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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US CHINA TRADE WAR–Trump, Trade Policy, NME, TPP, Trade, Customs, False Claims, Products Liability, Antitrust and Securities

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MARCH 11, 2016

MOVING TO NEW LAW FIRM, HARRIS MOURE

Dear Friends,

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

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

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

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

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

Bill Perry

TRADE UPDATES

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

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

The petition alleges that the Chinese companies:

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

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

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

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

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

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

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

The ITC notice is as follows:

Tuesday, April 26, 2016

Commodity: Carbon and Alloy Steel Products

Pending Institution

Filed By: Paul F. Brinkman

Firm/Organization: Quinn Emanuel Urrquhart & Sullivan LLP

Behalf Of: United States Steel Corporation

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

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

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

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

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

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

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

Best regards,

Bill Perry

Dear Friends,

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

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

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

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

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

March 11 Blog Post

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

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

Best regards,

Bill Perry

THE TRUMP IMPACT ON US TRADE POLICY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Why is trade such a volatile issue this year?

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

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

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

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

For the full article, see

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

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

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

Disney employees being fired and forced to retrain foreign replacements;

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

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

In two word, this is economic nationalism.

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

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

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

Reason 5:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Trans Pacific Partnership (“TPP”)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CHINA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE REASON

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

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

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

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

CURRENCY MANIPULATION

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

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

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

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

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

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

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

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

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

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

CYBER HACKING

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

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

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

DUMPING

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

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

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

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

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

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

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

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

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

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

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

THE ANSWER

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

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

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

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

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

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

TPP TEXT AND TRADE ADVISORY REPORTS

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

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

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

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

NEW TRADE AND CUSTOMS ENFORCEMENT BILL

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

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

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

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

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

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

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

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

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

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

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

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

The Federal Register notice states:

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

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

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

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

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

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

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

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

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

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

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

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

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

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

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

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

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

  • Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRADE

RAW ALUMINUM PROBLEMS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE ONGOING STEEL CASES

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

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

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

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

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

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

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

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

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

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

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

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

Antidumping and countervailing duty cases do not save US industries.

CUSTOMS NEW “LIVE ENTRY” PROCEDURES FOR STEEL IMPORTS

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

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

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

SOLAR CELLS REVIEW DETERMINATION

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

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

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

MARCH ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

CUSTOMS

RICO ACTION AGAINST CHINESE GARLIC EXPORTERS

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

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

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

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

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

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

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

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

CUSTOMS PROTEST RULE APPEALED TO SUPREME COURT

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

FALSE CLAIMS ACT

GRAPHITE ELECTRODES

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

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

IP/PATENT AND 337 CASES

NEW 337 CASES

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

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

CRIMINAL PATENT CASES

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

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

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

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

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

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

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

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

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

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

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

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

PRODUCTS LIABILITY CASES AND LACY ACT VIOLATIONS

THE RISE OF CHINESE PRODUCTS LIABILITY INSURANCE

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

PRODUCT LIABILITY COMPLAINTS

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

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

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

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

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

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

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

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

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

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

ANTITRUST

There have been developments in the antitrust area.

CHINESE BAUXITE EXPORTERS WIN ANTITRUST CASE

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

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

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

The Judge went on to state:

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

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

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

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

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

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

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

CHINESE COMPANIES SETTLE SOLYNDRA SOLAR CASE

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

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

CHINA ANTI-MONOPOLY CASES

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

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

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

SECURITIES

US LISTED CHINESE COMPANIES MOVING BACK TO CHINA TO RAISE MONEY

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

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

FOREIGN CORRUPT PRACTICES ACT

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

China

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

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

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

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

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

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

China

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

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

SECURITIES COMPLAINTS.

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

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

Best regards,

Bill Perry

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

Summer Palace Clear Blue Sky Beijing, China“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—MAY 6, 2014

Dear Friends,

There have been major developments in the trade, solar cells, US/Chinese antitrust, and securities areas.

REASON FOR THIS NEWSLETTER

Some readers have commented that this newsletter is too long and should be broken up into separate parts. I disagree. Although separate sections are clearly marked so that readers can review the section of interest, this newsletter and my blog will cover all the different legal areas, because these different legal areas are interrelated. The evidence is that we have a trade war and Chinese government officials look at all the legal areas as a whole not in small parts.

Many US lawyers and government officials have been able to downplay the interrelationship of the various trade issues by saying, “This is an antidumping/trade issue or this is an antitrust/competition issue.”

The problem is that many Chinese government and corporate officials do not view the overall trade relationship with the United States in neat separate legal boxes. The Chinese look at the relationship overall, and this newsletter started up because when one follows the situation it is obvious that the trade war is spreading into many different legal areas. As one Chinese antitrust lawyer told me, the Chinese look at their antitrust/antimonopoly law as a “weapon” in the trade war. One only has to look at the article below by Peter Corne on the “Dawn Raids” under Chinese antitrust law to see how serious the situation is.

The Commerce Department’s decision over the last 30 years to use bogus surrogate values to create a fake cost of production to wipe out billions of dollars in Chinese imported products from the United States is not fair or just and has goaded the Chinese government into responding. The Chinese Government understands that the only issue that the US Government respects is political power. So if the US can twist its trade law for industrial policy and protectionist purposes, the Chinese can twist their trade, antitrust and other laws for industrial policy and protectionist purposes. What goes around does indeed come around.

More importantly, many Americans simply do not understand the importance of the Chinese market to many US companies. At a recent speech in Washington DC, one high level US government official told me that the Chinese had to be attracted to the US market because it was so much bigger than the Chinese market. The times they are a changing.

As an example, on May 3, 2014, in the attached article in the Minneapolis Star Tribune Medtech Industry Is Booming in China about the importance of the Chinese medical market to Minnesota medical device producers, the reporter states:

“Med-tech industry is booming in China . . .

A Chinese market for medical technology used to be on the long list of lofty goals for devicemakers like Medtronic. Now U.S. medtech firms are seeing double-digit growth as they partner with Chinese manufacturers, purchase Chinese companies and race to educate and woo Chinese doctors and patients eager to tap the latest technology.

A growing Chinese middle class and increasing investment in health care by the Chinese government are making such devices as pacemakers, defibrillators, insulin pumps and spine products accessible to hundreds of millions of new patients.

More-familiar factors play a role, too, as the nation falls prey to such chronic ailments as heart disease and diabetes, meaning even more customers will lean on technology from U.S. devicemakers to prolong and improve their lives.

Fridley-based Medtronic, for one, is banking on this. China is the linchpin in Medtronic CEO Omar Ishrak’s emphasis on building business in emerging markets. Medtronic’s China revenues have shot from $50 million a decade ago to $800 million today.

“China is clearly a unique opportunity and one of four regions around the world we’re targeting for expansion,” Ishrak said at Medtronic’s 2013 annual shareholders meeting. China — growing at 15 to 20 percent a year — now accounts for 40 percent of Medtronic’s emerging-market revenue. Emerging markets make up 10 percent of all Medtronic business.

You’re talking about more than 1 billion people who need care,” Ishrak said more recently, referring to China and India.

“With globalization, the key to sustainable growth in emerging markets will be addressing the barriers of access to lifesaving medical technology.”

The burgeoning Chinese middle class is estimated to number more than 400 million people — larger than the entire population of the United States. That middle class is demanding better access to health care, and the Chinese government has responded by pledging to spend $125 million over the next three years, promising that all citizens will have access to basic health care by 2020. . . .”

The size of the Chinese market gives the Chinese government leverage in trade talks with the US. As indicated below, 49% of Qualcomm’s $24.9 billion in sales came from China during 2013.

TRADE

POLICING CUSTOMS/ANTIDUMPING VIOLATIONS

What happens when a Chinese exporter/producer with a low antidumping rate it obtained from the Commerce Department or a US importer that is playing by the rules see that other Chinese companies or US importers are not playing by the rules and are transshipping merchandise through Malaysia, for example, or playing other trade games to evade US trade and customs laws?   In that situation, a US importer or Chinese exporter has several options to stop Chinese companies and US Importers using an illegal and unfair advantage to evade an Antidumping Order using transshipment or some other false statement to US Customs and Border Protection (“CBP”).

Each one of these offensive options will require as much evidence as the Chinese exporter/producer or US importer can assemble to go forward with that step. Each step will also depend upon how much legal fees the company is willing to pay.  The bigger the project the more the fees, but also the possibility of a large reward.

The first option is to simply gather as much evidence as the company has about the Chinese companies and the importers that are involved.  The lawyer then can put the evidence together and contact the lawyers for the Petitioners in the Antidumping Case in question to pass the information on so that they can contact US Customs.   This is the least expensive option, but once the evidence is given to the Petitioners it is gone. The Chinese company or the US importer gets nothing and there is very little chance that it will ever learn what has happened in any investigation.

The second option is to gather the evidence and file an e-allegation at Customs. The lawyers prepare a submission based on the company’s evidence and other evidence that is gathered from the internet and elsewhere.  In the Submission, the lawyers describe to Customs what they know and then they lay back and see what happens.

In conjunction with the second option, the lawyers may also want to file a claim for compensation to Customs under 19 USC 1619 and 19 CFR 161.12.  There is a cap on recovery, however, of $250,000.

Keep in mind, however, that the problem with the first two options is that the company may not know whether Customs does anything or not.  Customs considers investigations, such as transshipment investigations of importers, to be confidential because they could lead to criminal proceedings.  Therefore, Customs is very reluctant to tell the informant anything.  In conjunction with the company’s e-allegation, the company can meet with Customs and tell them about their concerns, but Customs will keep its mouths closed.

The third option, which is more expensive, is to mount an investigation of the Chinese and Malaysian companies and US importers, using private detectives, to gather evidence.  This investigation then leads to a filing under the False Claims Act as a relator under Seal in the Federal District Court under 31 USC 3729 and 3730.   The remedy in a False Claim Act is triple damages plus attorney’s fees and the relator is entitled to 15 to 30% of any recovery by the US Government. Based on the complaint, the US government will initiate an investigation of the Customs violations.

Attached is a Stipulation filed on April 21, 2014 in the case of Protective electronics case maker Otter Products LLC, Stipulation, which has just paid $4.3 million to settle a former employee’s allegations that it violated the False Claims Act and the Tariff Act of 1930 by knowingly underpaying customs duties owed to Customs.  As the relator, the former employee is entitled to 15 to 30% of any recovery plus attorney’s fees, which probably means that the employee will get about $1 million.  Not bad.

But False Claims Act cases require evidence and can be difficult to win in the Antidumping context, because the US government must prove that the importer knew that the imports in question were really coming from China.

But in False Claims Act cases, since the relator is a party to the litigation, the Justice Department and Customs may reveal a little more information about the issues and problems that they are facing in the investigation itself.  If the Justice Department decides to move forward, they will often issue Civil Investigative Demands/Subpoenas so the importers will be under a lot of legal pressure in the case. Imports from the target country can slow down and stop as importers became scared of potential liability, including criminal liability.

Because the legal fees can be high in an FCA case, for a small importer or Chinese exporter, it will be important to look for allies, other importers or foreign producers/exporters that are facing competition from the illegal imports.  When you have several companies in a Coalition with common concerns, the legal fees are much lower and the other companies can help gather more evidence and information increasing the chance that Customs will stop the imports and that damages can be recovered.

In the late 1980s, I published an article on the High Cost of Customs Fraud, which goes into more details on these points.  See Perry Article.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS – THE FORGOTTEN SUCCESSFUL TRADE PROGRAM

As mentioned in my last newsletter, the Trade Adjustment for Firms (“TAAF”) program is the only Trade Program that works. In my over thirty years of experience in the international trade area, first in the US Government and later defending US importers companies in antidumping cases, there is one overarching lesson that I have learned–protectionism simply does not work. US industries that cannot compete in global markets cannot run from global competition by bringing trade cases.

These cases simply fail to protect the domestic industry from import competition. In response to antidumping orders, Chinese furniture and tissue paper companies have moved to Vietnam, where labor rates are LOWER than China. In the polyethylene shopping bags case, one US importer moved a substantial amount of supply from China to India, Sri Lanka and other countries. While in private practice and later at the International Trade Commission (“ITC”) and Commerce Department, I watched Bethlehem Steel bring more than a hundred antidumping and countervailing duty cases against steel imports from various countries, receiving protection, in effect, from imports for more than 30 years. Where is Bethlehem Steel today? Green fields. When faced with import competition, it is simply too difficult to bring antidumping cases against all the countries in the world, which have lower priced production than the US.

If antidumping and other trade tariffs do not work, what does work? Some point to trade adjustment assistance for employees, a one billion dollar program that helps workers that have been displaced by imports. The problem is the jobs have already been lost. The training is often for jobs that do not exist.

There is another, little known, less costly alternative that saves jobs before they go down the drain—the Trade Adjustment Assistance for Firms program. This program has a proven track record for directly helping US companies that have been injured by imports before there is a massive lay-off or closure, yet it does not restrict imports in any way. Total cost to the US Taxpayer for this nationwide program is 16 million dollars—truthfully peanuts in the Federal budget

Although at first glance, free market advocates would not support this program, TAA for Firms works. I am on the Board of Directors of the Northwest Trade Adjustment Assistance Center (“NWTAAC”), one of eleven regional centers with an annual budget of about a million dollars. NWTAAC, however, published a cost/benefit analysis, which shows that nearly 80 percent of the firms it has assisted since 1984 are still in business. That is eight out of ten companies saved.

In the recent annual Commerce report on TAAF, which is attached to my last post, it is reported that all US companies that joined the program in 2011 were alive in 2013. If the company can be saved then most of the jobs at that company can be saved. This is much more efficient and cost effective than TAA for Workers. The Federal government saves money because there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.

The success of TAA for Firms is based on the fact that it focuses on the U.S. manufacturers, service companies and agricultural producing firms individually. The recovery strategy is custom-made for each firm. Once this strategy is approved by the Commerce Department, experts are hired to implement the strategy. The only interaction the program has with the imports is to verify that imports are “contributing importantly” to the sales and employment decline of the U.S. company.

The recovery strategies are also imaginative. A hydroelectric dam was designed for a sheep rancher, who built the dam with his own money and now receives six figure payments per year from electricity sold to supplement his cash flow from his sheep operations.

To qualify for TAA for Firms, the company has to show a five percent decline in sales or production and a five percent decline in employment, compared to the same period one year earlier. This is a much lower standard than for a large trade case, which requires an entire U.S. industry to show material injury or serious injury. Even if sales are up, if a single product line which comprises 25 percent or more of total sales has declined, that will also qualify the company.

Once the DOC approves the firm’s petition, the Trade Adjustment Assistance Center analyzes the strengths and weaknesses of the company. The Center then, working closely with the company, helps it develop a recovery strategy to compete with the imports. When this strategy is approved by the Commerce Department, experts are hired to implement the strategy. The amount of federal assistance is limited to $75,000, which the company must match, but it is the strategic planning and access to the industry experts that helps the company adjust to the import competition at the company level. The Center then monitors the progress of these consultant projects until completed. This helps to ensure success and is one of the few government programs that does monitor the progress. Although the program cannot purchase “hard assets” for the company nor can it give cash to the company, because of the industry experts that can be used to turn a company around, the program has had a tremendous success rate.

