameters set by the Chinese.

However, state agencies have not tested for inorganic arsenic or other metals in shellfish from the area since it was reopened in 2007.

Arsenic is a carcinogen that has also been associated with long-term respiratory effects, disruption of immune system function, cardiovascular effects, diabetes and neurodevelopmental problems in kids.

“There’s no safe level, but at some point you’ve crossed the threshold to being really dangerous and we don’t quite know where that threshold is at this point,” Cottingham said.

But the ban is having a real effect on fishermen in Washington State.  Ninety percent of the geoduck harvested in Washington is sold to China and Hong Kong.

The clams can fetch up to $150 per pound in China, but today the Suquamish tribe is losing $20,000 each day that the ban is in place, but the impacts of the ban are being felt well beyond the reservation. John Jones, another Suquamish diver, stated, “My brothers are from Port Gamble and they’re out of work.  They shut down diving everywhere, not just for us but for the state.”

Although British Columbia in Canada is not affected, the Chinese ban impacts all shellfish throughout Puget Sound, Alaska, Oregon and Northern California.  The shellfish industry in Washington is worth $270 million annually, and China is the biggest market for exports.

This is the broadest shellfish ban China has ever put in place, but it’s not the first time China has banned a major import from the U.S.  Beef imports from the U.S. have been banned for the past ten years. More recently, China rejected about half a million tons of U.S. corn because it contained a genetically modified strain.

Chinese officials have been slow to reveal details of their shellfish testing methods. That’s prompted some to raise concerns about political motivations behind the shellfish ban.

Although there is a possibility that the Chinese are retaliating for past problems with food imports in the US, there is strong evidence that the Chinese have a legitimate problem.  The contaminated geoduck clams were harvested near the former site of a copper smelter in Tacoma, which had leached arsenic into the surrounding area.

Again Chinese problems with US shellfish must be kept in context.  As indicated above, US Congressmen want to ban all chicken processed in China.  Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

PATENT/IP AND 337 CASES

INTERDIGITAL SETTLES 337 PATENT CASE WITH HUAWEI

On January 2, 2014, InterDigital Communications Inc. and Huawei Technologies filed a confidential settlement of their 337 patent case over 3G and 4G wireless devices.  Huawei’s antitrust strategy seems to have worked.

CHINESE COMPANY LOOSES 337 RESINS TRADE SECRET CASE

On January 15, 2014, in Certain Rubber Resins and Processes for Manufacturing Same, Investigation No. 337-TA-849, the U.S. International Trade Commission (“ITC”) determined that there was a violation of section 337, 19 USC 1337, because a Chinese chemical maker and other companies had stolen trade secrets covering the recipe for rubber resins held by New York company, Sl Group Inc.  The Commission issued a limited exclusion order for 10-years excluding infringing imports of the Chinese resins into the United States from Sino Legend (Zhangjiagang) Chemical Co. Ltd. and the other named respondent companies in the case.

According to the 337 complaint, although SL Group had closely guarded the formula and the equipment used to create the resin, the manager of Sl Group’s Shanghai chemical plant defected to Sino Legend in 2007 and took the design with him.

The ITC’s ruling is directly contrary to the ruling of a Chinese court, which reached the opposite conclusion and found that there was no misappropriation.  After acquiring the trade secret, Sino Legend has been able to take over about 70% of the Chinese market for the rubber resins in question, which are used in tire production.

In response to the ruling, Sino Legend has stated that the Commission’s ruling will not substantially affect its business because the ITC’s ruling will allow its customers to use all Sino Legend resins in any of their non-U.S. production facilities, and then import those products into the U.S. without restriction.

DUPONT TRADE SECRETS CASE — TITANIUM DIOXIDE

In an ongoing criminal trial in California this month, prosecutors described how an ex-DuPont engineer and two conspirators stole DuPont trade secrets regarding a specific process to produce very high quality titanium dioxide, and sold the designs to Chinese state owned companies earning $28 million.

Chinese-American Walter Liew and his wife, Christina, founded multiple companies in Northern California and hired as a consultant ex-DuPont engineer Robert Maegerle, who knew the process of safely producing massive amounts of titanium dioxide.  Maegerle allegedly shared what he learned building plants for DuPont with the Liews, who used the information to negotiate contracts with Chinese companies, including Pangang Group Co., to build titanium-dioxide-making factories in China. However, both Maegerle and Walter Liew knew Dupont had patented that information and it was confidential.

Titanium dioxide is a white pigment used in everything from iPhone cases to toothpaste.  But it is hot, dirty and dangerous and DuPont figured out a way to make the product commercially viable.  According to the prosecutor, that process is what the Chinese companies wanted.

Maegerle is charged with trade-secrets theft, conspiracy and obstruction of justice.  Christina Liew faces charges of economic espionage, trade-secret theft, and tampering with witnesses and evidence in a separate trial.

Lawyers for the defendants argued that they did not copy DuPont’s factory plans verbatim, but used them as the basis to design around and develop their own production techniques for producing titanium dioxide.

Later in the trial, however, a government expert testified that Dupont fiercely guarded its trade secrets for making high-quality titanium dioxide and that the trade secrets made Dupont the envy of the industry.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On December 31, 2013, Laserdynamics filed a patent case against Haier. HAIER PATENT CASE

On January 7, 2014, Bluebonnet Telecommunications filed patent cases against ZTE and Huawei. BLUEBONNETZTE HUAWEI BLUEBONNET

On January 7, 2014, Toyo Tire and Rubber filed a patent case against South China Tire and Rubber Co. TOYO TIRE CASE

On January 10, 2014, Personal Audio filed a patent case against Huawei and ZTE. PERSONAL AUDIO HUAWEI ZTE

On January 10, 2014, Thomas & Betts filed a trademark, unfair competition, case against Zhejiang Shengyu City Fengfan Electrical Fittings Co. TRADEMARK WRENCH ZHEJIANG

On January 13, 2014, Laerdahl Medical filed a patent case against Shanghai Honglian Medical Instrument Development Co. SHANGHAI MEDICAL

On January 13, 2014, ICON Health and Fitness filed a trademark case against Zhongshan Camry Electronics Co. ZHONGSHAN TRADEMARK

On January 14, 2014, Kee Action Sports filed a patent case against Shyang Huei Industrial Co., a Taiwan company. TAIWAN SUN

On January 14, 2014 Toyo Tire and Rubber filed a patent case against Hong Kong Tri-Ace Tire Co and Doublestar Dong Feng Tyre Co. TOYO DONG FENG

On January 16, 2014, Touchscreen Gestures filed patent cases against Huawei and ZTE. TOUCHSCREEN ZTE TOUCHSCREEN HUAWEI

On January 29, 2014, Standard Fiber filed a trade secret case against Shanghai Tianan Home Co, Teetex, LLC, and Anwen “Alvin” Li. SHANGHAI TRADE SECRET

Complaints are posted above.

ANTITRUST

VITAMIN C CASE

As mentioned in my last post, the Vitamin C antitrust case against Chinese Vitamin C companies is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  In addition, the judgment has increased by $4 million, specifically $4,093,163.35, to $158 million, specifically $158,203,163.35, to pay the Plaintiffs’ legal fees. FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

JUSTICE IS GETTING TOUGHER ON INTERNATIONAL CARTELS DEMANDING JAIL TIME FOR FOREIGN EXECUTIVES

There are reports that in 2013 and now 2014 the Justice Department has ramped up its enforcement in international cartels/price fixing antitrust cases looking for more prison sentences for foreign executives involved in these cartels.

