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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR DECEMBER 19, 2016

Dear Friends,

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

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

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

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

Trump will try and do everything possible to increase jobs in the United States.  Hopefully, that will mean more support to Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them without damaging US downstream production.

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

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

Finally, there is an announcement from the Justice Department about the accomplishments in the recent US/China meetings on Computer Hacking and also recent 337 intellectual property cases against China.

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

Best regards,

Bill Perry

TRADE AND TRADE POLICY

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

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

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

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

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

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

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

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

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

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

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

BRANSTAD TO BE AMBASSADOR TO CHINA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

WILBUR ROSS—NEXT COMMERCE DEPARTMENT SECRETARY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

With regard to economic reform in China, Ross states:

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

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

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

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

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

COULD TAXES BE THE WAY TRUMP MAKES US INDUSTRY GREAT AGAIN

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRUMP APPOINTS WILBUR ROSS A PRAGMATIST TO BE COMMERCE DEPARTMENT SECRETARY

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

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

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

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

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

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

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

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

Eventually, however, Bethlehem Steel fell into bankruptcy.

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

The Honorable Wilbur Ross

New Commerce Department Secretary Trump Administration

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

Dear Secretary Ross,

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

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

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

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

A starting point would be for the Commerce Department to build upon two existing programs that have proven track records of success in this area that can be quickly ramped up and can have an immediate and tangible impact on the 250,000 small and medium manufacturing companies which serve as the bases of our supply chain: EDA’s Trade Adjustment Assistance for Firms /Companies (“TAAF”) and NIST’s Manufacturing Extension Partnership Program (“MEP”) (inexplicably, these programs have been marginalized by the Obama Administration).  TAAF has 11 regional (multi-state) TAAF Centers but the program has been cut to only $12.5 million annually. The system has the band-width to increase to a run rate of $50 million.  Projecting a four-year ramp up of $90 million (FY18-FY21), the TAA program could serve an additional 2,150 companies.

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

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

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

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

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

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

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

Very truly yours,

William Perry

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

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

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

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

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

As former USTR General Counsel Warren Maruyama recently stated:

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

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

Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

In other words, pursuant to the China WTO Accession Agreement, Commerce’s right to us a nonmarket economy methodology in Article 15 (a)(ii) “shall expire 15 years after the date of accession”.  China acceded to the WTO on December 11, 2001 so Section 15(d) should have taken effect on December 11, 2016, but did not.

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

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

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

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

As CBS news stated about the announcement:

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

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

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

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

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

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

SOLAR CELLS FROM CHINA PRELIMINARY DETERMINATION

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

SOLAR CELLS FROM CHINA REVIEW INVESTIGATION STARTS THIS MONTH

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

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

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

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

NEW HARDWOOD PLYWOOD AD AND CVD CASE AGAINST CHINA

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

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

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

STEEL TRADE CASES

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

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

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

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

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

CHINA

HOW THE CHINESE GOVERNMENT CAN RETALIATE

What Happens When Trump Starts a Trade War with China

By Adams Lee, Partner, Harris Bricken

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

(1) declare China to be a currency manipulator,

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

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

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

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

  • China’s AD/ CVD Actions

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

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

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

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

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

  • China’s Antitrust Enforcement

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

  • China’s Criminal Enforcement

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

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

CHINA AD/CVD NEWSLETTERS

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

CANADA

LUMBER FROM CANADA CASE COMES BACK

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

THE CANADIAN VIEW

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

MEXICO

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

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

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

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

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

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

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

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

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

Line pipe of a kind used for oil or gas pipelines

Subheading 7304.19 Other

Tariff

7304.19.01

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

Tariff

7304.19.02

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

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

Tariff

7304.19.99

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

Tariff

7304.39.05

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

Tariff

7304.39.06

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

Tariff

7304.39.99

Others.

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

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

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

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

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

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

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

COMPUTER HACKING

US AND CHINA MEETING

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

Joint Summary of Outcomes

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

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

The outcomes of the third dialogue are listed as below:

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

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

ARROWHEADS WITH ARCUATE BLADES

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

LIQUID CRYSTAL eWRITERS AND COMPONENTS THEREOF

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

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

Best regards,

Bill Perry

US CHINA TRADE WAR–UNIVERSAL TRADE WAR, TPP IN LAME DUCK, SPOTTING POTENTIAL AD CASES, CUSTOMS, FALSE CLAIMS ACT, VITAMIN C ANTITRUST, IP AND 337

Lotus Garden Boat Buildings Yue Feng Pagoda Summer Palace BeijinTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 7, 2016

INTERVIEW ON WHAT US COMPANIES CAN DO IN THE PRESENT TRADE CRISIS

Just did an interview on what US companies can do to cope with the current trade crisis.  Hope you will find it of interest.  http://www.turbineagency.com/industry-insights/2016/10/25/accelerateb2b-how-do-global-trade-deals-really-impact-us-businesses

Dear Friends,

This blog post contains several new article and articles that have been posted on the Harris Moure blog, www.chinalawblog.com from the HM Trade Practice Group, including Adams Lee, Emily Lawson and myself.  The new articles also reflect my discussions during my recent three-week trip to China meeting with various Chinese companies, the Chinese Ministry of Commerce (“MOFCOM”), and Chinese trade lawyers.

The most important point is that the US China Trade War is expanding and has now become a universal trade war.  Although the US continues to bring numerous antidumping (AD) and countervailing duty (CVD) cases against China, the Chinese government is now bringing and will bring numerous AD and CVD cases against the US.

In the recent Chinese antidumping case against Distiller Grains from the US, the Chinese government has levied a 33% rate against $1.6 billion in US exports to China.  There are rumors that the Chinese government may soon bring AD and CVD cases targeting $15 billion in US exports of soybeans to China.

Meanwhile numerous countries have adopted their own AD and CVD laws modeled on the US and EU and are bringing cases not only against China, but also against the US.

The only recent trade developments that would break the retaliation cycle are the Trans Pacific Partnership (TPP) and the TTIP deal with Europe and both trade agreements are in serious trouble.

In addition, set forth below are articles on how to spot an AD and CVD trade case coming and what do when your company is a target of a trade case, magnesium and steel cases, trade cases against Europe, and Trade Adjustment Assistance by David Holbert, who heads the Northwest Trade Adjustment Assistance Center.  In addition, there are a number of articles on Customs law, False Claims Act, including an FCA case against Furniture and Customs enforcement action against Honey.  Finally, there is an article on recent Second Circuit Decision in the Vitamin C Antitrust Case and the antidumping back story, a Criminal Trade Secrets case, a new 337 case and the Section 337 article translated into Chinese.

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 POLICY AND TPP

US CHINA ANTIDUMPING TRADE WAR IS NOW A UNIVERSAL ANTIDUMPING TRADE WAR

As Donald Trump and Hilary Clinton duel during the Presidential debate about who can be more protectionist, during my recent trip to China I learned that what was once a US China Trade War has now become a universal trade war.  Country after country have adopted the US and EC Antidumping law and are filing case after case against other countries and the US.

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

Although Donald Trump, Hilary Clinton and many US politicians want to adopt a mercantilist trade policy which favors pushing exports and protecting US industries from imports, the US politicians simply do not understand retaliation.  What the US can do to other countries, those countries can do back.  President Reagan understood the retaliation danger of protectionism and a mercantilist trade policy, but many present day US politicians do not.  So all of these countries are following the US lead and implementing a mercantilist trade policy.

Free trade agreements, such as the TPP and the TTIP, which would break this cycle are now all in deep trouble as each country wants to put its industries first and make their country and industries great again.  The rise in nationalism results in trade wars in which country after country will fire trade guns against each other.  As Jack Ma of Alibaba recently mentioned on CNN, real wars start when trade stops.  See http://money.cnn.com/2016/09/02/technology/jack-ma-alibaba-g20/

During my recent trip to China, in the attached notice, ddgs-list-of-dumping-margin-of-each-company_en ddgs-preliminary-finding-summary-translation_en, on September 23, 2016, the Chinese government announced a 33% preliminary antidumping duty targeting $1.6 billion in imports from the United States of DDGS, Distiller’s Dried Grains with or without Solubles, which is used as an ingredient for animal feed.

During this trip, officials at the Chinese Ministry of Commerce (“MOFCOM”) told me that more trade cases will be coming next year against the US.  In fact, there are rumors that the Chinese government will soon bring an AD and CVD case targeting $15 billion in US soybean exports to China.  This is the number one US export to China.  Now that China is bringing more trade cases against the US, these cases will hurt US companies and the jobs that go with them.

On the US side, the election of either Donald Trump or Hilary Clinton in November will mean more US trade cases next year against not only China, but many other countries as well.

On September 22, 2016, MOFCOM in China initiated an escape clause/safeguard action against Sugar from Brazil, Cuba, Guatemala, Australia, South Korea and Thailand alleging tariffs up to 155.90%.

On September 15, 2016, India brought its own antidumping case against Polybutadiene Rubber from South Korea, Russia, South Africa, Iran and Singapore.

Taiwan has brought a Steel antidumping case against China.

More and more cases will be filed in 2017 around the World and many will target the United States, China, and numerous other countries.  Compromise is the best way to settle trade disputes, but it is very difficult, if not impossible, to settle US antidumping and other trade cases.  What is “fair” trade for the United States is “fair” trade for every other country.  Many countries want to make their industries Great again.

TPP IN THE LAME DUCK KEEPS ON TICKING

As mentioned in my last blog post, 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.  Many Congressional leaders appeared to  oppose tbringing up TPP in the Lame Duck.  But with Hilary Clinton’s resurgence in the Polls after the first debate, there is more talk about the TPP coming up in the Lame Duck, the period after the Presidential election and before the end of the year, as President Obama pushes hard for passage of the legislation.

On September 16, 2016, Ohio Governor Republican John Kasich in an interview with CNN stated that he supports passage of the TPP and will support President Obama in this legislative push in the Lame Duck.  See http://edition.cnn.com/2016/09/15/politics/john-kasich-trans-pacific-partnership/index.html

Governor Kasich made clear that he feels “it’s his “responsibility and duty as a leader” — no matter the political cost — to help President Barack Obama push the Trans-Pacific Partnership through Congress.

Kasich stated that

“I have never been an ideological supporter of free trade. The ideologues used to come to me and be frustrated with me.  But when you look at these agreements in a real sense – and this one is much different than even NAFTA.”

Kasich added that when Russian and Chinese leaders oppose the TPP, that is one reason to vote for the TPP, “We have to do this.”

Kasich further stated,

“This is the first time the candidates in both major political parties say they are opposed to free trade. It’s astounding to me.  I welcome the fact that people will criticize me for putting my country ahead of my party.”

The interview came after Kasich met with President Obama in the Oval Office with former New York City Mayor Michael Bloomberg, former George W. Bush administration Treasury Secretary Hank Paulson, Atlanta Mayor Kasim Reed and others for a meeting on the 12-nation Pacific Rim deal.

Kasich further stated:

“This is an opportunity for the Congress to carry out its responsibility. Frankly, if I have to come down here and spend some time lobbying my Republican colleagues, I’m more than glad to do that.

There’s definitely some people I can call and talk to.  This is a big deal. I mean, if we were to just walk away with this — with both candidates saying they don’t want this — we turn our backs on Asia.

He also played down the political potency of Trump’s anti-trade position in manufacturing-heavy Ohio, saying it’s not why Trump might win the state.

On September 26, 2016, Robert Samuelson, a well-known economist, published an article entitled “Will TPP Rise from the Dead”, stating:

With Obama’s term ending and his already-modest influence eroding by the day, TPP seems dead. But it may still be in intensive care.

In a speech to the Peterson Institute for International Economics, a Washington think tank, Rep. Kevin Brady, R-Texas, chairman of the House Ways and Means Committee whose jurisdiction includes trade agreements, said that the TPP could still be ratified in the lame-duck session after the election and before a new Congress takes office.

Samuelson went on to state that Brady gave two major reasons to approve the TPP.

First, geopolitical:  The TPP would enhance US influence in the Pacific region and offset China’s growing economic and political power. TPP would give the United States a major role in regulating global commerce in the 21s century. The trade agreement codifies rules on “intellectual property” (patents, copyrights), data flows and state-owned firms

Ratification would be a strong signal to Asia that the United States intends to remain a Pacific power.

“The second reason is economic: Asia remains a fast-growing region. TPP would eliminate most tariffs among the 12 member countries, aiding American exporters in these markets. The advantage may be particularly important in services (tourism, consulting, finance and engineering), where U.S. firms are especially strong. In 2015, the United States had a $762 billion deficit in goods trade (machinery, steel, medical equipment) and a $262 billion surplus in services trade, leaving an overall deficit of $500 billion.  According to the Peterson Institute, the 12 countries in the TPP accounted for about 36% of the world economy and 24% of global trade in 2014.”

Samuelson goes on to quote Brady on why he does not dismiss TPP’s prospects as bleak, “People change once they get into office.”

Samuelson then states:

Translation: The campaign’s anti-trade and anti-globalization rhetoric might recede before the realities of governing. Although Brady didn’t say so, one implication is that a victorious Hillary Clinton might put up only token opposition to TPP, both because the case for approval is strong and because she might feel obligated to Obama for his political support.

But Brady went on to state that getting a deal would be difficult. With many Democrats adamantly opposed to TPP, President Obama would need to rely on Republicans to approve the agreement. But if President Obama cannot round up enough Democratic votes to ensure victory, Republicans will not go out on a political limb and bring the agreement up during the Lame Duck.

“We are running out of time,” Brady told the Peterson audience. As Samuelson stated, “The TPP may yet wind up in the political morgue.”

TRADE

CHINA IMPORTS: KNOW YOUR RISKS

By Adams Lee, Harris Moure International Trade Group

Every year U.S. producers file 10-15 petitions asking the U.S. government to investigate whether certain products imported into the US are sold at unfair prices (antidumping or AD) or are unfairly subsidized (countervailing duty or CVD). Many of the AD/CVD cases target products imported from China. Odds are good that at least two new AD/CVD petitions will be filed by Halloween and as many as five by year end.

Our clients often ask our international trade lawyers how they can determine the likelihood of a AD/CVD petition that could adversely affect their ability to compete in the US market. Each AD/CVD petition is unique to the product and industry it covers, but most AD/CVD investigations fall within a handful of categories. Understanding what has led to the filing of previous AD/CVD petitions can help you as a producer, exporter, or importer, recognize if and when to expect a new AD/CVD petition that could directly affect you. The following are some of the indicators you should be checking to determine whether your imported into the USA product will be next.

The Regulars. Certain domestic industries have been frequent filers of AD/CVD actions. Companies in these industries are veterans of AD/CVD actions; they don’t ask if a new petition will be filed, only when it will be filed.

  • Steel of all types (carbon steel, stainless steel, flat products, pipe, rebar, wire rod, wire, etc.) from all over the world. The latest wave of steel AD/CVD investigations are being completed with high AD/CVD margins in most cases.
  • Softwood Lumber from Canada. The latest round of the US-Canada Lumber wars is set to begin as new AD/CVD petitions are likely to be filed in October 2016. Filing a new AD/CVD petition may be necessary to push US-Canada negotiations to a meaningful level.

The Big Box Effect. When Walmart, Lowes, or Target switch their sourcing of a product from a domestic manufacturer to a foreign (read Chinese) one, it is quite common for the jilted domestic supplier to file an AD/CVD petition in an effort to save their business. Boltless steel shelving units, wood flooring, ironing tables, and candles are all examples of this, and all involving products from China.

US Products Squeezed by Imports. It is not uncommon for an AD/CVD petition to be filed by a US producer that makes a higher quality product but is starting to lose out to foreign producers with lower quality but cheaper products. Frozen shrimp from multiple countries, garlic from China, and wooden bedroom furniture from China are some examples of this.

Pressure from Downstream Customers. Many AD/CVD petitions involve products that are material inputs used to make a downstream finished product. Petitions can be triggered by larger downstream producers switching to, or just threatening to switch to imports to pressure smaller upstream suppliers to lower prices.  Many chemical products from China, tire products from China and other countries, kitchen racks from China are examples of this.

AD/CVD Actions on Upstream ProductsSometimes AD/CVD actions filed by other domestic industries trickle down and harm downstream domestic industries. For example, US wire rod producers filed AD/CVD petitions that resulted in AD/CVD duties against imported wire rod. But these wire rod duties ended up hurting US wire producers, who in turn filed their own AD/CVD duties against imported wire.

Dying Dinosaurs/Last Survivors. Some AD/CVD petitions are filed by the remaining members of a nearly extinct domestic industry dealing with decreasing demand and increased import pressure. Sometimes the AD/CVD actions allow the surviving US producers to stay in the US market protected from import competition.  Examples of this are wooden bedroom furniture, magnesium and innersprings from China.

Other Countries’ AD/CVD actions. The US is not the only country that acts to protect its domestic industries from unfair foreign trade. AD/CVD actions filed in Canada, India, the EU, Brazil, and even China are warning signs of industries facing tight competitive pressure. Imports blocked from one market are often diverted to other available markets. A prime example of this are products from China which first had AD/CVD filed in the EU before the US took action.

All of the above scenarios are good indicators of an imminent filing of a new United States’ AD/CVD petition, so if you are seeing these market conditions in your industry, an AD/CVD petition is probably in your near future.

WHAT SHOULD YOU DO WHEN THE CUSTOMS ANTIDUMPING AND COUNTERVAILING DUTY BOGEYMAN IS COMING AFTER YOUR IMPORTED CHINA PRODUCTS

By Adams Lee, Harris Moure International Trade Group

In China Imports Know Your Risks (above), I wrote about how companies can recognize impending antidumping (AD) or countervailing duty (CVD) petitions. In this post I address what you as an importer, exporter or foreign producer should do if you see an AD/CVD storm looming.

The first thing you should do is determine whether the AD/CVD petition will directly hit your primary operations. The second thing you should do is figure out how best to defend yourself interests if the AD/CVD petition is headed directly your way. The third thing you should do if you do get hit by AD/CVD duties is to figure out damage control going forward.

  1. New AD/CVD Petition – Are my products affected? AD/CVD petitions include a proposed scope definition that identifies the products covered. AD/CVD scope definitions can be complicated and unclear. They may be broader or narrower than the Customs tariff classifications normally used to identify such imports. Even if you think your products are outside the scope of the petition, U.S. Customs may disagree. U.S. Customs commonly demands that you first pay an AD/CVD deposit, assuming that your products are within the scope of the AD/CVD petition, and then Customs will return your deposit only if you get a Department of Commerce (DOC) ruling that your products are actually outside the scope. For example, with aluminum extrusions from China, the DOC has received around a hundred scope ruling requests to clarify whether certain products are included or excluded from the scope of that order.

Once you know the scope definition, you can evaluate the degree to which the AD/CVD action could impact your business.  Sometimes you and your customer can find alternatives to replace the subject AD/CVD products with either non-subject products or by your sourcing from non-subject countries. If you have options to switch away from the products covered by the AD/CVD action, it may not be necessary to participate in the AD/CVD investigation.

  1. AD/CVD investigations – How to defend? If your product is squarely within the scope of the AD/CVD petition and the U.S. market is worth fighting for, you should determine the best way to prepare for the AD/CVD investigation. If you have enough time before a petition is filed, you theoretically can try to adjust your sales to remedy whatever is causing the dumped or subsidized sales, most commonly by raising your prices for certain products or customers or by modifying your production operations by lowering or reallocating costs. Unfortunately, most companies are not proactive about planning to avoid AD/CVD actions and instead react only after a petition is filed. We find this especially true of our clients that import from China, as opposed to Europe.

Once an AD/CVD investigation is initiated, foreign producers and exporters and US importers should try to defend their interests before the two agencies responsible for making AD/CVD determinations: The International Trade Commission (ITC) determines whether a domestic industry is injured or threatened with injury by reason of the subject imports and the Department of Commerce (DOC) determines how much the subject imports are dumped or subsidized.

In ITC investigations, the best defenses are presented when the foreign producers, US importers, and US purchasers can organize and explain why the subject imports should not be blamed for any decline in the domestic industry’s performance. Because the ITC examines a broad range of data regarding the US market for the subject product, a comprehensive explanation of relevant market conditions is necessary to a winning argument.

In DOC investigations, the foreign producer and exporters are the primary respondents to the DOC’s questionnaires. These companies must provide extensive corporate structure, sales and cost data, often through multiple rounds of questionnaires. The DOC uses the submitted data to calculate AD/CVD margins.  Unaffiliated US importers usually do not need to submit data in DOC investigations and reviews, but they often will closely monitor the DOC’s proceedings because they will ultimately be responsible for paying the AD/CVD duties. See Sourcing Product From China: You Should Know About Importer of Record Liability.

The key to any AD/CVD defense is participating fully in both the DOC’s and the ITC’s investigations. If you don’t participate, you have no chance of winning. If a party does not respond on time or with complete responses, the DOC and the ITC can apply the adverse facts available that inevitably lead to higher AD/CVD margins. US importers should at least actively monitor DOC’s proceedings because their final AD/CVD liability often depends on how well the Chinese producers and exporters are able to respond to DOC’s questionnaires. It is not uncommon for the Chinese producer or exporter to mount a weak or no defense, leaving the U.S. importer essentially “holding the bag.” There are many things you can and should do to try to prevent this from happening to you.

  1. How to Plan for Life with AD/CVD. The overwhelming majority of AD/CVD petitions lead to orders for imposing AD/CVD duties.  But depending on the scope definition of the AD/CVD order, it may be possible for you to maintain your business operations by identifying alternative out-of-scope products or by switching your product sourcing to a non-subject country. But in switching sourcing, US importers should be careful to avoid actions that could be considered schemes designed primarily to evade AD/CVD duties, as the DOC can extend orders through circumvention investigations. Customs too can conduct its own investigation of duty evasion allegations.

Also, because the United States uses a retrospective AD/CVD system, foreign suppliers and US importers have the opportunity each year to try to lower their dumping margin. Since AD/CVD duties are “remedial”, foreign producers and U.S. importers have ample opportunity to adjust their production and sales operations so that they can sell “fairly” to the U.S. market, as defined by the U.S. trade laws and with proper planning and disciplined execution, companies can sometimes make even minor adjustments to reduce or eliminate their AD/CVD duty liability.

Bottom Line: You are not without defenses when the AD/CVD bogeyman appears to be heading for you. There are things you can do both to stop it from attacking your business and things you can do to restore your business once attacked.

Editor’s Note: This post focuses on products exported from China to the United States, but its advice applies with equal force to products exported from any other country to the United States and with nearly equal force to products exported from any other country to any other country that also has AD/CVD sanctions.

CAFC MAGNESIUM METAL DECISION

On October 6, 2016, in the attached decision, cafc-magnesium, the Court of Appeals for the Federal Circuit affirmed the Commerce Department’s decision that replacement of stainless steel retorts used to produce magnesium metal was an overhead expense and not a direct cost in the Magnesium Metal from China antidumping case.