Thus, an aluminum smelter used the program to translate its website into eight different languages. In response to increased imports from Norway and Chile, with the help of the program a salmon fisherman, is now providing eco-tours, and another salmon fisherman has developed labels that are in compliance with the marketing and health requirements for the new export markets for their canned salmon. A wire harness manufacturer also received lean manufacturing design and implementation resulting in increased productivity, increased sales and profit, as well as, recovery of all lost jobs due to imports.

These companies are around today because they have learned, with the help of a Federal program, to deal with globalization and not just to run and hide behind protective trade measures.

In 1984, the Reagan Administration appointed Jim Munn to head up the Northwest Trade Adjustment Assistance Center, probably with the purpose of closing it, and the entire program down. The Reagan Administration was dead set against government involvement in the marketplace. Jim Munn, however, discovered unexpectedly that the program worked and instead of killing it, stayed on to head up NWTAAC for 22 years.

Although free market ideology is important, when a program works it should not be ignored, it should be given the resources it needs to prosper and flourish. While this will not work for every US industry, US businessmen might be well-advised to find the entrepreneurial advice they need to stay in business from the TAA program rather than reaching for a trade lawyer to solve the problem. Most U.S. companies simply need a little guidance to be successful in the international marketplace.

For my letter to the Wall Street Journal on the TAAF program, see attached.  FEBRUARY242011TAACLETTERWSJ – Perry

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

As mentioned in past posts, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations.  These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

As mentioned, in my February post, the day after President Obama pushed the TPA in the State of the Union, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

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

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

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

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track. But to date no details have been given about exactly what Smart Track will mean, other than more oversight by Congress and input by the Public in the trade negotiations.

Now the story continues . . . .

On April 10, 2014, ranking Democrat Sander Levin of Michigan spoke about the TPA and the TPP at the Center for American Progress.  In that speech Representative Levin stated:

“No matter where you stand in the debate over trade and globalization all should agree that the status quo is unacceptable. The status quo is low tariffs in our market with imports – often traded unfairly – causing job loss and contributing to income inequality. The status quo is markets closed to U.S. goods and services through tariffs and non-tariff barriers and currency imbalances contributing to huge trade deficits. To make matters worse, many of our trading partners today are negotiating preferential trade agreements with one another that do not include the United States. That means that our exporters could face higher tariffs in those countries than other countries’ exporters. And, the status quo is exemplified by the Rana Plaza disaster in Bangladesh where workers with no rights in the workplace sacrificed their lives on the job.

TPP provides us with an important opportunity to change the status quo and to improve the way the global economy works. If done right, TPP can help level the playing field, to better ensure two-way trade, strengthen the rules of competition, and reflect our values.

The TPP opportunities are real. For example, U.S. dairy producers see an opportunity to remove Canadian tariffs in the range of 250 to 300%, and non-tariff barriers, which have survived two previous U.S.-Canada trade agreements. U.S. auto producers see an opportunity to remove Malaysian tariffs of up to 35% and nontariff measures that significantly raise the cost of American cars sold there. . ..

There can only be one negotiator, but those negotiations must be built on a strong foundation with the Congress that has to approve the final product. With TPP negotiations too far along for Congress to set the initial terms or negotiating objectives, we must now join in a full partnership. …

We need a structure. We need responsibility, accountability, and ownership.

Because TPP addresses a broad range of policy areas, more Members of Congress must play a key role –and Congress as a whole must play a greater role – in TPP. We need to involve the Members of our committees with jurisdiction over trade, but also Members of other committees that have expertise with the issues under negotiations, and other Members also have important roles to play. . . .

We all recognize that globalization is here to stay and that we can’t simply accept the status quo. The question is: what are we prepared to do about it? Are we going to stand on the sidelines and let the polarization too often endemic to trade debates prevail? Are we going to settle for the slogans that trade is bad or the broad brush rhetoric that more trade is always better?”

On April 28, 2014, it was reported that in the mid-term campaigns Democrats are arguing that if the Senate becomes Republican an all Republican-controlled Congress along with compliant President Barack Obama will mean the Trade Agreements will pass. In effect, Democratic candidates argue that they should stay in power to keep the country protectionist and to prevent President Obama from giving away the store on key policy issues, including trade.

Rep. Gary Peters, a Democrat running for Senate in Michigan, reportedly is openly campaigning against the president’s free-trade agenda. Peters argues:

“If a Republican Congress establishes a goal of working with the president on trade, it will certainly facilitate” passing fast-track trade authority”

On April 30, 2014, Chairman Camp of the House Ways and Means Committee stated:

“We also have opportunities to pursue new trade agreements . . .Trade Promotion Authority is an important tool to moving these agreements forward, and yet, here again, we have seen little to no action from the Administration on the Hill. The Administration must actively engage with Congress on TPA so we can move these job-creating agreements forward.”

On May 1, 2014, the Senate Finance Committee held a major hearing. A video of the hearing can be found on the internet at http://www.finance.senate.gov/hearings/hearing/?id=3064b778-5056-a032-523b-0d5505711ac5.

Statements by Democratic Chairman Senator Wyden and Republican ranking member Senator Orrin Hatch along with the testimony of USTR Froman are attached below. Senator Wyden stated in part in his attached opening statement WydenTradeHearingStmt :

“For decades ,American trade policy has been a story of adaptation and change. In particular, the extraordinary economic changes of the last generation demonstrate how important it is that future trade policies are reformed to reflect the times. . . .

over the previous decade,currency manipulation has reemerged as a major concern for the U.S. economy. China made commitments to follow global trade rules when it joined the World Trade Organization in 2000. But when it comes to currency,as in so many other areas, China is keeping a finger firmly planted on the scale and undermining those commitments. Pick a product manufactured in China and imported to the U.S. –any product–and currency manipulation makes it artificially cheaper. That is hurting American workers’ ability to compete.

Finally, unlike 20 years ago, Americans expect to easily find online the information they want on key issues like trade. Yet too often, there is trade secrecy instead of trade transparency. It’s time to more fully inform Americans about trade negotiations and provide our people more opportunity to express their views on trade policy. Bringing the American people into full and open debates on trade agreements that have the effect of law is not too much to ask. . . .

Here’s my bottom line. The new breed of trade challenges spawned over the last generation must be addressed in imaginative new policies and locked into enforceable, ambitious, job-generating trade agreements.They must reflect the need for a free and open Internet, strong labor rights and environmental protections. Nations don’t dismantle protectionist barriers or adopt these rules on their own. They do so with reciprocal agreements hammered out through negotiation. America must establish new rules to reflect today’s trade norms and enforce them.”

Other than more transparency, however, Senator Wyden did not spell out the details of his new Smart Track initiative.

Republican Senator Orrin Hatch stated in part in his attached opening statement 5.01.14 Hatch Opening Statement on Administration’s Tradey Policy Agenda:

“President Obama’s trade agenda is extremely ambitious. If it succeeds,it will help shape global trade patterns for decades to come. If it fails, it will result in billions of dollars of missed economic opportunity for American workers and job-creators.

Of course, the President’s term is not yet over and the jury is still very much out. Even so, I am concerned.

First and foremost, the fact that Trade Promotion Authority, or TPA, is not renewed creates a serious,and perhaps fatal, flaw in the President’s trade agenda. I do not believe you can conclude high-standard agreements that will meet Congress’ approval without TPA. And, I am not the only one who holds this view. . . .

Ambassador Froman, I have no doubt in your capabilities or those of your staff, but history tells us very clearly that, without TPA, your trade agenda will almost certainly fail. That is why I am very disappointed in the President’s passive approach on this issue.

I am sure you can remember the enormous political effort President Clinton put into successful implementation of the North American Free Trade Agreement. And I am sure you can also recall President Bush’s total political commitment to renewing TPA in 2002. In those cases, war rooms were established and each cabinet secretary made Congressional approval of those initiatives a public priority.

Put simply, we are not seeing that level of commitment from President Obama, which is disappointing. And, without more effort on the part of the administration, I don’t think we can succeed. . . .”

USTR Froman stated in part in his attached opening statement FROMAN STATE:

“The Obama Administration has a strong record of success in promoting U.S. exports and creating jobs here at home. Over the past four years, U.S. exports have increased by nearly 50 percent – four times faster than our economy as a whole – reaching a record high of $2.3 trillion in 2013. In fact, a third of our total economic growth is attributed to this increase in U.S. exports.

Exports mean jobs. Each $1 billion in exports supports 5,400-5,900 U.S. jobs. U.S. exports have supported 1.6 million additional private sector jobs since 2009 – that means a total 11.3 million Americans now owe their jobs to exports, and those jobs pay 13-18 percent more on average than non-export related jobs. . . .

As we pursue this agenda, we will continue to consult with Congress and seek input from a wide range of advisors, stakeholders, and the public at large. We have held over 1,250 meetings with Congress about TPP alone – and that doesn’t include the meetings we’ve had on T-TIP, TPA, AGOA, and other initiatives. Our Congressional partners preview our proposals and give us critical feedback every step of the way. We also ensure that any Member of Congress who is interested has access to the negotiating text and the opportunity to receive detailed briefings by our negotiators.

Further, we have cast a wide net to draw in the views of stakeholders and the public more generally, and to share information with them. We have solicited public comments regarding negotiating aims and objectives through notices in the Federal Register; public hearings; open invitations to stakeholders to meet with U.S. and foreign negotiators at negotiating rounds; the dissemination of trade policy updates through press releases, fact sheets, blog posts, statements on USTR’s website – and, yes, tweets; and direct and constant outreach by U.S. trade officials to solicit, obtain, and incorporate public input in the course of their daily work. Most recently, we published detailed goals and objectives for T-TIP negotiations that outline what we are seeking in every chapter of the agreement. . . .

Finally, let me say a word about Trade Promotion Authority (TPA). TPA is the mechanism by which Congress has worked with Presidents since 1974 to give the Executive its marching orders about what to negotiate, how to work with Congress before and during the negotiations, and how Congress will take up and approve or disapprove the final agreement. There is no other area of policy that reflects closer coordination between the Executive branch and Congress than trade policy.

The last TPA legislation was passed over a decade ago. Much has changed since that time, from the May 10, 2007 agreement on labor, environment, innovation, and access to medicines to the rise of the digital economy and the increasing role of SOEs. We agree with the broad group of stakeholders that these issues should be reflected in a new TPA bill.

Issues raised by the emergence of the digital economy and the increasing role of SOEs in the global economy should be part of the statutory negotiating objectives. And there are new forms of protectionism which threaten U.S. exports, which should be reflected as well.

We have heard from many that TPA needs to be updated. We agree. The Administration welcomed the introduction of bipartisan TPA legislation in January, and looks forward to working with this Committee and Congress as a whole to secure TPA that has as broad bipartisan support as possible. We also look forward to renewing Trade Adjustment Assistance (TAA), which helps provide American workers with the skills to compete in the 21st century. “

 

During the May 1st hearing, Senator Chuck Schumer made it very clear that without agreement to curtail currency manipulation in the TPP, he and many others in Congress will not approve the TPP Agreement. In response to a question from Senator Schumer, USTR Froman stated that currency manipulation has not been discussed yet in the TPP. Senator Stabenow in a follow up stated that 60 Senators and over 200 Representatives in the House have sent letters to President Obama stating that currency manipulation must be addressed in the TPP.

MAY ANTIDUMPING ADMINISTRATIVE REVIEWS

On May 1, 2014, Commerce published in the attached Federal Register notice REVIEW REQUESTS regarding antidumping and countervailing duty cases for which reviews can be requested in the month of May. The specific antidumping and countervailing duty cases against China are: Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Certain Citrate Salts, Iron Construction Castings, Oil Country Tubular Goods (“OCTG”), Pure Magnesium, and Stilbenic Optical Brightening Agents.

For those US import companies that imported aluminum extrusions, including curtain walls and other products, citric acid, OCTG and the other products listed above from China during the period May 1, 2013-April 30, 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

In the recent final determination in the Wood Flooring Case, for example, although the rates were very low for many Chinese exporters, only 5%, 20 Chinese exporters had their rates go to 58% because they did not participate in the review investigation and did not file a no shipment certification, separate rate application or separate rate certification at the Commerce Department.

SOLAR CELLS/SOLAR PRODUCTS FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASES

In April seven US Senators from Montana, Washington State and other States sent the attached letter SENATORS SOLAR LETTER to Vice President Biden asking for help in settling the Solar Cells and Solar Products antidumping and countervailing duty cases against China. In that letter, the Senators state:

“Thank you for your on-going efforts to support the growing solar industry in the United States. We appreciated your willingness to bring the solar trade dispute to the attention of Chinese leaders during your visit to China late last year.

We write because the dispute with China over solar goods continues to escalate, and we believe your leadership is critical to resolving the current situation. China continues to demonstrate an unwillingness to settle the dispute until our domestic solar industry presents unified proposals that remove existing trade restrictions. Therefore, in order to align the domestic solar industry, we ask you to bring folks together to develop a negotiated settlement that will lead to growth in all aspects of the solar industry. The full support of the White House is needed to lay the groundwork for a long-term settlement with China.

Earlier this year, the Department of Commerce commenced another round of antidumping investigations into Chinese solar panels, which will likely lead to additional tariffs and further retaliations from the Chinese. Continuing to let this dispute play out one case at a time will limit job growth and it may even lead to job loss.

The solar industry is experiencing remarkable growth. In fact, the industry employed over 140,000 workers last year, a 20 percent increase from the previous year. We want to see all areas of the industry continue to create high-paying jobs for Americans. From panel sales and installation to panel and component manufacturing, growth in the solar industry is an outstanding opportunity to create high-paying jobs and to enhance our energy security. That is why it is critical that the administration engage with all U.S. stakeholders to resolve this trade dispute as quickly as possible.”

As mentioned by the Senators, Solar World and the US Solar Cell producers are battling installers and developers and other solar cells/products users and the US producers of Polysilicon in Washington, Montana and other states, who are being wiped out of China by Chinese antidumping and countervailing duty cases.

There have been efforts to negotiate a settlement with the Chinese government, but to date each effort has failed. The problem is that in contrast to the EU, Canada and China, for example, there is no public interest test in US antidumping and countervailing duty law. Thus, the U.S. government cannot legally compel SolarWorld to accept the Agreement. In fact, the petitioner, SolarWorld, would ultimately have to agree to any settlement agreement reached between the U.S. and China.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

Two Congressmen have now agreed to meet importers in the New Jersey/NY area and in the Long Beach area to listen to their grievances regarding the US antidumping and countervailing duty laws. We are now contacting many 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.