On January 30th, Bill Baer, the Assistant Attorney General for the Antitrust Division gave the attached speech to the New York State Bar Association in which he described in detail international antitrust enforcement, including increased enforcement of antitrust cases against international cartels, and the DOJ’s increased cooperation with Chinese antitrust authorities.  BILL BAER DOJ STATEMENT ANTITRUST ENFORCEMENT The Assistant Attorney General stated:

 

“With those preliminary observations in mind, let me focus on the progress antitrust enforcement has made these last five years. President Obama promised during his first campaign that his administration would vigorously enforce the antitrust laws.  He pledged to “step up review of merger activity,” “take aggressive action to curb the growth of international cartels,” and ‘ensure that the benefits of competition are fully realized by consumers.’

“I think the record shows the Antitrust Division has followed through on the President’s pledge. Criminal enforcement provides an excellent starting point. We continue to vigorously pursue and prosecute international and domestic cartels. Since January 2009, we have filed 339 criminal cases, a more than 60 percent increase over the prior five years. We secured $4.2 billion in criminal fines in that period. . . .

Effective cartel enforcement requires holding accountable both corporations and the senior executives who orchestrate their unlawful conduct. We have charged 109 corporations with criminal antitrust violations since 2009. We have ensured that those corporations have paid appropriate—and stiff—criminal fines, and those 109 corporations together have paid the highest five-year fine total in division history. The division also charged 311 individuals with antitrust crimes during the past five years.

Experience teaches that the threat of prison time is the most effective deterrent against criminal antitrust violations. We seek sentences commensurate with the economic harm caused by the perpetrators. The statistics show that the courts are embracing the effort to hold company executives accountable for their bad behavior. The average prison sentence in our cases has increased from 20 months in the period 2000-09 to 25 months during the years 2010-2013. Of course, we can never know for certain the full deterrent effect of our enforcement efforts. But we do know that self-reporting under our leniency program remains at high levels and that, increasingly, non-U.S. companies are reporting anticompetitive behavior. They are responding to the fact we are prosecuting off-shore conduct with a U.S. impact. In recent years the number of foreign nationals sentenced to U.S. incarceration has increased threefold. The message should be clear: the division will vigorously and successfully prosecute international cartel behavior that harms U.S. consumers regardless of where that conduct takes place. . . .

The division has brought criminal cases in a range of industries over the past several years. One of our most significant ongoing investigations involves the auto parts industry. We are prosecuting price fixing and bid rigging involving a number of parts that were installed in cars sold in the U.S., including wire harnesses, instrument panel clusters, and seatbelts.  . . .

To date, we have charged 24 companies and 26 executives with participating in multiple international conspiracies, and those numbers are sure to grow as the investigation continues.   These charges have resulted in $1.8 billion in criminal fines, including the third-largest criminal antitrust fine ever.   Of the 26 executives charged so far, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements requiring significant sentences.

During the past several years, the division also prosecuted international price-fixing conspiracies involving liquid crystal display panels. These conspiracies hurt U.S. consumers by dramatically inflating prices for computer monitors, notebook computers, and televisions, among other products. In 2012, the division secured convictions of Taiwan-based AU Optronics, its subsidiary, AU Optronics Corp. America, and three former top executives for their participation in such a conspiracy.   The trial against AU Optronics was the first time the division proceeded under the alternative fine statute, 18 U.S.C. § 1571, which allows for fines up to two times the gain or loss resulting from the conduct. The division proved beyond a reasonable doubt to the jury that the combined gains to the participants in the conspiracy were $500 million or more and that the defendants’ conduct accordingly merited a fine exceeding the Sherman Act’s $100 million maximum.   . . .

There is more to come.  . . . There can be little doubt that the division vigorously prosecutes wrongdoers. . . .

During the Obama administration U.S. enforcers have broken new ground in relations with China and India. In the past few years, the division and the FTC have entered into Memoranda of Understanding (MOU) with the Chinese and Indian enforcement agencies.  These MOUs have led to annual bi-lateral meetings between the U.S. antitrust enforcement agencies and agencies from these nations.  Indeed, earlier this month, I attended with Chairwoman Ramirez a bi-lateral meeting with the Chinese authorities in Beijing. We see candid engagement with the Chinese and Indian agencies as important, and we look forward to increased cooperation in the coming years.

Cooperation also plays an important role in our international criminal cartel investigations. Working with competition enforcers in non-U.S. jurisdictions, we share information where we are able; and we can plan coordinated raids around the world, reducing the opportunity for key evidence to go missing or be destroyed. . . .”

 

When foreign corporate executives are found to be guilty of engaging in a cartel to set prices, this is considered a crime of moral turpitude and the foreign executive is barred from entering the US for a minimum of 15 years.  Under a memorandum of understanding between Justice and Immigration and Naturalization Services (“INS”), now Immigration and Customs Enforcement (“ICE”), if the foreign executive pleads guilty and cooperates with authorities, that executive can be exempted from the 15 year exclusion and continue to enter the US.  Antitrust criminal defense attorneys have argued that this exemption is unfair because it places unfair pressure on the foreign executive to forgo their right to trial.

On January 24, 2014, in response to questions from Congress on this issue, Assistant Attorney General Baer stated in the attached response:

 

“In general, moral turpitude has been held to be conduct that is inherently dishonest and contrary to accepted rules of morality and the duties owed between persons or to society in general. Tax fraud, mail fraud, securities fraud, and theft offenses, for example, have been held to be crimes of moral turpitude. Similarly, price-fixing, bid-rigging, and market allocation agreements among companies that hold themselves out to the public as competitors are inherently deceptive and defraud consumers who expect the benefits of competition. Thus, the division’s Memorandum of Understanding (“MOU”) with INS states that INS, now the Department of Homeland Security as successor to INS, considers criminal antitrust offenses to be crimes involving moral turpitude, which may subject an alien defendant to exclusion or deportation.

However, an alien defendant who is convicted of an antitrust offense at trial retains the ability to contest his removability from the United States.

In today’s global marketplace, many culpable executives involved in international cartels affecting U.S. consumers and commerce are foreign nationals. They may live and work outside the U.S., but their cartel conduct affects billions of dollars of U.S. commerce yearly and takes money out of consumers’ pockets. The MOU was drafted in order to allow the Antitrust Division to secure jurisdiction over and cooperation of these foreign nationals in the division’s investigations and prosecutions of international cartels and to hold these foreign nationals accountable for antitrust crimes, just as domestic defendants are held accountable.

The cooperation of defendants receiving immigration relief under the MOU is critical to the division’s ability to investigate and prosecute international cartel activity. A foreign defendant’s willingness to cooperate with the division provides the basis for the waiver of inadmissibility under the MOU, and fulfilling the continuing cooperation requirements with the division is a condition of a defendant’s retention of the waiver. Having cooperating witnesses from multiple companies is essential to fully investigate cartels and to hold responsible individuals at each corporate conspirator accountable.

Moreover, having defendants who have pleaded guilty is important at Antitrust Division trials. Extending the MOU waiver to noncooperating defendants would undermine the incentives provided by the MOU and be unjust to those foreign nationals who are willing to accept responsibility for their criminal conduct, submit to U.S. jurisdiction, cooperate with the division, and serve time in U.S. prison. It would also be unworkable to require pleading foreign defendants to continue their cooperation to maintain the waiver while at the same time giving the MOU waiver to non-pleading defendants who have not accepted responsibility and fully cooperated with the division.”

BAER STATEMENTS TO CONGRESS

CHINA ANTITRUST CASES

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from the NDRC.  China’s National Development and Reform Commission (NDRC) is becoming an increasingly aggressive regulator and is focusing on information technology providers, especially companies that license patent technology for mobile devices and networks.

Apparently, the NDRC is trying to lower domestic costs as China rolls out its faster 4G mobile networks this year.  US -based Qualcomm is scheduled to obtain the vast majority of licensing fees for the chip sets used by handsets in China, the world’s biggest smartphone market in the World.

Under the Chinese antimonopoly law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year.  Qualcomm reportedly earned $12.3 billion in China for its fiscal year ended September 29, or nearly half of its global sales.