STEEL TRADE CASES

CARBON AND ALLOY STEEL CUT-TO-LENGTH PLATE FROM CHINA AND KOREA

On September 7, 2016, in the attached fact sheet, clt-plate-cvd-prelim-fs-090716, Commerce issued an affirmative preliminary CVD determination in the initial investigation of certain carbon and alloy steel cut-to-length plate from China and a negative preliminary determination in the CVD investigation of imports from Korea.

China CVD rate best on all facts available is 210.50% and Korea’s CVD rate is 0.

CARBON AND ALLOY STEEL CUT-TO-LENGTH PLATE FROM BRAZIL, SOUTH AFRICA AND TURKEY

On September 16, 2016, in the attached fact sheet, factsheet-multiple-ctl-plate-ad-prelim-091616, Commerce announced its affirmative preliminary determinations in the AD investigations of imports of certain carbon and alloy steel cut-to-length plate from Brazil, South Africa, and Turkey.

Brazil’s antidumping rate is 74.52%.  South Africa’s antidumping rates range from 87.72% to 94.14%.  Turkey’s antidumping rates range from 42.02% to 50%.

STAINLESS STEEL SHEET AND STRIP FROM CHINA

On September 12, 2016, in the attached fact sheet, factsheet-prc-stainless-steel-sheet-strip-ad-prelim-091216, Commerce announced its affirmative preliminary determination in the AD investigation of imports of stainless steel sheet and strip from China.  The antidumping rates range from 63.86% to 76.64%.

TRADE CASES AGAINST EUROPE

EUROPEAN TARGETS IN ANTIDUMPING AND COUNTERVAILING DUTY CASES AND WHAT CAN BE DONE TO GET BACK IN THE US MARKET AGAIN

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

China is not the only target.  AD cases have been recently filed against a number of European countries, including Carbon and Alloy Steel Plate from Austria, Belgium, Germany, and Italy; Steel Flanges from Italy and Spain; and Rubber from Poland.

In addition, there are outstanding AD and CVD orders against Germany on brass sheet and strip, seamless pipe, sodium nitrite and non-oriented electrical steel.  In addition to Germany, other EU Countries have been hit on various steel products, including a number of stainless steel products, from Spain, Belgium and Italy; brass sheet and strip from France and Italy, isocyanurates from Spain, pasta from Italy, paper from Portugal and Uranium from France. The oldest US AD order in place today is pressure sensitive plastic tape from Italy, which was issued in 1977.

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 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 countries.

The real question many companies may have is how can AD and CVD rates be reduced so that the European company can start exporting to the US again.  US AD and CVD laws 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 electrical steel from Germany was issued in December 2014.   In December 2016, the German producer can request a review investigation of the electrical steel that entered, was actually imported into, the US during the period December 1, 2015 to November 31, 2016.

EU companies may ask that it is too difficult to export a 17 metric ton container of covered product to the US, requesting a nonaffiliated importer to put up an AD of 50 to over 100%, which can require a payment of $1 million USD or more.  In contrast to European law, however, 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 chemical case, we had the exporter put a metric ton of the chemical in question in a container with other products and that metric ton served as the test sale to establish the new AD rate.

EU Companies may also ask how we can make sure that we are not dumping.  The answer is dump proofing and computer programs.  In contrast to China, EU companies are considered market economy companies and, therefore, Commerce must use actual prices and costs in the European country to determine whether it is dumping or not.  Computer programs can be used to reduce the dumping margin significantly by modeling US prices and EU home market prices to eliminate or significantly reduce antidumping rates.

How successful can companies be in reviews?  In one EU Steel case, we dropped the dumping rate from over 17% in the initial investigation to 0% in the review investigation.  In a chemical from China case, we dropped a dumping rate of over 200% to 0%, allowing the Chinese company to become the exclusive exporter of the product for decades per order of the US government.

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

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES

David Holbert, who heads the Northwest Trade Adjustment Assistance Center (“NWTAAC”), is writing a series of posts on the NWTAAC website on how Trade Adjustment Assistance for Firms/Companies helps injured companies injured by imports.  This is the first post.

Imports are Like a Thousand Flash Floods Injuring US Companies That Are Not Competitive

The issue of trade competition and lost jobs is well discussed in the media.  I work with small and medium-sized enterprises (SMEs) who are negatively affected by trade competition, what is often called “trade impact” in policy lingo. It’s a big issue. According to the U.S Trade Representative, the United States’ 30 million SMEs account for nearly two-thirds of net new private sector jobs in recent decades.

For large companies or from a macro-economic perspective, import competition may seem like a rising tide – one that can be anticipated, prepared for or proactively mitigated. For small and medium-sized businesses, not equipped with diverse product lines, resources or change acumen, import competition feels more like a flash flood.

What is it like for those companies?  When trade impact hits, sales drop off, often suddenly.

  • Contract manufacturers build to specification for customers, often larger companies. For this group, trade impact could mean the loss of a major customer moving operations to a foreign country (and finding parts suppliers there), or simply an importer arriving on the scene with lower cost products.
  • For a consumer products company, trade impact will probably first arrive with falling sales to the big retail chains since they are the most sensitive to supplier prices.
  • For a commodity producer things are a little more predictable. There may be a change in currency valuation or the rise of a new industry in a foreign country. Regardless, these highly price sensitive markets will suddenly have a lower price option.
  • Commercial products producers will usually have more time. When imports arrive they will sell to generally more informed customers who usually value factors other than price. But the fall will come, just more slowly.

Sales could fall off for many reasons. How do you know its trade related? You ask or you ask around. It shouldn’t take long to find out.

Imports arrive product by product. Companies move offshore factory by factory.  A domestic company makes that product, is part of the supply chain needed to make the product or is part of that commodity industry. When the imports arrive (or the factory moves), that one company or set of suppliers or community of producers is directly in the way. All of this happens in what can seem to be a relatively normal looking manufacturing neighborhood. Across the street there might be a company making another product that is experiencing no trade competition. Next door a third company might have gone through trade impact years ago and has adjusted. For small and medium sized companies, trade impact can be surprisingly direct and specific.

Here are some examples of what I’m talking about.

  • A commercial products company makes a specialized tool. A couple of other U.S. and European companies make similar products with some parity between price and features. One year they are at the big industry trade show and see a product, similar to theirs (and the others), but priced about 40% lower. Three months later sales started slipping.
  • A contract manufacturer that machines metal parts had gravitated away from stainless steel to titanium and built for several competitors in the same industry. Foreign producers had mastered stainless steel over the last decade. But as of a recent year, those producers finally mastered titanium as well. One by one, the manufacturer’s customers started buying imports. Once one did, it had a cost advantage, so the others had to go along also.
  • A nut grower was maintaining a slim profit. Then, a certain country decided to incentivize its nut growers to achieve more efficiency and export capability. It took a while, but when the imported nuts started arriving, they were at a price point below break-even for the domestic producer.
  • A safety products producer sold through a variety of retailers. One year, seemingly out of the blue, the big box stores stopped ordering. It didn’t take long to figure out why. A similar imported product was on the shelves at about half the price.

In future posts I’ll cover the steps to recovery. They are many effective tools in the economic recovery toolbox.  In many cases, companies that employed these resources are now unrecognizable through increased scale and product changes. Interestingly, a surprising number become significant exporters.

My role at the Northwest Trade Adjustment Assistance Center is to help small and medium-sized companies that are negatively impacted by trade competition through grants of up to $75,000.  Our non-profit organization administers a federal program serving companies in Washington, Oregon, Idaho and Alaska. You can learn more about us at NWTAAC.org.

CUSTOMS LAW

IMPORTING GOODS FROM CHINA: THE RISKS ARE RISING

By Adams Lee, Harris Moure International Trade Group

Last month I wrote about how importers from China need to be on their guard since U.S. Customs and Border Protection (CBP) has implemented new regulations to investigate allegations of antidumping (AD) and countervailing duty (CVD) evasion. See Importing From China: One More (New) Thing You Need To Know.

It didn’t take long, as U.S. Customs has already begun its first wave of investigations: Wheatland Tube, a US steel pipe producer, on September 14, 2016 announced it had filed with CBP an allegation of duty evasion on imports of Chinese circular welded steel pipe.

CBP has published a timeline for conducting its investigations and a process diagram (EAPA Investigation Timeline) and this newly filed allegation will be a test case to see how CBP will conduct its new duty evasion investigations. Hopefully, CBP will soon address many of the questions raised by the new regulations. How will parties be allowed to participate? What information from the investigation will be made public? How will CBP define “reasonable suspicion” of duty evasion?

This steel pipe investigation is likely to be the first of many CBP duty evasion investigations that are to come, many (probably most) of which will target Chinese products subject to AD/CVD duties. For how to figure out the risk quotient for the products you import from China, check out China Imports: Know Your Risks.

The new antidumping and countervailing duty regulations will unquestionably require an increased number of importers and foreign manufacturers to formally respond to CBP’s questions in response to allegations. Given the strong political pressure by domestic U.S. industries calling for tougher enforcement of US trade laws (not to mention the rising opposition to free trade among the American populace), Chinese producers and exporters and US importers should be prepared for increased CBP activity. CBP is likely looking to punish someone hard to set an example of their improved enforcement.

Getting Your China Products Through U.S. Customs: The 101

By Emily Lawson, Harris Moure International Trade Group

If you are importing products from China you need to do your homework to make sure your incoming shipments into the United States comply with U.S. Customs laws and regulations. Compliance with U.S. Customs laws and regulations is critical in avoiding your shipments being detained or seized, and/or penalties assessed. Common issues importers of products from China typically face include the following:  

  Not determining proper classification and duty rate for products. If you plan to import and sell on a Delivered Duty Paid basis, you should consider customs duties in your costs and that means you should know all of your applicable duty rates before you import. Also certain products are subject to high antidumping or countervailing duties in addition to regular customs duties, which may be as high as 300%.

   Failing to mark the product with the country of origin of manufacture.  Generally goods of foreign origin for import into the U.S. or immediate containers of the goods must be marked legibly and in a conspicuous location with the country of origin in English. Failure to do so accurately  can result in civil and even possibly criminal penalties.

  Not properly marking wood packing material. All wood packing material for products imported into the U.S. must be properly  treated and marked prior to shipping. Failure to meet the treatment and marking requirements may cause shipments to be delayed and penalties issued. 

  Failing to provide complete commercial invoices. Customs regulations provide that specific data must be included on the commercial invoice for U.S. Customs purposes, including a detailed description of the merchandise, and correct value information. Omission of this information may result in improper declaration to U.S. Customs at the time of import and expose you to penalties.

  Failing to meet other U.S. Government agency requirements.  Goods imported for sale in the U.S. must satisfy the same legal requirements as those goods manufactured in the United States. U.S. Customs enforces the laws of other agencies in the U.S., including, the Food and Drug Administration, the Consumer Product Safety  Commission (CPSC), and the Environmental Protection Agency, in addition to others. Therefore, if toys, for example, are exported to the U.S., detailed CPSC requirements, including for testing, must be met prior to export.

   Distribution of many trademarked and copyrighted items. Items which are trademarked and copyrighted are restricted by contractual agreements that give exclusive rights to specific companies to distribute the product in the U.S. Imports of improperly  trademarked or copyrighted items can be seized at the U.S. border and can subject you as the importer to penalties.

 Taking the time to identify  the required U.S. Customs laws and regulations for the products to be shipped to the U.S. from China will help you maintain seamless delivery  of your merchandise to U.S. customers and avoid civil and criminal penalty  exposure.

FALSE CLAIMS HAMMER GETS BIGGER — THIRD CIRCUIT HOLDS FCA’S APPLICATION TO FALSE STATEMENTS MADE TO US CUSTOMS

On October 5, 2916, the Third Circuit Court of Appeals  in the attached decision in United States ex rel Customs Fraud Investigations, LLC. v. Vitaulic Company, us-vs-vitaulic, reversed the Federal District Court and held that a failure to label imported goods with the proper country of origin is actionable under the False Claim Act (“FCA”).  Vitaulic had imported millions of pounds of steel pipe with the wrong country of origin.

In holding that this is an actionable claim under the FCA, the Court stated:

These actions, according to CFI, give rise to the present qui tam action under the so-called “reverse false claims” provision in the False Claims Act (FCA).  Typically, a claim under the FCA alleges that a person or company submitted a bill to the government for work that was not performed or was performed improperly, resulting in an undeserved payment flowing to that person or company. The FCA was enacted as a reaction to rampant fraud and price gouging by merchants supplying the Union army during the Civil War. In this case, by contrast, the allegation is not that Victaulic is obtaining monies from the government to which it is not entitled, but rather that it is retaining money it should have paid the government in the form of marking duties. Wrongful retention cases such as these are known as “reverse false claims” actions.

The Court went on to state:

Of particular importance here, the Senate Report discussed “customs duties for mismarking country of origin,” and how such duties would be covered by the amended reverse false claims Provision. . . .

The plain text of the FCA’s reverse claims provision is clear: any individual who “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government” may be subject to liability. As alleged by CFI in the amended complaint, Victaulic declined to notify the Bureau of Customs and Border Protection of its pipe fittings’ non-conforming status. This failure to notify resulted in the pipe fittings being released into the stream of commerce in the United States and, consequently, marking duties being owed and not paid.

From a policy perspective, the possibility of reverse false claims liability in such circumstances makes sense in the context of the larger import/export regulatory scheme created by Congress. Because of the government’s inability to inspect every shipment entering the United States, an importer may have an incentive to decline to mention that its goods are mismarked on the assumption that the mismarking will not be discovered. In doing so, an importer avoids its obligation under 19 U.S.C. § 1484 to provide the government with such information as is necessary to enable the Bureau of Customs and Border Protection to determine whether the merchandise may be released from government custody or whether it must be properly marked, re-exported or destroyed.

HONEY AND FURNITURE

FURNITURE

On September 30, 2016, Ecologic Industries LLC and OMNI SCM LLC controlled by a Daniel Scott Goldman agreed to pay $1.525 million to settle a civil False Claims Act suit alleging it conspired to make false statements to avoid paying duties on wooden furniture imported from China to avoid the antidumping duties on Wooden Bedroom Furniture from China.  The companies sell furniture for student housing.

The case was filed by a whistleblower Matthew Bissanti, who is the former president and director of OMNI.  The Justice Department reported that Bissanti will receive $228,750 as his share of the settlement.

HONEY

On Aug 12, 2016, in the attached notice, to-bee-or-not-to-bee_-cbp-and-partners-seized-132-drums-of-hone, Customs and Border Protection announced seizure of 42 tons of illegally imported Chinese honey.  The honey was contained in 132 fifty-five gallon drums that were falsely declared as originating from Taiwan to evade antidumping duties applicable to Chinese honey. The evaded antidumping duties on this shipment of Chinese honey would be nearly $180,299.

ANTITRUST LAW

VITAMIN C ANTITRUST CASE—THE REAL ANTIDUMPING BACK STORY

On September 20, 2016, the Second Circuit Court of Appeals handed down its attached decision in the Vitamin C Antitrust case against the Chinese companies, In Re: Vitamin C Antitrust Litigation, vitamin-c-13-4791_opn-2d-cir-sept-20-2016.  In its decision, the Court of Appeals reversed the Federal District Court’s decision that the Chinese Vitamin C companies had fixed prices in violation of the US antitrust because Chinese government action, in effect, insulated the Chinese companies from US antitrust liability.

The Court of Appeals made the correct decision because as indicated below, I have personal knowledge as to the reason the Chinese government set the Vitamin C export price scheme in place to raise Chinese export prices—to deter US and other Antidumping cases.

As the Court of Appeals stated in its opinion:

the Chinese Government filed a formal statement in the district court asserting that Chinese law required Defendants to set prices and reduce quantities of vitamin C sold abroad, and because Defendants could not simultaneously comply with Chinese law and U.S. antitrust law . . .

The Court of Appeals then reversed the District Court “on international comity grounds” and ordered the District Court to dismiss the complaint with prejudice.

In effect, the Second Circuit held that based on comity grounds, that is, respect for Chinese law as evidenced by a formal statement and submission of the Chinese government that the Chinese government lawfully set up a scheme to raise Vitamin C prices, the Federal District Court should have dismissed the case.  The Court of Appeals held that the District Court should have deferred to the Chinese government and exempted the Chinese companies from the application of the US antitrust law based on the state action defense.  It should be noted that the Federal Government and State Governments through state action can insulate US domestic companies from the application of the US antitrust law.

The Court of Appeals specifically determined in the decision that:

The official statements of the Ministry should be credited and accorded deference. . . .The  2002  Notice,  inter  alia,  demonstrates  that  from  2002  to  2005,  the relevant time period alleged in the complaint, Chinese law required Defendants to participate in the PVC regime in order to export vitamin C. This regulatory regime allowed vitamin C manufacturers the export only vitamin C subject to contracts that complied with the “industry‐wide negotiated” price.

Although the 2002 Notice does not specify how the “industry‐wide negotiated” price was set, we defer to the Ministry’s reasonable interpretation that the term means what it suggests—that members of the regulated industry were required to negotiate and agree upon a price.  . . ..

In this context, we find it reasonable to view the entire PVC regime as a decentralized means by which the Ministry, through the Chamber, regulated the export of vitamin C by deferring to the manufacturers and adopting their agreed upon price as the minimum export price. In short, by directing vitamin C manufacturers to coordinate export prices and quantities and adopting those standards into the regulatory regime, the Chinese Government required Defendants to violate the Sherman Act. . . .

Because we hold that Defendants could not comply with both U.S. antitrust laws and Chinese law regulating the foreign export of vitamin C, a true conflict exists between the applicable laws of China and those of the United States.

The Court of Appeals went on to state:

Moreover, there is no evidence that Defendants acted with the express purpose or intent to affect U.S. commerce or harm U.S. businesses in particular. Rather, according to the Ministry, the regulations at issue governing Defendants’ conduct were intended to assist China in its transition from a state‐run command economy to a market‐driven economy, and the resulting price‐fixing was intended to ensure China remained a competitive participant in the global vitamin C market and to prevent harm to China’s trade relations. While it was reasonably foreseeable that China’s vitamin C policies would generally have a negative effect on Plaintiffs as participants in the international market for vitamin C, as noted above, there is no evidence that Defendants’ antitrust activities were specifically directed at Plaintiffs or other U.S. companies.

The purpose of the Chinese export scheme was not to damage US customers or businesses.  In fact, just the opposite was true.  The Chinese government wanted to keep exports flowing.

What was the concern of the Chinese government?  US and other antidumping cases, which could wipe Chinese exports out of the US market for decades.  This was the true number one anticompetitive threat that the Chinese government and companies were facing.  Was this a realistic threat?  Sure was.

The period that the export price scheme was set in place was 2002-2005.  On July 11, 2002, after losing an antidumping case in the mid-90s against Saccharin from China despite very high antidumping rates because of a no injury determination by the US International Trade Commission (“ITC”), PMC, the sole US producer of saccharin, filed a second antidumping case against saccharin from China.  The Chinese Chamber of Commerce in charge of the Saccharin case was the Chamber of Commerce for Medicines, the same Chamber in charge of the Vitamin C case.

On July 2, 2003, the Commerce Department issued an antidumping order against all imports of saccharin from China with rates ranging from an individual dumping rate of 249.39% to 329.29% for all other Chinese companies, effectively blocking all Chinese saccharin from China.  The Antidumping Order was in effect for 10 years.

Although one company that I represented was after three and a half years able to reduce its dumping rate down to 0%, all other Chinese saccharin was blocked out of the US market for 10 years.  Market prices for saccharin in the US soared from a low $1.50 per pound in the investigative period to a price well over $10 a pound.

And US plaintiff companies in the Vitamin C case were complaining about the price rise in Vitamin C exports to the US??!!  I am sure the increase was not 10 times.

Since I represented the Chinese saccharin industry in the Saccharin antidumping case, the Chamber of Commerce for Medicine and I were very aware of the devastating effect a US or other antidumping case could have on Chinese companies and exports.  After the antidumping order was issued, in the Summer of 2003 the Chamber called me to a meeting with the Chinese Vitamin C producers and the Chinese Ministry of Commerce (“MOFCOM”} to discuss how to deter US and other antidumping cases.  The Chamber and MOFCOM were very worried that intense Chinese price competition would lead to a wave of antidumping cases against the Vitamin C companies.

The Vitamin C companies, the Chamber and MOFCOM asked what can we do if there is a threat of an antidumping case.  Since Commerce and all other countries treat China as a nonmarket economy country and refuse to use actual prices and costs in China to determine antidumping cases, the general practice of dump proofing where antidumping consultants use computer programs to eliminate the unfair act, dumping, is not an option for Chinese companies.

The only remedy I could think of was that the Chinese government impose an export price floor.  That approach worked in the 90s with another Chamber of Commerce when there was a threat of a US antidumping case against Silicon Carbide from China.  The US Silicon Carbide producer in the one company US industry never filed their threatened antidumping case against China because of the export price floor the Chamber with MOFCOM’s consent put in place.

After suggesting that the Chamber set up an export price floor with MOFCOM’s involvement, I went on to state that MOFCOM would have to issue a law, regulation or action to show that the Government mandated the establishment of the system to insulate the Chinese companies from attack under the US antitrust laws.

The Chamber did set up the export price system for Vitamin C exports to stop US and other antidumping cases from being filed against the Chinese companies.  No Vitamin C antidumping cases were filed because the export price system was put in place.

As indicated by the Second Circuit, MOFOM did take government action to set up the export price scheme, which, in turn, insulated the Chinese companies from US antitrust liability.

The lesson of the story is that although the purpose of US antitrust law is to protect consumers and competition in the US market, the real threat to US consumers and market competition is the US antidumping law.

CRIMINAL IP/TRADE SECRET CASE

On October 5, 2016, the Justice Department in the attached notice, chinese-national-sentenced-to-prison-for-conspiracy-to-steal-tr, announced the sentencing of Mo Hailong, a/k/a Robert Mo, a Chinese national to three years in Federal prison for a conspiracy to steal trade secrets.  Mr. Mo Hailong was the Director of International Business of the Beijing Dabeinong Technology Group Company, commonly referred to as DBN. DBN is a Chinese conglomerate with a corn seed subsidiary company, Kings Nower Seed.

According to the plea agreement, Mo Hailong admitted to participating in a long-term conspiracy to steal trade secrets from DuPont Pioneer and Monsanto. Mo Hailong participated in the theft of inbred corn seeds from fields in Iowa and elsewhere for the purpose of transporting the seeds to DBN in China. The stolen inbred, or parent, seeds were the valuable trade secrets of DuPont Pioneer and Monsanto.