As indicated above, at the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement. 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 newsletters we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

THE HYPOCRISY OF US PRISON LABOR ALLEGATION REDUX

In my last post, I reported that at a recent Housewares Show in Chicago, the Program Manager of the Business Development Group of the US Justice Department’s Federal Bureau of Prisons was going booth to booth saying that the prison factories run by the Justice Department’s Bureau of Prisons in the United States could match any Chinese price with US prison labor.

Apparently, some US producers have taken the bait. It has been reported that Don Finkell, one of the persons behind the Woodflooring from China antidumping and countervailing cases, WOODFLOORING PRISON LABOR has come out of retirement to reenter the wood flooring business. Finkell has a new company, American OEM Wood Floors, and he sees an opportunity in the growing private-label business that has been dominated by Chinese companies. “What we’re talking about doing is to give an alternative to private-label programs that is domestically produced.” Finkell plans to use a model that he is familiar with: prison labor. The company has leased a former prison furniture factory in Only, Tenn., from the state of Tennessee, and plans to use what is referred to in the state as “offender labor,” as well as civilian workers. This marks the eighth and most sophisticated prison plan Finkell has created.

Slave/Prison labor is acceptable if it is used to compete against Chinese imports and the US industry.

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

With regards to the Chinese ban on shellfish from the West Coast, the latest report is that the Chinese government will not lift the ban until government officials have implemented testing for inorganic arsenic in geoducks from Washington and the rest of the Northwest.

PATENT/IP AND 337 CASES

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING ZTE

On April 14, 2014, Borden Co. (PTE) Ltd., a Singapore company, and Anhing Corporation, a California company, filed a trademark infringement and counterfeiting case against Grandway Enterprises, a Nevada corporation, and Hing Yip, a Chinese company. HING YIP

On April 15, 2014, Long Corner Consumer Electronics LLC filed a patent infringement case against ZTE (USA) Inc. ZTE LONG

On April 22, 2014, BLK DNM Group. LLC filed a trademark infringement case against Sweetyet Development Ltd., a Hong Kong company. SWEETYET HK CHINA

On April 23, 2014, Vstream Technologies LLC filed a patent infringement case against ZTE and other high tech companies. VSTREAM ZTE COMPLAINT

On April 25, 2014, Thomas & Betts International LLC and Thomas & Betts Corp. filed a trademark infringement and unfair trade practices case against Burndy LLC, Hubbell Inc., 3M Co., and Zhejiang Shangyu City Fengfan Electrical Fittings Co., Ltd. THOMAS BETTS ZHEJIANG

On April 28, 2014, Cyber Acoustics LLC and Cyber Acoustics HK Ltd., a Hong Kong corporation, filed a trademark infringement and false designation of origin against Shenzhen Fenda Technology Co., a Chinese corporation.SHENZHEN FENDA

On May 1, 2014, a patent infringement case was filed by Cordelia Lighting, Inc. against Zhejiang Yankon Group Co., Ltd. d/b/a Energetic Lighting, a China company, and Yankon Industries Inc., a California corporation. CORDELA YANKON

BANKING

On April 29, 2014, the US Justice Department filed the attached money laundering complaint against Shanghai Pudong Development Bank and the Bank of China seeking the forfeiture of certain funds as property involved in money laundering and as proceeds of violations of the United States sanctions laws and regulations and of the United States laws against wire fraud and bank fraud.  CHINA MONEY LAUNDERING COMPLAINT According to the US Government, the claims arise out of a scheme by a Chinese national to evade US export laws and commit fraud and money laundering by supplying various metallurgical goods and related components to Iran.

ANTITRUST

REHEARING EN BANC—LCDS CASE

On April 24, 2014, the US Justice Department and the Federal Trade Commission (FTC) asked the Seventh Circuit for a rehearing en banc to reconsider a ruling blocking Motorola liquid crystal display price-fixing claims, saying the decision threatens the government’s enforcement efforts related to foreign cartels.

The DOJ and the FTC argued that the panel’s decision undermined the government’s ability to prosecute cartels that harm consumers that increasingly deal with foreign-made components.

In March, the 7th Circuit ruled that the Foreign Trade Antitrust Improvements Act barred Motorola from seeking damages from Samsung Electronics Co. Ltd., LG Display Co. Ltd. and other LCD makers for panels sold to the company’s foreign subsidiaries, which were incorporated into mobile devices Motorola eventually sold in the U.S.

In their attached amicus brief ftc doj ftaia brief, the DOJ and the FTC argue that the panel erred in concluding that the FTAIA banned claims based on the price-fixing of a component sold abroad because that sale did not have a direct effect on U.S. commerce. Under the FTAIA, anti-competitive conduct must have a “direct, substantial and reasonably foreseeable effect” on U.S. domestic or import commerce to support a damages claim.

The Justice Department and FTC argue :

“The United States and the Federal Trade Commission enforce the federal antitrust laws and have a strong interest in the correct interpretation of the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA), which added Section 6a to the Sherman Act, 15 U.S.C. § 6a. Section 6a makes the Sherman Act’s other sections inapplicable to conduct involving export or wholly foreign commerce except when that conduct (i) has a “direct, substantial, and reasonably foreseeable effect” on certain U.S. commerce and (ii) that effect “gives rise to a claim.”. . . .

STATEMENT OF ISSUES

1. Whether the panel erred in holding that fixing the price of a component sold abroad cannot have a direct effect on U.S. domestic or import commerce in products incorporating the component.

2. Whether the panel erred in holding that such an effect cannot give rise to an antitrust claim in the United States.

STATEMENT

This case involves a global conspiracy to fix the price of LCD panels incorporated into cellphones and other popular consumer devices. . . . The panel held that Section 6a precludes any antitrust claims for price fixing of products sold abroad, no matter how massively and predictably U.S. consumers were harmed. The panel decision should be vacated. . . .

Congress enacted the Foreign Trade Antitrust Improvements Act of 1982, which added Section 6a to the Sherman Act, with the express purpose to “increase United States exports of products and services,” . . . .Section 6a “seeks to make clear to American exporters (and to firms doing business abroad) that the Sherman Act does not prevent them from entering into business arrangements . . . however anticompetitive, as long as those arrangements adversely affect only foreign markets.” . .. Congress also sought to ensure that purchasers in the United States remained fully protected by the federal antitrust laws. Accordingly, conduct involving “[i]mport trade and commerce are excluded at the outset from the coverage of the FTAIA in the same way that domestic interstate commerce is excluded.” . . . And the FTAIA leaves conduct involving export or wholly foreign commerce inside the Sherman Act’s reach when “the conduct both (1) sufficiently affects American commerce, i.e., it has a ‘direct, substantial, and reasonably foreseeable effect’ on American domestic, import or (certain) export commerce, and (2) has an effect of a kind that antitrust law considers harmful, i.e., the ‘effect’ must ‘giv[e] rise to a [Sherman Act] claim.’” . . . . Motorola Mobility Inc. (Motorola) filed suit against foreign makers of LCD panels in the Northern District of Illinois, alleging that defendants violated Section 1 of the Sherman Act by conspiring to fix the price of LCD panels world-wide from 1996 to 2006.

Motorola alleged that the conspiracy not only raised prices on LCD panels but also led to increased prices on cellphones and other products in which the panels were incorporated, many of which were “specifically destined for sale and use in the United States.” . . . .

Rehearing or rehearing en banc is necessary because the panel decision conflicts with Minn-Chem, Inc. v. Agrium, Inc. . . . and raises exceptionally important questions about the reach of the Sherman Act. The panel decision should be vacated because its resolution of these questions threatens the ability of government law enforcement and private actions to prevent and redress massive harm to U.S. consumers. . . .

In applying the effects exception, this Court has recognized that “domestic and foreign markets are interrelated and influence each other.” . . . Congress created the effects exception because it understood that conduct involving wholly foreign commerce can have significant anticompetitive effects on U.S. domestic or import commerce and wanted that conduct to remain subject to the Sherman Act’s protections. . . .

Applying these principles to the record, the conspiracy’s effect on U.S. commerce in cellphones is direct. The natural and probable consequence of increasing the price of a critical and substantial component like LCD panels is an increase in the price of cellphones. Nor does the effect become speculative or uncertain because it is “mediated” by Motorola’s decision on what price to charge for its cellphones. . . . There is evidence that the overcharges on the price-fixed panels have been passed on to cellphone purchasers in the United States. . . .

This is why the effect on U.S. commerce in cellphones is “doubtless” . . . . Unless vacated, the panel’s narrow view of the statutory term “direct” is likely to constrain the government’s ability to effectively prosecute cartels that substantially and intentionally harm U.S. commerce and consumers, as well as prevent those injured in the United States from redressing that harm. “Nothing is more common nowadays than for products imported to the United States to include components that the producers had bought from foreign manufacturers.” . . . Anticompetitive conduct involving those component purchases often causes significant harm in the downstream consumer markets. . . .

Lastly, the “practical” considerations cited by the panel, including the need to avoid “friction with many foreign countries,” . . . do not support its view that the Sherman Act cannot apply here. Congress “deliberately” phrased Section 6a to “include commerce that . . . was wholly foreign,” . . . leaving the Sherman Act applicable to conduct involving such commerce when it sufficiently affects U.S. domestic or import commerce. It has been well-established since Judge Hand’s opinion in United States v. Aluminum Co. of America. . . that “the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States.” . . .

When enacting the FTAIA, Congress was thus fully aware that “America’s antitrust laws, when applied to foreign conduct, can interfere with a foreign nation’s ability independently to regulate its own commercial affairs,”. . . but nonetheless determined that application of those laws was reasonable when it redressed domestic harm, because of the United States’ interest in protecting U.S. consumers from anticompetitive conduct. . . .

Our “courts have long held that application of our antitrust laws to foreign anticompetitive conduct is nonetheless reasonable, and hence consistent with principles of prescriptive comity, insofar as they reflect a legislative effort to redress domestic antitrust injury that foreign anticompetitive conduct has caused.” . . . . Indeed, the “extraterritorial application of antitrust laws on the basis of the effects doctrine is by now widely accepted” around the world. . . .

As this Court noted in Minn-Chem, it is important for our courts to protect U.S. consumers from foreign price-fixing conspiracies because the price fixers’ host countries “often have no incentive” to enforce their antitrust laws because they “would logically be pleased to reap economic rents from other countries” whose consumers ultimately bear the burden of the inflated prices. . . .”

EXTRADITION OF FOREIGN NATIONAL TO FACE CRIMINAL ANTITRUST CHARGES

On April 4, 2014, the Justice Department announced that it was successful for the first time in extraditing a foreign national to face charges related to a cartel, worldwide antitrust bid-rigging conspiracy related to marine hose sold in the United States.

On April 24, 2014, the Justice Department announced that after extradition from Germany the foreign executive was sentenced to two years in prison.  DOJ MARINE HOSE

CHINA ANTITRUST CASES

Commentators have observed that governments are increasingly using antitrust and other regulatory powers for broader political and economic purposes and following the Commerce Department’s lead, the Chinese government is doing the same.

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 China’s National Development and Reform Commission (NDRC).

On April 18, 2014, Peter Corne, head of Dorsey’s Shanghai office, published the attached article, china-a-new-dawn-in-anti-trust, about “Dawn Raids” by Chinese antitrust authorities. As Mr. Corne states:

“Chinese antitrust regulators have not historically been known to engage in aggressive investigations. Things may be beginning to change. Last year, both Qualcomm and IDC were put under the microscope by PRC National Development and Reform Commission (“NDRC”) officials using tactics more commonly associated with antitrust regulators in the United States and Europe. Here we will describe what happened.

Qualcomm experienced a classic “dawn raid” in November 2013, when NDRC’s special investigation squad swooped upon Qualcomm’s Shanghai and Beijing offices simultaneously, with little or no prior warning, in a seamless, well-orchestrated operation. NDRC officials reportedly seized electronic documents (including pricing and marketing information) and compelled management to provide detailed answers to questions about Qualcomm’s chip pricing and involvement in foreign anti-trust investigations. The NDRC has apparently had Qualcomm in its sights since receiving allegations that Qualcomm had engaged in excessive and discriminatory pricing and imposed unreasonable trade conditions on patent licenses and phone chip sales. Qualcomm could be considered particularly vulnerable to such allegations as it is generally assumed to be market-dominant in the wireless communication “standard essential patents” market.

IDC, in contrast, appeared insulated from such an investigation due to its lack of physical presence in China. But NDRC officials were not deterred. The NDRC filed a case in June 2013, alleging that IDC had abused its market dominance in the telecommunications industry by imposing excessive royalties, and invited IDC senior executives to China for “discussions.” IDC, to its credit, cooperated with the NDRC investigation, and in due course applied for a suspension to the investigation based on a series of voluntary commitments to refrain from charging excessive royalties, bundling essential patents, and requiring mandatory cross-licensing free of charge.

The new threat of aggressive antitrust enforcement is not limited to the NDRC, which is responsible for pricing-related issues. The State Administration for Industry and Commerce (“SAIC”) earlier in 2013 concluded what, to date, can only be described as the “mother” of Chinese anti-trust investigations against Tetrapak. The SAIC reportedly raided two offices of Tetrapak in Shanghai and Kunshan on the same day, 18 April, 2013. During the course of the Tetrapak investigation, the SAIC squad interviewed heads of departments and relevant employees and collected more than 30,000 emails, internal meeting minutes, numerous sales contracts, and other Tetrapak books and records. SAIC investigators even seized deleted emails, which provided the SAIC with important evidence to build its case against Tetrapak.

“Dawn raids” and similar aggressive investigatory tactics are no longer solely a Western phenomenon. They have now come to China and will increase in frequency over time. Companies should analyse whether or not they are at risk of investigation and take precautions through planning and training to ensure that they can respond appropriately when raids occur.”

The attached April Antitrust Report by TD & Associates, a Chinese law firm, TD Monthly Antitrust Report of April 2014, states that antitrust review of mergers by China’s Ministry of Commerce (“MOFCOM”) is slowing up mega international deals:

“China is becoming a big obstacle slowing down the process of global mega deals. Anti-trust experts said that since Chinese anti-monopoly enforcement authorities are comparatively short-staffed but have to supervise a relatively wide range of affairs and take into consideration the effects of transactions on China’s domestic economic development, some large-scale merger transactions have been held up.

These experts said that because of the potential delay in China and the fact that remedies made by transaction parties are always required in order to deal with Chinese anti-monopoly enforcement authorities’ competition concerns, trading advisers are making an attempt to minimize the Chinese government’s impact on transactions and if possible, even avoid review by Chinese anti-monopoly enforcement authorities. . . .

China introduced its anti-monopoly law in 2008. The country’s rapid economic ascent has turned its anti-trust authority into a powerful actor on the world stage. Global companies pay close attention to its merger enforcement because they are eager to increase their market share in China and generally do not want to make divestitures there. Also, China at times has asked for actions that are not required by anti-trust authorities elsewhere. . . .”