Qualcomm is no stranger to substantial fines.  In 2009, South Korea’s Fair Trade Commission fined the company 273 billion won ($252 million), the highest Korean penalty ever against a single company, for abusing its dominant position in CDMA modem chips which were then used in handsets manufactured in Korea.

SECURITIES

SEC DROPS CHINESE AUDIT CASE AGAINST DELOITTE

On January 27th the SEC told the Federal Court that it was dropping its case against Deloitte for failure to turn over audit documents of a Chinese technology company.  The SEC stated that Deloitte was supplying the audit papers to the China Securities Regulatory Commission, which, in turn, was supplying the records to the SEC.

The dismissal of the case, however, will not affect a separate SEC action against the Chinese offices of the Big Four accounting firms for refusing to reveal client documents to the SEC.  An SEC administrative law judge recently ruled that the China based offices are barred from auditing companies that do business in the U.S.

JURY CLEARS CHINESE INVESTMENT ADVISOR SIMING YANG

On January 13th, a jury in the Federal District Court found Chinese investment adviser Siming Yang not guilty on insider trading claims brought by the U.S. Securities and Exchange Commission (“SEC”), but did find Yang guilty for other violations, including making false disclosures to the regulator.

FOREIGN CORRUPT PRACTICE ACT–CORRUPTION ISSUES IN CHINA FOR FOREIGN COMPANIES

On February 4th, Carl Hinze in Dorsey’s Shanghai office published the attached article “Doing business in and with China: Battling a corruption culture by building a compliance culture”.

HINZE ARTICLE FCPA

COMPLAINTS

On January 10, 2014, Deborah Donoghue filed the attached securities case against Secure alert, Short Swing Profits, which are all owned by Sapinda Asia and Lars Windhorst, a Hong Kong Company, for short swing profits. SAPINDA HK

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

Best regards,

Bill Perry

US CHINA TRADE WAR–REAGAN PREDICTED IT, TRADE, CUSTOMS, 337/PATENTS, US CHINA ANTITRUST, AND SECURITIES

Washington Monument After the Snow Washington DCJanuary 3, 2014

“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN , JUNE 28, 1986

Dear Friends,

There have been some major developments in the trade, Customs, patents, US/Chinese antitrust, and securities areas.

In looking at the first posts I wrote on my blog, they were relatively short, but with the US litigation against Chinese companies in the US and the Chinese litigation against US companies growing, the Posts will grow even larger.

As mentioned before, the US China Trade War is expanding into many different areas.  Trade and Customs were simply the first areas of attack.

PRESIDENT RONALD REAGAN PREDICTED TRADE WAR WITH CHINA

My intention was to upload this post to my blog by the end of December.  Unfortunately, did not make it, but while on Christmas break I was at the Ronald Reagan Center in Santa Barbara, California.

In October 1980, I joined the US International Trade Commission (“ITC”) as a staff attorney in the Office of General Counsel and later in the Chief Counsel’s office in the Commerce Department.  During that entire time, Ronald Reagan was President.  During that period, the ITC was also the most free trade Commission in its history as Reagan appointed Commissioner after Commissioner with strong free trade ideologies, such as Susan Liebeler, Anne Brunsdale, and Robert Cass.  From my observation, Ronald Reagan was the most free trade president in my lifetime.  Congress, however, does not like free traders.

While at the Santa Barbara Center, I listened to the attached speech by President Ronald Reagan on international trade and was amazed because he predicted with absolute accuracy the present state of trade relations with China.  REAGAN IT SPEECH  On June 28, 1986 from his California Ranch, President Reagan stated as follows:

 

“Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a  nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.

That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flimflammery in American politics.

But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth. You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start.

We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. They organized the General Agreement on Tariffs and Trade, or GATT, to promote free trade. It hasn’t all been easy going, however. Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively.

And in September, with more GATT talks coining up once again, it’s going to be very important for the United States to make clear our commitment that unfair foreign competition cannot be allowed to put American workers in businesses at an unfair disadvantage. But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.”

 

Several thoughts come to mind when reading this speech.  When President Reagan speaks of a “protected industry” that  “is so listless and its competitive instincts so atrophied that it can’t stand up to the competition”, think the US Steel Industry, which has had antidumping and countervailing duty orders in place against steel imports for more than 40 years.  Is Bethlehem Steel alive today?  No, the orders did not work.

Second, President Reagan mentions the Smoot-Hawley Tariff Act.  The real name of that law is the Tariff Act of 1930, and where are the US antidumping and countervailing duty laws to be found—The Tariff Act of 1930.  Yes, many parts of the Smoot Hawley Tariff Act are alive today.

Finally President Reagan truly predicted the Trade War with China, including the Chinese reaction to the Solar Cells antidumping and countervailing duty cases and the other trade cases against China.  The Solar Cells cases against China has led to the Polysilicon antidumping and countervailing duty cases against the US, wiping out $2 billion in US exports to China.  The Section 421 Tires case described below led to Chinese antidumping and countervailing duty cases against automobiles and chicken from the US.

The Trade War with China truly has become a pie fight in the old Hollywood comedies– “Everything and everybody just gets messier and messier,” but the sad part is that it costs jobs.

TRADE

SOLAR CELLS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN

On December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan with alleged antidumping rates of 298%.

The antidumping and countervailing duty petition covers crystalline silicon photovoltaic products, including solar cells, modules and panels,  from China and Taiwan.  The specific products covered by the new antidumping and countervailing duty investigations are:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

“Also excluded from the scope of this investigation are any products covered by the existing antidumping and countervailing duty orders on crystalline silicon photovoltaic cells, whether or not assembled into modules, from the People’s Republic of China- case numbers A-570-979 and C-570-980.”

Attached is a copy of the injury petition.  AD CVD CASE SOLAR WORLD TAIWAN AND CHINA

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days.  Chinese companies also must be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 3, 2014, the US International Trade Commission issued the attached notice regarding the preliminary injury investigation in the new Solar Cells, Modules and Panels case against China and Taiwan.  USITC Solar Panels PRELIMNARY NOTICE  The ITC’s preliminary conference is scheduled for January 21st in Washington DC.

If anyone is interested in participating in the case at the ITC or the Commerce Department, please feel free to contact me.

FIRST SOLAR CELLS CASE–REVIEW REQUESTS

In the first Solar Cells case, the first annual review investigations have just started up, which will determine the actual liability of US importers for antidumping and countervailing duties on their imports.  On December 31, 2013, Solar World and the other US solar cell producers filed the attached letters requesting that the Chinese companies named in the letters be included in the review investigations. AD SolarWorld Review Request-12-31-13 SolarWorld CVD Review Request-12-31-13

If you are a Chinese producer/exporter and you are named in the letter, you must partcipate in the review investigation or you will lose your 24% antidumping rate and your new rate will be 250%.  If you are an importer of solar cells during the specific review periods and your Chinese suppliers are named in these letters, you must make sure that they participate in the review investigations.  If your suppliers do not participate, the antidumping rate will go from 24% to 250% and you the importer will be retroactively liable for the difference plus interest.

TRADE NEGOTIATIONS—BALI/DOHA ROUND AND TPP

In the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) negotiations.  Both negotiations could have a major impact on China trade.

Attached is an article that I have written together with a Canadian trade and customs lawyer about the impact of the TPP from both the US and Canadian point of view.FINAL ARTICLE TPP US CHINA

DOHA ROUND-BALI

From China’s point of view, the WTO negotiations in the Doha Round are extremely important.  The only way that China can deter many trade actions is to work within the multilateral framework to reduce trade barriers to Chinese products.

Multilateral WTO negotiations are even more important for China because of the ongoing TPP negotiations, which at this moment do not include China.  As indicated in my attached article on the TPP, the US and other countries see the TPP negotiations as one way to offset China’s rise in the trade area.