U.S. Attorney Kevin E. VanderSchel stated:

“Mo Hailong stole valuable proprietary information in the form of seed corn from DuPont Pioneer and Monsanto in an effort to transport such trade secrets to China. Theft of trade secrets is a serious federal crime, as it harms victim companies that have invested millions of dollars and years of work toward the development of propriety technology. The theft of agricultural trade secrets, and other intellectual property, poses a grave threat to our national economic security. The Justice Department and federal law enforcement partners are committed to prosecuting those who in engage in conduct such as Mo Hailong.”

SECTION 337 AND IP CASES

NEW 337 CASES

On October 6, 2016, Nite Ize, Inc. filed a major 337 case against Device Holders, many of which come from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Commodity:

Device Holders

Filed by:

James B. Altman

Firm/Organization:

Foster, Murphy, Altman & Nickel, PC

Behalf of:

Nite Ize, Inc.

Description:

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Device Holders, and Components Thereof. The proposed respondents are Shenzhen Youtai Trade Company Limited, d/b/a NoChoice, China; REXS LLC, Lewes, DE; Spinido, Inc., Brighton, CO; Luo, Qiden, d/b/a Lita International Shop, China; Guangzhou Kuaguoyi E-commerece co., ltd., d/b/a Kagu Culture, China; Shenzhen New Dream Technology Co., Ltd., d/b/a Newdreams, China; Shenzhen Gold South technology Co., Ltd. d/b/a Baidatong, China; Zhao Chunhui d/b/a Skyocean, China; Sunpauto Co., ltd., HK; Wang Zhi Gang d/b/a China; Dang Yuya d/b/a Sminiker, China; Shenzhen Topworld Technology Co.,    d/b/a IdeaPro, Hong Kong; Lin Zhen Mei d/b/a Anson, China; Wu Xuying d/b/a Novoland, China; Shenzhen New Dream Sailing Electronic Technology Co., Ltd., d/b/a MegaDream, China; Zhongshan Feiyu Hardware technology Co., Ltd d/b/a YouFo, China; Ninghuazian Wangfulong Chaojishichang Youxian Gongsi, Ltd., d/b/a EasybuyUS, China; Chang Lee d/b/a Frentaly, Duluth, GA; Trendbox USA LLC d/b/a Trendbox, Scottsdale, AZ; Timespa d/b/a Jia Bai Nian (Shenzhen) Electronic Commerce Trade CO., LTD., China; Tontex d/b/a Shenzhen Hetongtai Electronics Co., Ltd., China; Scotabc d/b/a ShenChuang Opto-electronics Technology Co., Ltd., China; Tenswall d/b/a Shenzhen Tenswall International Trading Co., Ltd., La Puente, CA; Luo Jieqiong d/b/a Wekin, China; Pecham d/b/a Baichen Technology Ltd., Hong Kong; Cyrift d/b/a Guangzhou Sunway E-Commerce LLC., China; Rymemo d/b/a Global Box, LLC., Dunbar, PA; Wang Guoxiang d/b/a Minse, China; Yuan I d/b/a Bestrix, China; Zhiping Zhou d/b/a Runshion, China; Funlavie, Riverside, CA; Huijukon d/b/a Shenzhen Hui Ju Kang technology Co., Ltd., China; Zhang Haujun d/b/a CeeOne, China; Easy Acc d/b/a Searay LLC., Newark, DE; Barsone d/b/a Shenzhen Senweite Electronic Commerce Ltd., China; Oumeiou d/b/a Shenzhen Oumeiou Technology Co., Ltd., China; Grando d/b/a Shenzhen Dashentai Network Technology Co., Ltd., China; Shenzhen Yingxue Technology Co., Ltd., China; Shenzhen Longwang Technology Co., Ltd., d/b/a LWANG, China; Hu Peng d/b/a AtomBud, China

CHINESE VERSION OF 337 ARTICLE

Set forth below is a Chinese version of the 337 English article published last month followed by the original English version.

阻止来自中国的侵权产品:337条款调查案

随着亚马逊和eBay加大力度引入中国卖家,以及越来越多的中国制造商另辟蹊径生产本身的产品,向我们在中国的律师咨询有关盗版产品和仿冒问题的公司数目也随之猛增。若该问题涉及到把侵权产品进口到美国,拥有美国知识产权的公司可以采取强大的补救措施进行反击。其中一个最强有力的补救措施就是337条款调查案,它可以用来阻止侵权产品进入美国,无论该产品生产自何处。

337条款调查案(该名称源自于19 U.S.C. 1337法令)可用来打击侵犯版权、商标、专利或商业秘密的进口品。但是由于注册商标和版权拥有人一般上可以采取其它的法律行动,337条款调查案对专利、未注册商标和商业秘密的拥有人尤其有效。虽然该调查案通常局限于知识产权,正在对钢铁产品进行的337调查案中,美国钢铁业试图将不公平行为的定义扩大以便将入侵计算机系统和违反反垄断行为包含在内。

首先,美国国际贸易委员会(“ITC”)会发起337条款的调查。如果ITC发现某进口货侵犯了特定的知识产权,可以发出排除令(exclusion order),美国海关就会扣留所有侵权的进口货。

大量种类各异的产品已经因337条款调查案而被禁止入口:从玩具(魔方拼图、椰菜娃娃)、鞋类(匡威运动鞋)、大型机器(造纸机)、消费类产品(首饰盒、汽车配件、电子香烟和烫发器)到高科技产品(电脑、手机和半导体芯片)等等。

337条款是知识产权和贸易的混合型法令,某个美国产业必须证明受到了伤害。伤害证明的要求很低,几乎所有的案例都符合此要求——只许一些销售损失就能证明伤害。对符合美国产业的要求可说是关键所在。美国产业通常是一家持有相关知识产权的公司。如果该知识产权是一项注册商标、版权或专利,美国产业的要求范围已扩大至凡在美国进行的工厂和设备、劳动力或资本的重大投资,以及专利权开发的实质性投资,包括工程、研发或授权许可,均可视为国内产业。然而,ITC最近提高了美国产业的要求,让专利“流氓”或非执业实体更难提出337调查案诉求。

337条款调查案由行政法官(ALJ)负责审理,诉讼过程迅速且激烈,一般上只需12至15个月来完成。ITC收到一份337调查的申请后,有30天的时间来决定是否立案。一旦确定立案,ITC会将诉状和调查通知答辩方。外国被诉方有30天的时间应诉,美国国内的被诉方则只有20天的时间应诉。如果进口商或外国被诉方没有做出回应,ITC会可认定公司放弃抗辩而发出排除令。

ITC在337调查案中所采取的是“对物”管辖权,也就是针对进口到美国的产品进行管辖。这很合理:ITC无权管制外国公司,但有权管制其进口产品。一般而言,337条款调查案和大多数的普通诉讼案不同,申诉方可以打赢一家1)不可能送达诉状、2)未能出庭聆讯,以及3)不可能被追讨款项的中国公司。

337条款调查案所采取的补救措施是颁布排除令,阻止答辩方的侵权产品进入美国。但是在某些特殊情况下,如果某个产品非常容易制造,ITC可以发布普遍排除令,不分来源地禁止所有同类侵权产品进入美国。以我处理过的魔方拼图案件为例,Ideal公司(申请人)把超过400家台湾公司列为侵犯其普通法商标的答辩人。ITC在1983年发布了普遍排除令(General Exclusion Order),阻止非Ideal公司制造的魔方产品进入美国市场,这一禁令沿用至今。除了排除令,ITC也可以发布制止令(cease and desist orders),禁止美国进口商继续售卖相关侵权产品。

337条款调查案的双方也可以选择庭外和解,但是和解协议必须经由ITC复审。我们经常协助客户尽早解决337条款调查案,以减少他们的诉讼费用。在20世纪90年代初期,RCA针对中国进口的电视提出了337条款调查。所有涉及的中国公司通过与RCA签署授权许可协议,迅速地解决了该调查案。

337条款调查案中的答辩人通常可以通过修改本身产品的设计来避开相关的侵权指责。约翰迪尔(John Deere)曾经指控把拖拉机漆成绿色和黄色的中国公司侵犯了约翰迪尔的商标,因而提出了一项著名的337条款调查案。大部分的中国答辩人与申诉人达成协议并改变拖拉机的颜色,例如蓝红色。

关键点:337条款调查案是ITC发起的强有力诉讼案,美国公司应该把它视为阻止侵权产品进入美国市场的手段。另一方面,涉及这些调查案的美国进口商和外国答辩人应该认真地对待它们,并且迅速做出回应,因为排除令发出后可延续多年有效。

 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 US trade policy, TPP, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law in general, please feel free to contact me.

Best regards,

Bill Perry

 

 

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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US China Trade War — TPP, Three False Trade Arguments, China President Trip, Trade, Customs, IP/Patent Securities

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER OCTOBER 23, 2015

IMPORT ALLIANCE MEETINGS NOVEMBER 17th and 18th WASHINGTON DC       

As indicated in more detail below, the Import Alliance will have meetings on November 17th and 18th in Washington DC. On the afternoon of November 17th, we will meet in our Washington DC office and then on November 18th meet with a Congressmen and Congressional Trade Staff to discuss the issues of retroactive liability of US importers in US antidumping and countervailing duty cases and market economy for China in December 2016 as provided in the US China WTO Agreement and the China WTO Agreement.

We welcome participation from US importers and US downstream customers. Please feel free to contact me or the Import Alliance directly. See the attached pamphlet for more information. FINAL IAFA_November2015_Flyer

US CHINA TRADE WAR NEWSLETTER UPDATE NOVEMBER 6, 2015

Dear Friends,

The USTR released the test of the Trans Pacific Agreement (“TPP”) yesterday.  This has provoked another fire storm in Washington DC and we will be sending out another blog post detailing the reaction.

But now the clock starts ticking and the release of the text means that President Obama can sign the TPP on January 4th, 60 days after releasing the text of the Agreement.  The Congress could theoretically pass the TPP on February 3, 2015, 30 days after President Obama signs it.

But in talking with a Congressional trade staffer on Capitol Hill yesterday, it does not appear to be moving that quickly, but on the other hand I suspect that Congress will not wait until the Lame Duck session either after the November Presidential election.

2016 will certainly be an interesting time in the Trade area.

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

Best regards,

Bill Perry

TPP TEXT RELEASED TODAY

Yesterday, November 5, 2015, the United States Trade Representative Office (“USTR”) released the text of the Trans Pacific Partnership Agreement.  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 blog post below and past blog posts on this site.

The text of the Agreement is well over 800 pages. We have downloaded the text of the various Chapters, which are listed below.

We have broken the Agreement down into three parts and have added consecutive page numbers to the Agreement in the right hand lower corner to make the Agreement easier to navigate.

For specific tariff changes on specific products, look at attached Chapter 2 National Treatment and Market Access for Goods, Chapters 1 – 2 – Bates 1 – 4115.  This is the largest document because it includes all imported items by tariff number.  But this is the section that will impact most companies.

The other parts of the text covering Chapters 3 to 30 is attached, Chapters 3 – 30 – Bates 4116 – 5135,  along with the Appendices, Annex 1 – 4 – Bates A-1-1074.

We will also be preparing an analysis of each Chapter, which will release in a the near future through a blog post.

USTR LIST OF CHAPTERS AND OTHER PARTS OF TPP AGREEMENT

Chapters

Preamble

  1. Initial Provisions and General definitions (Chapter Summary)
  1. National Treatment and Market Access (Chapter Summary)

Annex 2-D: Tariff Commitments
Australia General Notes to Tariff Schedule
Australia Tariff Elimination Schedule
Brunei General Notes to Tariff Schedule
Brunei Tariff Elimination Schedule
Canada General Notes to Tariff Schedule
Canada Tariff Elimination Schedule
Canada Appendix A Tariff Rate Quotas
Canada Appendix B Japan Canada Motor Vehicle NTM
Chile General Notes to Tariff Schedule
Chile Tariff Elimination Schedule
Japan General Notes to Tariff Schedule
Japan Tariff Elimination Schedule
Japan Appendix A Tariff Rate Quotas
Japan Appendix B 1 Agricultural Safeguard Measures
Japan Appendix B 2 Forest Good Safeguard Measure
Japan Appendix C Tariff-Differentials
Japan Appendix D Appendix between Japan and the United States on Motor Vehicle Trade
Japan Appendix E Appendix between Japan and Canada on Motor Vehicle Trade
Malaysia General Notes to Tariff-Schedule
Malaysia Tariff Elimination-Schedule
Malaysia Appendix A Tariff Rate Quotas
Mexico General Notes to Tariff Schedule
Mexico Appendix A, B and C Tariff Rate Quotas and Tariff Differentials
Mexico Tariff Elimination Schedule
New Zealand General Notes to Tariff Schedule
New Zealand Tariff Elimination Schedule
Peru General Notes to Tariff-Schedule
Peru Tariff Elimination Schedule
Singapore General Notes to Tariff Schedule
Singapore Tariff Elimination Schedule
US General Notes to Tariff Schedule
US Tariff Elimination-Schedule
US Appendix A Tariff Rate Quotas
US Appendix B Agricultural Safeguard Measures
US Appendix C Tariff Differentials
US Appendix D Motor Vehicle Trade
US Appendix E Earned Import Allowance Program
Viet-Nam General Notes to Tariff Schedule
Viet-Nam Tariff Elimination Schedule
Viet-Nam Appendix A Tariff Rate Quotas

  1. Rules of Origin and Origin Procedures (Chapter Summary)

Annex 3-D: Product Specific Rules
Annex 3-D: Appendix 1—Automotive

  1. Textiles and Apparel (Chapter Summary)

Annex 4-A: Textiles Product Specific Rule
Annex 4-A Appendix: Short Supply List

  1. Customs Administration and Trade Facilitation (Chapter Summary)
  1. Trade Remedies (Chapter Summary)
  1. Sanitary and Phytosanitary measures (Chapter Summary)
  1. Technical Barriers to Trade (Chapter Summary)
  1. Investment (Chapter Summary)
  1. Cross Border Trade in Services (Chapter Summary)
  1. Financial Services (Chapter Summary)
  1. Temporary Entry for Business Persons (Chapter Summary)

Annex 12-A: Temporary Entry for Business Persons
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Viet Nam

  1. Telecommunications (Chapter Summary)
  1. Electronic Commerce (Chapter Summary)
  1. Government Procurement (Chapter Summary)

Annex 15-A: Government Procurement
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Viet Nam

  1. Competition (Chapter Summary)
  1. State-Owned Enterprises (Chapter Summary)
  1. Intellectual Property (Chapter Summary)
  1. Labour (Chapter Summary)

US-BN Labor Consistency Plan
US- MY Labor Consistency Plan
US-VN Plan for Enhancement of Trade and Labor Relations

  1. Environment (Chapter Summary)
  1. Cooperation and Capacity Building (Chapter Summary)
  1. Competitiveness and Business Facilitation (Chapter Summary)
  1. Development (Chapter Summary)
  1. Small and Medium-Sized Enterprises (Chapter Summary)
  1. Regulatory Coherence (Chapter Summary)
  1. Transparency and Anti-corruption (Chapter Summary)
  1. Administration and Institutional Provisions (Chapter Summary)
  1. Dispute Settlement (Chapter Summary)
  1. Exceptions (Chapter Summary)
  1. Final Provisions (Chapter Summary)

Annex I: Non-Conforming Measures
Consolidated Formatting Note
Australia,  Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Viet Nam
Annex II: Non-Conforming Measures Consolidated Formatting Note
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Viet Nam

Annex III: Financial Services Consolidated Formatting Note
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Viet Nam

Annex IV: State-Owned Enterprise
Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, United States, Viet Nam

Related Instruments

Market Access Related

US- AU Letter Exchange re Recognition of FTA TRQs in TPP

US-AU Letter Exchange on Sugar Review

US-CA Letter Exchange on Milk Equivalence

US-CA Letter Exchange on Agricultural Transparency

US-CL Letter Exchange on Distinctive Products

US-CL Letter Exchange regarding Recognition of FTA TRQs in TPP

JP Exchange of Letters on Distinctive Products

JP to US Letter on Safety Regulations for Motor Vehicles

US-JP Letter Exchange on Operation of SBS Mechanism

US-JP Letter Exchange on Operation of Whey Protein Concentrate Safeguard

US-JP Letter Exchange regarding Standards of Fill

US-JP Letters related to the PHP

US-MY Letter Exchange on Auto Imports

US-MY Letter Exchange on Distinctive Products

US-NZ Letter Exchange on Distinctive Products

US-PE Letter Exchange on Distinctive Products

US-PE Letter Exchange on TRQs and Safeguards

US-VN Letter Exchange on Catfish

US-VN Letter Exchange on Distinctive Products of US

US-VN Letter Exchange on Distinctive Products of VN

US-VN Letter Exchange on Offals

Textiles and Apparel Related

US-BN Letter Exchange on Textiles and Apparel

US-MY Letter Exchange on Registered Textile and Apparel Enterprises

US-SG Exchange on Letters on Textiles and US-SG FTA

US-VN Letter Exchange on Registered Textile and Apparel Enterprises

Sanitary and Phytosanitary Related

US-CL SPS Letter Exchange regarding Salmonid Eggs

Intellectual Property Related

US-AU Letter Exchange on Selected IP Provisions

US-AU Letter Exchange on Article 17.9.7(b) of AUSFTA

US-CA Letter Exchange on IP Border Enforcement

US-CL Letter Exchange re Geographical Indications

US-CL Letter Exchange re Article 17.10.2 of US Chile FTA

US-JP Letter Exchange re Copyright Term

US-MY Letter Exchange re Articles 18.41 .50 and .52

US-MY Letter Exchange re Geographical Indications

US-MX Letter Exchange re Geographical Indications

US-MX Letter Exchange re Tequila and Mezcal

US-PE Letter Exchange re Article 16.14.3 of US-Peru TPA

US-VN Letter Exchange on Biologics

US-VN Letter Exchange re Geographical Indications

Services/Financial Services/E-Commerce

US-CL Letter Exchange regarding Express Delivery Services

US-VN Letter Exchange on Pharmaceutical Distribution

US-VN Letter Exchange regarding Electronic Payment Services

US-AU Letter Exchange on Privacy

Temporary Entry

US-JP Letter Exchange re Temporary Entry

Government Procurement

US-AU Letter Exchange on AUSFTA GP Thresholds

US-CA Letter Exchange re GP Thresholds

Letter Exchange US-CA-MX re GP Procedures

SOEs

US-SG Letter Exchange on SOE Transparency

Environment

US-CL Understanding regarding Fisheries Subsidies and Natural Disasters

US-MY Exchange of Letters on Committee to Coordinate Implementation of Environment Chapters

US-PE Understanding regarding Biodiversity and Traditional Knowledge

US-PE Understanding regarding Conservation and Trade

Annex on Transparency and Procedural Fairness for Pharmaceutical Products and Medical Devices

US-AU Letter Exchange on Transparency and Procedural Fairness for Pharmaceuticals and Medical Devices

US-JP Transparency and Procedural Fairness for Pharmaceuticals and Medical Devices

US-PE Understanding re Transparency and Procedural Fairness for Pharmaceuticals and Medical Devices

US-Japan Bilateral Outcomes

US-Japan Motor Vehicle Trade Non-Tariff Measures

US-JP Letter Exchange on Certain Auto NTMs

JP to US Letter on Motor Vehicle Distribution Survey

Japan Parallel Negotiations on Non-Tariff Measures

US-JP Letter Exchange on Non-Tariff Measures

Joint Declaration of the Macroeconomic Policy Authorities of

CURRENCY MANIPULATION TEXT

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

Trans-Pacific Partnership Countries

For the first time in the context of a free trade agreement, countries have adopted a Declaration that addresses unfair currency practices by promoting transparency and accountability.

All TPP countries commit to avoid unfair currency practices and refrain from competitive devaluation.

TPP countries will publicly report their foreign-exchange intervention and foreign reserves data, some for the first time.

Officials from all TPP countries will consult regularly to address macroeconomic issues, including to engage on efforts to avoid unfair currency practices.

 

Dear Friends,

This October post will comment on the TPP Agreement in more detail as  well as President Xi Jinping’s recent trip to the US and my impressions from Beijing, China during that period, discuss the three flawed trade arguments against China, and also discuss Trade Policy, Trade, Steel and the OCTG case, IP/patent, China antitrust and securities.

As stated below, on October 5th in Atlanta, Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Vietnam and Malaysia, reached an agreement on the Trans-Pacific Partnership (“TPP”), which will link up 40 percent of the world’s economy.  President Obama cannot sign the Agreement for a minimum of 60 days after releasing the Agreement to the public. Congress cannot consider and pass the Agreement for a minimum of 30 days after that.

The real question, however, is whether the TPP can pass Congress. Although January was a possible period for Congressional consideration, some Congressional staffers are saying that it will not come until April or possibly in the lame duck session after the Presidential/Congressional election. That would be right in the middle of the Presidential election and all bets are off.

From much of the US Press point of view, President Xi’s recent trip to the US was based on deception with the Chinese government having no real interest in coming to agreement on the US China trade problems on environment, cybersecurity, bilateral investment treaty and other hot button issues. In Beijing, China, however, Chinese television was truly involved in a love fest with the United States.

In the United States, we see cynicism. In China, I saw real friendship for the United States, and a determination to work with the United States in partnership based on a win-win principle that both sides must benefit from the relationship. This is the problem of the US China relationship in a nutshell. Never give any credit to China where credit is due and where they are making efforts to solve the bilateral problems.

Fortunately for the United States, China understands the importance of the US China relationship better than many US politicians and the US press. To be specific, there is more than $500 billion in trade between the United States and China annually with US exports, including services, coming close to $200 billion. As stated above, trade is a two way street, and very few US politicians acknowledge the huge US exports to China, which create US jobs.

The Chinese government has agreed to do one very important thing with regards to the problems with the US government—talk about it. For the last several years, twice a year China and the US have conducted negotiations in the SED and JCCT talks. Now as a result, China will have periodic negotiations on cyber-attacks. In great contrast to Russia, China believes firmly in negotiations with the United States to iron out differences and that is very important for the future of US China relationship.

Also this newsletter discusses the three flawed arguments against China: Cyber Attacks, Currency Manipulation and Dumping and the problem that they foster/create a feeling of international trade victim, which leads to protectionism and a loss of jobs.

The real victims of the trade wars are upstream and downstream producers, such as US based, REC Silicon, a US exporter and major manufacturer of polysilicon and victim of the US China Solar Trade War, as it announces that it may close its US plant in Moses Lake, Washington because it is shut out of China.