TD also reports that recently Chinese antitrust authorities have gone after an International cartel to fix the prices of automobile wheel bearings targeting Svenska Kullager Fabriken (SKF) Schaeffler, Nippon Seikō Kabushiki Kaisha (NSK), NFC, and NTN.

SECURITIES

FCPA

In the attached April 2014 Dorsey Foreign Corruption Digest, FCPA DIGEST, Dorsey FCPA lawyers state regarding China and Hong Kong:

“Claims have been published that employees of the Chongqing plant of Ford Motor Company (“Ford”) may have paid bribes in order to obtain employment with the corporate.

In a statement issued by Ford, it explained that the company takes the allegations very seriously and has initiated an investigation. In the statement, the Ford representative was quoted saying: “any behavior that violates Ford’s policies, such as the alleged behavior, would result in immediate dismissals of employees”.

It was suggested in the report that the making of corrupt payments may be an attractive option for those seeking employment in a large corporation in an attempt to secure a higher salaried job, as there are increasingly fewer opportunities to get a desirable job with an attractive salary in large corporations; most positions are outsourced to employment agencies.

Wages in Chongqing are significantly lower than in other major cities, such as Shanghai. In a city where the minimum wage is just 1,250 yuan per month, a job at Ford is reported to pay 60,000 yuan per year, in addition to overtime and bonuses.

Hong Kong

According to reports, a former licensed representative and a client of the Hong Kong securities firm, Phillip Securities (Hong Kong) Limited (“PSL”) have been charged by the Independent Commission Against Corruption (“ICAC”) with accepting and offering a total of over $365,000 in illegal commissions respectively in relation to trading in securities.

It has been reported that Ching Yim-har, a former licensed representative of PSL, faces two counts of accepting an advantage, contrary to section 9(1)(a) of the Prevention of Bribery Ordinance (“POBO”). Yip Ying-lai, the PSL client, has been charged with two counts of offering an advantage to an agent, in contravention of section 9(2)(a) of the POBO.

It was alleged that during 2007 and 2008, Ching, accepted $99,688 and $265,688 in illegal commissions from Yip as a reward for providing services as a licensed representative in respect of the investment account of Yip held with PSL. The investigation and hearing resulted from a corruption complaint referred by the Securities and Futures Commission (“SFC”).

It is said, the remaining two charges assert Yip offered $99,688 and $265,688 by way of illegal commissions to Ching for the same purpose.

The SFC and the PSL have offered their full assistance to the ICAC during its investigation.”

SECURITIES COMPLAINTS

On April 23, 2014, it was reported that Securities and Exchange Commission (“SEC”) may file an enforcement action over allegations that Qualcomm Inc. bribed individuals with Chinese state-owned companies. According to earnings reports, Qualcomm obtained 49 percent of its $24.9 billion in sales from China during the fiscal year ending September 2013.

On April 30, 2014, Wai Tak Yeung filed a class action securities case against Giant Interactive Group Inc. of Shanghai, Yuzhu Shi, Wei Liu, Xuefeng Ji, Andrew Y. Yan, Peter Andrew Schloss, Jason Nanchun Jiang, Giant Investment Ltd. and Giant Merger Ltd. GIANT CLASS ACTION

On May 1, 2014, a class action securities case was filed by Ashish Anand against Lihua International, Jianhua Zhu and Daphne Yan Huang. Lihua International Inc. is a Delaware corporation that manufactures, markets and distributes refined copper products through its wholly-owned subsidiaries Danyang Lihua Electron Co., Ltd., (“Lihua Electron”) and Jiangsu Lihua Copper Industry Co., Ltd. (“Lihua Copper”).

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

Best regards,

Bill Perry

US CHINA TRADE WAR DEVELOPMENTS–TRADE, IP, ANTITRUST AND SECURITIES

White House Night Pennsylvania Ave Washington DC

“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER–APRIL 15, 2014

Dear Friends,

There have been major developments in the trade, Chinese Antidumping, 337, litigation, US/Chinese antitrust, and securities areas.

TRADE

THE ANTICOMPETITIVE IMPACT OF US ANTIDUMPING LAW IN CHINA AND THE US

Last week, I gave a speech in Washington DC on a paper that eventually will become an article in the Journal of Antitrust Enforcement.  The point of the paper is that the continued decision of the Commerce Department to treat China as a nonmarket economy country to justify its refusal to use actual Chinese prices and costs in China to determine antidumping rates for Chinese companies has had a substantial anticompetitive impact on US companies both in China and the United States.

In recent Hardwood Plywood Antidumping case, Commerce used values in Bulgaria to calculate costs in a Chinese antidumping case.  In the 12th Mushrooms Review Investigation, Commerce switched surrogate countries from India to Columbia and used surrogate values that were a hundred times higher for rice straw and cow manure and rates went from 0s and 2.17% to 200 to over 300%.   See Certain Preserved Mushrooms from the People’s Republic of China, 77 Fed. Reg. 55,808 (Dep’t Commerce Sept. 11, 2012).   US import companies are the companies that must pay these increased antidumping duties.

Specifically, in the Mushrooms case, Commerce used Columbia import prices as surrogate values for rice straw and the value went from 8 cents a kilogram in the prior review to $1.35 a kilogram.  Commerce also used import statistics for cow manure and the surrogate value went from 2 cents a kilogram in the prior review to $1.33 a kilogram to value this raw material input.  By the way, how many countries actually import cow manure?

As a result, all Chinese preserved mushrooms have been shut out of the United States.  On November 14, 2013, more than a year after Commerce’s final determination in the Preserved Mushrooms review investigation, the Court of International Trade reversed the Commerce’s surrogate value determination in Blue Field (Sichuan) Food Industrial Co., Ltd. v. United States, Slip Op. 13-142 (Nov. 14, 2013), but the damage has already been done.  Many Chinese companies have simply given up and most Chinese preserved mushrooms are excluded from the US market.

Mushrooms may not sound that important, but it is simply an example of the unfair trade practice, which is called US antidumping cases against Chinese companies.  In fact, the Commerce Department has used bogus numbers from surrogate third countries based on industrial policy and protectionism to calculate Chinese company costs and antidumping rates for decades.  The effect of this practice has been to shut out of the US market billions of dollars in Chinese products by US antidumping and countervailing duty orders for as long as 30 years.  But now the anticompetitive chickens are coming home to roost.

In China the Chinese government and the Chambers of Commerce created export price floors to deter dumping.  These export price floors, in turn, have provoked US antitrust cases.  See discussion of the Vitamin C case below.  In Section 11 of the WTO Accession Agreement, however, China agreed to “eliminate all taxes and charges applied to exports . . . . “  The WTO has determined in a series of cases that China cannot implement export price floors to deter antidumping cases.

So what does Chinese do?  It employs reciprocity and brings its own antidumping and countervailing duty cases against US companies, and as explained below, now antitrust cases against US companies to deter trade cases.  China is bringing a large gun to a knife fight.  What goes around comes around.  So we now have a trade war with China that is spreading into other legal areas.  Although China may not sound important to the average American, with a consumer market of 1.6 billion people, it is a larger market than the US and the best-selling car was the Buick, now the Ford Fusion.

Moreover, the Antidumping and Countervailing Duty Orders have not accomplished their intended purpose.  Bethlehem Steel had protection through antidumping and countervailing duty orders from Steel imports for 30 years.  Is Bethlehem Steel alive today?

The question, however, is whether on December 11, 2016 the US Commerce Department will follow Section 15(d) of US China WTO Accession Agreement and the demand the US made in a Treaty with China that the nonmarket methodology will expire “15 years after the date of accession.”  To date, the answer apparently is no—treaties between the US and China simply have no meaning.  Commerce will simply look at the statute.

But as indicated above and below, what goes around comes around and the Chinese government can play games with US companies too.  Maybe it is time for the US government to follow the treaty that it signed and call off the Trade War with China that is expanding into a number of different legal areas.

TRADE WORKS BETTER WITH FREE FLOW OF IMPORTS AND EXPORTS IN COMPETITIVE MARKETS

Recently in an article published in the Washington Post entitled “How to deal with Russia without reigniting a full-fledged Cold War psychology” SCHULTZ NUNN the-us-strategy-for-keep George P. Schultz, former Secretary of State under President Reagan, and Sam Nunn, former Senator and Chairman of the Armed Services Committee, commented on the problems regarding Russia’s invasion of Crimea.  But in the Article, they made a general statement about the importance of trade relations as a basis for peace between countries, which applies directly to the relationship between the United States and China.  They stated:

“The world works better when governments have a representative quality, when the corrupt brand of excessive bureaucracy is lessened, and when economies are open to imports and exports in competitive markets.  Recent history has shown the damage done to global security and the economic commons by cross-border threats and the uncertainty that emanates from them.”

One of the basic foundations for peace is the Rule of Law.  But the Commerce Department’s decision for 30 years to use clearly bogus surrogate values to calculate Chinese costs in antidumping cases has created a very cynical view of US law in China.  Since the US antidumping law is often the first US law Chinese encounter, the Chinese government and many Chinese companies and individuals believe that the US will simply twist its own law for protectionist purposes as a way to advance US industrial policy.  But now China can respond in the same way twisting its own law as applied to US companies to advance its own industrial policy.  As one Chinese antitrust lawyer stated to me recently, the Chinese government looks at Chinese antitrust/competition law as a “weapon” to help consumers or, as some may view it, a way to advance Chinese industrial policy, much as the US Commerce Department has done with the US antidumping law.

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

As mentioned in past newsletters, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations.  These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

As mentioned, in my February post, on January 29th, the day after President Obama pushed the TPA in the State of the Union, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014 was introduced into Congress. See February Post on this Blog for a copy of the 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.

Now the story continues . . . .

On March 4, 2014, in its 2014 trade policy agenda the White House set a new goal of completing a TPP agreement in 2014.  The White House announced that it expects to conclude TPP negotiations and make substantial progress in the TTIP negotiations with Europe this year.

U.S. Trade Representative Michael Froman stated that moving forward with this Trade Agenda will increase domestic job growth by eliminating high duties and nontariff barriers against U.S. products abroad.    The administration said it would work to conclude negotiations on the Trans-Pacific Partnership (“TPP”) this year.

“In the coming year, USTR will continue to execute the president’s trade vision that relies on opening markets, leveling the playing field for American workers and producers, and fully enforcing our trade rights around the world,” Froman said.

On March 7, 2014 a Senior Obama Administration official stated that the TPP negotiations are “almost complete.” The statement was made in the context of Vice President Joe Biden’s trip to Chile, during which the vice president discussed the TPP and other trade ties with the South American nation.

On March 11, 2014 at a National League of Cities conference in Washington, D.C. USTR Froman urged Congress to grant the administration fast-track authority to expedite approval of the TPP.  Throughout his remarks, Froman suggested the TPP would be essential for the U.S. economy’s future and would promote an increase in cross-border business in Asia.  Froman stated that currently, there are an estimated 500 million middle-class consumers in Asia — a number that is expected to reach 2.7 billion by 2030.  Froman stated that if those projections hold up, the Asian market in 25 years will be about six times the size of the U.S. market.  He also stated:

“If we don’t open those markets, help raise the standards and define the rules of the game, other countries will and we will be left on the sidelines, excluded from the fastest growing markets in the world, dealt out of global supply chains, facing a race to the bottom that we cannot win and should not run.”

On March 13th, however, it was reported that the U.S. and Japan still have gaps in their positions on lowering agricultural tariffs as part of the TPP negotiations.  According to USTR, after two days of bilateral negotiations there was “limited progress.”  Coming out of two days of negotiations on March 12, the USTR’s office stated that US and Japanese officials have not made much progress and that “working-level” discussions would continue.

The USTR is to speak at the end of April to the House Ways and Means Committee, but his testimony was released on April 3, 2014.  FROMAN TESTIMONY  As part of this speech, USTR Froman will state:

“Over the past four years, U.S. exports have increased to a record high of $2.3 trillion in 2013. In fact, a third of our total economic growth is attributed to this increase in U.S. exports.  “Exports mean jobs. Each $1 billion in exports supports 5400-5900 U.S. jobs. 11.3 million Americans now owe their jobs to exports – an increase to 1.6 million jobs in the last 5 years – and those jobs pay 13-18 percent more on average than non-export related jobs.”

“In 2014, we will work to conclude negotiations on the TPP agreement. TPP is currently being negotiated among 12 countries in the fastest growing region in the world representing nearly 40 percent of global GDP and a third of global trade.”   . . .

“As we pursue this agenda, we will continue to consult with Congress and seek input from a wide range of advisors, stakeholders and the public. We have held over 1,200 meetings with Congress about TPP alone – and that doesn’t include the meetings we’ve had on T-TIP, TPA, AGOA or other trade initiatives. Our Congressional partners preview our proposals and give us critical feedback every step of the way. We also ensure that any Member of Congress can review the negotiating text and has the opportunity to receive detailed briefings by our negotiators. . . .

“Finally, let me say a word about Trade Promotion Authority (TPA). The last TPA legislation was passed over a decade ago. Much has changed since that time. There has been the May 10th, 2007 agreement on labor, environment, innovation, and access to medicines. There has been the emergence of the digital economy and the increasing role of state-owned enterprises in the global economy. These issues should be reflected in the statutory negotiating objectives of a new TPA bill.

“We have heard from many that TPA needs to be updated. We agree. The Administration welcomed the introduction of bipartisan TPA legislation in January and look forward to working with this Committee and Congress as a whole to secure trade promotion authority that has as broad bipartisan support as possible.

We also look forward to renewing Trade Adjustment Assistance (TAA) which expires at the end of this year as well.”

On April 8, 2014, at a speech at the Center for Strategic and International Studies in Washington, Republican Senator Orin Hatch, ranking Republican member of the Senate Finance Committee, criticized the Obama Administration’s efforts to advance the TPA approval process for the TPP and TTIP negotiations.  Senator Hatch stated that the Administration had made only an “anemic” effort to obtain support for the renewal of Trade Promotion Authority.

As Senator Hatch stated, “No complex, economically significant trade agreement has ever been negotiated by any administration and approved by Congress without Trade Promotion Authority . . . . Sadly, this administration’s enthusiasm for TPA seems tepid at best. Despite publicly calling for approval of Trade Promotion Authority in the State of the Union, President Obama’s efforts to achieve its successful consideration have been anemic.”

Hatch introduced the TPA bill along with former Senate Finance Chairman Max Baucus, now the U.S. ambassador to China, and House Ways and Means Chairman Dave Camp, R-Mich.

Hatch stated, “We need the president’s active engagement and support. We need total political commitment from this administration to advancing TPA this year. Without it, we simply will not succeed.  And, as persuasive as I am, I am not nearly as effective as President Obama can be in convincing Democrats that renewing trade negotiating authority must be a priority for our nation. There is still time, and I am hoping that President Obama will rise to the challenge.”