But multilateral and bilateral trade negotiations are by their nature a give and take.  All countries in the negotiations have to be willing to reduce some of their own trade barriers to persuade other countries to lower their trade barriers.  No country wins or loses on all issues.  By their nature, trade negotiations involve tradeoffs.

So the WTO and TPP trade negotiations are going to be of continued interest to Chinese companies and US importers.

WTO NEGOTIATIONS-BALI

As mentioned in a past post, the United States Trade Representative (“USTR”) pointed to the coming World Trade Organization (“WTO”) multilateral negotiations in Bali on trade facilitation measures, which would streamline customs procedures, as being very important as well as the proposed Trans-Pacific Partnership with 11 other Pacific Rim countries, which were “posed to close”.

On November 27, 2013, however, there were reports that the WTO multilateral negotiations in Bali had broken down, in part over the Trade Facilitation report.  But those statements were premature.

On December 6, 2013, WTO members announced that a Trade Facilitation Agreement had been struck by the member countries.  This would be the first WTO-wide agreement in the organization’s nearly two decade history.  Round-the-clock negotiations at the conference led to the so-called Bali package -the first membership-wide agreement since the WTO was created in 1995.  The Bali Package includes measures on trade facilitation, intended to streamline customs and other procedures that affect the shipment of goods across borders, as well as provisions on agriculture and economic development.

“For the first time in our history: the WTO has truly delivered.” WTO Director-General Roberto Azevedo said in a December 5th statement. “I challenged you all, here in Bali, to show the political will we needed to take us across the finish line. You did that. And I thank you for it.”

The WTO was able to overcome objections from Cuba, Venezuela, Bolivia and Nicaragua because it did not address a U.S. embargo against Cuba, which has been in place for more than 50 years, and other trade embargoes.  The agreement was to add an additional sentence in Bali deal’s text that upheld the “principle of non-discrimination in goods in transit.”

India also raised concerns over part of the package’s agriculture section that dealt with agricultural subsidy programs that some developing countries offer to promote “food security” and combat hunger.

Those concerns, however, appeared to have been largely addressed in the draft text circulated December 3rd, which contained an interim agreement, under which WTO members would refrain from lodging disputes against developing countries that stockpile crops as part of a food security program, as long as the subsidies do not distort trade.

The Peterson Institute for International Economics said an ambitious agreement on trade facilitation could add $960 billion to the world economy.  But the symbolism is more important.  The Bali Agreement is very important for both developed and developing countries.  Many of the FTA agreements, such as the ongoing TPP agreements, could hurt the developing countries the most.  The movement of both the TPP and the Trans- Atlantic Agreement puts more pressure on the WTO countries to reach a deal.

The importance of the Bali Agreement is that it means the WTO can still be an effective forum for truly multilateral trade negotiations.  If no deal had been reached in Bali, this could have led to the collapse of the WTO as a multilateral forum to negotiate reductions of trade barriers.

In a speech in Bali, WTO Director-General Roberto Azevedo stated, “What’s at stake is the cause of multilateralism itself”

TPP NEGOTIATIONS RUN INTO HEADWINDS

The USTR and US government officials were predicting that the Trans Pacific Partnership (“TPP”) negotiations would conclude at the end of the year with an Agreement.  That was simply too optimistic.  Secret negotiations are going to generate controversey.

On December 10th, the Trade Ministers for the 12 countries negotiating the TPP announced in Singapore “substantial progress” in the talks, but there would be no deal by the end of the year.  In a joint statement, the Ministers indicated that they had engaged in productive discussions, identifying potential solutions to a number of outstanding obstacles, but more meetings would be held in 2014.

Rep. Sander Levin, D-Mich., the top Democrat on the Ways and Means Committee of U.S. House of Representatives, indicated that critical work lay ahead, especially the continued closure of Japan’s market to U.S. cars and agricultural products, the implementation of enforceable labor and environmental rules, and strict rules on currency manipulation and state-owned enterprises.

South Korea has indicated interest in the talks, but it is unlikely that any other country would join the agreement while the talks are still ongoing.  Presently, the TPP negotiations include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The two most important countries for the US, however, are Japan and possibly Vietnam.  Japan is important because of decades long problems involving automobiles and agriculture products, and Vietnam because as a non-market economy Communist country, it could be a forerunner to China.

 On December 10th Ways and Means Committee Chairman Dave Camp (R-MI) stated that there had been significant progress in the Singapore Round and countries will continue their work in January.

“The headway achieved so far on TPP is positive, but more work remains. There are longstanding issues that need to be resolved, like access for U.S. automakers and farmers, and we should take the time to get this agreement right. I look forward to consulting with Ambassador Froman when he returns on the next steps. Concluding these negotiations, as well as other trade agreements, will require Congressional passage of Trade Promotion Authority legislation. Given the considerable bipartisan and bicameral progress that has been made on that front, I expect we will be in a position to do so early next year if we have the Administration’s active participation.”

In addition, Congressional leaders announced that they had come to agreement on providing the Administration Trade Promotion Authority or Fast Track Authority.

But the TPP then ran into headwinds.

AGRICULTURE

On December 19, 2013, American Farm Bureau Federation, American Meat Institute, American Soybean Association, International Dairy Foods Association, National Association of Wheat Growers, National Cattlemen’s Beef Association, National Chicken Council, National Corn Growers Association, National Milk Producers Federation, National Oilseed Processors Association, National Pork Producers Council, National Turkey Federation, North American Meat Association, U.S. Dairy Export Council, U.S. Grains Council, U.S. Wheat Associates, USA Rice Federation announced that they would oppose the TPP if a final version did not require Japan to eliminate tariffs on virtually all US agricultural exports.

In the attached letter AG LETTER TO USTR to U.S. Trade Representative Michael Froman, the seventeen agriculture industry groups stated:

“Dear Mr. Ambassador:

We are writing to express our concern with the state of play of the Trans-Pacific Partnership (TPP) negotiations. Each of our organizations has expressed in the past strong support for a comprehensive, high-standard TPP agreement. However, we have watched with growing alarm the unwillingness of Japanese negotiators to present a comprehensive offer on agricultural products, and we now believe this situation is threatening to undermine the negotiations.

In previous negotiations, the United States has demanded and received from developing country trading partners full and comprehensive liberalization in the agricultural sector. Yet in the TPP negotiations, Japan – a rich, developed country – is demanding special treatment for its agricultural sector. We consider an agreement that includes such special treatment for Japan to be unacceptable.

If Japan is allowed to claim exceptions for sensitive products, other TPP partners will inevitably demand the right to do the same. This could quickly lead to the unraveling of the agreement, as other parties pull their offers on sensitive products, or their concessions on sensitive issues, off the table.

However, even if it were possible to prevent the agreement among current parties from unraveling, granting exceptions to Japan, or any other party, would have far-reaching consequences. As the TPP expands to include other countries in the Asia-Pacific region, we can expect other countries with sensitivities in the agricultural sector, such as China, to make similar demands. Moreover, a weak agreement with Japan would inevitably have significant negative implications for our ability to reach an acceptable agreement with the EU in the Transatlantic Trade and Investment Partnership negotiations.

U.S. agriculture has always supported trade agreements and Trade Promotion Authority as the most effective means of eliminating tariff and non-tariff barriers and expanding global trade. However, the market access package you negotiate with Japan has the potential to impact billions in future exports and hundreds of thousands of jobs.

In conclusion, TPP must include comprehensive liberalization in the agricultural sector by all participating countries. If Japan continues to insist on unreasonable protections to a range of agricultural categories, we ask you to consider concluding TPP without Japan. It will ultimately be difficult for our organizations to support a TPP agreement with Japan that does not include comprehensive trade liberalization for all agricultural sectors.”