Best regards,

Bill Perry

TPP SHOULD PASS CONGRESS BUT 2016 IS AN ELECTION YEAR AND ANYTHING CAN HAPPEN

As stated above, on October 5th, in Atlanta Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Vietnam and Malaysia, reached an agreement on the Trans-Pacific Partnership (“TPP”), which will link up 40 percent of the world’s economy. Some of the key issues in the TPP are:

  • Cut Tariffs on 18,000 products
  • New special 2 year safeguard for Certain domestic industries that face a surge in imports
  • State-owned companies with TPP Countries must conduct commercial activities in accordance with market- based considerations
  • Vietnam must allow formation of independent labor unions
  • Malaysia will face trade retaliation if it does not improve its forced labor and human trafficking record
  • Bar countries from requiring the localized storage of data or surrender valuable source codes as condition of market entry
  • Require parties to commit to sustainable forest management and conserve at risk plants and animals.

A quick look at the latest statements from USTR, the White House and the Department of Agriculture indicate that two areas will see major benefits – Agriculture and Services, including banking and legal services. Also a number of manufacturing and high tech products will see substantial benefits.

The TPP would phase out thousands of import tariffs as well as other barriers to international trade, such as Japanese regulations, that keep out some American-made autos and trucks. It also would establish uniform rules on corporations’ intellectual property and open the Internet even in Vietnam.

USTR has stated the TPP would end more than 18,000 tariffs that the TPP countries have placed on US exports, including autos, machinery, information technology and consumer goods, chemicals and agricultural products, such as avocados in California and wheat, pork and beef from the Plains states.

Right after the Atlanta agreement, USTR Michael Froman stated in an interview:

In sector after sector, our workers are the most productive in the world. Our farmers and ranchers are globally competitive. Our manufacturing plants are globally competitive. If there’s a level playing field, we can compete, and we believe we can win.

Froman further stated that the US, which has an average tariff of approximately 1.4 percent, faces tariffs twice as high when US companies export to other countries. Froman also stated that Iowa would benefit from decreases in tariffs on pork, currently as high as 388 percent, and beef, which are as high as 50 percent:

“We already know there’s great demand for American beef in Japan,” where the beef tariff would ultimately drop to 9 percent from 38.5 percent currently.”

Tariffs on beer, some as high as 47 percent in certain TPP countries, will be “eliminated”

Froman further stated,

We’re working with the other countries to finalize details of the text and put it through a legal scrub.” In the meantime, “we’re having ongoing conversations with congressional leadership and our congressional partners about the process going forward”

On October 16th, however, during a Council on Foreign Relations conference call, USTR Froman also stated that the TPP could not be renegotiated and expressed confidence that Congress would eventually pass the TPP Agreement, stating:

“This is a different kind of agreement than other [free trade agreements] we’ve negotiated; other negotiations have tended to be between the U.S. and one other trading partner. It’s infinitely more complex when you’ve got 11 other trading partners at the table. This isn’t one of those agreements where [you can] reopen an issue or renegotiate a provision.”

Froman conceded that some TPP countries will need “capacity building to technical assistance” when it comes to implementation and enforcement in areas such as patent systems and promoting independent unions, but noted that U.S. officials are working to address concerns voiced by skeptics in government and industry:

“We’re working with Congress, we’re working with the other agencies to develop a full plan for the monitoring and enforcement of TPP. And we’re working with the U.S. Department of Labor on the enforcement of labor provisions, working with our embassies, people on the ground who can help monitor the implementation and cite enforcement issues as they arise.”

Froman further stated:

“TPP presents a choice between two futures, one in which the U.S. is helping to lead on trade and starting a race to the top in terms of global standards, and the other where we take a backseat or sit on the sidelines and allow a race to the bottom that would undermine U.S. influence around the world and result in a lower standard, less open global trading system.”

According to Paulson Institute, in addition to agriculture and manufacturing, the TPP will cause substantial growth in the service industries, including the legal and banking industries. The elimination of services barrier in the TPP countries could lead U.S. services exports to jump by $300 billion. The Paulson Institute further stated a major reason:

“high barriers to service imports and investment that now prevail in TPP countries will be lowered. The barriers include outright bans, quotas, restrictive licenses, buy-national procurement rules, and discriminatory access to distribution networks.”

Meanwhile five former Democratic National Committee chairmen urged party members and Congress to support the 12-nation Trans-Pacific Partnership, arguing that the pact will ultimately benefit American workers and businesses by expanding labor rights around the world.

Automobile tires made in Ohio that face tariffs or foreign taxes as high as 40 percent would be eliminated.  According to Josh Earnest, White House press secretary:

“The TPP actually goes one step further by making sure that manufacturers aren’t at a disadvantage when they sell their tires abroad to any of our 11 TPP countries. So Ohio is a good example.”

According to Earnest, leather boots that are shipped from Texas to TPP countries face foreign taxes as high as 30 percent, which would be eliminated, along with tariff elimination or reduction on exports of US-made bourbon whisky, Port wine, Michigan cars and Missouri barbecue sauce.

The agreement will immediately cut in half and eventually eliminate Japan’s 8.5 percent tariff on imports of fresh cherries. On October 6, 2015, Secretary of Agriculture Tom Vilsack stated:

“The TPP is a high-value, high-standards agreement that will allow the U.S. and other nations to counter Chinese influence in the region. History will tell us that agriculture is a winner every time in trade deals, and TPP is going to be no exception to that history.”

Vilsack stated that some of the agricultural products that will see lower tariffs are U.S. beef, pork, produce, nuts and wine. TPP will reduce Japanese tariffs on beef imports from 38.5 percent to 9 percent, and Japan also will eliminate 80 percent of its pork tariffs in 11 years.

Highly protected dairy industries in Canada and Japan also will be opened to limited import access. Japan has a 40 percent tariff on cheese, which will be eliminated under the TPP, and the country established a low-tariff quota for milk powder and butter equivalent to 70,000 tons of raw milk. Canada granted duty-free access to 3.25 percent of its dairy sector.

Vilsack said historic reductions in tariffs on U.S. exports should indicate that the TPP is a “net winner” and that failing to grasp the opportunity to sell more U.S. products to a rapidly expanding middle class in the Asia Pacific would be a mistake.

With regards to dairy products, Vilsack stated:

“When it came to Canada and Japan, we pushed for as strong access as possible and focused on the most lucrative products for the U.S. At the same time, we were somewhat sensitive to New Zealand expanding access in the U.S.”

The U.S. dairy industry in 2014 said it was prepared to eliminate all tariffs affecting trade with Canada and Japan if they did the same. In the end, the U.S. had to pull back when it became apparent the two countries weren’t ready to go from “zero to 100.”  Japan, which counts dairy among its five sensitive agricultural commodities protected by a politically influential union of farmer cooperatives and tariffs and quotas, committed to phasing out tariffs on cheese over 16 years and created low-tariff quotas for milk powder and butter.

Those offers meant the U.S. had to balance New Zealand’s requests for a completely liberalized international dairy market resembling its own, where there are no tariffs. Dairy also is New Zealand’s No. 1 export and can move into new markets quickly. The U.S. agreed in 20 to 30 years to eliminate tariffs on less sensitive products like milk powder and non-fat dry milk from Australia, Canada and New Zealand, and allow additional butter and cheese imports through tariff-rate quotas. All tariffs on dairy products from Japan, Malaysia and Vietnam would be gone within 20 years. The U.S. also will have safeguard measures for milk powders and some cheese to combat potential import surges.

Jim Mulhern, president and chief executive officer of the National Milk Producers Federation (NMPF), stated:

“Based on information available to date, it appears that our industry has successfully avoided the type of disproportionate one-way street that we were deeply concerned could have resulted under this agreement. New Zealand did not get the unfettered access to the U.S. market that it long sought; but Japan and Canada did not open their markets to the degree we sought.”

The entire U.S. horticulture sector is the hidden winner in the TPP agricultural deal. All tariffs would go to zero if TPP were implemented in countries like Japan, Vietnam and Malaysia that currently have high taxes on imports. Japan imposes an 8.5 percent tariff on frozen French fries, which would be eliminated in four years, and a 20 percent tariff on dehydrated potatoes that would be phased out over six years.  Once the TPP is implemented, more than 50 percent of U.S. farm goods will get immediate duty-free treatment in Japan, most of which are horticultural products, such as grapes, strawberries, walnuts, almonds, raisins and certain fruit juices. Vietnam has tariffs up to 40 percent on vegetable imports that would end within 11 years, while Malaysia would immediately eliminate tariffs as high as 90 percent.

To see a White House video on how the TPP works and benefits exports of Washington State Cherries, see https://www.whitehouse.gov/issues/economy/trade#cherry.

The real question, however, is whether the TPP can pass Congress. Although January was a possible period for Congressional consideration, some Congressional staffers stated that it would not come until April. Recently, statements have been made that there will be no vote on TPP until the lame duck session in Congress after the Presidential/Congressional elections in November 2016. Recently, however, the White House indicated that it wants a Congressional vote on the TPP before the Lame Duck session.

The first question, however, is when will the actual text of the TPP be released to the Public and that apparently will not happen until late November, which means President Obama cannot sign the Agreement until 60 days later and the Congress cannot pass it until 30 days after that.

But this time deadline seems to be moving away as there are further negotiations to clean up the legal terms in the Agreement, especially on currency manipulation. This will mean that the TPP will be a major issue in the Presidential primary and election, which makes it more difficult.

On October 5th, Senator Sessions, a well-known Republican Senator, who opposes TPP, told Breitbart news that it is possible to kill the TPP bill, but then following the law he stated that the Bill does not require 60 votes to pass filibuster in the Senate or 67 votes because it is a treaty:

“I think it’s possible. When they passed fast track, they got 60 votes… The treaty itself now is no longer subject to supermajority or filibuster. It will pass with a simple majority. It cannot be amended: it’ll be brought up one day and voted on the next day with no amendments– up or down. And in the past, they’ve always passed. And I think that will be what experts will tell you today, but I think the American people are getting more and more uneasy about the effect of trade and the promises that our trading partners are going to comply with their part of the bargain and that we’re all going to benefit have not been real . . . .”

But since the TPP only requires a simple majority to pass the Senate, not the 60 votes to pass Trade Promotion Authority (“TPA”), it should pass but now the ball is truly in the Court of Senators Orrin Hatch, Chairman of the Senate Finance Committee, Senator Ron Wyden, Ranking Democratic Member of the Senate Finance Committee, and Representative Paul Ryan, Chairman of the House Ways and Means Committee. All three members are in the Center of their respective parties. No matter what the Press states, Senator Hatch is not on the extreme right wing of the Republican party and neither is Paul Ryan. If they approve the TPP, a majority of Republican members should stay with them.

The heaviest lift, however, will be on the Democratic side by Senator Ron Wyden because the majority of the Democratic Party is against the Free Trade Agreement because of the power of the Unions. The only reason the TPA bill passed in late July is that the Republicans won the mid-term elections in 2014. If the Democrats has won, Senator Harry Reid had already stated that the TPA bill would not have come to the floor. But to pass the TPA bill through the Senate, the Republicans still needed Democratic votes because of the 60 vote filibuster rule. The TPA bill received 62 votes, but just 62 and no more with a number of Democratic votes, including Senators Patty Murray and Maria Cantwell from Washington State, to replace the Republican Senators, such Senator Sessions and Senator Rand Paul, who voted against the Agreement.

But these three members, Hatch, Wyden and Ryan are critical to the passage of the TPP. One problem is that October 5th, the day of the announcement, Senate Finance Committee Chairman Orrin Hatch stated that although the details of the TPP “are still emerging, unfortunately I am afraid this deal appears to fall woefully short.” Also listen to his October 8th phone call on CSPAN https://www.youtube.com/watch?v=F2T6xA7XMuY when he explains his concerns in more detail.

Another problem is the turmoil in the House of Representatives over the next speaker. Paul Ryan’s name has been mentioned, but some conservative members are against Ryan because of his stand on the TPP. As the Wall Street Journal stated on October 21, 2015 in its editorial entitled, The Ryan Stakes:

“He has impeccable conservative credentials. . . . Yet in the last week some on the right have come out against Mr. Ryan because he supposedly is not conservative enough – in particular because he favors free trade . . . .”

The Administration will have some heavy lifting to persuade Senators Hatch, Wyden and Representative Ryan that the TPP does meet the high standards set by the Congress in the TPA legislation in July. But if these three lawmakers approve, a majority of the members in the Senate and House should pass the TPP.

Other lawmakers that will be critical in this upcoming battle are in the Senate, Republican Senator Mitch McConnell and Democratic Senators Patty Murray and Maria Cantwell from Washington State and in the House, Republican representatives Pat Tiberi and Dave Reichert on the Subcommittee on Trade, House Ways and Means. Also important in the House, will be the 50 member New Dem Coalition, which is pro international trade and pro economic growth, such as Representatives Ron Kind, Rick Larson, Derek Kilmer and Suzan DelBene. See the Politico article, which describes the New Democrat Coalition in detail at   http://www.politico.com/story/2015/08/new-dems-plan-assertive-new-presence-in-house-121208.html. See also http://www.newdempac.com.

But Democrats have felt significant pressure from environmental groups and labor unions, who are fiercely opposed to the accord. Meanwhile, Republicans have struggled to strike a balance between support for free trade in general and the deep mistrust of giving Obama more power among GOP voters.

But as stated above, 2016 is an election year, and in contrast to several Republican candidates, such as Marco Rubio, Jeb Bush, and John Kasich, which are inclined to support the Agreement, but want to read it first, Donald Trump on the Republican side and Bernie Sanders on the Democratic side are both fighting hard against the TPP. It is interesting to note that the extreme Right of the Republican party, Donald Trump, and the extreme Left of the Democratic party, Bernie Sanders, both have a common goal to stop the Trade Agreement and send the United States back to protectionism. They are both populists and they know that being protectionist stirs up the bases.

Keep in mind that the Unions are solidly behind Sanders and recently the Teamsters told the Clinton campaign that they would not endorse her because they wanted to talk to Trump first. They like Trump’s stand on the trade agreements, including TPP.

Trump has taken the strongest position against TPP or Obamatrade as he calls it — making opposition to global trade policies and trade agreements one of the key issues of his campaign. In a quote to Breitbart News, even though he has not read the Agreement, GOP frontrunner Donald Trump hammered President Barack Obama for failing the American worker with the TPP stating:

“The incompetence and dishonesty of the President, his administration and—perhaps most disturbing—the Congress of the United States are about to place American jobs and the very livelihoods of Americans at risk . . . . The only entities to benefit from this trade deal will be other countries, particularly China and Japan, and big corporations in America. . . .”

Trump indicated that if crony capitalism were not bad enough, then sticking it to unions, small businesses and everyday Americans seems to be the new blood sport inside the Washington DC Beltway.

“If this was such a good deal, why was there not more transparency? Why are we striking trade agreements with countries we already have agreements with? Why is there no effort to make sure we have fair trade instead of ‘free’ trade that isn’t free to Americans? Why do we not have accompanying legislation that will punish countries that manipulate their currencies to seek unfair advantage in trade arrangements? Why has the Congress not addressed prohibitive corporate tax rates and trade agreements that continue to drain dollars and jobs from America’s shores?”

Trump finally stated:

“It’s time for leadership in Washington It’s time to elect a President who will represent the only special interest not getting any attention—The American People. It’s time to send a real businessman to the White House. It’s time to Make America Great Again.”

For full article see http://www.breitbart.com/big-government/2015/10/05/exclusive-donald-trump-declares-war-on-obamatrade-time-to-send-a-real-businessman-to-white-house-to-end-this/.

By the way, if you want to see one video circulating China now, it is Trump blaming China 234 times for all the US economic problems. http://www.huffingtonpost.com/entry/donald-trump-says-china_55e06f30e4b0aec9f352e904

In regards to the TPP, Trump’s major argument is that we have lousy negotiators in Washington DC and he will appoint better negotiators if he becomes President. The TPP, however, has been negotiated by the United States Trade Representative’s office (“USTR”) for more than five years. USTR’s officials are considered the top trade officials/negotiators in the US Government, and Ambassador Froman, who heads up USTR, is a trade pro, liked by both Democrats and Republicans in Congress.

Bottom line is the TPP deal is probably the best deal the US could get under the circumstances. Just having a tough negotiator, does not mean that there would be a better deal. All of international trade law is based on reciprocity and what the US can do to other countries, those countries can do back.

In contrast to Trump, the Washington Post likes the deal. On October 5th, it issued an editorial stating:

“The Trans-Pacific Partnership is a trade deal worth celebrating

The United States and 11 other nations concluded the long-awaited Trans-Pacific Partnership trade deal, or TPP, on Monday -demonstrating that it is still possible for this country to exercise world leadership, and to do big things in its own national interest, given consistent White House leadership and sufficient bipartisan support in Congress.

As President Obama sees it, the TPP would achieve both economic and strategic goals. By slashing tariffs and harmonizing regulatory regimes covering 40 percent of the global economy, the deal would spur growth in the United States and abroad. By knitting the U.S. and Japanese economies together in their first free-trade deal-and binding both of them closer to rising Asian nations-the TPP would create a counterweight to China in East Asia. Not incidentally, the deal would also help Japan’s prime minister, Shinzo Abe, overcome domestic interest-group resistance to reforming his nation’s sclerotic economy.

Those arguments persuaded bipartisan majorities of the Republican-controlled Congress to empower Mr. Obama’s negotiating team with so-called “fast-track” authority this year, and, as predicted, that vote helped win substantial new access to the Japanese and other markets for U.S. producers, as well as provisions on the environment and labor rights -including Vietnam’s first acceptance of possible independent trade unions.

In granting the administration fast-track authority, Congress rejected claims from a legion of critics to the effect that the TPP would sell out U.S. workers, the environment or even public health. In fact, the tentative deal would ensure that a controversial dispute arbitration system is more transparent and cannot be used by tobacco makers to escape member nations’ tough regulations. The U.S. team also struck a compromise designed to protect the legitimate intellectual property interests of American drugmakers without depriving poor nations of access to life-saving medicine.

It’s good that the critics lost the fast-track debate in Congress; but it’s not bad we had that debate, because it helped U.S. negotiators identify areas of legitimate concern and, accordingly, areas where the deal could incorporate those concerns. What’s emerged from the talks suggests that the TPP will indeed live up to Mr. Obama’s promise of a “21St-century” agreement: one that anchors the United States in a key region for decades to come, while increasing the scope of trade policy beyond just tariffs.

Difficult as it has been to reach this point, the last leg-final passage for the TPP in both houses of Congress during an election year could prove even more difficult. Republican Donald Trump and Independent-running-as­ Democrat Bernie Sanders have been whipping up protectionist sentiment against the TPP even before they knew what would be in it. Over the course of the next few months, the public and Congress will have an opportunity to pore over the pact. If its details prove to be as advertised, people are likely to conclude that the benefits of the deal outweigh its risks. For now, though, it’s enough to note the fact that Washington can still get something done, and to celebrate that.”

On October 7th, Hilary Clinton, however, announced her opposition to the TPP in an interview with Judy Woodruff for PBS’s “News Hour” program. She stated:

“What I know about it, as of today, I am not in favor of what I have learned about it. I don’t believe it’s going to meet the high bar I have set.”

She cited weakness on currency manipulation and failures with the FTA with Korea. While Secretary of State, Clinton had predicted TPP would be the “gold standard” of free trade agreements and firmly supported it numerous times, but the pressure of the primary, in particular, attacks by Bernie Sanders have pushed her more to the left of the Party and to oppose the Agreement. Labor unions, whose endorsements she is seeking, are united against it, as are the vast majority of Congressional Democrats. Only 28 House Democrats, and 13 in the Senate, voted for the fast-track bill.

On October 7th, in response to Hilary Clinton’ s statement on TPP, Paul Ryan, Chairman of House Ways and Means, stated on MSNBC:

“I wrote TPA so that Congress would have the tools and the public would have the ability to see what’s in this agreement. I am for free trade agreements, but I’m for very good free trade agreements. I have yet to decide… if this is a very good free trade agreement because I haven’t read it yet, so I just do not know the answer to your question, Chuck. But I’m holding judgment; I’m hopeful, but there are some concerns I have with some of the provisions in here, and quite frankly, we want to see what it is on net,…but it’s going to take some time to scrub through this agreement, to render final judgment.”

“I find it interesting that a person who is seeking to run for the Presidency of the United States, who was in favor of it before, say Hillary Clinton, that she hasn’t even read yet. It’s an enormous agreement and I think we need to be cautious about it. I think we need to do our jobs and read what’s in here.”

For Ryan’s full statement, see http://www.msnbc.com/mtp-daily/watch/ryan-backs-mccarthy-despite-benghazi-slip-540513347596.

On October 8, 2015, the Washington Post in an editorial stated that Hilary Clinton’s stance on the TPP was “disappointing”:

“Bowing to pressure from the Democratic Party’s ascendant protectionist wing, would-be presidential nominee Hillary Clinton has come out against President Obama’s freshly negotiated Trans-Pacific Partnership (TPP) trade agreement. The most hopeful thing to be said about this deeply disappointing abandonment of the president she served, and the internationalist tendency in Democratic ideology she once embodied, is that it is so transparently political. There is no way that Ms. Clinton can oppose the 12-nation deal on its merits.

In part, that’s because she doesn’t know all the details, as she acknowledged. More to the point, the reasons she offered for her view could not have been convincing, even to her. There was nothing in the deal about alleged currency manipulation by U.S. trading partners, she complained. Yet the biggest manipulator, China, isn’t a party to the pact. As the Obama administration argued, trade pacts by definition deal with tariffs and the like, not monetary policy; currency rules might have been construed to limit the Federal Reserve’s options unduly. . . .

And of course, Ms. Clinton’s opposition to the TPP flies in the face of her repeated statements to the opposite effect when she was Mr. Obama’s secretary of state — and after. . . .Ms. Clinton understood then, the TPP was not only about economics but also about geopolitics.

It’s particularly crucial to Mr. Obama’s essential effort to strengthen U.S. ties to Japan and other East Asian nations, thus counterbalancing China, a “rebalance” for which Ms. Clinton once proudly claimed some authorship.

To be sure, Ms. Clinton salted her anti-TPP statement with qualifiers . . .

And so on. In other words, there is still a chance that later on, if or when she’s president, and it is to her advantage, she may discover some decisive good point in the TPP that would let her take a different position without, technically, contradicting herself. Cynical? Perhaps, but as we said, that’s the hope.”

For full editorial, see https://www.washingtonpost.com/opinions/ms-clinton-avoids-the-hard-choice-on-the-trans-pacific-partnership/2015/10/08/a795a0cc-6df6-11e5-9bfe-e59f5e244f92_story.html

On October 9th, John Brinkley at Forbes in article entitled Hillary Clinton’s Flip-Flop On TPP Comes Amid Shift In Washington On Free Trade, stated:

“To borrow a phrase from Alice in Wonderland, the politics of trade are getting curiouser and curiouser.

Shortly after the 12 governments that are parties to the Trans-Pacific Partnership announced they had arrived at a deal, Hillary Clinton announced that she opposed it. The timing suggests that she came out against it not because she thought it was, on balance, a bad deal for Americans, but because she determined that supporting it would cost her more votes than opposing it would.