See Senator Hatch’s speech at http://csis.org/event/making-trade-work-america

On April 9, 2014, the next day, the new Senate Finance Committee Chairman Senator Ron Wyden announced that he was introducing a new TPA bill, what Senator Wyden calls Smart Track.  In the attached speech, WYDEN SPEECH Senator Wyden spoke to the American Apparel Footwear Association Conference stating that his new bill would require the Administration to be more open in its trade negotiations and take environmental and labor issues along with currency manipulation into account in these trade negotiations.  Senator Wyden stated:

“Today I want to talk about how trade in the 21st century can create good middle-class jobs and expand what I call the winners’ circle in our country.

It starts with the fact that American trade policy has always been a story of adaptation and change.  . . .

Today’s challenges and opportunities, more than any other time in my lifetime, come down to creating more good-paying, middle-class jobs. It’s my view that every trade discussion, every single trade discussion, must now focus on how trade policy can be a springboard to high-skill, high-wage American jobs.  Jobs in innovative fields that didn’t exist before the digital era. Jobs in high-tech manufacturing that can’t be easily outsourced.  Jobs that give Americans a ladder into the middle class. Here’s the reality folks, or the one that I hear at every town meeting – I have another coming up in a week or so – millions of middle-class Americans simply don’t believe trade can help them get ahead, or they worry their voices aren’t being heard.  A 21st century trade policy has to meet the needs of those who are middle class today and those who aspire to be middle class tomorrow.  On my watch, I can tell you, those voices are not going to get short shrift in the Senate Finance Committee.

My basic philosophy with respect to trade is I want to see Americans grow and make things here, innovate and add value to them here, and ship them somewhere, whether in containers, on airplanes, or in electronic bits and bytes.

My view is there are opportunities for the U.S. to do that in trade agreements with nations across the Pacific and in Europe, but it is going to take fresh policies – adapted to the times – to make those trade agreements work for all Americans.

I want to be very clear: only trade agreements that include several ironclad protections based on today’s great challenges can pass through Congress.  I am not going to accept or advance anything less.

First, trade agreements must be enforceable, and not just in name only. The United States has to follow through on enforcement at home and around the world.  If it doesn’t, trade agreements will not deliver on their job-creating potential and the economic winners’ circle, instead of expanding, could actually shrink.

A World Trade Organization ruling that came out just last week showed a great example of enforcement done right. China’s restrictions on rare earth mineral exports have done real damage to American businesses and consumers and could cost our country jobs across a wide array of industries.

Manufacturers of rechargeable batteries for hybrid and electric vehicles, MRI machines, night vision goggles and many others took a hit. My friend Leo Gerard from the United Steelworkers will tell you the impact China’s restrictions have had on his members’ jobs.  So the U.S. stood up and challenged China in the WTO, and the WTO ruled in America’s favor – making clear that as a member of the global trading system, the Chinese have to play by the rules.

With American jobs on the line, all trade agreements ought to be enforced with that kind of vigor. Enforcement has to happen without hesitation over politics or other kinds of secondary considerations.

Right now, for example, Customs often appears to focus on security at the expense of its trade mission. Fake NIKE shoes and counterfeit computer chips with a fake Intel logo too often make their way past America’s border agents unnoticed.  Foreign companies have evaded the trade remedy laws that protect American workers, like those in the solar and steel industries. A 21st century trade policy can’t work if the cops at the border aren’t doing an adequate job on the beat.

Second, trade agreements must promote digital trade and help foster innovation in areas where America leads, like cloud computing. When President Kennedy made his pitch for a modern trade policy to Congress five decades ago, nobody could have imagined what the digital world would become, or how important the Internet would be to the global economy. . . .

Fortunately, our country today enjoys a major trade surplus in digital trade that fuels the growth of high-quality, high-skill jobs. Twenty-first century trade agreements have to preserve this American advantage. They must prevent unnecessary restrictions on data flows or requirements to localize data and servers. Make no mistake about it, these NSA policies have harmed the American brand in parts of this debate and it’s something that I’m going to focus on changing, not just from the Finance Committee, but from the Intelligence Committee as well. They must include assurances that Internet companies have no more legal liability in foreign markets than they do in the U.S. There is a reason that America is home to the leading technology and Internet companies: our legal framework promotes innovation and the digital economy. . . .

Similarly, provisions like the PIPA and SOPA bill that would do so much damage to the Internet or result in its censorship have no place in trade agreements. I want everyone to know that I’ll do everything in my power on the Finance Committee to keep them out of future agreements. I welcomed Ambassador Froman’s statement in February that he is committed to keeping them out of TPP. It’s as simple as this: the Internet, which is really the shipping lane of the 21st century has to be kept open and free.

Third, trade agreements must combat the new breed of predatory practices that distort trade and investment and cost American jobs. Chinese state-owned enterprises, for example, don’t have the risk or borrowing costs that their American competitors do.

China’s indigenous innovation policies too often undermine American innovators by requiring them to relocate intellectual property. And currency manipulation undercuts American autoworkers and a number of our manufacturers here at home. Again, these are practices that cost good American jobs. They have the same harmful effects on American exports as any other trade barrier, so modern agreements – including the TPP – have to give our country the tools to level the playing field.

Fourth, some nations simply don’t share America’s commitment to labor and the environment, so when the U.S. doesn’t lead the way with strong standards and enforcement, trade agreements fall short. Commitments on these issues have to be core parts of trade agreements, rather than something like a side deal that’s just coasting along for the ride. This is one area where the U.S. has made progress.  . .  .

Finally, agreements must be ambitious, opening foreign markets and helping U.S. workers, farmers, manufacturers and service providers increase exports.  . . .

Trade agreements also need to be part of a broader framework, including Trade Adjustment Assistance, that moves exports more efficiently to foreign markets and gives more Americans a chance to climb the economic ladder. There are people who argue that the benefits of trade deals have only gone to some. I argue that if we work to get better, more modern agreements that reflect the lessons of history, we can get trade deals that expand the winners’ circle and help revitalize the middle class. . . .

When it comes to trade talks, in my town hall meetings, people want to know what’s being negotiated. In my view the public has a right to know what the policy choices are.  For its part, Congress has a constitutional responsibility to tell the President and the U.S. Trade Representative what they need to accomplish in trade deals, which it has traditionally done by passing trade promotion authority, or “fast-track.” I believe what’s needed to accomplish these things is different from a fast-track, or a “no-track,” and this afternoon I’d like to call it a “smarttrack.”

A smart-track will hold trade negotiators more accountable to the Congress, more accountable to the American people, and help ensure that trade agreements respond to their concerns of our people and their priorities, and not just to special interest groups. It will include procedures to get high-standard agreements through Congress, and procedures that enable Congress to right the ship if trade negotiators get off course. But to get better trade agreements, there must be more transparency in negotiations. The Congress cannot fulfill its constitutional duty on trade if the public doesn’t know what’s at stake or how to weigh in.

The public needs to know that somebody at USTR is committed to shedding more light on trade negotiations and ensuring that the American people have a strong voice in trade policy –a voice that is actually heard.

Going forward in the days and weeks ahead, I am going to work with my colleagues and stakeholders on a proposal that accomplishes these goals and attracts more bipartisan support.  As far as I’m concerned, substance is going to drive the timeline.

Some would like to lay blame for lack of support for the TPA proposal recently introduced in Congress at the doorstep of the White House. The president and Ambassador Froman are, frankly, having a difficult time selling a product that members are not thrilled about.  Policy matters, and arbitrary timelines won’t work. Instead of casting blame, our time would be better spent rolling up our sleeves and getting to work on policies that expand the winners’ circle for our people. Expanding the winner’s circle is going to mean that Americans see a trade agreement that they actually want to pass. That will build more bipartisan support for the president’s trade priorities. . . .”

An April 9th article in Roll Call described the difficult problem the Administration faces with Unions in the Trade area because of the upcoming mid-term elections.  See http://www.rollcall.com/news/on_trade_obama_faces_a_tough_political_dance-232073-1.html?pg=2

FORMER CONGRESSMAN BONKER MARCH 17TH ARTICLE ON TPP AND CHINA IN CHINA DAILY

But on March 17, 2014, former Congressman Don Bonker of APCO published an article in the China Daily about the obstacles the Obama Administration is facing with regards to its trade agenda.  BONKER ARTICLE  As Congressman Bonker states:

“US President Barack Obama has such good intentions, but his lofty goals often become bridges to nowhere. The latest is international trade. This time the problem is not the Republicans, but his own party.

His administration has been actively negotiating two huge trade agreements, one with Pacific Rim countries and one with the European Union, yet Congress must first pass the Trade Promotion Authority bill to allow fast-track consideration of the two trade agreements.

However, the Democrats’ top leader in the US Senate, Harry Reid, has already set up a roadblock by cautioning that “everyone would be well advised just to not push this right now”. That is the sentiment of most Congressional Democrats who see this as a risky vote in an election year.

Maybe it is time for the Obama administration to take a break from pursuing contentious regional trade deals and give a higher priority to the US-China economic relationship. Why launch trade negotiations with 11 Asian countries and leave out China?

The Obama administration earlier portrayed the Trans-Pacific Partnership as a geopolitical strategy that would give the US a stronger presence in Asia, plus allow a protective shield for Asian countries feeling threatened by China’s growth and influence in the region.  However, because the US already has trade pacts with six of the TPP countries, why cast a larger net that unnecessarily adds burden, if not controversy, to the negotiating process?

As the world’s two largest economies, the stakes are greater when it comes to China-US relations, as are the opportunities and challenges.  Chinese investments in the US doubled last year to a record $14 billion and early this year had a jump start with Lenovo Group’s two huge purchases of Google Inc’s Motorola handset division for $2.9 billion and its purchase of IBM Corp’s low-end server unit for $2.3 billion.

At the same time, two large Chinese entities, Richard Li’s Hybrid Technology LLC and China’s largest auto parts company, Wanxiang Group Corp, were fiercely competing to take over the bankrupt Fisker Automotive Inc with plans to revive the electric sports car manufacturer.

True, Chinese investments in the US are increasing rapidly, but their numbers would have been larger were it not for the hostile environment many of China’s proposed acquisitions and mergers encounter.

The Wall Street Journal reported that the Lenovo acquisitions (both IBM and Google’s Motorola) will “likely draw scrutiny from US regulators and concern about security issues involving acquisitions by Chinese companies”. That certainly was the case with Huawei Technologies Co. Ltd. and ZTE Corp, two large Chinese telecom network providers.

What is being ignored are the economic benefits such investments bring to the United States, including job creation, which is a big issue this election year.  According to the Rhodium Group, Chinese investments have created more than 70,000 jobs in the US and that number could reach 200,000 by 2020 (not to mention preserving the jobs of failed and bankrupt US companies), which is why US President Obama now sees foreign investment as important to growing the country’s economy.

Last October, at a Department of Commerce Investment Summit, President Obama announced the creation of Select USA, publically stating: “I want your companies to invest more here in the United States of America.” It was something of a clarion call to the world that all investments are now welcomed in the US.

Last year President Obama and Chinese President Xi Jinping agreed to revive negotiations for a China-US Bilateral Investment Treaty that is intended to break down the barriers to encourage more foreign investments between the two countries.

Yet is the US prepared to insulate the Committee on Foreign Investment in the United States process from being used for political and economic interests to block investments, and is China, for its part, willing to allow foreign investments in its protected industries, particularly State owned enterprises and in the financial, transportation and telecom sectors?

The flip side is the ever-increasing mercantile trade across the Pacific. The whole idea of the TTP is to lower tariffs, remove restrictions and improve market access among the participating nations. But it will likely encounter the same fate as the 20 free trade agreements previously negotiated by the US Trade Representative that ultimately were greeted with skepticism on Capitol Hill.

Nowhere is this more evident than US trade policies that are being unfairly aimed at China. America’s anti-dumping/countervailing duty laws are highly discriminatory in that they still treat China as a non-market economy, which guarantees the imposition of punitive tariffs that are proving harmful to businesses in both countries.

It certainly raises questions about the US’ protectionism, or at least the politicalizing of its trade policies, casting doubts on Congress acting responsibly and a President’s ability to deliver on important trade deals.  Indeed former US trade representative Robert Zoellick once declared that “trade agreements were more about politics than economics”. Trying to address these issues will be a challenge. On the US side, it is a combination of old fashion protectionism, China bashing, distorted regulatory policies and domestic companies seeking protection from Chinese competition.”

The author, a former US Congressman, works with APCO Worldwide, an independent communications consultancy.  . . . See the article at http://usa.chinadaily.com.cn/epaper/2014-03/17/content_17352705.htm

CAFC DENIES CONSTITUTIONAL CHALLENGE TO GPX LAW

On March 18, 2014, the Court of Appeals for the Federal Circuit (“CAFC”) in Guangdong Wireking Housewares & Hardware Co., Ltd. et al. v. United States, CAFC GXP NO CONSTITUTIONAL VIOLATION addressed the Congressional 2012 statute overruling the GPX decision and retroactively applying both antidumping and countervailing duties with respect to imports from non-market economy (“NME”) countries.   In that decision, the CAFC affirmed the Court of International Trade that the Commerce Department does not have to adjust for double counting and that the retroactive imposition of both countervailing and antidumping duties does not violate the Ex Post Facto Clause of Article I, Section 9 of the U.S. Constitution.

CHINESE EXPORT TAXES ON RAW MATERIALS—WTO PROBLEMS

On March 26, 2014, the USTR announced that the WTO had sided with the United States, European Union and Japan in finding that China’s restrictions on the export of rare earth materials, tungsten and molybdenum violated its WTO accession commitments and the General Agreement on Tariffs and Trade (GATT).  In the rare earth case, the USTR challenged three types of Chinese export restrictions– export duties, export quotas, and requirements for enterprises permitted to export the materials.

Although WTO rules do not require members to eliminate export duties, China committed in Paragraph 11.3 of China WTO Agreement to eliminate all export restraints, including duties, except for those on 84 specific tariff lines.  Paragraph 11.3 of the US China WTO Agreement, which became the China WTO Agreement, specifically provides,” China shall eliminate all taxes and charges applied to exports unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of the GATT 1994.”  As the materials at issue in the rare earths case were not included in that list, the panel found that the export duties violated Paragraph 11.3.

Paragraph 11.3 is also the provision at the core of the Vitamin C antitrust case that the Chinese government cites in its Appellate Brief, which will be discussed more below.  In fact, tungsten ore has been the target of a US antidumping action, and a US antidumping order was issued against China from Nov 21, 1991-Nov 3, 1999, shutting all tungsten ore out of the US for about 8 years.

All parties have 60 days or until May 25th to the WTO appeal the ruling.  On April 9th, the USTR announced that for strategic purposes, it has appealed the decision so that it can get a WTO ruling that can be enforced against China.