This is an extremely important development because US agriculture is the primary force pushing for Free Trade Agreements.  If the farmers do not support the TPP, there will be no agreement.

UNIONS

On December 9th, The International Association of Machinists and Aerospace Workers (“IAM”), which represents around 700,000 current and former industrial workers, announced that the TPP would be a job killer, leading to a massive loss of American jobs.  The IAM argued that past trade deals did not create jobs and has lead to a “death sentence” for American workers.

The IAM stated that it is strongly opposed to the revival of “fast-track” authorities that expired in 2007 and “If TPP is implemented, U.S. manufacturing may well find itself on the endangered species list.”

DRUGS AND IP

On December 11, 2013, potential provisions in the TPP on drug patent protections and the length of copyright terms came under fire with Democratic lawmakers, library associations and consumer groups voicing concern over proposals that are currently on the table.

Several Democratic Congressmen urged USTR to reconsider its reported proposals for handling pharmaceutical patents in the TPP. CONG LETTER A number of libraries, digital rights and consumer groups argued against a copyright protection for a term of 70 years after the creator of a particular work dies.

Representative Henry Waxman, D-Calif and Senator Orrin Hatch, R-Utah sent separate letters arguing for and against the proposal of a 12-year market exclusivity period for biologics – drugs developed through biologic processes that can be used to treat diseases like cancer and rheumatoid arthritis.  Waxman argues for 7 years and Hatch is arguing for 12 years.

As Representative Waxman states in the attached letter Waxman TPP Drug IP Letter:

“The United States only recently established its biosimilars pathway when it enacted the Patient Protection and Affordable Care Act (PPACA) (Pub. L. No. 111-148) and the consequences of PPACA’s mandated twelve years of biologics exclusivity are not yet known.

Proposing twelve years of exclusivity in the context of TPP negotiations would conflict with stated Administration policy, as reflected in President Obama’s FY 2014 budget proposal, recommending that the exclusivity period for biologics be reduced to seven years. Were the TPP ultimately to contain a twelve year biologics exclusivity provision, it would impede the ability of Congress to achieve the President’s proposed seven year change because doing so would run afoul of U.S. trade obligations.

As we have discussed before, it is also critical that USTR ensure that developing countries are not left behind in this agreement. The United States must ensure that the TPP does not result in generic medicines becoming available in TPP developing countries later than in the United States. In addition, the patent flexibilities available to developing nations in the Doha Declaration on Public Health should not be denied or weakened in the agreement.”

SECTION 421 SPECIAL SAFEGUARD PROVISION AGAINST CHINA EXPIRED ON DECEMBER 11, 2013

On December 11, 2013, Section 421 of the Trade Act of 1974, a special safeguard law against China, expired as a result of provisions in the US China WTO Agreement.  The safeguard allowed the President to impose higher tariffs and other trade relief if the US International Trade Commission (“ITC”) determined that increased imports from China caused or threatened material injury to a US industry.

Although there were several affirmative ITC Section 421 determinations during the Bush Administration, President Bush refused to provide relief.  The provision resulted in trade restrictions only once, when President Obama approved an ITC determination that the importation of Chinese rubber tires was injuring U.S. tire manufacturers.

Many US tire producers, however, were opposed to the Section 421 case, but the Unions were very much in favor of the relief, which President Obama issued to counter criticism in an election year that he was not tough enough on China.

President Obama’s decision to impose relief in the Tires case, however, resulted in the Chinese government bringing antidumping and countervailing duty cases against the United States on automobiles and chicken.  The Chicken AD and CVD orders in China continue to block approximately $1 billion in the US exports of chicken to China.

SILICA BRICKS

On December 12, 2013, in another surprising decision, the ITC in 6-0 unanimous determination reached a negative injury determination in the antidumping case on silica bricks from China.  ITC NEGATIVE SILICA BRICKS The ITC negative determination followed a Commerce Department affirmative determination issuing Chinese companies antidumping rates ranging from 63.81 to 73.1% on imports of silica bricks.

JANUARY REVIEW INVESTIGATIONS

On January 2, 2014, the Commerce Department issued its monthly notice stating that Chinese companies and US importers that want review investigations in the following investigations should file such a request by the end of the month.  The specific antidumping and countervailing duty investigations at issue are:

Antidumping Investitgations

On THE PEOPLE’S REPUBLIC OF CHINA:
Crepe Paper Products, A-570-895………………    1/1/13-12/31/13
Ferrovanadium, A-570-873…………………….    1/1/13-12/31/13
Folding Gift Boxes, A-570-866………………..    1/1/13-12/31/13
Potassium Permanganate, A-570-001………………..    1/1/13-12/31/13
Wooden Bedroom Furniture, A-570-890………………    1/1/13-12/31/13

Countervailing Duty Proceedings

THE PEOPLE’S REPUBLIC OF CHINA:
Certain Oil Country Tubular Goods, C-570-944…..    1/1/13-12/31/13
Circular Welded Carbon Quality Steel Line Pipe, C-   1/1/13-12/31/13
570-936…………………………………..

SHELLFISH

On December 5th, the Washington State Government reported that on December 3 the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Canada, Washington, Oregon, and northern California.  WASHINGTON SHELLFISH ANNOUNCE

China reported a shipment of geoducks tested high in paralytic shellfish poison (PSP) and arsenic.

The Washington Government has stated that it is working with the U.S. Food and Drug Administration, the National Oceanic and Atmospheric Administration, and its state partners gathering facts, tracing the geoducks to the original harvest area, and closely reviewing its PSP test data.

On December 20th, Washington State and tribal officials closed a 135-acre geoduck-harvesting area outside Federal Way Washington until they could fully investigate the toxicity levels that caused China to ban shellfish imported from the West Coast.

Washington State officials learned that arsenic was the toxin Chinese authorities detected in a shipment of geoduck clams to China from Washington’s Poverty Bay.

That shipment, along with one from Ketchikan, Alaska, led China on Dec. 3 to ban all imports of shellfish harvested in Washington, Alaska, Oregon and Northern California.

The Washington Department of Health traced the shipment back to 385 pounds of geoduck harvested in October by the Puyallup Tribe in Poverty Bay on what the Department of Natural Resources calls the Redondo Tract.

“There are no federal safety standards at all for arsenic in shellfish because it is not something that is typically an issue,” said Tim Church, the health department’s director of communications. “With the tests that we’ve done in the past, we’ve never found levels of arsenic that would be a concern for eating shellfish.”

China has not said when it will lift the ban on West Coast shellfish.

The Chinese government’s decision to ban all shellfish harvested from Northern California to Alaska would appear to be excessive, but that decision must be taken in context.

Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

CHINESE TEXTILE MANUFACTURER MOVES TO—SOUTH CAROLINA

In a bright spot, it has been reported that a Chinese yarn maker has decided it can make more money setting up shop in the US in South Carolina.  Keer Group Co., a yarn spinning factory in Hangzhou, China, has moved to South Carolina.

A number of Asian textile manufacturers have decided to set up production in the U.S. to save money as salaries, energy and other costs rise at home. Keer has invested $218 million to build a factory in Lancaster County, not far from Charlotte, N.C. The new plant will pay half as much as Mr. Zhu does for electricity in China and get local government support, he says.  Keer expects to create at least 500 jobs.

In another benefit, Keer can ship yarn to manufacturers in Central America, which, unlike companies in China, can send finished clothes duty-free to the U.S.

In September, JN Fibers Inc. of China agreed to build a $45 million plant in South Carolina that turns plastic bottles into polyester fibers used to stuff pillows and furniture. That investment is expected to create 318 jobs.

Keer stated costs for industrial land in Hangzhou have increased because China’s textile industry is plagued by overcapacity, which has squeezed profits, and local governments are reluctant to sell land to producers.