Now, all three major Democratic presidential candidates – Clinton, Vermont Sen. Bernie Sanders and former Maryland Gov. Martin O’Malley – are against the TPP, which is one of President Obama’s signature foreign policy goals. Sanders and O’Malley have always opposed free trade. Clinton had always supported it – until she became a presidential candidate.

Earlier, two Republican senators who historically have voted in favor of free trade agreements said they weren’t so sure about this one. . . .

These position changes don’t represent a sea-change in the way politicians view free trade. Hatch and McConnell objection to sections of that offend the corporate CEOs and country club Republicans they so nobly represent.

But it does seem that the spectrum of American support for free trade is getting narrower. It used to be that almost all congressional Republicans and most moderate Democrats were reliable yes votes for free trade agreements. Not anymore.

Tea Party Republicans oppose the TPP and free trade in general. But now, their animus seems to be seeping into the mainstream of the Republican Party. Pro-labor Democrats have opposed free trade all the way back to NAFTA. But now, some of the more moderate members of the Democratic Party are starting to look askance at the TPP.

The first sign of this appeared in June, when the House passed a Trade Promotion Authority bill last June by only eight votes.

Optimists hope the 219-211 vote by which the House voted to approve TPA will hold up for the TPP vote. Maybe it will, but the TPP vote will take place in an election year and the TPA vote didn’t. . . .

A long-term reason is that the anti-free trade forces are better at selling their case to the American public than the pro-free trade camp is. The former appeals to their emotions, the latter to their intellects. . . .

So, you can see why pro-trade Democrats who voted for TPA might be reluctant to support the TPP. And, they have an easy way out: their access to the TPP text was restricted during the negotiations. When the final text is posted publicly, they can read it and say, “OMG, I didn’t know THAT was in there!”

“Those of us who think this (agreement) is good were late the party,” Rosenberg said. Not only were they late, they didn’t bring anything good to eat or drink.

“The chances of our losing this have to be a clear and present danger for all of us,” he said.”

For the full article, see http://www.forbes.com/sites/johnbrinkley/2015/10/09/politics-of-trade-arent-what-they-used-to-be/print/.

During the Democratic debate on October 13, 2015, Hilary Clinton stated that she had read the TPP, which created a lot head scratching at the White House because the final TPP Agreement has not been released to the public and some aspects, such as currency manipulation, are still being negotiated.

President Obama has been clear on his support for the Agreement:

“When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

One surprise came on October 5, 2015 when the Treasury announced that, in addition to lowering trade barriers, the 12 Trans-Pacific Partnership member nations would “strengthen macroeconomic cooperation, including on exchange rate issues, in appropriate fora.” The 12 countries are discussing a possible arrangement for senior finance ministry and central bank officials to meet periodically. As indicated in more detail below, Congress put considerable pressure on the Obama administration last spring to insist on an enforceable currency provision in the trade pact. But the administration and the Federal Reserve fought back, saying that it might someday be used against American policy makers to limit their flexibility to set short-term interest rates and adopt other monetary measures.

At the same time, US trade officials have suggested that the TPP could be a model for an eventual deal with China. China has emerged as the largest foreign investor in many Asian countries as well as the biggest exporter to them, and that has given China a stake in greater openness and an interest in TPP. See Article below from Chinese Trade lawyer about TPP.

On October 6, 2015, The Wall Street Journal in an editorial entitled The Pacific Trade Stakes stated:

“it would be an historic loss if the pact failed because U.S. negotiators bowed too far to protectionist forces, as some early signals suggest TPP will eliminate or reduce about 18,000 tariffs, taxes and non-tariff barriers like quotas, and there’s no denying the pro-growth gains, especially for U.S. goods and services. America already has low tariffs on most products, so this will do more to open up the foreign markets to which 44% of U.S. goods exports now flow.

The U.S. enjoys big comparative advantages in agriculture (soybeans, fruit, corn) and high-value manufacturing like aerospace, computer equipment, auto parts, organic chemicals and more recently oil and gas. Other domestic winners include software, insurance and finance.

Planks that deal with non-discriminatory market access for investment and cross-border services are also useful, as is a provision to protect the free movement of data and information as digital markets mature. TPP includes innovative mechanisms to promote the development of production and supply chains, such as requiring some yarns and fabrics for apparel to be sourced from a TPP member. . . .

No labor or environmental safeguards can win over the Bernie Sanders left, while the Donald Trump right doesn’t care about specifics like IP. Their opposition is implacable and will be amplified by the presidential campaign.

To ratify the pact, President Obama really needs the support of free traders like Orrin Hatch, who said TPP “appears to fall woefully short.” We hope he’s wrong and that the Administration negotiated enough liberalization to deserve his support. Yet the Utah Senator and the three other bipartisan chairmen and ranking members of the Senate Finance and Ways and Means committees joined on a letter last week importuning negotiators “to take the time necessary to get the best deal possible for the United States.” .

If the Administration prioritized speed over substance to get TPP done on Mr. Obama’s watch and capitulated too soon on biotech and elsewhere, the danger is that free traders will defect—and there is little margin for error. The fast-track trade promotion bill passed the House 218-206 and the Senate 60-38.

TPP probably won’t come to a vote until after the 2016 election. Congress should use the time to carefully vet the chapters and ensure that the pact complies with the 150 or so congressionally mandated “negotiating objectives” built into fast track. Mr. Obama will also need to start persuading the Congress with more than his usual Mr. Congeniality routine.

Nine and a half of every 10 of the world’s consumers resides somewhere other than America, so arrangements like the TPP that break down obstacles to trade and investment are crucial to prosperity at home. The question is whether this TPP is the best the U.S. can do.”

INDIA MOANS THAT IT IS OUT AND CHINA WANTS IN

Meanwhile India moans that it is out, but China wants in. On October, 6, 2015, the Wall Street Journal also reported in an article about India lagging other nations in lowering trade barriers and the impact of the TPP on India:

“As more of its biggest trading partners stitch together their economies into low-tariff blocs, India risks getting edged out of key markets at a time when Prime Minister Narendra Modi is trying to rev up economic growth and further integrate his country into global supply chains.

A senior official in India’s Commerce Ministry said Tuesday that New Delhi didn’t want to join the new partnership and is worried the deal could slow WTO trade negotiations.

“WTO will lose much of its steam because the U.S. won’t have the appetite for it anymore” as it focuses on the Trans-Pacific Partnership, the official said. “Nothing of the development agenda in the current round of talks [in the WTO] will be taken seriously.” . . . .

The Trans-Pacific Partnership, if approved by member governments, could make India less competitive in some of the world’s largest markets. A study last year by the Indian Institute of Foreign Trade found that the pact would harm India’s exports, particularly in textiles, clothing and leather products, as countries such as Vietnam and Malaysia get cheaper access to the U.S. and other markets covered by the deal. But the negative fallout would be limited, the researchers said, because India already has tariff agreements with several partnership nations, including Japan and Malaysia. . . .”

The Wall Street Journal also reported on October 5th that the TPP was a setback for China:

“China had been invited to join the trade group, but Beijing has been reluctant to comply with many of the required rules, such as opening up the financial sector. By not being a founding member, experts say, China misses the opportunity to help shape an important pillar of the global trading system—a priority for President Xi Jinping.

“The key is whether China’s domestic reforms will be enough or sufficient. If they are not, it will have to follow the U.S. and lose its chance with the TPP to help make the rules,” said Shi Yinhong, director of the Center on American Studies at Renmin University.

The trade deal is expected to help blunt Beijing’s efforts to chart its own course for the region. . . .

The world’s second-largest economy also misses out on a grouping that includes many technologically advanced countries at a time when it is working hard to introduce high tech innovation, analysts said. And its economy needs the pressure of foreign competition to give its stalled domestic reform agenda a push, as with the productivity burst China enjoyed after joining the World Trade Organization in 2001, they added.

Two years ago, Mr. Xi announced a broad overhaul to give markets greater sway in an effort to ward off a slowdown and shift the economy to services and consumption and away from industry. Restructuring, however, has been spotty, delayed by opposition from state companies, by the sharpness of the deceleration, corporate and local government debt and excess capacity in housing and industry. . . .

Beijing could face significant internal and external hurdles if it eventually moves to join the trade bloc, said University of Chicago professor Dali Yang, especially given concern among some that it hasn’t always followed the rules since joining the WTO. Even inside China, there is growing recognition that China’s somewhat capricious system—where regulations can be applied arbitrarily and state-owned companies still dominate large swaths of the economy—makes membership unlikely soon, he added.

“The Chinese economy needs a jolt. It really needs reform,” Mr. Yang said. “Many feel the TPP was borne out of a frustration after the WTO, that China went back on its word in telecommunication, for instance, by not letting foreigners have a major stake.”

On October 8th Commerce Minister Gao Hucheng of MOFCOM, China’s Ministry of Commerce, stated that China will evaluate the impact of the TPP based on the official text of the treaty and hopes it will complement other agreements, stating:

“China hopes the TPP pact and other free trade arrangements in the region can boost each other and contribute to the Asia-Pacific’s trade, investment and economic growth.

Chinese officials have stated that they would need to see the agreement enter into force and be in effect for several years before deciding whether it would be worthwhile for China to make all the legal and policy changes necessary to meet the commitments in the agreement and attempt to accede to the TPP.”

On October 6, 2015, in the attached article entitled Trans-Pacific Partnership and China’s Trade Strategy,Trans-Pacific Partnership and China’s Trade Strategy _ Zhaokang JIANG _ Link , Zhaokang Jiang, a well-known Chinese trade lawyer, states:

“As the result of a high-standard, ambitious, comprehensive agreement promoting economic growth; enhancing innovation, productivity and competitiveness; raising living standards; reducing poverty in our countries; and promoting transparency, good governance, and enhancing labor and environmental protections, the TPP will be an important step toward the ultimate goal of open trade and regional integration across the region and setting the example rules for the global commerce. . . .

The current TPP members cover 40% of the global trade, and 36% of the world GDP. Once the pact is ratified and signed into laws by the members for implementation, more regional economies such as Korea, Philippines, Thailand, and Taiwan will have a chance to join. The TPP will also serve as a good example for additional trade negotiations, such as the Transatlantic Trade and Investment Partnership (“TTIP”), and even the WTO further negotiations. Since international trade is intertwined, the long term significance of the TPP shall not be downplayed, even for the non-member economies and other regions.

Since 1980’s, China has been the beneficiary and contributing party of trade globalization, liberalization and regional economic boom, and shall continue to welcome opportunities and accept the challenges in positive and active thinking, decision-making and behavior. In addition to the bilateral trade pacts, we believe China should seize this chance and embrace the TTP to more deeply participate in the regional trade arrangement, play more significant roles and enjoy more benefits. China should review and study the pact diligently and carefully and prepare to negotiate and join the regional trade deal for a beneficial trade growth.

At the same time, China can use this to adopt best practices for domestic reforms as they did in 2000 when it negotiated the WTO entry deal.

While details of the TPP are emerging in the near future, in additional to the general principles of rule of law, transparency, nondiscrimination, national treatment, the most-favored nation treatment, “minimum standard of treatment”, “negative list”, and due process, the Chinese side at least needs to focus the following key areas, for which the Chinese rules may have significant gaps . . . .

China, as the second largest economy of the world, is left out of the landmark trade deal, but the door is still open, and the future is in the hands of the Chinese leadership.

We hope China will take this rare opportunity in decades to review and accept the internationally recognized values, rules, and procedures for free and fair trade, enhance the trade, economic and legal reforms in China, collaborate with the trade partners, overcome the difficulties of economic and social changes, and finally reach the goal of being a nation of sustainable development, modernization, rule of law and democracy for the better-off of the people.”

TRANS PACIFIC PARTNERSHIP FINALIZED IN ATLANTA ROUND

On October 5, 2015, in Atlanta, Georgia, Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Vietnam and Malaysia, announced the agreement on the Trans-Pacific Partnership, which will link up 40 percent of the world’s economy, following an exhausting round of last-minute negotiations that stretched over the weekend.

The scheduled two day session was extended by three days to deal with a number of contentious issues, including commercial exclusivity for biologic pharmaceuticals, automotive issues and market access for dairy products.

President Obama cannot sign the Agreement for a minimum of 60 days after the Agreement is published publicly. Congress cannot consider and pass the Agreement for a minimum of 30 days, after the 60 days, which places Congressional passage possibly in January. The process formally begins when President Barack Obama notifies Congress that he intends to sign the agreement and publishes it. From there, the administration will continue working to brief lawmakers on the contents of the agreement.

In response to the Agreement, Senate Finance Committee Chairman Orrin Hatch stated:

“A robust and balanced Trans-Pacific Partnership agreement holds the potential to enhance our economy by unlocking foreign markets for American exports and producing higher-paying jobs here at home. But a poor deal risks losing a historic opportunity to break down trade barriers for American made products with a trade block representing 40 percent of the global economy. Closing a deal is an achievement for our nation only if it works for the American people and can pass Congress by meeting the high-standard objectives laid out in bipartisan Trade Promotion Authority. While the details are still emerging, unfortunately I am afraid this deal appears to fall woefully short. Over the next several days and months, I will carefully examine the agreement to determine whether our trade negotiators have diligently followed the law so that this trade agreement meets Congress’s criteria and increases opportunity for American businesses and workers. The Trans-Pacific Partnership is a once in a lifetime opportunity and the United States should not settle for a mediocre deal that fails to set high-standard trade rules in the Asia-Pacific region for years to come.”

Emphasis added.

Predictably, as soon as the deal was announced, Democratic Senator Bernie Sanders, who is running for President and bound at the hip with the labor unions, stated that the new trade deal was “disastrous,” and that he would work to defeat it. As Sanders further stated:

Wall Street and other big corporations have won again. It is time for the rest of us to stop letting multinational corporations rig the system to pad their profits at our expense. In the Senate, I will do all that I can to defeat this agreement. We need trade policies that benefit American workers and consumers, not just the CEOs of large multinational corporations.

On October 5th, Chairman Paul Ryan of the House Ways and Means Committee issued a press release, stating:

“A successful Trans-Pacific Partnership would mean greater American influence in the world and more good jobs at home. But only a good agreement—and one that meets congressional guidelines in the newly enacted Trade Promotion Authority—will be able to pass the House. I am reserving judgment until I am able to review the final text and consult with my colleagues and my constituents. In particular, I want to explore concerns surrounding the most recent aspects of the agreement. I’m pleased that the American people will be able to read it as well because TPA requires, for the first time ever, the administration to make the text public for at least 60 days before sending it to Congress for consideration. The administration must clearly explain the benefits of this agreement and what it will mean for American families. I hope that Amb. Froman and the White House have produced an agreement that the House can support.”

On October 4th and 5th, the United States Trade Representative issued the attached summary of the Trans Pacific Partnership. Summary of the Trans-Pacific Partnership Agreement _ United States Trade Rep  Some of the salient parts of the Summary are as follows:

Summary of the Trans-Pacific Partnership Agreement

On October 4, 2015, Ministers of the 12 Trans-Pacific Partnership (TPP) countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam – announced conclusion of their negotiations. The result is a high-standard, ambitious, comprehensive, and balanced agreement that will promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections. We envision conclusion of this agreement, with its new and high standards for trade and investment in the Asia Pacific, as an important step toward our ultimate goal of open trade and regional integration across the region.

KEY FEATURES

Five defining features make the Trans-Pacific Partnership a landmark 21st-century agreement, setting a new standard for global trade while taking up next-generation issues. These features include:

Comprehensive market access. The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for our businesses, workers, and consumers.

Regional approach to commitments. The TPP facilitates the development of production and supply chains, and seamless trade, enhancing efficiency and supporting our goal of creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets.

Addressing new trade challenges. The TPP promotes innovation, productivity, and competitiveness by addressing new issues, including the development of the digital economy, and the role of state owned enterprises in the global economy.

Inclusive trade. The TPP includes new elements that seek to ensure that economies at all levels of development and businesses of all sizes can benefit from trade. It includes commitments to help small- and medium-sized businesses understand the Agreement, take advantage of its opportunities, and bring their unique challenges to the attention of the TPP governments. It also includes specific commitments on development and trade capacity building, to ensure that all Parties are able to meet the commitments in the Agreement and take full advantage of its benefits.

Platform for regional integration. The TPP is intended as a platform for regional economic integration and designed to include additional economies across the Asia-Pacific region.

SCOPE

The TPP includes 30 chapters covering trade and trade-related issues, beginning with trade in goods and continuing through customs and trade facilitation; sanitary and phytosanitary measures; technical barriers to trade; trade remedies; investment; services; electronic commerce; government procurement; intellectual property; labour; environment; ‘horizontal’ chapters meant to ensure that TPP fulfils its potential for development, competitiveness, and inclusiveness; dispute settlement, exceptions, and institutional provisions.

In addition to updating traditional approaches to issues covered by previous free trade agreements (FTAs), the TPP incorporates new and emerging trade issues and cross-cutting issues. These include issues related to the Internet and the digital economy, the participation of state-owned enterprises in international trade and investment, the ability of small businesses to take advantage of trade agreements, and other topics.

TPP unites a diverse group of countries – diverse by geography, language and history, size, and levels of development. All TPP countries recognize that diversity is a unique asset, but also one which requires close cooperation, capacity-building for the lesser-developed TPP countries, and in some cases special transitional periods and mechanisms which offer some TPP partners additional time, where warranted, to develop capacity to implement new obligations.

SETTING REGIONAL TRADE RULES

Below is a summary of the TPP’s 30 chapters. Schedules and annexes are attached to the chapters of the Agreement related to goods and services trade, investment, government procurement, and temporary entry of business persons. In addition, the State-Owned Enterprises chapter includes country-specific exceptions in annexes.

    • Initial Provisions and General Definitions

Many TPP Parties have existing agreements with one another. The Initial Provisions and General Definitions Chapter recognizes that the TPP can coexist with other international trade agreements between the Parties, including the WTO Agreement, bilateral, and regional agreements. It also provides definitions of terms used in more than one chapter of the Agreement.

    • Trade in Goods

TPP Parties agree to eliminate and reduce tariffs and non-tariff barriers on industrial goods, and to eliminate or reduce tariffs and other restrictive policies on agricultural goods. The preferential access provided through the TPP will increase trade between the TPP countries in this market of 800 million people and will support high-quality jobs in all 12 Parties. Most tariff elimination in industrial goods will be implemented immediately, although tariffs on some products will be eliminated over longer timeframes as agreed by the TPP Parties. The specific tariff cuts agreed by the TPP Parties are included in schedules covering all goods. The TPP Parties will publish all tariffs and other information related to goods trade to ensure that small- and medium-sized businesses as well as large companies can take advantage of the TPP. They also agree not to use performance requirements, which are conditions such as local production requirements that some countries impose on companies in order for them to obtain tariff benefits. In addition, they agree not to impose WTO-inconsistent import and export restrictions and duties, including on remanufactured goods – which will promote recycling of parts into new products. If TPP Parties maintain import or export license requirements, they will notify each other about the procedures so as to increase transparency and facilitate trade flows.

On agricultural products, the Parties will eliminate or reduce tariffs and other restrictive policies, which will increase agricultural trade in the region, and enhance food security. In addition to eliminating or reducing tariffs, TPP Parties agree to promote policy reforms, including by eliminating agricultural export subsidies, working together in the WTO to develop disciplines on export state trading enterprises, export credits, and limiting the timeframes allowed for restrictions on food exports so as to provide greater food security in the region. The TPP Parties have also agreed to increased transparency and cooperation on certain activities related to agricultural biotechnology.

    • Textiles and Apparel

The TPP Parties agree to eliminate tariffs on textiles and apparel, industries which are important contributors to economic growth in several TPP Parties’ markets. Most tariffs will be eliminated immediately, although tariffs on some sensitive products will be eliminated over longer timeframes as agreed by the TPP Parties. The chapter also includes specific rules of origin that require use of yarns and fabrics from the TPP region, which will promote regional supply chains and investment in this sector, with a “short supply list” mechanism that allows use of certain yarns and fabrics not widely available in the region. In addition, the chapter includes commitments on customs cooperation and enforcement to prevent duty evasion, smuggling and fraud, as well as a textile-specific special safeguard to respond to serious damage or the threat of serious damage to domestic industry in the event of a sudden surge in imports.

    • Rules of Origin

To provide simple rules of origin, promote regional supply chains, and help ensure the TPP countries rather than non-participants are the primary beneficiaries of the Agreement, the 12 Parties have agreed on a single set of rules of origin that define whether a particular good is “originating” and therefore eligible to receive TPP preferential tariff benefits. The product-specific rules of origin are attached to the text of the Agreement. The TPP provides for “accumulation,” so that in general, inputs from one TPP Party are treated the same as materials from any other TPP Party, if used to produce a product in any TPP Party. The TPP Parties also have set rules that ensure businesses can easily operate across the TPP region, by creating a common TPP-wide system of showing and verifying that goods made in the TPP meet the rules of origin. Importers will be able to claim preferential tariff treatment as long as they have the documentation to support their claim. In addition, the chapter provides the competent authorities with the procedures to verify claims appropriately.

    • Customs Administration and Trade Facilitation . . . .

To help counter smuggling and duty evasion, the TPP Parties agree to provide information, when requested, to help each other enforce their respective customs laws.

    • Sanitary and Phytosanitary (SPS) Measures

In developing SPS rules, the TPP Parties have advanced their shared interest in ensuring transparent, non-discriminatory rules based on science, and reaffirmed their right to protect human, animal or plant life or health in their countries. The TPP builds on WTO SPS rules for identifying and managing risks in a manner that is no more trade restrictive than necessary. . . .

    • Technical Barriers to Trade (TBT)

In developing TBT rules, the TPP Parties have agreed on transparent, non-discriminatory rules for developing technical regulations, standards and conformity assessment procedures, while preserving TPP Parties’ ability to fulfill legitimate objectives. They agree to cooperate to ensure that technical regulations and standards do not create unnecessary barriers to trade. . . .

    • Trade Remedies

The Trade Remedies chapter promotes transparency and due process in trade remedy proceedings through recognition of best practices, but does not affect the TPP Parties’ rights and obligations under the WTO. The chapter provides for a transitional safeguard mechanism, which allows a Party to apply a transitional safeguard measure during a certain period of time if import increases as a result of the tariff cuts implemented under the TPP cause serious injury to a domestic industry. These measures may be maintained for up to two years, with a one-year extension, but must be progressively liberalized if they last longer than a year. . . .

    • Investment

In establishing investment rules, the TPP Parties set out rules requiring non-discriminatory investment policies and protections that assure basic rule of law protections, while protecting the ability of Parties’ governments to achieve legitimate public policy objectives. . . .