On March 26, 2014, USTR WTO VICTORY RARE EARTH METALS AND 2011 VITORY the USTR specifically stated in its announcement of the WTO victory on Rare Earths, Tungsten and Molybdenum:

“United States Trade Representative Michael Froman announced today that a World Trade Organization (WTO) dispute settlement panel has agreed with the United States in a major dispute, finding in favor of U.S. claims that China’s imposition of export restraints on rare earths, tungsten, and molybdenum breach WTO rules. Rare earths, tungsten, and molybdenum are key inputs in a multitude of U.S-made products for critical American manufacturing sectors, including hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, petroleum and chemicals.

“Time and again, the Obama Administration has made clear that we are willing to go to the mat for American workers and businesses to make sure that the playing field is fair and level,” said Ambassador Froman. “The United States is committed to ensuring that our trading partners are playing by the rules. We will continue to defend American manufacturers and workers, especially when it comes to leveling the playing field and ensuring that American manufacturers can get the materials they need at a fair market price.”

“China’s decision to promote its own industry and discriminate against U.S. companies has caused U.S. manufacturers to pay as much as three times more than what their Chinese competitors pay for the exact same rare earths. WTO rules prohibit this kind of discriminatory export restraint and this win today, along with our win 2 years ago in an earlier case, demonstrates that clearly.”  . . .

The Chinese export restraints challenged in this dispute include export duties and export quotas, as well as related export quota administration requirements. These types of export restraints can skew the playing field against the United States and other countries in the production and export of downstream products. They can artificially increase world prices for these raw material inputs while artificially lowering prices for Chinese producers. This enables China’s domestic downstream producers to produce lower-priced products from the raw materials and thereby creates significant advantages for China’s producers when competing against U.S. and other producers both in China’s market and other countries’ markets. The export restraints can also create substantial pressure on foreign downstream producers to move their operations, jobs and technologies to China.  . . .

This dispute builds on and expands an earlier victory that the United States achieved in 2011 challenging China’s use of export restraints on a different set of raw material inputs used in the steel, aluminum, and chemicals industries (bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorous and zinc). “  Emphasis added.

As stated many times on this blog, there are outstanding US antidumping orders against magnesium, foundry coke, manganese, and silicon metal, which have shut probably $1 billion of imports of these Chinese metal products out of the United States for decades.  Exolon Esk, a one company US industry, tried to bring an antidumping case against Silicon Carbide, but failed.  The US industry, however, did prevail in the Tungsten Ore case, leaving an antidumping order in place and shutting all Chinese tungsten ore out of the US market for almost 8 years.

Thus the USTR states:

Chinese export restraints . . . can skew the playing field against the United States and other countries in the production and export of downstream products. They can artificially increase world prices for these raw material inputs while artificially lowering prices for Chinese producers. This enables China’s domestic downstream producers to produce lower-priced products from the raw materials and thereby creates significant advantages for China’s producers when competing against U.S. and other producers both in China’s market and other countries’ markets. The export restraints can also create substantial pressure on foreign downstream producers to move their operations, jobs and technologies to China.  . . .

But US antidumping orders against metal and chemical products from China based on bogus numbers that have no relationship to reality can have the exact same effect as export restraints, in many cases created by the Chinese government to deter US antidumping cases.

In effect, from the US government’s point of view it can have its cake and eat it too.  Smash Chinese companies and US import companies with antidumping cases based on bogus numbers, and if the Chinese government tries to set an export price floor to deter dumping cases, slam China at the WTO.

In 2011, it was reported that U.S. lawmakers applauded the first WTO determination and called for speedy implementation of the decision.

“These WTO findings are crystal clear — China is manipulating the raw materials market at the expense of American businesses,” said Senate Finance Committee Chairman Max Baucus (D-MT) in a July 5, 2011 statement. “As a WTO member, China has a responsibility to play by the rules and respect the rights of its international partners.”

But will the same US lawmakers now do right by US importers, US downstream producers and China and follow the treaty the US signed and the demand it made and make China a market economy country in US antidumping cases on December 11, 2016?  Or will the US Congress continue to seriously damage US companies, skewing “the playing field against the United States … in the production and export of downstream products.. . .” creating “substantial pressure” on US “downstream producers to move their operations, jobs and technologies to China . .  . .”

USTR SEEKS COMMENTS ON CHINESE GOVERNMENT’S CHALLENGE TO US ANTIDUMPING CASES AGAINST CHINA

On April 8, 2014 the USTR published the attached notice in the Federal Register seeking comments by May 2, 2014 on a WTO complaint filed by China against various US antidumping cases.  USTR NOTICE WTO DISPUTE SETTLEMENT NME SINGLE COUNTRY RATE  Some of the specific issues raised by the Chinese government are targeted dumping and the use of zeroing in various initial and review antidumping investigations, the single rate presumption from non-market economies, the application of NME-wide methodology and the recourse to adverse facts available as the China wide rate.

APRIL ANTIDUMPING ADMINISTRATIVE REVIEWS

On April 1, 2014, Commerce published in the Federal Register the attached notice APRIL NOTICE REVIEW REQUEST SINKS regarding antidumping and countervailing duty cases for which reviews can be requested in the month of April.  The specific antidumping and countervailing duty cases against China are: 1-Hydroxyethylidene-1, 1-Diphosphonic Acid, (HEDP), Activated Carbon, Drawn Stainless Steel Sinks, Frontseating Service Valves, Magnesium Metal, Non-Malleable Cast Iron Pipe Fittings, and Steel Threaded Rod.

For those US import companies that imported steel sinks, activated carbon and the other products listed above from China during the period April 1, 2013-March 31, 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline.  Requests have to be filed by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

EXPORT CONTROLS

On April 4, 2014, the US government indicted a Chinese citizen and two Iranian companies for violation of US export laws for illegally exporting devices used in the production of weapon-grade uranium to Iran.

In the indictment, CHENG INDICTMENT Sihai Cheng and several Iranian co-defendants were charged with violating U.S. export laws by conspiring to export U.S.-manufactured pressure transducers to Iran.

Cheng was arrested by British authorities on Feb. 7 while traveling in the U.K. and is being held there pending extradition to the U.S.  According to the indictment, to evade US export controls, Cheng’s China agent set up front companies in China to pose as the end users in transactions with Cheng’s Shanghai office for the purpose of fraudulently obtaining export licenses from the U.S.  If convicted, Cheng faces up to 20 years in prison and fines of up to $1 million for each export violation.

THE HYPOCRISY OF US PRISON LABOR ALLEGATION

For years, the US government and Congressmen have complained about Chinese companies using prison labor to produce products, which are exported to the United States.  At a recent Housewares Show in Chicago, however, the Program Manager of the Business Development Group of the US Justice Department’s Federal Bureau of Prisons was going booth to booth saying that the prison factories run by the Justice Department’s Bureau of Prisons in the United States could match any Chinese price with US prison labor.  What goes around does indeed come around.

CURTAIN WALLS ARE DEFINITELY IN THE ALUMINUM EXTRUSIONS CASE

In the attached second scope determination on curtain wall units, Commerce determined that curtain wall units are definitely covered by the Aluminum Extrusions Antidumping and Countervailing Duty Case.  Commerce Complete and Finished Curtain Wall Ruling

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

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.

As indicated above, at the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement.  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 newsletters we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS PROGRAM WORKS

As many of you may know, I am on the Board of Directors of the Northwest Trade Adjustment Assistance Center, the only trade program that actually works.  We provide Federal Government assistance to US companies that have been injured by imports under the Trade Adjustment Assistance for Firm (“TAAF”) program.  Total US government assistance to companies every year is $16 million.  The US government provides workers $1 billion to retrain them if they have been injured by imports.  Maybe this out of balance situation is the reason for some of the trade problems in the US.

The 2013 Report on the TAAF is attached FY13_TAAF_Annual_Report_to_Congress and can be found at http://www.eda.gov/pdf/FY13_TAAF_Annual_Report_to_Congress.pdf

Some of the key findings, however, are as follows:

“In Fiscal Year (FY) 2013, firms assisted by the U.S. Department of Commerce Economic Development Administration’s (EDA) Trade Adjustment Assistance for Firms (TAAF) program performed more successfully than the manufacturing industry as a whole, demonstrating a significant return on federal investment.  . . .

Overall, the program is effective in helping firms become more competitive and overcome negative trade impacts. Examples of TAAF program benefits to manufacturing firms can be found in the supplement and the end of this report.

In FY 2013, firms participating in the U.S. Department of Commerce Economic Development Administration’s (EDA) Trade Adjustment Assistance for Firms (TAAF) program reported that, on average, their sales increased by 85 percent, employment increased by 43 percent, and productivity increased by 29 percent from the time of TAAF certification to the completion of the TAAF program.  . . .

All TAAF-assisted firms that completed the program in FY 2011 were in operation at the end of FY 2013, indicating strong survival rates for TAAF-assisted firms in the face of import pressures.”

CHINESE ANTIDUMPING CASE

In response to the US and other antidumping and countervailing duty cases, China’s Ministry of Commerce (“MOFCOM”) is initiating their own antidumping and countervailing duty cases against the United States.

OPTICAL FIBER

On March 19, 2014, MOFCOM initiated an antidumping case against Optical Fiber Preform products imported from the US and Japan.  The Chinese petitioners are Yangtze Optical Fiber and Cable Company Ltd., Jiangsu Hengtong Optic-electric Co., Ltd, and Futong Group Co., Ltd.

The US respondent companies are Corning Incorporated and OFS Fitel, LLC.  The Japanese respondent companies are: Shin-Etsu Chemical Co., Ltd., Sumitomo Electric Industries, Ltd., Fujikura Ltd., and Furukawa.

The US alleged antidumping rate is 25.42% and US imports into China are valued at $142,065,372.  A translated initiation notice is attached.  Information about Optical Fiber Preform Antidumping Case

CELLULOSE PULP 

On April 4, 2014, China issued final antidumping duties on cellulose pulp used in paper, textiles and other goods from the US, Canada and Brazil.  The Canadian antidumping rates ranged from 13% for Fortress Specialty Cellulose Ltd. to 23.7% for all other Canadian companies.

The highest dumping rates were for the US companies with rates from 16.9% for Washington state’s Cosmo Specialty Fibers Inc. to 17.2% of Florida’s Rayonier Performance Fibers LLC.  Washington-based Weyerhaeuser Co. received 17% and Georgia-Pacific LLC’s GP Cellulose received 33.5%.  XINHUA PULP

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

With regards to the Chinese ban on shellfish from the West Coast, the Chinese government had detected inorganic arsenic in a November shipment of geoducks from Washington’s Poverty Bay. That shipment and another from Ketchikan, Alaska, that was tainted with algae toxin, led China on Dec. 3 to ban all imports of bivalve shellfish harvested in Washington, Alaska, Oregon and Northern California.

The ban has seriously hurt the Pacific Northwest shellfish industry, blocking imports to the major market for West Coast shellfish for several months now.

A March 21st trip to China by National Oceanic and Atmospheric Administration officials may have started the movement to a solution as they met with counterparts in Beijing, and talked about toxin testing methods.  In a conference call with staff from Alaska Senators Lisa Murkowski and Mark Begich’s Offices, the NOAA administrator reportedly stated that the U.S. officials came away from the March 21 meeting optimistic about resolving the dispute, and eventually lifting the ban.

According to Senator Begich’s office, Chinese officials told the NOAA representatives that they were satisfied with Alaska’s PSP testing methods. But, more work is needed to satisfy Chinese concerns about arsenic, which came from Washington State.

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.

What goes around does indeed come around.

US LITIGATION LIMITS AGAINST CHINESE COMPANIES AND INDIVIDUALS

On March 5, 2014, in the attached Guan v. Bi case, Judge William Orrick Ill of the California Federal District Court clarified the limited reach of federal courts over foreign litigants in two important respects.  GUAN V BI CASE

Mr. Guan and his wife sued a group of Chinese individuals and the Chinese government’s Dalian Customs Anti-Smuggling Bureau for an alleged conspiracy to extort millions of dollars from the couple.  The conspiracy included an alleged kidnaping of the couple in China.

Because plaintiffs refused the extortion demand, they were jailed for many months in China.  After release and return to the US, the Chinese couple sued in California state court.  The only defendant in the US sought to remove the case to Federal Court.  But the US defendant lived in the same state as the couple and there was no diversity.

This case, however, was not removable under the ordinary grounds for removal – federal question and diversity jurisdiction. The contested issue, therefore, was whether the international character of the dispute created any additional paths for removal to Federal District Court from State Court.  The Court held that when a foreign sovereign is sued in state court along with non-sovereign codefendants, only the foreign sovereign itself may remove the case to federal court under the Foreign Sovereign Immunities Act (FSIA).

Second, the presence of non-U.S. litigants on both sides of a case cannot create diversity jurisdiction where complete diversity doesn’t otherwise exist between U.S. litigants on each side.

PATENT/IP AND 337 CASES

ITC SAYS DIGTAL FILE TRANSFERS ARE IMPORTS UNDER SECTION 337

On April 3, 2014, the U.S. International Trade Commission (“ITC”) in Certain Digital Models, Digital Data, and Treatment Plans for Use in Making Incremental Dental Positioning Adjustment Appliances, the Appliances Made Therefrom and Methods of Making the Same affirmed that it has jurisdiction under 337 to prevent the international transmission of digital files that infringe patents.  The ITC agreed with the Administrative Law Judge that electronic files are “articles” under 337 and found that their transmission constitute “importation” under the statute.

The agency issued cease-and-desist orders against defendant.  The ITC specifically stated in the attached Federal Register notice, FED REG DIGITAL FILES CASE:

”Specifically, the Commission affirms the ALJ’s conclusion that the accused products are “articles” within the meaning of Section 337(a)(1)(B) and that the mode of bringing the accused products into the United States constitutes importation of the accused products into the United States pursuant to Section 337(a)(1)(B). The Commission has determined to find a violation with respect to (i) claims 1 and 4-8 of the `863 patent; (ii) claims 1, 3, 7, and 9 of the `666 patent; (iii) Claims 1, 3, and 5 of the `487 patent; (iv) claims 21, 30, 31 and 32 of the `325 patent; and (v) claim 1 of the `880 patent. The Commission has issued cease and desist orders directed to CCUS and CCPK, with an exemption for activities related to treatment of existing patients in the United States.”

A full copy of the opinion will be posted on my blog, when it is available.

STATE OF OKLAHOMA SUES CHINESE COMPANIES FOR COPYRIGHT INFRINGEMENT

On March 13, 2014, the State of Oklahoma through its attorney general sued Newayvalve Co., Neway Industrial Material (Suzhou) Co., Ltd., Neway Oil Equipment Co., Ltd., Neway Industrial Material (Dafeng) Co., Ltd., Neway Valve International Inc. and Neway Valve (Suzhou) Co., Ltd. for copyright infringement in China for use of unlicensed Microsoft software in China.  In the attached complaint, AG Neway Complaint_3132014 the Oklahoma Attorney General states:

“Plaintiff State of Oklahoma (“Plaintiff’), by E. Scott Pruitt, the duly elected Attorney General of the State of Oklahoma, commences this action on behalf of the State of Oklahoma under the Oklahoma Deceptive Trade Practices Act (“ODTPA”), 78 O.S. § 51 et. seq., the Oklahoma Antitrust Reform Act (“OARA”), 79 O.S. § 201 et seq., and such other causes of action that exist at common law against Defendants Neway Valve Co., Neway Industrial Material (Suzhou) Co., Ltd., Neway Industrial Material (Dafeng) Co., Ltd., and Neway Valve International, Inc. (collectively, “Neway” or “Defendants”).  Plaintiff alleges on information and belief as follows: . . .