The local government in South Carolina, which has 8.1% unemployment, has set an annual fixed fee in lieu of taxes that Keer will pay for 30 years. Sixty percent of that annual fee will be returned to the company each year until it has paid off a $7.7 million bond that the county issued to help buy the land.

MAKING OF A T-SHIRT

The reality of interdependence in our Trade World is illustrated by the attached video from the Colbert Report, which traces the production of a T-shirt sold in the United States from the cotton produced in the US to cloth produced in Indonesia to the T-shirt produced in Bangledesh. http://www.colbertnation.com/the-colbert-report-videos/431141/december-10-2013/alex-blumberg

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.

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

We will be targeting two major issues—Working for market economy treatment for China in 2016 and working against retroactive liability for US importers. The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

CHINESE ANTIDUMPING CASE

CHICKEN

In response to a WTO determination, on December 27, 2013, MOFCOM announced that it would reinvestigate the antidumping and countervailing duties on chicken from the US, specifically against white-feather broiler chicken products from the U.S.

CUSTOMS

INSURANCE COMPANY LIABLE FOR NEW SHIPPER ANTIDUMPING DUTIES IN CRAWFISH CASE

In an antidumping new shipper review investigation on Crawfish from China, a US importer, New Phoenix, posted eight single-transaction bonds issued by Great American to cover seven entries of crawfish tailmeat, with a value of $1,219,458 for each bond or a total of $6,097,290 in liability.  When the importer could not pay, the US Customs Service sued the insurance company for the amount of the bonds plus interest.

In attached decision, the Court of Appeals for the Federal Circuit orders Great American to pay the $6 million plus postjudgment interest.  INSURANCE COMPANIES OWE AD DUTIES

RHINO HORN

On December 19, 2013, the US Justice Department announced that Zhifei Li, the owner of an antique business in China, had pled guilty to being the organizer of an illegal wildlife smuggling conspiracy in which 30 rhinoceros horns and numerous objects made from rhino horn and elephant ivory worth more than $4.5 million were smuggled from the United States to China.  See attached Justice Department notice.  RHINO HORN

Li was arrested in Florida in January 2013 on federal charges brought under seal in New Jersey.  Shortly after arriving in the country, he pled guilty to a total of 11 counts: one count of conspiracy to smuggle and violate the Lacey Act; seven counts of smuggling; one count of illegal wildlife trafficking in violation of the Lacey Act; and two counts of making false wildlife documents.

Li was arrested as part of “Operation Crash” – a nationwide effort led by the USFWS and the Justice Department to investigate and prosecute those involved in the black market trade of rhinoceros horns and other protected species.

Acting Assistant Attorney General Dreher for the Justice Department’s Environment and Natural Resources Division stated:

The take-down of the Li smuggling ring is an important development in our effort to enforce wildlife protection laws. Rhino horn can sell for more than gold and is just as rare, but rhino horn and elephant ivory are more than mere commodities. Each illegally traded horn or tusk represents a dead animal, poaching, bribery, smuggling and organized crime. The Justice Department will continue to vigorously enforce the law designed to protect wildlife. This is a continuing investigation.

In pleading guilty, Li admitted that he sold 30 smuggled, raw rhinoceros horns worth approximately $3 million –approximately $17,500 per pound – to factories in China where raw rhinoceros horns are carved into fake antiques known as Zuo Jiu (which means “to make it as old” in Mandarin).  In China, there is a centuries-old tradition of drinking from an intricately carved “libation cup” made from a rhinoceros horn. Owning or drinking from such a cup is believed by some to bring good health, and true antiques are highly prized by collectors. The escalating value of such items has resulted in an increased demand for rhinoceros horn that has helped fuel a thriving black market, including recently carved fake antiques.

PATENT/IP AND 337 CASES

NO 337 VIOLATION IF IMPORTED PRODUCT ON ENTRY DOES NOT INFRINGE THE PATENT

On December 13, 2013, the Court of Appeals for the Federal Circuit (CAFC) in the attached Suprema, Inc. and Mentalix Inc. vs. ITC held that an exclusion order based on a violation of § 337(a)(1)(B)(i) may not be predicated on a theory of induced infringement where no direct infringement occurs until post-importation.  CAFC Slip Opinion 12-1170 SUPREMA INC – CROSS MATCH v ITC

The patents at issue concern fingerprint machines.  The Suprema fingerprint machines had multiple uses, but after the fingerprint machines were imported into the United States, software from Mentalix was applied to the Suprema fingerprint machines, resulting in infringement of patents held by a US company.  The ITC found that Suprema and Mentalix had violated section 337 based on an induced infringement theory and issued an exclusion order.

The CAFC determined not so fast.  Section 337 is also a trade statute, and the Commission’s authority in section 337 cases is based on its jurisdiction over the imported products.  According to the CAFC, however, the imported products have to infringe the patent at the time the products are imported into the US, especially where the imported product has multiple uses and the only infringing use happens after the product is imported into the US.

As the CAFC stated in its opinion:

“The Commission’s mandate to deal with matters of patent infringement under § 337(a)(1)(B)(i) is thus premised on the “importation,” “sale for importation,” or “sale within the United States after importation” of “articles that . . . infringe.” . . . Thus, the Commission’s authority extends to “articles that . . . infringe a valid and enforceable United States patent.” The focus is on the infringing nature of the articles at the time of importation, not on the intent of the parties with respect to the imported goods.  . . .

Given the nature of the conduct proscribed in § 271(b) and the nature of the authority granted to the Commission in § 337, we hold that the statutory grant of authority in § 337 cannot extend to the conduct proscribed in § 271(b) where the acts of underlying direct infringement occur post-importation. Section 337(a)(1)(B)(i) grants the Commission authority to deal with the “importation,” “sale for importation,” or “sale within the United States after importation” of “articles that . . . infringe a valid and enforceable U.S patent.” The patent laws essentially define articles that infringe in § 271(a) and (c), and those provisions’ standards for infringement (aside from the “United States” requirements, of course) must be met at or before importation in order for the articles to be infringing when imported. Section 271(b) makes unlawful certain conduct (inducing infringement) that becomes tied to an article only through the underlying direct infringement. Prior to the commission of any direct infringement, for purposes of inducement of infringement, there are no “articles that . . . infringe”—a prerequisite to the Commission’s exercise of authority based on § 337(a)(1)(B)(i).

Consequently, we hold that the Commission lacked the authority to enter an exclusion order directed to Suprema’s scanners premised on Suprema’s purported induced infringement of the method claimed in the ’344 patent.”

The key point is that section 337 is not just an intellectual property statute; it is also a trade statute.  Section 337, just like the antidumping and countervailing duty law, regulates imports, and thus the CAFC is stating that since 337 is a trade statute, the product must be infringing at the time of importation.  If the infringement happens after importation, that can be a real problem for the US patent holder in a 337 case.

337 CASE RESULTS IN ANTITRUST RETALIATION IN CHINA

As indicated below, Interdigital has filed a section 337 case against Huawei.  Huawei retaliated by filing an antitrust case in China under Chinese law.  The Chinese government’s antitrust authority, NDRC, is now threatening jail time to Interdigital executives.

What is worse is that on December 20th, in the attached decision the ITC rejected Interdigital’s complaint and found no violation of section 337 so Interdigital lost the section 337 case, but is stuck with a Chinese antitrust case.  ITC NOTICE INTERDIGITAL  Sometimes you bite off more than you can chew.

NEW 337 CASES AGAINST CHINESE COMPANIES

On December 11, 2013, Tyco filed a new 337 case against imports of certain surveillance systems.  One of the respondents is Ningbo Signatronic Technologies, Ltd., China.