TPP Parties adopt a “negative-list” basis, meaning that their markets are fully open to foreign investors, except where they have taken an exception (non-conforming measure) in one of two country specific annexes: (1) current measures on which a Party accepts an obligation not to make its measures more restrictive in the future and to bind any future liberalization, and (2) measures and policies on which a Party retains full discretion in the future. . . .

    • Cross-Border Trade in Services

Given the growing importance of services trade to TPP Parties, the 12 countries share an interest in liberalized trade in this area. TPP includes core obligations found in the WTO and other trade agreements . . . .

    • Financial Services

The TPP Financial Services chapter will provide important cross-border and investment market access opportunities, while ensuring that Parties will retain the ability to regulate financial markets and institutions and to take emergency measures in the event of crisis. The chapter includes core obligations found in other trade agreements . . . . In addition, the TPP includes specific commitments on portfolio management, electronic payment card services, and transfer of information for data processing.

The Financial Services chapter provides for the resolution of disputes relating to certain provisions through neutral and transparent investment arbitration. It includes specific provisions on investment disputes related to the minimum standard of treatment, as well as provisions requiring arbitrators to have financial services expertise, and a special State-to-State mechanism to facilitate the application of the prudential exception and other exceptions in the chapter in the context of investment disputes. . . .

    • Temporary Entry for Business Persons

The Temporary Entry for Business Persons chapter encourages authorities of TPP Parties to provide information on applications for temporary entry, to ensure that application fees are reasonable, and to make decisions on applications and inform applicants of decisions as quickly as possible. TPP Parties agree to ensure that information on requirements for temporary entry are readily available to the public, including by publishing information promptly and online if possible, and providing explanatory materials. The Parties agree to ongoing cooperation on temporary entry issues such as visa processing. Almost all TPP Parties have made commitments on access for each other’s business persons, which are in country-specific annexes.

    • Telecommunications

TPP Parties share an interest in ensuring efficient and reliable telecommunications networks in their countries. . . .

    • Electronic Commerce

In the Electronic Commerce chapter, TPP Parties commit to ensuring free flow of the global information and data that drive the Internet and the digital economy, subject to legitimate public policy objectives such as personal information protection. The 12 Parties also agree not to require that TPP companies build data centers to store data as a condition for operating in a TPP market, and, in addition, that source code of software is not required to be transferred or accessed. The chapter prohibits the imposition of customs duties on electronic transmissions, and prevents TPP Parties from favoring national producers or suppliers of such products through discriminatory measures or outright blocking. . . .

    • Government Procurement

TPP Parties share an interest in accessing each other’s large government procurement markets through transparent, predictable, and non-discriminatory rules. In the Government Procurement chapter, TPP Parties commit to core disciplines of national treatment and non-discrimination. They also agree to publish relevant information in a timely manner, to allow sufficient time for suppliers to obtain the tender documentation and submit a bid, to treat tenders fairly and impartially, and to maintain confidentiality of tenders. . . ..

    • Competition Policy

TPP Parties share an interest in ensuring a framework of fair competition in the region through rules that require TPP Parties to maintain legal regimes that prohibit anticompetitive business conduct, as well as fraudulent and deceptive commercial activities that harm consumers. . . . TPP Parties agree to adopt or maintain national competition laws that proscribe anticompetitive business conduct and work to apply these laws to all commercial activities in their territories. . . .

The chapter is not subject to the dispute settlement provisions of the TPP, but TPP Parties may consult on concerns related to the chapter.

    • State-Owned Enterprises (SOEs) and Designated Monopolies

All TPP Parties have SOEs, which often play a role in providing public services and other activities, but TPP Parties recognize the benefit of agreeing on a framework of rules on SOEs. The SOE chapter covers large SOEs that are principally engaged in commercial activities. Parties agree to ensure that their SOEs make commercial purchases and sales on the basis of commercial considerations, except when doing so would be inconsistent with any mandate under which an SOE is operating that would require it to provide public services. They also agree to ensure that their SOEs or designated monopolies do not discriminate against the enterprises, goods, and services of other Parties. Parties agree to provide their courts with jurisdiction over commercial activities of foreign SOEs in their territory, and to ensure that administrative bodies regulating both SOEs and private companies do so in an impartial manner. TPP Parties agree to not cause adverse effects to the interests of other TPP Parties in providing non-commercial assistance to SOEs, or injury to another Party’s domestic industry by providing non-commercial assistance to an SOE that produces and sells goods in that other Party’s territory. TPP Parties agree to share a list of their SOEs with the other TPP Parties and to provide, upon request, additional information about the extent of government ownership or control and the non-commercial assistance they provide to SOEs. There are some exceptions from the obligations in the chapter, for example, where there is a national or global economy emergency, as well as country-specific exceptions that are set out in annexes.

    • Intellectual Property

TPP’s Intellectual Property (IP) chapter covers patents, trademarks, copyrights, industrial designs, geographical indications, trade secrets, other forms of intellectual property, and enforcement of intellectual property rights, as well as areas in which Parties agree to cooperate. The IP chapter will make it easier for businesses to search, register, and protect IP rights in new markets, which is particularly important for small businesses.

The chapter establishes standards for patents, based on the WTO’s TRIPS Agreement and international best practices. On trademarks, it provides protections of brand names and other signs that businesses and individuals use to distinguish their products in the marketplace. The chapter also requires certain transparency and due process safeguards with respect to the protection of new geographical indications, including for geographical indications recognized or protected through international agreements. These include confirmation of understandings on the relationship between trademarks and geographical indications, as well as safeguards regarding the use of commonly used terms. . . .

In addition, the chapter contains pharmaceutical-related provisions that facilitate both the development of innovative, life-saving medicines and the availability of generic medicines, taking into account the time that various Parties may need to meet these standards. . . .

Finally, TPP Parties agree to provide strong enforcement systems, including, for example, civil procedures, provisional measures, border measures, and criminal procedures and penalties for commercial-scale trademark counterfeiting and copyright or related rights piracy. In particular, TPP Parties will provide the legal means to prevent the misappropriation of trade secrets, and establish criminal procedures and penalties for trade secret theft, including by means of cyber-theft, and for cam-cording.

    • Labour

All TPP Parties are International Labour Organization (ILO) members and recognize the importance of promoting internationally recognized labour rights. TPP Parties agree to adopt and maintain in their laws and practices the fundamental labour rights as recognized in the ILO 1998 Declaration, namely freedom of association and the right to collective bargaining; elimination of forced labour; abolition of child labour and a prohibition on the worst forms of child labour; and elimination of discrimination in employment. They also agree to have laws governing minimum wages, hours of work, and occupational safety and health. These commitments also apply to export processing zones. The 12 Parties agree not to waive or derogate from laws implementing fundamental labour rights in order to attract trade or investment, and not to fail to effectively enforce their labour laws in a sustained or recurring pattern that would affect trade or investment between the TPP Parties. In addition to commitments by Parties to eliminate forced labour in their own countries, the Labour chapter includes commitments to discourage importation of goods that are produced by forced labour or child labour, or that contain inputs produced by forced labour, regardless of whether the source country is a TPP Party.

Each of the 12 TPP Parties commits to ensure access to fair, equitable and transparent administrative and judicial proceedings and to provide effective remedies for violations of its labour laws. They also agree to public participation in implementation of the Labour chapter, including establishing mechanisms to obtain public input.

The commitments in the chapter are subject to the dispute settlement procedures laid out in the Dispute Settlement chapter. To promote the rapid resolution of labour issues between TPP Parties, the Labour chapter also establishes a labour dialogue that Parties may choose to use to try to resolve any labour issue between them that arises under the chapter. This dialogue allows for expeditious consideration of matters and for Parties to mutually agree to a course of action to address issues. The Labour chapter establishes a mechanism for cooperation on labour issues, including opportunities for stakeholder input in identifying areas of cooperation and participation, as appropriate and jointly agreed, in cooperative activities.

    • Environment

As home to a significant portion of the world’s people, wildlife, plants and marine species, TPP Parties share a strong commitment to protecting and conserving the environment, including by working together to address environmental challenges, such as pollution, illegal wildlife trafficking, illegal logging, illegal fishing, and protection of the marine environment. The 12 Parties agree to effectively enforce their environmental laws; and not to weaken environmental laws in order to encourage trade or investment. . . .

The chapter is subject to the dispute settlement procedure laid out in the Dispute Settlement chapter. . . .

    • Cooperation and Capacity Building . . ..
    • Competitiveness and Business Facilitation

The Competitiveness and Business Facilitation chapter aims to help the TPP reach its potential to improve the competitiveness of the participating countries, and the Asia-Pacific region as a whole. . . .

    • Development

The TPP Parties seek to ensure that the TPP will be a high-standard model for trade and economic integration, and in particular to ensure that all TPP Parties can obtain the complete benefits of the TPP, are fully able to implement their commitments, and emerge as more prosperous societies with strong markets. . . .

    • Small- and Medium-Sized Enterprises

TPP Parties have a shared interest in promoting the participation of small- and medium-sized enterprises in trade and to ensure that small- and medium-sized enterprises share in the benefits of the TPP. . . .

    • Regulatory Coherence

TPP’s Regulatory Coherence chapter will help ensure an open, fair, and predictable regulatory environment for businesses operating in the TPP markets by encouraging transparency, impartiality, and coordination across each government to achieve a coherent regulatory approach. . . .

    • Transparency and Anti-Corruption

The TPP’s Transparency and Anti-Corruption chapter aims to promote the goal, shared by all TPP Parties, of strengthening good governance and addressing the corrosive effects bribery and corruption can have on their economies. . . .

    • Administrative and Institutional Provisions

The Administrative and Institutional Provisions Chapter sets out the institutional framework by which the Parties will assess and guide implementation or operation of the TPP, in particular by establishing the Trans-Pacific Partnership Commission, composed of Ministers or senior level officials, to oversee the implementation or operation of the Agreement and guide its future evolution. This Commission will review the economic relationship and partnership among the Parties on a periodic basis to ensure that the Agreement remains relevant to the trade and investment challenges confronting the Parties.. . .

    • Dispute Settlement

The Dispute Settlement chapter is intended to allow Parties to expeditiously address disputes between them over implementation of the TPP. TPP Parties will make every attempt to resolve disputes through cooperation and consultation and encourage the use of alternative dispute resolution mechanisms when appropriate. When this is not possible, TPP Parties aim to have these disputes resolved through impartial, unbiased panels. The dispute settlement mechanism created in this chapter applies across the TPP, with few specific exceptions. . . .

Should consultations fail to resolve an issue, Parties may request establishment of a panel, which would be established within 60 days after the date of receipt of a request for consultations or 30 days after the date of receipt of a request related to perishable goods. Panels will be composed of three international trade and subject matter experts independent of the disputing Parties, with procedures available to ensure that a panel can be composed even if a Party fails to appoint a panelist within a set period of time. These panelists will be subject to a code of conduct to ensure the integrity of the dispute settlement mechanism. . . .

To maximize compliance, the Dispute Settlement chapter allows for the use of trade retaliation (e.g., suspension of benefits), if a Party found not to have complied with its obligations fails to bring itself into compliance with its obligations. Before use of trade retaliation, a Party found in violation can negotiate or arbitrate a reasonable period of time in which to remedy the breach.

    • Exceptions

The Exceptions Chapter ensures that flexibilities are available to all TPP Parties that guarantee full rights to regulate in the public interest, including for a Party’s essential security interest and other public welfare reasons. This chapter incorporates the general exceptions provided for in Article XX of the General Agreement on Tariffs and Trade 1994 to the goods trade-related provisions, specifying that nothing in the TPP shall be construed to prevent the adoption or enforcement by a Party of measures necessary to, among other things, protect public morals, protect human, animal or plant life or health, protect intellectual property, enforce measures relating to products of prison labour, and measures relating to conservation of exhaustible natural resources. . . .

In addition, it specifies that no Party is obligated to furnish information under the TPP if it would be contrary to its law or public interest, or would prejudice the legitimate commercial interests of particular enterprises. A Party may elect to deny the benefits of Investor-State dispute settlement with respect to a claim challenging a tobacco control measure of the Party.

    • Final Provisions

The Final Provisions chapter defines the way the TPP will enter into force, the way in which it can be amended, the rules that establish the process for other States or separate customs territories to join the TPP in the future, the means by which Parties can withdraw, and the authentic languages of the TPP. It also designates a Depositary for the Agreement responsible for receiving and disseminating documents.   . . .

THREE CHINA CANARDS AND INTERNATIONAL TRADE VICTIMHOOD

In light of President Xi’s recent trip to the United States and the many arguments thrown at China by the Press and US Politicians, it is time to look at the three major trade/economic attacks against China in detail: cyber- attacks, currency manipulation and dumping. When one digs down, one finds that the arguments are based on misunderstandings and misperceptions and often are not based on complete or actual facts. There are a lot of holes in the US arguments.

In fact, often these arguments are the pot, the United States, calling the kettle, China, black or in Chinese, the crow calling the pig black. What the US accuses the Chinese government of doing, the US government itself is doing against China and other countries.

In truth, the Chinese government can take actions, which are totally unfair, but US government officials should get their facts right and make sure that the attacks on China are based on actual economic reality and the US Government’s actual position.

More importantly, the problem with these attacks is that they lead to a US mindset among companies and unions of globalization/international trade victimhood. The whole world and especially China is out to get the US and we US companies and US workers cannot compete with imports into the US because all are unfairly traded so let’s put up protectionist walls.

This mindset, however, leads to corrosion of a company’s competitive instincts and makes them less able to compete in the modern world and US market.   Protectionism leads to the decline of the US industry and the loss of jobs. As President Reagan so eloquently put it the attached June 28, 1968 speech on international trade, BETTER COPY REAGAN IT SPEECH:

international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flimflmmaery in American politics. But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth. You see, trade barriers and protectionism only put off the inevitable.

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

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

Emphasis added.

As indicated below, this last paragraph would appear to fit exactly the Steel Industry.

The inconvenient truth for a Donald Trump and the Republican protectionists is that President Ronald Reagan, who Republicans hold up as their icon, was a true free trader and not a false prophet. So let’s look at these three arguments in detail.

CYBER-ATTACKS

As stated more below, although the US Press, including Forbes, Wall Street Journal, and the New York Times along with a number of US politicians, including Senators McCain and Ayotte, vehemently attack China for its cyber- attacks, when one digs down it turns out that part of the problem is the United States.

As indicated below, 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.  

During the same hearing, Administration officials acknowledged that the recent Cyber Agreement with China is a good first step.

What does this mean? It means that the US government never asked China for a comprehensive agreement to stop cyber hacking, because the US government is engaged in cyber espionage too and “we are pretty good at it. . . . People in glass houses…”. This illustrates the hypocrisy of much of the political attacks on China regarding cyber-attacks on US security interests and OPM, which are based on incorrect definitions as set down by the US government itself.

What the US Government did demand on the threat of economic sanctions was for the Chinese government to stop cyber-attacks on commercial interests, including the theft of intellectual property. The Chinese government agreed, not only because of the threats of economic sanctions, but also because they realize how important the US China economic/trade relationship is for China, the Chinese people and the entire World.

Although the Press reports that the cyber- attacks still continue, as President Xi specifically mentioned, the Chinese government cannot unilaterally stop all private cyberattacks that come from China, just as the US government cannot unilaterally stop all private cyber- attacks from the US. These are criminal acts.

At the Armed Services hearing, Senator McCain stated that he was astonished at the statement by Director Clapper. What is astonishing is that high level Senators, who launched cynical attack after attack on the Chinese government, do not know the position of their own government and the distinction between state espionage and commercial cyber- attacks. The Senators do not realize or do not want to acknowledge that the pot (the US) is calling the kettle (China) black.

Recently, in an October 6, 2015 article on Energy Wire, entitled “DOE cold case shows limits of U.S.-China cyber cooperation” at http://www.eenews.net/stories/1060025891[10/6/2015 10:41:38 AM] about the Justice Department accusing Chinese officials in the People’s Liberation Army of hacking, Robert Cattanach, co-chairman of the cybersecurity practice group at Dorsey, stated with regards to the provisions in the China Cyber Agreement:

“to end “cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors” . . . the framework’s omissions are telling. “The U.S. clearly signaled that it was still fine for China to do whatever it wished in the area of national security cyberespionage – and the subtext there is, because we’re doing it, too. Problems come up right away, however, due to the fact that “it’s not at all clear where the dividing line is between ‘acceptable’ cyber hacking and ‘unacceptable’ cyber hacking,”

CURRENCY MANIPULATION

The same problem exists with currency manipulation. First, the general definition of currency manipulation is that a country artificially lowers the value of its currency, to undervalue the currency, so as to have a competitive advantage and encourage exports.

But the problem with this issue is that like cyber-attacks there is no internationally approved definition of currency manipulation, and both the Obama Administration, including President Obama and Secretary of Treasury Lew, along with free trade Senators and Congressmen are worried that without an internationally approved definition, currency manipulation could be used to retaliate against the United States. Remember the Federal Reserve’s Policy of Quantitative Easing.

Regarding China, originally, when the argument was first made in 2004, the Chinese Yuan was worth about 8.2 or 8.3 to the dollar, making the Chinese yuan relatively weak as compared to the US dollar. Since 2004 because of the Currency manipulation argument, China has allowed the Yuan to float within in very short range and gradually strengthened the Chinese yuan to 6.35 yuan today.

Keep in mind that China is worried about strengthening its currency too much, not because of the United States, but because of its Asian competitors. Vietnam, for example, exports more furniture and other products as compared to China because its wages are lower than China. Much of the textile business has now left China to go to Bangladesh, where wages are much lower than China.

For more than 10 years, the US Steel Industry and the Unions have been using the currency manipulation to attack China. But another inconvenient truth is that on May 26, 2015, the International Monetary Fund (“IMF”) determined that China’s currency is no longer unvalued. The IMF specifically stated:

“On the external side, China has made good progress in recent years in reducing the very large current account surplus and accumulation of foreign exchange reserves. . . .While undervaluation of the Renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued.

In addition, the major argument of many Democratic Senators and Congressmen and even some Republicans is that the Trans Pacific Partnership is not a good deal because there are no enforceable rules against currency manipulation. But the inconvenient truth is that enforceable provisions were not in the Bill because Democratic President Obama and Democratic Secretary of Treasury Lew threatened to veto the TPA bill if enforceable provisions were included.

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 Currency Amendment proposed by Senators Stabenow and Portman, which would have required enforceable provisions on currency manipulation, stating that the President will veto the TPA bill and if passed could lead to international sanctions against the United States by international tribunals. See Testimony of Senators Wyden and Hatch at http://www.c-span.org/video/?326202-1/us-senate-debate-trade-promotion-authority&live.

As Senator Hatch stated:

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

Currency manipulation has, for many, become the primary issue in the TPA debate. . . .

However, I want to be as plain as I can be on this issue: While currency manipulation is an important issue, it is inappropriate and counterproductive to try to solve this problem solely through free trade agreements. . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Why are enforceable provisions against currency manipulation wrong? Because all of “international/WTO” trade law is based on reciprocity. What the United States can do to other countries, those countries can do back to the United States. In effect, if enforceable currency manipulation provisions had been included in the TPP, the United States could be hoisted by its own petard, killed by its own knife.

That is the reason Senator Orrin Hatch, Chairman of the Senate Finance Committee, and Congressman Paul Ryan, Chairman of the House Ways and Means Committee, are so concerned about currency manipulation. Currency manipulation is a negotiating objective as set forth in the TPA. But enforcing currency manipulation is a problem because there is no internationally accepted definition of currency manipulation. When the US Federal Reserve used quantitative easing in the last financial crisis, was that currency manipulation? Could other countries retaliate against the US for using quantitative easing? That is the fear of free traders. In international trade what goes around comes around.

Currency manipulation was include in the Trade Promotion Authority bill that was passed by Congress and signed into law, but there were no enforceable provisions. The specific provision in the TPA states in part:

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

Emphasis added.

In the TPP Agreement, which was concluded in Atlanta, in a currency manipulation side deal, apparently the nations pledged not to devalue their currencies in such a way as to gain an edge on their competitors, but it will not have any enforcement provisions. Country representatives will meet at least once a year to discuss the commitments and to try to coordinate macroeconomic policies.

The specific details of the currency manipulation side agreement are still being negotiated so it is difficult to believe that Hilary Clinton has actually read the Agreement, when it has not been finalized yet.

The side agreement, however, apparently centers around three key commitments countries would undertake as part of this side deal. First, the TPP countries would commit to not devalue their currencies so as to make their exports cheaper. Second, they would upgrade the transparency of their respective monetary policies and decision-making. Finally, the countries would set up a multilateral forum to discuss exchange rate policies and broader macroeconomic issues.

It is not clear, however, how often officials would meet in this configuration, or at what level. Government sources, however, indicate that the TPP countries are very close to coming to an agreement on these points and are entering a technical review of the side deal.

On the day the TPP agreement was announced, Treasury released a joint statement by the TPP countries:

“We are pleased to announce today that we are working to strengthen macroeconomic cooperation, including on exchange rate issues, in appropriate fora. The work to be undertaken reflects our common interest in strengthening cooperation on macroeconomic policies, and will help to further macroeconomic stability in the TPP region as well as help ensure that the benefits of TPP are realized. Keeping in mind the diverse circumstances of the TPP countries, we are currently undertaking a technical review.”

On October 19, 2015, Treasury Secretary Lew stated that the TPP provides a “very powerful set of tools,” with tough provisions to get participating countries to “keep their word” on currency.

It is interesting to note that on Tuesday, September 22, 2015, in his Seattle speech, President Xi of China specifically agreed to a similar provision:

“We will stick to the purpose of our reform to have the exchange rate decided by market supply and demand and allow the RMB to float both ways. We are against competitive depreciation or a currency war. We will not lower the RMB exchange rate to boost exports. To develop the capital market and improve the market-based pricing of the RMB exchange, is the direction of our reform. This will not be changed by the recent fluctuation in the stock market.”

In other words, China has agreed to abide by the same currency manipulation deal struck in the TPP Agreement.

But that brings us to another problem, recently China allowed the Yuan to float and it lost 2 to 3% of its value and immediately the China critics in the United States cried currency manipulation. As stated above, the International Monetary Fund has already determined that the Chinese RMB is not undervalued. If anything, with the very difficult economic situation in China right now, the Chinese RMB may be overvalued. In fact, if Chinese RMB were actually floated on the market, there might be a sharp decline.

The natural economic course is for currencies to become weaker when economies become weaker. The IMF has already determined that China’s currency is not undervalued. But right now, China’s economy is going through a downturn.

As Treasury Secretary Lew stated on October 19th regarding China’s currency:

“There’s still room for the renminbi to appreciate. Right now, there’s downward pressure on the renminbi. Some of it is as a result of the policies that they made and the way they announced them over the summer. We have to make sure that China understands that it’s very important that they need to keep their commitment to let the renminbi go up as well as down.”