1. Plaintiff brings this action to remedy violations of Oklahoma statutory and common law in connection with Defendants’ unfair, deceptive and anti-competitive business practices.

2. Defendants produce a variety of valves and other equipment for sale to the petroleum industry and, in doing so, compete directly with several Oklahoma-based companies for the business of oil and natural gas producers in Oklahoma.

3. However, instead of engaging in legitimate competition, Defendants have illegally utilized unlicensed software in the production and distribution of their valves. As set forth in detail herein; in an industry characterized by thin margins, Defendants have illegitimately and unlawfully reduced their production costs by illegally obtaining copyrighted software that is crucial to the production and sale of their products. Defendants’ unlawful conduct has created an uneven playing field that favors Defendants’ products over comparable products sold by Oklahoma manufacturers.

4. Generally, federal laws and international treaties do not address the pernicious downstream effects of such acts in the Oklahoma valve manufacturing sector. The Defendants’ use of stolen software to gain a competitive advantage over domestic valve manufacturing companies,’ including those in Oklahoma, can be remedied, however, by proscribing such tactics as unfair, deceptive and anti-competitive methods of commerce under Oklahoma law.

5. Plaintiff asks this Court to enjoin Defendants unlawful business practices, impose civil fines and penalties, and award restitution, monetary damages, investigative costs and fees, and attorney fees, as well as such other relief as the Court deems just and proper.”

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

On February 27, 2014, Smartphone Technologies filed new patent cases against ZTE and Huawei.  SMARTPHONE HUAWEI SMARTPHONE ZTE

On April 7, 2014, Pragmatus Mobile sued ZTE for patent infringement.  PRAGMATUS ZTE

On April 8, 2014, Billabong International Ltd, GSM Operations PTY Ltd. and Burleigh Point Ltd d/b/a Billabong USA sued Digital Shui dba Multisport Asia for cybersquatting (unlawfully occupying a domain name in which it possesses no rights) on the <billabong.com> domain name and then demanding exorbitant sums of money as ransom for the return of the control of the Domain Names to Plaintiffs. Defendant’s conduct allegedly violates the Anticybersquatting Consumer Protection Act, 15 U.S.C. 1125(d), (“ACPA”) and the Computer Fraud and Abuse Act, 18 U.S.C. 1030(a)(4), constitutes tortious interference with contract under Virginia common law, and also constitutes a breach of fiduciary duty, including the duty of loyalty and good faith and fair dealing.  BILL4

PRODUCTS LIABILITY

On April 3, 2014, the attached products liability complaint was filed for wrongful death by Maxine Surber in the Federal District Court in the Western District of Washington States against the Shanghai Zhenhua Heavy Industries Co., Ltd. for the death of Jeff Surber who died while maintaining a ship to shore crane designed and manufactured by Shanghai Industries.  PRODUCTS LIABILITY SHANGHAI COMPANY

ANTITRUST

EXTRADITION OF FOREIGN NATIONAL TO FACE CRIMINAL ANTITRUST CHARGES

On April 4, 2013, the Justice Department announced that it was successful for the first time in extraditing a foreign national to face charges related to a cartel, worldwide antitrust bid-rigging conspiracy related to marine hose sold in the United States.  In the attached April 4th announcement, EXTRADITION OF FOREIGN NATIONAL the Justice Department stated:

“Romano Pisciotti, an Italian national, was extradited from Germany on a charge of participating in a conspiracy to suppress and eliminate competition by rigging bids, fixing prices and allocating market shares for sales of marine hose sold in the United States and elsewhere, the Department of Justice announced today. This marks the first successfully litigated extradition on an antitrust charge.

Pisciotti, a former executive with Parker ITR Srl, a marine hose manufacturer headquartered in Veniano, Italy, was arrested in Germany on June 17, 2013.  He arrived in the Southern District of Florida, in Miami, yesterday and is scheduled to make his initial appearance today in the U.S. District Court for the Southern District of Florida in Ft. Lauderdale, at 11:00 a.m. EDT.

“This first of its kind extradition on an antitrust charge allows the department to bring an alleged price fixer to the United States to face charges of participating in a worldwide conspiracy,” said Assistant Attorney General Bill Baer in charge of the Department of Justice’s Antitrust Division. “This marks a significant step forward in our ongoing efforts to work with our international antitrust colleagues to ensure that those who seek to subvert U.S. law are brought to justice.”

Marine hose is a flexible rubber hose used to transfer oil between tankers and storage facilities. During the conspiracy, the cartel affected prices for hundreds of millions of dollars in sales of marine hose and related products sold worldwide. . . .

Pisciotti is charged with violating the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals. . . .

As a result of the department’s ongoing marine hose investigation, five companies, including Parker ITR; Bridgestone Corp. of Japan; Manuli SPa of Italy’s Florida subsidiary; Trelleborg of France; and Dunlop Marine and Oil Ltd, of the United Kingdom, and nine individuals have pleaded guilty.”

VITAMIN C CASE

As mentioned in my last e-mail, the Vitamin C case is wrapping up at the District Court level.  The final judgment was revised downward from $153 million to a $147 million judgment because of double counting against by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.

On April 7, 2014, Hebei and NCPGC filed the attached appeals brief Hebei vitamin c appeal brief with the Second Circuit Court of Appeals requesting that the Court reverse US District Judge Brian M. Cogan’s judgment imposing nearly $150 million in damages and a permanent injunction as the company was complying with Chinese laws and regulations by fixing prices on Vitamin-C exports.  In its brief, which will be posted on my blog, Hebei and NCPGC specifically state in part:

“The district court imposed nearly $150 million in penalties and a permanent injunction on Appellants for complying with their own nation’s laws and regulations in reaching price and output agreements on vitamin C exports. The text of the applicable regulations, authoritative legal interpretations offered by the Chinese government, unrebutted expert testimony on Chinese law, and other evidence that the Chinese government mandated the challenged conduct had no impact on the district court.  Rather, the court attacked the credibility of the Chinese government and seized on translated words without due regard for their cultural and linguistic context in order to hold that China’s regime of export regulations for vitamin C constituted a purely private “cartel.” Proper regard for Chinese sovereignty should have led to dismissal of Appellees’ claims under the doctrines of foreign sovereign compulsion, international comity, act of state, or political question. The judgment below represents a massive extension of U.S. federal judicial power into the affairs of a sovereign nation and matters of foreign affairs. This Court should hasten to repudiate it.

The new system was intended to facilitate China’s entry into the World Trade Organization (“WTO”) and avoid antidumping sanctions imposed by foreign governments while maintaining the Ministry’s policy of ensuring the orderly development of key export industries, such as vitamin C.  . . The Ministry explained that the new system would be “convenient for exporters while it is conducive for the chambers to coordinate export price and industry self-discipline.”

As could be predicted, the Chinese government has taken umbrage at the district court judgment. Chinese officials have noted the judgment will “cause problems for the international community” and “eventually harm the interests of the United States. . .  . Leading commentators have observed that the case “has potentially expansive implications for how the U.S. antitrust laws do and should interact with executive branch and foreign interests on international trade,” “is at least in tension with the executive branch’s position [in the WTO],” and “rais[es] the question of whether our antitrust laws ought to be interpreted as giving greater deference to the sovereignty of individual U.S. states than to the sovereignty of foreign governments.”  . . . .

The district court’s dismissal of the government’s views was both disrespectful and unfounded. The WTO filings and reports on which the district court relied to claim the Chinese government had taken contrary positions before that body (essentially accusing a sovereign government of lying) do not stand for the proposition that China imposed no legal obligation on vitamin C producers to coordinate on export pricing and output.  . .  . Rather, they only state that China had abandoned “restrictions on exports through non-automatic licensing or other means justified by specific product under the WTO Agreement or the Protocol,” “[n]on-automatic export licensing requirements under WTO agreement and accession,” and “export quotas and licenses[.]” . .  . .

None of them said that China had abandoned management of pricing in vitamin C exports, let alone that the Chinese regulatory regime had become non-compulsory. The Chinese government’s representations in both forums were perfectly consistent.

Finally, the U.S. Trade Representative and the WTO have found that the Chinese government continued to regulate export pricing on a variety of products subject to the same basic regulatory regime as vitamin C during the relevant time period, and that failure to comply was “subject to investigation leading to potential criminal and administrative penalties.”  . . . . This evidence further illustrates that the district court’s construction of Chinese law was erroneous. . . .

As discussed above, there is a true conflict between Chinese law and U.S. law in these circumstances. All Defendants were Chinese and the conduct took place entirely in China. Complaints about Chinese export policies could properly be addressed through diplomatic channels and/or the WTO’s processes. The purpose was not to harm Americans but to ease the transition of China’s vitamin C industry from central planning to a more market-oriented program and to prevent the harm to China’s trade relations that would result from dumping charges. The exercise of jurisdiction by the district court has already inflicted harm on U.S.- China relations. The court’s decision creates the prospect of Chinese firms being under conflicting conduct requirements. The U.S. and China are both members of the WTO and are subject to its rules on export restrictions. Simply put, every relevant substantial consideration favors comity abstention.

This case raises precisely the same set of concerns about the inappropriateness of the judicial branch treading on delicate foreign policy questions. The Chinese government chose to regulate its domestic vitamin C export industry in what it believed was the most effective manner within its system. Insofar as China’s sovereign policy decisions about how best to manage its economy conflict with the policies embodied in U.S. antitrust laws, that conflict should be addressed “through diplomatic channels,” and not through the “unnecessary irritant of a private antitrust action.”  . . .

For China’s economic regulations and enforcement practices “to be reexamined and perhaps condemned by [U.S.] courts . . .would very certainly imperil the amicable relations between [the U.S. and Chinese] governments and vex the peace of nations.” . . .Indeed, the U.S. and Chinese governments are currently engaged in ongoing discussions on issues involving Chinese regulation of its exports, and the U.S. has availed itself of WTO dispute settlement procedures against China based on the WTO’s rules on export restrictions. .  .. The U.S.’s active engagement in these avenues for resolving disputes between sovereign governments demonstrates that disputes involving China’s regulation of its own exports are foreign relations issues properly committed to the Executive Branch.  The U.S. judiciary should be loath to insert itself into such discussions.”

On April 14, 2014, the Chinese Ministry of Commerce (“MOFCOM”) filed its own Amicus Brief in support of the two Chinese companies.  In the attached Amicus Brief, MOFCOM VITAMIN C APPEAL BRIEF MOFCOM stated:

“The Ministry of Commerce of the People’s Republic of China (“MOFCOM”) is a component of the central Chinese government and the highest administrative authority in China authorized to regulate trade between China and other countries, including all export commerce.  It is the equivalent in the Chinese governmental system of a cabinet-level department of the United States government.  MOFCOM formulates strategies, guidelines, and policies concerning domestic and foreign trade and international cooperation.  MOFCOM also drafts and enforces laws and regulations governing domestic and foreign trade, and regulates markets to achieve an integrated, competitive, and orderly market system.

MOFCOM has been actively involved in this litigation since 2006, when it filed an amicus brief in support of defendants’ motion to dismiss. That appearance was historic.  It marked the first time that any entity of the Government of China had appeared as an amicus, explained to the district court that MOFCOM had directed the defendants’ conduct, and endeavored to describe the varying regulatory mechanisms used to compel defendants’ compliance.

MOFCOM has a compelling interest in this appeal because the district court refused to defer to MOFCOM’s interpretation of Chinese law and announced its own contrary view of what Chinese law required of the defendants.  Moreover, the district court implied that MOFCOM’s interpretation was not just wrong, but intentionally false: “a post-hoc attempt to shield defendants’ conduct from antitrust scrutiny.”  That charge is profoundly disrespectful, and wholly unfounded.

MOFCOM files this brief to set straight the record about its regulatory and litigation conduct; to ensure that this Court understands the Chinese Government’s displeasure about the district court’s treatment of MOFCOM; and to urge reversal of the judgment below, which unfairly penalizes a Chinese company for complying with Chinese law. . .  .

The district court denied summary judgment.   It did not question the basic tenets of the foreign sovereign compulsion doctrine, but held on the basis of its independent assessment of Chinese law, and in direct contradiction to MOFCOM’s interpretation, that Chinese law “did not compel defendants’ conduct.”  . . .  The district court acknowledged that both the Supreme Court and the Second Circuit have held that a foreign government’s statement concerning the meaning of its own law is “‘conclusive’” of that law’s meaning. .  . .

The district court then announced it would “decline to defer to [MOFCOM’s] interpretation of Chinese law,” . . . citing this Court’s statement that “[w]here a choice between two interpretations of ambiguous foreign law rests finely balanced, the support of a foreign sovereign for one interpretation furnishes legitimate assistance.” . . .   The district court appeared to draw from this that deference is unwarranted if a foreign law question is not “finely balanced,” and outlined its grounds for refusing to defer in this case. . . .   The district court first said that the 2009 statement was “particularly undeserving of deference” because it did not “cite to any [specific] sources to support its broad assertions about the regulatory system governing vitamin C exports,” contained “ambiguous terms and phrases,” and did not “distinguish between” the 1997 and 2002 export regulatory regimes. . . . The district court conceded, however, that MOFCOM’s amicus brief, on which the 2009 statement expressly relied, “attempted to explain the regulatory system governing vitamin C exports by citing to, and discussing, specific governmental directives and Chamber documents.” . . .

The district court next pointed to statements China had made to the World Trade Organization (“WTO”) indicating that “‘export administration … of vitamin C’” ceased on January 1, 2002. It asserted that this statement “appear[ed] to contradict [MOFCOM’s] position in the instant litigation,” and deemed this a “further reason not to defer.” . . .

Third, the district court stated that “more careful scrutiny of a foreign government’s statement is warranted” when “the alleged compulsion is in the defendants’ own self-interest.” . . . . Finally, the district court opined that “the factual record contradicts [MOFCOM’s] position.” . . .

Having thus determined that it would not defer to MOFCOM’s interpretation of Chinese law, the district court conducted an independent review of Chinese law, including documents the court described as “traditional sources of foreign law.” . . . . The district court at points suggested it would rely on the “plain language” of these documents, . . ., but its analysis also contained a series of inferences about how to interpret Chinese legal texts.  None of those inferences was premised, at least expressly, on any principle of Chinese law. . . .