The ITC notice is set forth below:

Docket No: 2990

Document Type: 337 Complaint

Filed By: Brian R. Nester, Sidley Austin LLP

Behalf Of: Tyco Fire & Security Gmbh (TFSG), Sensormatic Electronic, LLC

(Sensormatic) and Tyco Integrated Security, LLC (TIS)

Date Received: December 11, 2013

Commodity: Acousto-Magnetic Electronic Article Surveillance Systems

Description: Letter to James R. Holbein, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Acousto-Magnetic Electronic Article Surveillance Systems, Components Thereof, and Products containing same. The proposed respondents are: Ningbo Signatronic Technologies, Ltd., China; All-Tag Security Americas, Inc., Boca Raton, Florida; All-Tag Security Hong Kong Co., Ltd., Hong Kong; All-Tag Europe SPRL; Brussels; All-Tag Security UK Ltd., United Kingdom; Best Security Industries, Delray Beach, FL; and Signatronic Corporation, Boca Raton, FL.

 

On December 18th, Pragmatus filed a section 337 case against ZTE on Wireless Devices.  The notice is below:

Docket No: 2992

Document Type:337 Complaint

Filed By:Anthony Grillo

Firm/Org:Marino and Grillo LLC

Behalf Of:Pragmatus Mobile, LLC

Date Received:December 18, 2013

Commodity:Wireless Devices, including Mobile Phones and Tablets II

Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Wireless Devices, Including Mobile Phones and Tablets II. The proposed respondents are Nokia Corporation (Nokia Oyj), Finland; Nokia, Inc., Sunnyvale, CA; Samsung Electronics Co., Ltd, Korea; Samsung Electronics America, Inc., Ridgefield Park, NJ; Samsung Telecommunications America, L.L.C., richardson, TX; Sony Corporation, Tokyo; Sony Mobile Communications AB, Sweden; Sony Mobile Communications (USA), Inc., Atlanta, GA; ZTE Corporation, China; and ZTE (USA) Inc., Richardson TX.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On December 2, 2013, Chanel filed a major trademark suit against a number of John Doe Unknown companies that were infringing its trademarks.  CHANEL TMK CHINA In the Complaint Chanel states:

“Defendants are partnerships or unincorporated business associations, which operate through domain names registered with registrars in multiple countries, commercial internet e-stores via the third party marketplace website C2Coffer.com, and commercial Internet auction store via the third party marketplace website iOffer.com, and are comprised of individuals and/or business entities of unknown makeup, all of whom, upon information and belief, reside in the People’s Republic of China or other foreign jurisdictions with lax trademark enforcement systems.”

On December 3, 2013, Concinnnitas and George W. Hindman filed patent cases against Huawei Device USA Inc. and ZTE. CONCINNATIS HUAWEI CONCINNATIS ZTE

On December 11, 2013, in addition to the 337 case Tyco sued Ningbo for patent infringement in Federal District court.  NINGBO PATENT

On December 12, 2013, US company Harmonic Drive LLC filed a trademark case against NAC Harmonic Drive, Inc., Harmonic Drive Canada and Beijing CTKM Harmonic Drive Co.  HARMONIC DRIVE

On December 18, 2013 Content Guard Holdings, Inc., filed a patent case against Huawei Device USA and other companies. CONTENT GUARD HUAWEI

On December 17, 2013, Microsoft sued Sichuan Changhong Electric Co., Ltd. for software piracy. MICROSOFT STOLEN SOFTWARE

ANTITRUST

VITAMIN C CASE

As mentioned, the Vitamin C case is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  VITAMIN C FINAL JUDGMENT

On December 30, 2013, the Judge amended the order to add an additional $4,093,163.35 to pay the legal fees of the lawyers bringing the case against the Chinese companies.  See the attached documents.  ATTORNEYS FEES VITAMIN C FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment.

Boies Schiller, the Plaintiffs’ lawyer, also announced on December 11th that it was paying associate bonuses that were as high as $300,000, with the average distribution across the litigation firm’s 133 associates at $85,000.

It pays to sue Chinese companies.

CHINA ANTITRUST CASES

As mentioned in the last post, Qualcomm, a US mobile chip maker, announced that it is the target of an antitrust investigation led by the National Development and Reform Commission (“NDRC”), China’s top economic planning body and antitrust authority.  Also Cisco announced that Chinese companies are reducing their purchases of Cisco equipment in response to the N.S.A. disclosures and the recent US Congressional activity aimed at curtailing purchases of equipment from Huawei and other Chinese companies.

There are three Chinese government entities entrusted with investigating and enforcing the Chinese Anti-Monopoly Law, which was passed in 2007: the State Administration for Industry and Commerce, the Ministry of Commerce, and the NDRC.  The fact that the antitrust investigation is coming from the NDRC, which is in charge of price supervision and inspection, suggests that the government’s objective is to make 4G service more affordable before its introduction next year.

This year, the commission led an inquiry into six foreign dairy companies, including Mead Johnson Nutrition and Groupe Danone, after allegations that they broke anti-monopoly rules and fixed prices.  The investigation resulted in a fine of $109 million, a record for anti-monopoly violations in China.

Now China is using antitrust cases to counterattack 337 patent cases.

INTERDIGITAL—CHINA BRINGS ANTITRUST CASES IN RESPONSE TO 337 CASE

In July 2011, Interdigital filed a section 337 patent case at the US International Trade Commission (“ITC”) against Huawei.  In response, on December 5, 2011, Huawei filed two complaints before the Shenzhen Intermediate People’s Court (the Shenzhen Court) in China, alleging that, by filing the section 337 case and engaging in certain patent practices, InterDigital had (1) abused its dominant market position, contrary to the Anti-Monopoly Law of the People’s Republic of China (AML), and (2) as an owner of several Standard Essential Patents (“SEP”) for 2G, 3G and 4G telecommunications technologies, it had failed to negotiate a fair, reasonable and non-discriminatory license for those patents.

On February 4, 2013, the Shenzhen Court ruled that InterDigital had abused its dominant market position and thus violated the Chinese Anti-Monopoly Law by  tying its standard essential patents with non-standard essential patents during licensing negotiations and seeking injunctive relief against Huawei before the US Federal Court and in the section 337 case before the US ITC while still in negotiations with Huawei to force Huawei to accept unreasonable licensing terms, including excessive royalties.

InterDigital’s requirement that Huawei pay significantly (sometimes even 100 times) higher royalty rates than those required of Apple, Samsung and other companies for the same set of patents, even while Huawei’s global sales were much less than Apple and Samsung, appeared to the Courts to be prima facie evidence of discriminatory treatment. In addition, the Courts noted that InterDigital had also required Huawei to license back all of its global patents on a royalty-free basis (as of 31 December 2010, Huawei owned 31,869 Chinese patents, 8,892 PCT international patent applications and 8,279 overseas patents). To the Court, this appeared contrary to fair or reasonable principles.

The Shenzhen Court ordered InterDigital to cease its unlawful practices and pay Huawei $3.2 million in damages.

On October 28, 2013, there were reports that that the Guangdong Higher People’s Court affirmed most of the rulings of the Shenzhen Court, including the $3.2 million award in damages.

 Unfortunately, the decisions of both the Shenzhen Court and the Guangdong Higher People’s Court have not been publicly disclosed, possibly because of trade secret issues. Thus the following observations are based on media reports and an article by a Chinese attorney.

Apparently, the Chinese Court determined that the owner of a Standard Essentials Patent has a 100 per cent market share in the technology licensing market for that SEP and, therefore, a monopoly, no matter how the market is defined.   If the holder of the Standard Essentials Patent tries to extract supra competitive royalties from industry participants, that is abuse of monopoly power.  In addition, apparently, the Chinese courts determined that by seeking injunctive relief at the ITC under 337 against Huawei, a willing licensee, the conduct constituted an abuse of the Chinese Anti-Monopoly Law.

Both the EC Competition Commission and the FTC have been concerned about the use of standard essential patents to exclude competition.