On October 1, 2015, the Wall Street Journal on its front page, reported “A Painful Quarter for Markets” stated:

“Stocks had their worst quarter since 2011 amid growth worries as daily swings grew bigger as investors fretted over China while a commodity selloff [in part because of China] and rising junk-bond yields added to the anxiety.”

On October 7, 2015, the Wall Street Journal reported that “Chinese Central bank interventions” to shore up the yuan ate into China’s foreign-exchange reserves in September, stating.:

“The People’s Bank of China on Wednesday said currency reserves fell $43.3 billion in September to $3.51 trillion as more funds left the country, the fifth consecutive monthly drop but a less sharp one than the record $93.9 billion plunge the previous month. That came after the central bank first devalued the yuan in a mid-August surprise and then saw itself forced to step up selling of dollar assets, particularly U.S. Treasuries, to prevent a free fall in the currency. . . .”

On October 7th, the Wall Street Journal further reported that, “Once the Biggest Buyer, China Starts Dumping U.S. Government Debt Shift in Treasury holdings is latest symptom of emerging-market slowdown hitting global economy”. The Article states:

“Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis.

Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt. . . .

In the past decade, large trade surpluses or commodity revenues permitted many emerging-market countries to accumulate large foreign-exchange reserves. Many purchased U.S. debt because the Treasury market is the most liquid and the U.S. dollar is the world’s reserve currency. . . .

But as global economic growth weakened, commodity prices slumped and the dollar rose in anticipation of expected Federal Reserve interest-rate increases, capital flowed out of emerging economies, forcing some central banks to raise cash to buy their local currencies.

In recent months, China’s central bank in particular has stepped up its selling of Treasuries. The People’s Bank of China surprised investors by devaluing the yuan on Aug. 11. The heavy selloff that followed—triggered by concerns that Beijing would permit more weakening of the yuan to help spur growth—caught officials at the central bank somewhat off guard, according to the people.

To contain the selloff, the PBOC has been buying yuan and selling dollars to prevent the yuan from weakening beyond around 6.40 per dollar. Internal estimates at the PBOC show that it spent between $120 billion and $130 billion in August alone in bolstering the yuan’s value, according to people close to the central bank.”

On October 20, 2015, it was reported that total capital outflows from China could have been as high as $850 billion from the start of 2015 to the end of September. This estimate assumes China has had to sell foreign exchange reserves ($329 billion until the end of September, mostly in U.S. Treasuries) to keep the exchange rate stable.

Does this sound like a country that is intentionally trying to undervalue its currency to get a competitive advantage? In fact, China is spending 100s of billions of dollars to prevent the exchange rate from falling by keeping its currency strong and not undercutting the dollar. Why? To keep up the standard of living of its people and to avoid the currency manipulation argument aimed at China by the United States.

Many China critics point to China as the second largest economy, but that is a distortion. When looked at the GDP on a per capita/per person basis, China is much lower. As reported by the International Monetary Fund, the United States is ranked number 10 with a per capita GDP of $54,370GDP, where China is ranked number 88 with a per capita income of $13, 224 after the Maldives. See https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita#List_of_countries_and_dependencies.

China is the largest country in the World by population with 1.376 billion. The United States has a population of 321 million. See https://en.wikipedia.org/wiki/List_of_countries_and_dependencies_by_population. In fact, according to the World Economic Forum, when it comes to competitiveness, the United States ranks number 3 and China ranks number 28 after Israel, but before Estonia. See http://reports.weforum.org/global-competitiveness-report-2014-2015/rankings/; Global Competitiveness http://reports.weforum.org/global-competitiveness-report-2015-2016/economies/#economy=USA.

Why is this important? Because as President Xi recently stated in Seattle, China is still a developing country and it has 100s of millions of people in poverty. As President Xi stated:

“At the same time, we are civilly-aware that China is still the world’s largest developing country. Our per capita GDP is only two-thirds that of global average and one-seventh that of the United States, ranking around 80th in the world. By China’s own standard, we still have over 70 million people living under the poverty line. If measured by world bank standard, the number would be more than 200 million. . . .”

President Xi went on to state that his focus has to be development and raising the standard of living for his people:

“I know that we must work still harder before all our people can live a better life. That explains why development remains China’s top priority. To anyone charged with the governance of China, their primary mission is to focus all the resources on improving people’s living standard and gradually achieve common prosperity.”

The bottom line is that the Chinese leadership knows that it is still a developing country and it needs the relationship with the US to continue to lift is population out of poverty. But China also knows that the US China relationship must be a win-win relationship in which the United States also benefits. That is the reason the US is exporting close $200 billion in exports to China.

On September 26, 2015, while in Beijing I went to a Supermarket in the Guomao, Business District of Beijing. The “Ole” supermarket chain was having a major sales event of US agricultural products, selling US pork, apples, potatoes, seafood, wine, cheese, grapes and raisins. SMALL LARGE POSTERThe event was sponsored by USDA, US Commercial Service, US Pork Producers, US Meat, US raisins, Alaska Seafood, Washington Apples, US Potatoes, California Grapes and Raisins. USSPONSORSI was the only foreigner in the supermarket and the checkout girls had little US flags on their lapel.SM GIRL

 

 

 

The US China Trade relationship is also why China was quickly willing to negotiate and come to agreement with the United States on Cyber Attacks and Currency manipulation. But willingness to negotiate and discuss the issues is not good enough for the protectionist forces in the United States.

DUMPING

But if cyber-attacks and currency manipulation do not work, the US press and politicians can always argue that the United States is a dumping ground for Chinese products. In fact, the United States presently has antidumping orders blocking more than $20 billion in imports from China, all based on fake numbers.

Antidumping orders cover products as diverse as Furniture ($1 billion), almost all steel products (billions), Solar Cells and Solar Panels ($4 billion), Aluminum Extrusions, including aluminum auto parts, curtain walls, the sides of buildings and lighting equipment (billions), Tires ($7 billion), and Paper (billions), not to mention food products, such as honey, garlic, crawfish and shrimp.

Dumping is generally defined as selling products in the United States at lower prices than in the home/China market or below the fully allocated cost of production. But as readers of this blog know, in contrast to almost every country in the World, including Iran, Syria, Russia, and Ukraine, the Commerce Department considers China to be a nonmarket economy country and refuses to look at actual prices and costs in China. Instead Commerce constructs a cost from consumption factors in China and multiplies those factors times surrogate values, which it obtains from import statistics in five to 10 different countries.

But those surrogate countries can change from preliminary to final determinations and from initial investigation to the multiple review investigations against Chinese products. In the Hardwood Plywood case, for example, Commerce used import statistics in Philippines in the Preliminary resulting in a 0% antidumping rate, and then in the final determination switched to import statistics in Bulgaria, resulting in a 57% antidumping rate. In a Mushrooms review investigation, Commerce switched from India, which it had used in more than five past review investigations, to Columbia and the rate went from single digits to over 400% because of surrogate values for cow manure and hay from Columbia Import statistics.

If you think about it, how much cow manure and hay is imported into Columbia. Because Commerce’s almost always relies on import statistics in one of the 5 to 10 different countries, it always uses inflated surrogate values because imports by definition must be higher priced than the domestic product. By using hyper-inflated surrogate values, it is always easy to find dumping rates against China, but they are not based on reality.

With regards to Countervailing Duty orders against China, Commerce refuses to use benchmark prices in China to value the subsidies. As explained more below, this refusal along with the Commerce Department’s decision that every raw material product supplied by every state-owned company is subsidized, has led to a major loss for the United States at the WTO overturning dozens of Commerce Department CVD determinations for violations of the WTO’s Countervailing Duty Agreement.

More importantly, US importers pay antidumping and countervailing duties, not Chinese companies, and when antidumping and countervailing duties go up in administrative review investigations, US importers are retroactively liable for the difference plus interest.  Thus an importer can wake up one morning when an antidumping rate has gone from 0 to 157% and owe millions in retroactive antidumping duties to the US government.  But since Commerce does not use real prices and costs in China and can switch from surrogate country to surrogate country, the Chinese companies cannot know whether they are dumping and what the rate will be and neither can the US importers.  Thus the Commerce Department fiction exposes US importers to potentially millions of dollars in retroactive liability through no fault of the importer.  Thus, when antidumping and countervailing duty orders are issued against China, over time all imports of the specific product stop because importers are scared of the huge risk that could bankrupt their company if they import under an antidumping or countervailing duty order against China.

But the real problem with these three attacks on China is that it encourages a mindset among US producers and US workers of Globalization/International Trade Victimhood, which corrodes the competitive spirit. This phrase was not coined by me, but by the Mid Atlantic Trade Adjustment Assistance Center, which uses the term in a video about how four US companies used the TAA for Companies program to save their business — http://mataac.org/howitworks/.

Moreover, we have a perfect experiment/example to make this point—the US steel industry. This Industry has had some form of protection from steel imports under US antidumping and countervailing duty laws and other trade statutes for 40 years. Is the Steel industry thriving? Is it expanding with all the protection from imports that it has received? No, the industry continues to decline even though US Steel companies and the Unions have spent tens of millions of dollars in legal fees and to keep political pressure up on Congress and the Government.

When I first started work at the International Trade Commission in 1980, there were numerous large steel companies with production operations all over the United States, including Bethlehem Steel, Jones & Laughlin and Lone Star Steel. Those companies had 40 years of protection from steel imports, but that did not stop the decline of the industry.

But what the Steel industry and the Union wants and Congress is prepared to give is more protection from steel and other imports by making it easier to bring antidumping and countervailing duty cases and win them at Commerce and the ITC. The decision apparently is let’s simply build the protectionist walls higher. The scary point is that in many ways the US Steel industry and the Unions have an inordinate impact on US trade policy because of their power in the Democratic party.

But the crown jewels of US manufacturing are not the Steel Industry, but the US High Tech industry, which is among the most efficient in the World. As the Democratic opposition to the TPP indicates, many Democrats in Congress are willing to sacrifice the very successful new High Tech industry, which employs numerous workers, for the benefit of the much older and smaller US Steel industry when the total employment in the US Steel industry is less than one high tech company!

What is the answer to this import problem? Not more protection. Instead, I firmly believe the answer lies in the small program—the TAA for Companies (also called TAA for Firms or TAAF). This is a $12 million program, which helps small and medium size business (SMEs) and helps them adjust to import competition.  The Northwest Trade Adjustment Assistance Center (“NWTAAC”), which I have been working with, has an 80% survival rate since 1984, which is certainly a much higher survival rate than US antidumping and countervailing duty cases. If you save the company, you save the jobs that go with the company and all the tax revenue paid into the Federal, State and Local governments.  This is the Transformative Power of TAA for Companies.  TAA for Companies does not cost the government money.  It makes money for the government.

Recently, I have learned that sometimes larger companies through this program can obtain access to more funds to help them adjust and get out of Globalization /International Trade victimhood. The Congress supplies $450 million to retrain workers in the TAA for Workers program, but only $12 million to help the companies adjust. But if you save the company, you save the jobs that go with that company.

Moreover, the TAA video, http://mataac.org/howitworks/, describes one US company, which uses 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 is the transformative power of TAA for Companies and the more important point of changing the mindset from Globalization/International Trade victimhood of US companies and workers so that they become internationally competitive in the World market.

All US antidumping and other trade cases can do is slow the decline in an industry. The only program that cures the disease is the TAA for Companies program . As Ronald Reagan predicted in his attached 1986 speech, BETTER COPY REAGAN IT SPEECH, the problem with antidumping and countervailing duty cases is that they do not work and they invite retaliation:

Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively. . . .

But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.

Blaming international trade and other countries and bringing trade case does not solve the business problems of these companies. All the trade cases do is slow the decline and prolong the agony, because the company and the workers have not changed their mindset.

One Economic Development Council here in Washington State has the motto Compete Every Day, with Every One in Every Country Forever. That is the type of mindset that turns companies around. That is the type of mindset TAA for Companies promotes, not US Antidumping and Countervailing Duty laws.

IMPORT ALLIANCE FOR AMERICA

This is also why the Import Alliance for America is so important for US importers and US end user companies. The real targets of antidumping and countervailing duty laws are not Chinese companies. The real targets are US companies, which import products into the United States from China and use raw materials in downstream production process.

There are approximately 130 antidumping and countervailing duty orders against various products from China, but approximately 80 of the orders cover raw material inputs, such as chemicals, metals and steel, which are used in downstream production. Through these orders we spread the Globalization victimhood disease affecting the upstream industry to the higher value added, higher profit downstream industries because the downstream companies cannot compete with Chinese and other foreign companies that have access to the lower cost raw materials.

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

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

See the Import Alliance website at http://www.importallianceforamerica.com.

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

On November 17 and 18, 2015, importers in the Alliance will be meeting Congressmen and Congressional Trade Staff in Washington DC to discuss these issues. See the attached announcement. FINAL IAFA_November2015_Flyer The Alliance welcomes all US importers and downstream companies, If you are interested in this effort, please feel free to contact the Import Alliance or myself directly.

IMPRESSIONS OF CHINESE PRESIDENT XI’S TRIP TO THE US—VIEWS FROM BEIJING

During most of September I was in China, and in Beijing during the key week of September 21 to 26th. Watching the US press and listening to US politicians in Washington DC during President Xi’s visit as compared to the Press in China was like watching people on different planets. In the United States, news outlets and politicians were very bellicose, very cynical, and expecting China simply to trick the US and out negotiate them. Shades of Donald Trump. In direct and distinct contrast, China was having a love fest with the United States.

In the United States, especially before and after the Washington DC trip, commentators and newspapers attacked China on cyber-hacking, currency manipulation, foreign policy and every other rock that could be thrown at China.

During that same week that President Xi was in China, Chinese speaking television was running a TV series to every day Chinese, somewhat like Roots, entitled Life and Death Commitment. The series was about how during the War against Japan, which became the Second World War, 100s if not 1,000s of Chinese peasants gave their lives to protect a specific American Flying Tiger pilot that had been shot down. The series showed entire villages and families executed by the Japanese for refusing to reveal the whereabouts of the American pilot. What made the series so powerful is that it is based on a true story.

I realized how powerful an impact this series was having on Chinese people because on Friday September 25th while climbing a mountain at the Red Snail Temple outside Beijing with a Group of Chinese, at a pavilion we ran into a Chinese peasant looking for plastic bottles. He immediately asked the Chinese in my Group, where is the foreigner from. They answered United States and he got excited and said “Flying Tiger”.

As President Xi mentioned in his Seattle speech, China will not forget the sacrifice of American lives in World War 2 against Germany and Japan. Even before World War 2, however, there were many examples of the United States coming to the aide of China. In the early 1900s, the United States was the only foreign country to pay China back for money paid as reparations by the Chinese government as a result of the Boxer rebellion. The US used the Chinese reparations money to establish a famous Chinese university and hospital in Beijing and send Chinese to study in the US. In other words, based on history, the Chinese truly like Americans, and that is a fundamental reason and basis for future US/China cooperation.

In contrast, I was told by one Chinese that Russia and China simply use each other. There is no trust between China and Russia. In the early 1950, because Chairman Mao refused to follow the commands of Joseph Stalin, Russia pulled out of China, destroying all the instruction books to the machinery, rail cars and other products provided to China. That action plus the Great Leap Forward led to a famine in China in which millions died. Chinese do not forget.

In contrast to Washington DC, high tech companies and businessmen in Washington State were very welcoming to President Xi, listening to his every word, because for Washington State China is its largest export market with $20 billion in exports every year to China and that is not just Boeing airplanes.

US High tech companies are making billions in China selling their products and consumer technology to China. Qualcomm’s income was $10 billion with $5 billion coming from China. On the plane to China, I sat next to a Marketing official from a large high tech company that was selling touch screen products to China. He told me that he was on the plane to China every other week.

While in China, on the CCTV English channel I saw one US Administration official stating that we see the US China relationship is “too big to fail”. At least someone in the US government and Obama Administration understands the importance of the US China relationship. In the Bush Administration, Treasury Secretary Paulson stated that he believed the US China relationship was the most important economic relationship in the World.

During my trip to Beijing, Chinese English TV was following the President Xi trip closely putting specific emphasis on the dialogue between the United States. I became convinced that China truly believes in a Win Win situation for China and the United States and that is not just a slogan.

Before President Xi’s trip to China, one article featured a panda and Uncle Sam walking arm and arm together. On September 27, the Chinese Global Times reported on the front page:

China and the US have agreed to continue building a new model for major country relationship based on mutual cooperation. . . .Aside from agreeing to build a new model for major-country relationship, the two countries said they would maintain close communication and exchanges at all levels, further expand practical cooperation at bilateral, regional and global levels and manage differences to a constructive way to achieve new concrete results in Sino-US relations. . . .

Another article in the Global Times urged the United States to reciprocate China’s goodwill. But the cynicism of many in the US press and US politicians seemed to undercut much of the Chinese goodwill.

President Xi’s US trip started well in Seattle. On Tuesday, September 22, 2015, at a speech in Seattle, Henry Kissinger introduced President Xi by stating that his vision of a Win Win scenario, which emphasizes the economic interdependence of China and the United States based on mutual interests and importance of the economic development of the other country was very important. Kissinger specifically stated that partnership between two potential advisories can replace antagonism between them.

As President Xi further indicated in his speech, he understands how important the US China relationship is and his government will do everything in their power to maintain it. President Xi specifically stated in Seattle:

. . . Washington is the leading state in U.S. exports to China and China is the No. 1 trading partner of the Port of Seattle. Washington and Seattle have become an important symbol of the friendship between Chinese and American people and the win-win cooperation between the two countries. As the Chinese saying goes, the fire burns high when everyone brings wood to it. It is the love and care and hard work of the national governments, local authorities, friendly organizations, and people from all walks of life in those countries that have made China-U.S. relations flourish. . . .

Ladies and gentlemen, dear friends. Since the founding of the People’s Republic, especially since the beginning of reform and opening up, China has set out on an extraordinary journey. The Chinese of my generation have had some first-hand experience. Toward the end of the 1960s, when I was in my teens, I was sent from Beijing to work as a peasant in a small village, where I spent seven years. At that time, the villagers and I lived in earth caves and slept on earth beds. Life was very hard. There was no meat in our diet for months. . . .

At the spring festival earlier this year, I returned to the village. It was a different place now. I saw black top roads. Now living in houses with bricks and tiles, the villagers had Internet access. Elderly folks had basic old-age care, and all villagers had medical care coverage. Children were in school. Of course, meat was readily available. This made me kindly aware that the Chinese dream is, after all, a dream of the people.

We can fulfill the Chinese dream only when we link it with our people’s yearning for a better life.

What has happened in [my village] is but a microcosm of the progress China has made through reform and opening up. In a little more than three decades, we have turned China into the world’s second largest economy, lifted 1.3 billion people from a life of chronic shortage, and brought them initial prosperity and unprecedented rights and dignity.

This is not only a great change in the lives of the Chinese people, but also a huge step forward in human civilization, and China’s major contribution to world peace and development.

At the same time, we are civilly-aware that China is still the world’s largest developing country. Our per capita GDP is only two-thirds that of global average and one-seventh that of the United States, ranking around 80th in the world. By China’s own standard, we still have over 70 million people living under the poverty line. If measured by world bank standard, the number would be more than 200 million. . . .

During the past two years, I have been to many poor areas in China and visited many poor families. I wouldn’t forget the look in their eyes longing for distant, happy life.

I know that we must work still harder before all our people can live a better life. That explains why development remains China’s top priority. To anyone charged with the governance of China, their primary mission is to focus all the resources on improving people’s living standard and gradually achieve common prosperity. To this end, we have proposed the two centenary goals mentioned by Dr. Kissinger, namely to double the 2010 GDP and per capita income of the Chinese and complete the building of a moderately prosperous society by 2020 and to build a prosperous, strong, democratic … harmonious, modernist socialist country that realizes the great renew of the Chinese nation by the middle of the century.

Whatever we do now is aimed at fulfilling these goals. To succeed in completing the building of a moderately prosperous society in all respects, we must comprehensively deepen reform, advance the law-based governance, and apply strict … discipline. That is what our proposed 4-pronged strategy is all about. . . .

China’s economy will stay on a steady course with fairly fast growth. The Chinese economy is still operating within a proper range. It grew by 7 percent in the first half of this year, and this growth rate remains one of highest in world. It has not come by easily, given the complex and volatile situation in world economy. At present, all economies are facing difficulties, and our economy is also under downward pressure. But this is only a problem in the course of progress. It will take … steps to achieve stable growth, deepen reform, adjust structure, improve livelihood, and prevent risks while strengthening and innovating macro-regulation to keep the growth at medium-to-high rate.

Currently, China is continuing to move forward in this new type of industrialization, digitalization, urbanization, and agricultural modernization. With a high savings rate, a huge consumption potential, a hard working population, and a rising proportion of middle income people — now we have 300 million middle income earnings in China — China enjoys enormous space … to grow in terms of market size and potential. China will focus more on improving the quality and efficiency of economic growth, and accelerating the shift of growth model and adjustment in economic structure. I will lay greater emphasis on innovation and consumption-driven growth — in this way, we will solve the problem of unbalanced, uncoordinated, and unsustainable development, and enable the Chinese economy to successfully transform itself and maintain strong momentum of growth.

Recent abnormal ups and downs in China’s stock market has caused wide concern. Stock prices fluctuating accordance with your inherent laws and it is the duty of the government to ensure an open, fair, and just market order and prevent massive panic from happening. This time, the Chinese government took steps to stabilize the market and contain panic in the stock market, and thus avoided the systemic risk. Mature markets in various countries have tried similar approaches. Now, China’s stock market has reached the phase of self-recovery, and self-adjustment.

On the 11th of August, China moved to improve its RMB central parity quotation mechanism, giving the market a greater role in determining the exchange rates. Our efforts have achieved initial success in correcting the exchange rate deviation. Given the economic and financial situation at home and abroad, there is no basis for continuous depreciation of the RMB. We will stick to the purpose of our reform to have the exchange rate decided by market supply and demand and allow the RMB to float both ways. We are against competitive depreciation or a currency war. We will not lower the RMB exchange rate to boost export. To develop the capital market and improve the market-based pricing of the RMB exchange, is the direction of our reform. This will not be changed by the recent fluctuation in the stock market.

The key to China’s development lies in reform. Our reform is aimed at modernizing the country’s governance system, and governance capabilities so that the market can play a decisive role in the allocation of resources. The government can play a better role and there is faster progress in building the socialist market economy, democracy, advanced culture, harmonious society, and soundly environment. . . .

We have the results and guts to press ahead, and take reform forward. We will stick to the direction of market economy reform and continue to introduce bold and result-oriented reform measures concerning the market, taxation, finance, investment and financing, pricing, opening up, and people’s livelihood.