The district court erred by disregarding MOFCOM’s formal statements of Chinese law, conducting an independent examination of that law based on “plain language” of translated texts and ungrounded assumptions about how to interpret Chinese law, and declaring that MOFCOM’s interpretation of Chinese law was exactly backwards.  The court’s erroneous conclusions were not supported by any determination of any Chinese government official, Chinese court, or Chinese scholar, and yet exposed Chinese companies to massive class-action antitrust liability for conduct occurring solely within China.  Several companies yielded to that in terrorem pressure and settled. The remaining defendants face a nine-figure judgment that should be vacated for at least three reasons.

First, the district court failed to follow Supreme Court precedent holding that a foreign government’s formal statements about the interpretation of its own law are “conclusive” in American courts.

Second, the district court overlooked comity concerns that at a minimum demand that “conclusive” deference to such statements must be given when foreign sovereign compulsion is asserted as a defense in a private antitrust suit. The foreign sovereign compulsion doctrine owes its very existence to the recognition that significant questions of international law and comity would arise if U.S. courts allowed American law to override a foreign sovereign’s contrary command about how to organize its own domestic commerce. When a foreign sovereign appears in such a case to say what it demanded of a defendant, it should not be open to a district court to deny the command was given.

Third, the district court expressly “decline[d] to defer to [MOFCOM’s] interpretation of Chinese law.”  Instead, the district court simply resolved all questions as it saw fit, applying self-made interpretive canons not grounded in Chinese law, and as such reached a conclusion that is contrary to Chinese law.

The district court’s approach and result have deeply troubled the Chinese government, which has sent a diplomatic note concerning this case to the U.S. State Department.  This Court should reverse, and in so doing reaffirm that principles of international comity require district courts to treat official statements of a foreign government with a high degree of deference and respect, and with due caution about the court’s ability to determine accurately the law of an unfamiliar legal system. . . .

The district court asserted that China’s statements to the WTO that it had given up “‘export administration … of vitamin C’ as of January 1, 2002,” “appear to contradict” MOFCOM’s position that Chinese law continued after that date to require industry coordination of export price and quantity. . . .   That conclusion, however, reflects a basic misunderstanding of the technical trade-policy context in which those statements were made.

The statements cited by the district court relate to a “transitional review” in which China participated following its 2001 accession to the WTO.  Each statement provides in part that “on 1 January 2002, China gave up export administration” of certain goods, including “vitamin C.” But in context—and as indicated by the headings that preceded them—these statements indicated only that China abandoned “restrictions on exports through non-automatic licensing” on that date, and not that China eliminated every existing export restriction in one stroke.

A third document cited by the district court unambiguously demonstrates that this more confined reading is precisely what China intended.  That document . . . is a report by the WTO Secretariat summarizing its “trade policy review” with respect to China.  Citing one of the two “export administration” statements described above, the WTO Secretariat explained that “[o]n 1 January 2002, China abolished export quotas and licenses for … Vitamin C.”   Thus, the WTO Secretariat expressly interpreted China’s earlier “export administration” statements to relate to abolition of “export quotas and licenses for … Vitamin C,” but not all other forms of export regulation.

The United States government adopted exactly this same construction in a 2009 WTO dispute resolution proceeding, alleging (as China later acknowledged), that China had maintained “a system that prevents exportation unless the seller meets or exceeds the minimum export price.”  In other words, the United States adopted exactly the same position in WTO dispute settlement proceedings that MOFCOM has urged in this case: after 2002, China was still requiring exporters to abide by a price-setting regime.  China’s statements to the WTO, accordingly, did . . .not provide any basis for the district court to refuse to accord MOFCOM deference. . . .

MOFCOM grants that a district court that faces a contested question of foreign law with no aid from a foreign government often will have no choice but to grasp the nettle and do its best. But here, the district court’s confusion was self-inflicted.  MOFCOM offered an authoritative view of Chinese law.  The district court erroneously refused that assistance and then, predictably, floundered in its attempt to discern the operation of a complex foreign regulatory system.  The district court instead should have deferred, as it unquestionably would have been required to do had a U.S. regulator presented an analogous statement in a brief. . . . Its failure to do so, or at a minimum to apply Chinese legal principles to its independent analysis, requires reversal.”

US JUDGE REFUSES TO DISMISS US ANTITRUST CASE AGAINST CHINESE SOLAR COMPANIES

On March 31, 2014, Judge Armstrong of the California Federal District Court rejected the Chinese solar companies’ motion to dismiss The Solyndra Residual Trust vs. Suntech Power Holdings, Suntech America, Trina Solar Limited, Trina US, Yingli Green Energy Holding Ltd, Yingli Green Energy Americas Inc (“Solyndra v. Suntech”) antitrust case.  In the attached decision, Solyndra order denying motion to dismiss Judge Armstrong stated:

“According to Plaintiff, the alleged price fixing scheme which led to the demise of Solyndra and numerous other American solar panel manufacturers was perpetrated by Suntech, Trina and Yingli (all of which are publicly-traded on the New York Stock Exchange), and their respective American alter egos, Suntech America, Trina U.S. and Yingli Americas. . . . Defendants are members of the China New Energy Chamber of Commerce (“China New Energy”), a trade association which has the stated purpose of promoting “collaboration” amongst its members. . . . Through China New Energy, Defendants were able to meet regularly and develop a coordinated pricing and output strategy aimed at dominating the United States solar panel market. . . .

Defendants, desiring to dominate the United States market for solar panels, became concerned with the innovation presented by Solyndra’s technology. . . .  To that end, Defendants allegedly formed a conspiracy to “dump” (i.e., to price their panels below cost) their solar panels in the United States market.  . . To that end, as demand for solar panels was rising, Defendants acted contrary to “rational economic rules” by “slash[ing] their prices in an effort to aggressively capture market share and drive competition from the marketplace.” . . .

Defendants also are alleged to have used China New Energy to fix prices at artificially low rates. . .  . Each year since founding in 2006, China New Energy has held an International Forum (“Forum”), at which the chairs of Suntech, Trina and Yingli have been featured speakers. . . . Defendants allegedly used China New Energy’s annual International Forum as a means of meeting and communicating with one another and reach agreements to fix and lower prices.  . . . After each Forum, prices charged by each of the Defendants fell precipitously. . . .For example, after meeting during the second Forum which held on December 11-12, 2007, Defendants lowered their prices by 40%.  . . . This pricing behavior “shocked” even seasoned industry analysts, who had predicted price reductions of only 5% per year.  . .

As prices for Chinese solar panels in the United States plummeted, American solar manufacturers could not keep pace.  .  . Since 2010, “at least twelve domestic U.S. manufacturers have shut down plants, declared bankruptcy, or staged significant layoffs.” . . .

In contrast, Defendants now occupy a dominant position in the American solar panel market, and by the end of 2011, controlled 65% of the rooftop solar market. . . . Correspondingly, Defendants’ net revenues soared, with Suntech’s net revenue alone increasing to $3.1 billion in 2011 from $1.6 billion in 2009. . . .

Here, the pleadings specifically allege facts that are more than sufficient to suggest that Defendants reached an agreement to fix prices and flood the American market with their below cost Chinese-made panels for the purpose of stifling competition. The FAC alleges that Defendants effectively controlled their industry trade organization, China New Energy, and held meetings at its annual Forums to coordinate their market strategy including the coordinated, drastic lowering of prices to dominate the American market for solar panels. After each Forum held between 2007 and 2010, Defendants’ prices uniformly fell precipitously. These uniform price decreases were completely unanticipated within the industry, given that it was economically irrational to slash prices so significantly in the face of rising demand. . . . . Allegedly as a result of Defendants’ predatory and collusive conduct, Solyndra and a host of other American competitors went out of business, while Defendants correspondingly increased their sales and market share in the United States. . . .

Construing these allegations in a light most favorable to Plaintiff, the Court finds that they are sufficient to present a plausible claim that Defendants formed an agreement to restrain trade.”

CHINA ANTITRUST CASES

Commentators have observed that governments are increasingly using antitrust and other regulatory powers for broader political and economic purposes and following the Commerce Department’s lead, the Chinese government is doing the same.

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 China’s National Development and Reform Commission (NDRC).

In the US National Trade Estimate report, its annual reports on trade barriers, released on March 31, 2014, 2014 NTE Report on FTB the USTR expressed concerned about the deteriorating conditions for US companies operating in or hoping to export to China across a broad range of sectors, due to selective anti-monopoly law enforcement.  With regards to stepped-up enforcement of anti-monopoly laws by China’s National Development and Reform Commission (NDRC), the USTR stated in its March 31st report:

“Anti-Monopoly Law

The Chinese government’s interventionist policies and practices and the large role of SOEs in China’s economy have created some uncertainty regarding how the Anti-Monopoly Law will be applied. One provision in the Anti-Monopoly Law protects the lawful operations of SOEs and government monopolies in industries deemed nationally important. To date, China has enforced the Anti-Monopoly Law against SOEs, but concerns remain that enforcement against SOEs will be more limited.

In 2013, NDRC increased its enforcement activity noticeably, particularly against foreign enterprises. In addition, U.S. industry has expressed concern about insufficient predictability, fairness and transparency in NDRC’s investigative processes, including NDRC pressure to “cooperate” in the face of unspecified allegations or face steep fines. U.S. industry also has reported pressure from NDRC against seeking outside counsel, in particular international counsel, or having counsel present at meetings.”

EXPLOSIVE GROWTH IN CHINESE ANTITRUST CASES

A recent report by John Yong Ren, a well-known Chinese antitrust lawyer, states that there was an explosive growth in antitrust cases under China’s anti-monopoly law in 2013, with even more cases coming in 2014.  T&D Monthly Antitrust Report of March 2014

It was reported that both the Justice Department and now the NDRC have started investigations of Auto Parts and are targeting capacitor manufacturers.

SECURITIES

On March 11, 2014, in the attached complaint, AGFEED COMPLAINT the Securities and Exchange Commission (“SEC”) filed suit against Agfeed Industries, Junhong Xiong, Selina Jin, Songyan Li, Shaobo Ouyang, Edward J. Pazdro and K. Ivan Gothner for accounting fraud.  The SEC sued bankrupt AgFeed Industries Inc. and former principals of the company over an alleged accounting fraud scheme, in which revenues were inflated by $239 million in order to boost the industrial hog producer’s stock price.

Four executives at the China-based but U.S.-traded company purportedly used a variety of methods to inflate revenue from 2008 through 2011, such as faking invoices for sales of feed and nonexistent hogs, which executives later tried to cover up by claiming the bogus hogs had died.

According to Andrew J. Ceresney, director of the SEC’s Enforcement Division, “AgFeed’s accounting misdeeds started in China, and U.S. executives failed to properly investigate and disclose them to investors.  This is a cautionary tale of what happens when an audit committee chair fails to perform his gatekeeper function in the face of massive red flags.”

According to the SEC the fraud started in China and U.S. management eventually got wise to the fraud, which included keeping two sets of books: one for insiders with accurate information, and one with inflated figures shown to outside auditors. But instead of intervening, US management moved to spin off the company’s feed division and reported nothing about the incident to law enforcement or investors.

FOREIGN CORRUPT PRACTICES ACT—EXTRADITION OF FOREIGN NATIONALS TO FACE US JUSTICE

On April 2, 2014, the US Government indicated six foreign nationals in an alleged conspiracy to bribe Indian officials to approve a $500 million titanium mining project.

Dmitry Firtash, identified by prosecutors as the leader of the alleged conspiracy, co-owns RosUkrEnergo with the Russian gas company Gazprom, and controls international conglomerate Group DF that owns several mining companies.

Firtash was arrested in Vienna on March 12 and later released on about $174 million bail.  Prosecutors are seeking forfeitures of about $10.6 million from the defendants.

Prosecutors additionally want Firtash to forfeit his interests in Group DF and its assets, including more than 150 companies in the British Virgin Islands, Switzerland and Cyprus.  The foreign nationals face up to 20 years in prison for the most serious charges and up to a million dollars in fines.

In announcing the indictment in the attached statement, FOREIGN INDIVIDUALS PROSECUTED UNDER FCPA the Justice Department stated:

“Fighting global corruption is part of the fabric of the Department of Justice,” said Acting Assistant Attorney General O’Neil. “The charges against six foreign nationals announced today send the unmistakable message that we will root out and attack foreign bribery and bring to justice those who improperly influence foreign officials, wherever we find them.”

“Criminal conspiracies that extend beyond our borders are not beyond our reach,” said U.S. Attorney Fardon. “We will use all of the tools and resources available to us to ensure the integrity of global business transactions that involve U.S. commerce.”

“This case is another example of the FBI’s willingness to aggressively investigate corrupt conduct around the globe” said Special Agent in Charge Holley. “With the assistance of our law enforcement partners, both foreign and domestic, we will continue to pursue those who allegedly bribe foreign officials in return for lucrative business contracts.”

Tom Gorman, a Dorsey partner in our Washington DC office, who formerly worked in the SEC enforcement division, has described this indictment as follows:

“FCPA enforcement officials have repeatedly emphasized that they intend to focus on individuals as an effective means of halting possible violations. A case unsealed yesterday underscores this point.”

See his entire article on his blog at http://www.secactions.com/fcpa-a-focus-on-individuals/

SEC GETS $33 MILLION DOLLAR DEFAULT JUDGMENT AGAINST CHINESE ELECTRONICS COMPANY AND EMPLOYEES

On March 10, 2014, in SEC v. China Intelligent Lighting & Electronics Inc. et al, a New York Federal Judge issued the attached default judgments NDEF IDEF in favor of the U.S. Securities and Exchange Commission and against two Chinese electronic companies accused of misleading investors about the use of money from public offerings, ordering the companies to pay a total of almost $33 million.

SECURITIES COMPLAINTS

On March 27, 2014, the SEC filed suit against World Capital Market Inc, WCM777 Inc. WCM777 Ltd. d/b/a WCM777 Enterprises and Ming Xu a/k/a Phil Ming Xu and Kingdom Capital Market, Manna Holding Group, Manna Source International, WCM Resources, Aeon Operating and PMX Jewels for securities fraud.  As described in the attached complaint SEC WORLD CAPITAL MARKETS,

“This matter involves an ongoing pyramid scheme, Ponzi scheme, and misappropriation of investor funds through an unregistered securities offering that targets members of the Asian-American and Hispanic-American communities, as well as foreign investors. Beginning around March 2013 and continuing to the present, operating under the offering name “WCM777,” Defendants have collected over $65 million from investors in the United States and abroad.  Of that amount, over $28 million was deposited into bank accounts in the United States between March and October 2013.  After October 2013, Defendants deposited investor funds into a bank account in Hong Kong.”

Apparently, the investors were not only in the US, but also in China and Hong Kong.

In the attached complaint, a Brad Berkowitz has filed a class action securities case against Sino Gas and several Chinese individuals and companies.  SINO GAS

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

Law Blog Development & Digital Marketing by Adrian Dayton & Company