It should also be noted that the Chinese courts were also concerned that InterDigital’s principal business is patent licensing and that it does not manufacture any product. As a result, Huawei was in a weak bargaining position during licensing negotiations because cross-licensing would not be available, and InterDigital could make use of this advantage to extract more favorable contract terms from Huawei. The Shenzhen Court apparently found that InterDigital had tried to exploit this advantage, by insisting on unreasonably high royalties and requesting Huawei to license back its patents on a royalty-free basis.

There are reports that Qiu Yongqing, a senior judge at the Guangdong Higher People’s Court presiding over the case, is reported to have stated that Huawei “used antitrust law as a weapon to counterattack” monopolization by multinationals in the technology sector, and that other Chinese companies should learn from Huawei.

On December 16, 2013, the dispute between Interdigital and Huawei escalated. In a letter to the NDRC, Interdigital’s CEO announced that it would not send executives to a December 18th meeting with Chinese authorities over China’s monopoly investigation due to threats of possible imprisonment of Interdigital executives, which allegedly included U.S. counsel accompanying the firm to the meeting.

In a statement, CEO William Merritt said:

“To this date, we have cooperated fully with the NDRC’s investigation of our company, and continue to believe that we have done absolutely nothing wrong . . .  However, we are simply unable to comply with any investigation that is accompanied by a threat to the safety of our executives.”

Interdigital’s letter indicated also that the NDRC had informed it that its probe was sparked by InterDigital’s suit in the U.S. International Trade Commission against Chinese firms.

Meanwhile, there are reports out of China that the NDRC will recruit at least 170 new employees for the antitrust law enforcement team to battle price fixing.  The NDRC said its antitrust probes focus on six industries – aerospace, daily chemicals, automobiles, telecommunications, pharmaceuticals and home appliances.

Thus if a US Company brings a 337 IP case at the ITC against Chinese companies, it should be prepared for a possible antitrust case in China.

What goes around, comes around. 

SECURITIES

Attached is a description of Dorsey’s litigation team to handle for Chinese companies US Securities and Exchange Commission (“SEC”) and Class Actions Securities cases.  DORSEY SECURITIES LITIGATION TEAM

CHINESE AUDIT DOCUMENTS TURNED OVER TO SEC

On December 13, 2013, it was reported that Chinese governmental authorities have turned over more audit documents to U.S. regulators regarding U.S.-traded Chinese companies as part of a sweeping U.S. probe of accounting fraud by Chinese companies publicly traded in the US.

Audit documents regarding at least six Chinese companies trading on U.S. exchanges now have been either turned over to U.S. regulators or are “in the pipeline” to be furnished to the Securities and Exchange Commission (“SEC”).

The fight for the audit document resulted from SEC efforts to probe a wave of accounting and disclosure problems at more than 100 U.S.-traded Chinese companies that surfaced starting in 2011. U.S. investors lost billions of dollars when the companies’ stocks plunged once the problems were disclosed. The SEC has filed more than a dozen lawsuits against some of these Chinese companies and their executives and has won settlements in some cases.

But the investigations have been impeded because China-based audit firms, including Chinese affiliates of the Big Four, have refused to hand over audit documents to the SEC out of fear that providing the documents would violate China’s strict state-secrecy rules, which could land their auditors in jail.

Ultimately, that dispute led to the agreement earlier this year, which addressed the audit firms’ concerns by having them give the documents to Chinese regulators, who then would provide them to the U.S.

SERVING CHINESE COMPANIES IN SECURITIES AND OTHER US LITIGATION BY J. JACKSON, DORSEY LITIGATION PARTNER

SERVICE ISSUES IN US LITIGATION AGAINST CHINESE COMPANIES

By

J. Jackson, Partner and Chairman of Dorsey’s China Litigation Practice

Attached is a copy of the opinion in Bravetti v. Liu (D.N.J. December 11, 2013), SERVICE CHINESE RESPONDENTS Bavetti v Liu  which may be of interest to Chinese companies.  In Bravetti, Plaintiffs proceeding derivatively on behalf of American Oriental Bioengineering, Inc. sued current and former officer and directors, each of whom is a resident of the PRC.  The matter came before the Court, Magistrate Judge Bongiovanni, on Plaintiffs’ motion to allow service on the individual defendants by personally serving the U.S. counsel for the company, American Oriental.  Defendants opposed the motion, arguing that the Hague Convention provides the exclusive means for service of process on PRC’s residents and that service on U.S. counsel for the company did not comport with due process.  The Court rejected Defendants’ arguments and allowed service to proceed by personal service on U.S. counsel for the company.

Plaintiffs brought their motion under Rule 4(f)(3) of the Federal Rules of Civil Procedure, which provides,

“(f) Serving an Individual in a Foreign Country. Unless federal law provides otherwise, an individual—other than a minor, an incompetent person, or a person whose waiver has been filed—may be served at a place not within any judicial district of the United States:

*    *     *

(3) by other means not prohibited by international agreement, as the court orders.”

The Court allowed the requested service using the following analysis:  It began by acknowledging, “Courts may direct service when ‘the particularities and necessities of a given case require alternative service of process.’  See Rio Properties, Inc. v. Rio Int’l Interlink, 284 F.3d 1007 at 1016 (9th Cir. 2002).”

The Court further held that alternative service of process was not prohibited by the Hague Convention.  The Court noted that the Hague Convention does not apply “’where the address of the person to be served is not known.’”  Hague Convention, Art. 1.  Here, service was difficult under the Hague Convention, because the residences of the Defendants in the PRC was not known.  Further, the Court found that the Hague Convention does not apply because Plaintiff’s proposed method of service does not require the transmittal of documents abroad.  Under Khachatryan v. Toyota Motor Sales, U.S.A., Inc., 578 F.Supp.2d 1224, 1228 (C.D. Cal. 2008), the Hague Convention did not apply where Khachatryan served Toyota Japan under California law in a manner which did not require the transmittal of documents abroad.  Here, the proposed method to serve Loeb & Loeb in the United States does not require the transmittal of documents abroad.  Thus, the Hague convention does not apply.

The Court last addressed Defendants’ Due Process argument, finding that service on the Company’s U.S. counsel is “reasonably calculated, under the circumstances, to apprise interested parties of the pendency of the action and afford them the opportunity to present their objections.”  Mullane v. Central Hanover Bank &Trust Co., 339 U.S. 306, 314 (1950).  In finding service on the company’s counsel appropriate here, the Court relied on opinions from the United States District Court for the Central District of California, including Brown v. China Integrated Energy, Inc., 285 F.R.D. 560, 566 (C.D. Cal. 2012) (citations omitted) and Rose v. Deer Consumer Products, Inc., 2011 WL 6951969, at *2 (C.D. Cal 2011), both of which allowed service on U.S. registered agents or counsel for individuals residing in the PRC.

Bravetti’s holding should not be limited to Securities derivative litigation.  Whenever a plaintiff finds itself faced with service on PRC residents who, either individually, by agency, or through direct or indirect counsel have a presence in the U.S., that plaintiff will be encouraged to proceed under Civil Procedure Rule 4(f)(3) and seek permission to allow service on their agents, their counsel, or the agents or counsel of the companies on which they serve.

Chinese companies need to keep these issues in mind when they participate in US litigation.

SEC ENFORCEMENT ACTIONS

Tom Gorman, a partner in our Washington DC office, who was originally with US Securities and Exchange Commission’s (“SEC”) enforcement division, was quoted in the attached article about how the SEC has increased its enforcement capability after the Bernie Madoff case.  GORMAN SEC

COMPLAINTS

On December 2, 2013, the attached class action securities case was filed by John Hsieh against NQ Mobile and various individuals.  HSIEH NQ MOBILE

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

Best regards,

Bill Perry

 

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