China will never close its open door to the outside world. Opening up is a basic state policy of China. Its policies that attract foreign investment will not change, nor will its pledge to protect legitimate rights and interests of foreign investors in China, and to improve its services for foreign companies operating in China. We respect the international business norms and practice of non-discrimination, observe the …principle of national treatment commitment, treat all market players — including foreign-invested companies — fairly, and encourage transnational corporations to engage in all forms of cooperation with Chinese companies.

We will address legitimate concerns of foreign investors in timely fashion, protect their lawful rights and interests, and work hard to provide an open and transparent legal and policy environment, an efficient administrative environment, and a level playing field in the market, with a special focus on IPR protection so as to broaden the space of cooperation between China and the United States and other countries.

China will follow the basic strategy of the rule of law in governance. Law is the very foundation of governance. We will coordinate our efforts to promote the rule of law in governance and administration, for the building of the country, the government and society on solid basis of the rule of law, build greater trust in judicial system, and ensure that human rights are respected and effectively upheld. China will give fair treatment to foreign institutions and foreign companies in the country’s legislative, executive, and judicial practices. We are ready to discuss rule of law issues with the U.S. side in the spirit of mutual learning for common progress.

China is a staunch defender of cybersecurity. It is also a victim of hacking. The Chinese government will not, in whatever form, engage in commercial thefts or encourage or support such attempts by anyone. Both commercial cyber theft and hacking against government networks are crimes that must be punished in accordance with law and relevant international treaties. The international community should, on the basis of mutual respect and mutual trust, work together to build a peaceful, secure, open, and cooperative cyberspace. China is ready to set up a high-level joint dialogue mechanism with United States on fighting cyber crimes. . . .

China will continuing fighting corruption. As I once said, one has to be very strong if he wants to strike the iron. The blacksmith referred to here is the Chinese communist party. The fundamental aim of the party is to serve the people’s heart and soul. The party now has over 87 million members and unavoidably, it has problems of one kind or another. If we let these problems go unchecked we will risk losing the trust and support of the people. That is why we demand strict enforcement of party discipline as the top priority of governance. In our vigorous campaign against corruption, we have punished both tigers and flies —corrupt official — irrespective of ranking, in response to our people’s demand. This has nothing to do with power struggle. In this case, there is no House of Cards. . . .

China will keep to the path of peaceful development. We have just celebrated the 70th anniversary of the victory of the Chinese people’s resistance against Japanese aggression and the world anti-fascist war.

An important lesson history teaches us is that peaceful development is the right path, while any attempt to seek domination or hegemony through force is against the historical trend and doomed to failure.

The Chinese recognized as early as 2,000 years ago that though a country is now strong, bellicosity will lead to its ruin. China’s defense policy is defensive in nature and its military strategy features active defense. Let me reiterate here that no matter how developed it could become, China will never seek hegemony or engage in expansion.

To demonstrate our commitment to peaceful development, I announced not long ago that the size of China’s military will be cut by 300,000. China is ready to work with other countries to build a new type of international relations with win-win cooperation at its core, replacing confrontation and domination with win-win cooperation and adopting a new thinking of building partnerships so as to jointly open a new vista of common development and shared security.

As far as the existing international system is concerned, China has been a participant, builder, and contributor. We stand firmly for the international order and system that is based on the purposes and principles of the UN charter. . . .

China has benefitted from the international community and development, and China has in turn made its contribution to global development. Our Belt and Road initiative, our establishment of the Silk Road fund, and our proposal to set up the AAIB, are all aimed at helping the common development of all countries, rather than seeking some kind of spheres of political influence. The Belt and Road initiative is open and inclusive; we welcome participation of the U.S. and other countries, and international organizations.

We have vigorously promoted economic integration in the Asia Pacific and the Free Trade area of the Asia Pacific in particular because we want to facilitate the shaping of a free, open, convenient, and dynamic space for development in the Asia Pacific. We … for an outlook of common, comprehensive, cooperative, and sustainable security because we want to work with other countries in the region and the rest of the international community to maintain peace and security in the Asia Pacific.

Ladies and gentlemen, dear friends. In our Sunnylands meeting in 2013, President Obama and I reached the important agreement to jointly build a new model of major country relationship between the two countries.

This was a major strategic choice we made together on the basis of historical experience, our respective national conditions and the prevailing trend of world. Over past two years and more, the two sides have acted in accordance, with the agreement steadily moving forward by actual coordination and cooperation in various fields, and made important progress. We worked hand-in-hand to cope with aftermath of international financial crisis and promoted global economic recovery. We deepened pragmatic exchanges and cooperation in all fields, which brought about tangible benefits to the two people’s. Last year, actual trade, two-way investment stock, and total number of personnel exchanges all hit a record high. . . .

As an old Chinese saying goes, peaches and plums do not talk, yet a path is formed beneath them. These worthy fruits of cooperation across the Pacific Ocean speaks eloquently to the vitality and potential of China-U.S. relations.

This leads to the question: What shall we do to advance the new model of major country relationship between China and the U.S. from a new starting point and how we can work together to promote world peace and development. The answer is to stick to the right direction of such a new model of relationship and make gradual, solid progress.

An ancient Chinese said, after taking into account the past, the future, and the normal practices, a decision can be made.

A number of things are particularly important for our efforts. First, we must read each other’s strategic intentions correctly. Building a new model of major country relationship with the United States that features no confrontation, no conflicts, mutual respect and willing cooperation is the priority of China’s foreign policy. We want to deepen mutual understanding with the U.S. on each other’s strategic orientation and development path. We want to see more understanding and trust; less estrangement and suspicion in order to … misunderstanding and miscalculation.

We should strictly base our judgment on facts, lest we become victim to hearsay, paranoid, or self-imposed bias. … Should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves.

Second, we must firmly advance win-win cooperation. Cooperation is the only right choice to bring about benefits, but cooperation requires mutual accommodation of each other’s interest and concerns, and the quest of the great common ground of converging interest. If China and the U.S. cooperate well, they can become a bedrock of global stability and a booster of world peace. Should they enter into conflict or confrontation, it would lead to disaster for both countries and the world at large.

The areas where we should and can cooperate are very broad. For instance, we should help improve the global governance mechanism and work together to promote sustained growth of world economy and maintain stability in the global financial market.

We should conclude as soon as possible a balanced and high quality BIT, deepen the building of a new type of mill-to-mill relations, expand pragmatic cooperation on clean energy and environmental protection, strengthen exchanges in law enforcement, anti-corruption, health, and local affairs, and tap the corporation potential in infrastructural development. We should deepen communication and cooperation at the United Nations A-PEC, G-20, and other multi-electoral mechanisms, as well as our major international and regional issues and global challenges so as to make a bigger contribution to world peace, stability, and prosperity.

Third, we must manage our differences properly and effectively. As a Chinese saying goes, the sun and moon shine in different ways yet their brightness is just right for the day and night, respectively. It is precisely because of so many differences that the world has become such a diverse and colorful place, and that the need to broaden common ground and iron out differences has become so important. A perfect, pure world is non-existent, since disagreements are a reality people have to live with. China and the U.S. do not see eye to-eye on every issue and it is unavoidable that we may have different positions on some issues. What matters is how to manage the differences and what matters most is that we should respect each other, seek common ground while reserving differences, take a constructive approach to understanding … and spare no effort to turn differences into areas of cooperation.

Fourth, we must foster friendly sentiments among the peoples. People-to-people relations underpin state-to state relations. Though geographically far apart, our peoples boast a long history of friendly exchanges.

Some 230 years ago, Empress of China, a U.S. merchant ship, sailed across the vast oceans to the shores of China. Some 150 years ago, tens of thousands of Chinese workers joined their American counterparts in building the Transcontinental Pacific Railway. Some 30 years ago, China and the United States, as allies in World War II, fought shoulder-to-shoulder to defend world peace and justice. In that war, thousands of American soldiers laid down their precious lives for the just cause of the Chinese people.

We will never forget the moral support and invaluable assistance the American people gave to our just resistance against aggression and our struggle for freedom and independence. The Chinese people have always held American entrepreneurship and creativity in high regards. . . .

I believe it’s always important to make an effort to get deep a understanding of the cultures and civilizations that are different from our own. The Chinese character Ren, or people, is in a shape of two strokes supporting each other. The foundation of the China-U.S. friendship has its roots in the people and its future rests with the youth. . . .

Ladies and gentlemen. Dr. Kissinger wrote in his book, World Order, that, and I quote, each generation will be judged by whether the greatest and most consequential issues of the human condition have been faced.

And Martin Luther King said, ‘the time is always right to do the right thing. Today we have come once again to a historical juncture. Let us work together to bring about an even better future for China-U.S. relations and make an even greater contribution the happiness of our two people’s and well-being of the world.”

For the full text of President Xi’s speech, see http://www.globaltimes.cn/content/944177.shtml and http://www.chinadaily.com.cn/world/2015xivisitus/2015-09/24/content_21964069.htm To see the entire speech, go to https://www.youtube.com/watch?v=P9aQPvus8Tw.

After Seattle, President Xi flew to Washington DC.   Although Washington State is not wallowing in international trade victimhood, Washington DC is not Washington State. Just as President Xi Jinping arrived in Washington DC, John Brinkley at Forbes illustrated the hard line on China stating:

Xi Jinping In Washington: No Glad Tidings From The East

WASHINGTON — It’s hard to recall a visit to Washington by a head of state that has aroused as much apprehension and preoccupation as that of Chinese President Xi Jinping, who arrived here Thursday night.

Given the abundance of requests and demands that await him here, you might expect him to be wearing a red suit and a long white beard. But Xi has not come bearing gifts.

Issue No. 1 for the Obama administration is Chinese hacking.

China is the most prolific source of cyber-attacks against the U.S. government and business sector and it costs the U.S. economy billions of dollars every year, according to FBI Director James Comey. Xi has expressed a willingness to combat it, but he denies that his government has anything to do with it. He says China too is a victim of cyber-attacks.

Maybe so, but that’s like saying Microsoft is threatened by Atari.

Last Spring, Chinese hackers broke into the U.S. General Services Administration’s servers and stole Social Security numbers, fingerprints and other identifying data on about 4 million current and former government employees.

President Obama is incensed about this and is expected to read the riot act to Xi. Given the pervasiveness of the problem, though, even Xi’s best efforts are not going to solve it or even make a dent in it anytime soon.

China also leads the world in counterfeiting of consumer products and intellectual property theft. It accounts for 50% to 80% of all IP theft from the United States, according to the Commission on the Theft of American Intellectual Property.

Since arriving in Seattle on Tuesday, Xi has been getting an earful about this and he’ll get more when he comes to Washington, D.C.  . . .

China recently devalued its currency, the renminbi, against the dollar and that caused the American anti-trade camp to scream bloody murder. They said it was a blatant ploy to make Chinese exports to the U.S. cheaper and U.S. exports to China more expensive. A gazillion American jobs would be lost as a result.

They couldn’t have been more wrong. Xi said in a speech in Seattle on Tuesday that the renminbi had been devalued “in order to stabilize the market and contain panic in the stock market,” not to increase exports. “We are against competitive depreciation or a currency war,” he said. “We will not lower the RMB exchange rate to boost exports.” We should take him at his word.

China’s human rights performance continues to be deplorable, but Xi doesn’t seem willing to acknowledge this. His predecessors, when criticized about human rights violations, usually said: mind your own business. Xi’s rhetoric has not been much of an improvement. In Seattle, he said the government would “ensure that human rights are respected and effectively upheld.” Isn’t that comforting? . . . .

One might expect a meeting between the leaders of the world’s two largest economies to produce some tangible outcomes. Don’t bet on it. More likely, they’ll say they had “frank and fruitful” discussions, made “good progress” (isn’t all progress good?), and agreed on “a way forward.”

Making measurable progress on cyber-attacks and intellectual property theft will take years, maybe decades.

Unlike other heads of state, Xi considers his country to be America’s equal. So, he won’t be cowing to Obama or expressing contrition.

On the bright side, Xi is hell-bent on stamping out corruption in his government. That might be a better reason for hope than anything that might transpire during his two days in Washington.

For full article, see http://www.forbes.com/sites/johnbrinkley/2015/09/25/xi-jinping-in-washington-no-glad-tidings-from-the-east/.

The Brinkley Article was followed by strong US press attacks on the Cyber Agreement between the US and China. On September 26, 2015, the International New York Times in an Editorial stated as follows:

DOUBLE TALK FROM CHINA

The Xi government has a long way to go in protecting the rights of foreign companies and fighting cybercrime. . . .

Chinese officials are believed to be behind some of the .many cyberattacks against American companies and government agencies. Some of these hackers clearly work for the government and are stealing corporate secrets to help Chinese companies, American officials and cybersecurity experts say. Mr Xi’s government denies that it is involved in the attacks.

Aside from cybersecurity issues, the Xi government has also proposed regulations that could make it impossible for American technology companies to operate there. They would be forced to store data about Chinese customers in China and provide the Chinese government backdoor access to their systems and encrypted communications.

Mr. Xi and his officials need to realize that trade and investment has to be a two-way street. Many Chinese firms are trying to expand by acquiring companies, real estate and other assets in the United States and elsewhere. But if the Xi government continues to put up roadblocks to foreign companies, China cannot expect the-rest of the world to open its doors to more investment without reciprocity.

On September 27, 2015, the Wall Street Journal stated in an editorial:

The Obama-Xi Cyber Mirage

A digital arms deal that is full of promises but no enforcement.

Not long before Xi Jinping’s state visit to Washington last week, the Obama Administration leaked that it might sanction Chinese companies and individuals for digitally plundering U.S. trade secrets and intellectual property. That followed an April executive order that declared “significant malicious cyber-enabled activities” to be a “national emergency” punishable by visa bans, asset freezes and other means.

“We’re not going to just stand by while these threats grow,” one Administration official told the Washington Post at the time. “If you think you can just hide behind borders and leap laws and carry out your activities, that’s just not going to be the case.”

Well, never mind. On Friday Presidents Xi and Obama announced a new cyber-agreement that is supposed to put the unpleasantness to rest. A White House fact sheet notes that both sides agreed that “neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.”

Other steps include information exchanges; legal cooperation in investigating cybercrimes “in a manner consistent with their respective national laws”; a “high-level joint dialogue mechanism” with regularly scheduled meetings; a “hotline for the escalation of issues”; and a U.N.-influenced effort to “further identify and promote appropriate norms of state behavior in cyberspace.”

All of this is an elaborate way of saying that the two sides agreed to nothing. Though Mr. Obama hailed the deal for creating “architecture to govern behavior in cyberspace that is enforceable and clear,” it transparently is neither. Mr. Xi still insists that his government “does not engage in theft of commercial secrets in any form,” or encourage Chinese companies to do so, as he told The Wall Street Journal last week. So what’s the problem?

As for enforceability, the line about abiding by “respective national laws” gives the game away. In China the Communist Party is by definition above the law, as are the companies and entities it controls. If Mr. Xi won’t admit to the problem, his minions won’t either. Knowing this, U.S. officials will also be reluctant to disclose much of what they know about Chinese cyber-espionage abuses lest they compromise U.S. sources and methods.

All of this means the Chinese are unlikely to be deterred from engaging in the kind of cybertheft that has served them so well, such as the 2007 hack of one of the military contractors building the F-35 fighter jet, which allowed the Chinese to develop the copycat J-20 and J-31 stealth planes. Other victims of suspected Chinese cyberespionage include Canada’s once-giant Nortel Networks, which was driven into bankruptcy in 2009 partly due to the hacking, as well as media companies like Bloomberg and this newspaper.

The agreement gives Mr. Xi the opportunity to play the diplomatic games China has specialized in for years regarding the South China Sea, known to Beijing-watchers as “talk and take.” In the South China version, Beijing has become adept at negotiating endlessly with its Asian neighbors over disputed claims and codes of conduct—all while seizing control of disputed reefs, building islands, and interfering in maritime traffic. To adapt Clausewitz, diplomacy for the Chinese is the continuation of cyberespionage by other means.

The agreement also ignores China’s cyberassaults on U.S. government targets, such as last year’s mega-hack of the Office of Personnel Management. Washington may have good reasons not to codify principles that would prohibit the U.S. from responding to such an attack, but if so it would be good to know if the Administration is forgiving the OPM hack.

In his press conference with Mr. Xi, Mr. Obama said the U.S. would use sanctions and “whatever other tools we have in our tool kit to go after cybercriminals, either retrospectively or prospectively.” But nearly seven years into his Presidency, Mr. Obama isn’t famous for follow through.

The cyber accord looks like another case of Mr. Obama claiming an imaginary moral high ground that sounds tough but is likely to be unenforceable. Expect more digital theft until Beijing pays a price for it, presumably in a future U.S. Administration.

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 1 hour 8 minutes to 10 minutes.

In response to a 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. This illustrates the hypocrisy of much of the political attacks on China regarding cyber-attack on OPM, which are based on incorrect definitions as set down by the US government itself.

Senator McCain stated that he was astonished by Director Clapper’s statements. What is astonishing is the at Senior Senators, such as John McCain, which have engaged in relentless attacks on China, do not know the specific policy of the United States government.

During the same hearing, in response to questions from Senator Hirano of Hawaii, Administration officials stated that the Cyber Agreement with China will be very helpful if the Chinese government live up to it. As Senator Hirano stated, now we have an agreement between the US and China to talk about it. The officials stated that the Agreement is a confidence building measure because it requires annual meetings at the very high ministerial level between the United States and China at which the US Attorney General and Head of Homeland Security will participate. In other words, according to Administration officials this is a good first step.

What does this mean? It means that the US government never asked China for a comprehensive agreement to stop cyber hacking, because the US government is engaged in cyber espionage too and “we are pretty good at it. . . . People in glass houses…”. The US government may have already hacked the Chinese government and obtained all the personal information on their government workers. We simply do not and cannot know.

But more importantly, the US government did not request the Chinese government to agree to stop all cyber-attacks on the US government. What the US Government did demand on the threat of economic sanctions was for the Chinese government to stop cyber-attacks on commercial interests, including the theft of intellectual property. The Chinese government agreed, not only because of the threats of economic sanctions but also because they realize how important the US China economic/trade relationship is for China, the Chinese people and the entire World. This Agreement is not just a President Xi face saving gesture. The Chinese government and people understand how important the US China economic relationship is, even if many in the US Congress and US government do not understand the reality of the situation.

What did the Chinese government specifically agree to do on Cyber crime?

As the attached September 25, 2015 White House Fact Sheet Press related to President Xi’s visit,FACT SHEET_ President Xi Jinping’s State Visit to the United States _ whiteh , states:

FACT SHEET: President Xi Jinping’s State Visit to the United States

On September 24-25, 2015, President Barack Obama hosted President Xi Jinping of China for a State visit. The two heads of state exchanged views on a range of global, regional, and bilateral subjects. President Obama and President Xi agreed to work together to constructively manage our differences and decided to expand and deepen cooperation in the following areas: . . .

  • Cybersecurity

The United States and China agree that timely responses should be provided to requests for information and assistance concerning malicious cyber activities. Further, both sides agree to cooperate, in a manner consistent with their respective national laws and relevant international obligations, with requests to investigate cybercrimes, collect electronic
evidence, and mitigate malicious cyber activity emanating from their territory. Both sides also agree to provide updates on the status and results of those investigation to the other side, as appropriate.

o The United States and China agree that neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.

o Both sides are committed to making common effort to further identify and promote appropriate norms of state behavior in cyberspace within the international community. The United States and China welcome the July 2015 report of the UN Group of Governmental Experts in the Field of Information and Telecommunications in the Context of
International security, which addresses norms of behavior and other crucial issues for international security in cyberspace. The two sides also agree to create a senior experts group for further discussions on this topic.

o The United States and China agree to establish a high-level joint dialogue mechanism on fighting cybercrime and related issues. China will designate an official at the ministerial level to be the lead and the Ministry of Public Security, Ministry of State Security, Ministry of Justice, and the State Internet and Information Office will participate in the dialogue. The U.S. Secretary of Homeland Security and the U.S. Attorney General will co-chair the dialogue, with participation from representatives
from the Federal Bureau of Investigation, the U.S. Intelligence Community and other agencies, for the United States. This mechanism will be used to review the timeliness and quality of responses to requests for information and assistance with respect to malicious cyber activity of concern identified by either side. As part of this mechanism, both sides agree to establish a hotline for the escalation of issues that may arise in the course of responding to such requests. Finally, both sides agree that the first
meeting of this dialogue will be held by the end of 2015, and will occur twice per year thereafter.

The fact sheet lists other very important areas for further cooperation and discussion, including Nuclear Security, Strengthening Development Cooperation, 2030 Agenda for Sustainable Development. Food Security, Public Health and Global Health Security, and Humanitarian Assistance and Disaster Response. In addition, with regards to Strengthening Bilateral Relations, China and the United States agreed specifically with regard to Military Relations:

Building on the two Memoranda of Understanding on Confidence Building Measures (CBMs) signed by the United States and China in November 2014, the two sides completed new annexes on air-to-air safety and crisis communications. The two sides committed to continue discussions on additional annexes to the Notification of Major Military Activities CBM, with the United States prioritizing completion of a mechanism for informing the other party of ballistic missile launches. The U.S. Coast Guard and the China Coast Guard have committed to pursue an arrangement whose intended purpose is equivalent to the Rules of Behavior Confidence Building Measure annex on surface-to-surface encounters in the November 2014 Memorandum of Understanding between the United States Department of Defense and the People’s Republic of China Ministry of National Defense.

In other words, in distinct contrast to Russia, the Chinese government agreed to hold periodic high level meetings at the ministerial level to discuss cyber- crime and military issues with the United States. Does this sound like a country that wants to invade other countries and follow Vladimir Putin in a military expansion?

EXIM BANK MAY RISE FROM THE DEAD THROUGH AN EXTRAORDINARY MEASURE IN THE HOUSE OF REPRESENTATIVES

On October 9, 2015, Republican House Members took a drastic measure filing a discharge petition to fast-track the EX-Im Bank bill to the floor of the US House. The EX-Im Bank provides export financing and credit terms to help US companies export products to other countries. The help provided by the EX-Im Bank is mirrored by export financing and credit terms provided by numerous foreign countries, including the EC, Japan, Korea and China.

To save the Ex-Im Bank, 50 Republicans in the House joined with almost the entire Democratic Caucus to file the discharge petition. This rarely used procedural mechanism allows Representatives in the House to bypass both committees and the leadership to call up legislation signed by a majority of the House. This is procedural measure in the House that was last executed 13 years ago and only five times in the last eight decades.

Congressman Denny Heck of Washington State that led the charge on the Democratic side and is a member of the New Democratic Coalition stated, “This is a once-in-a-generation thing.”

Since 218 members signed the petition, that means a majority of Congressmen support the bill and it should pass on October 26.

Once the Bill passes the House, however, it still has to jump over hurdles in the Senate, which has no equivalent process to quickly force a vote in the upper chamber. Although some have speculated that the Senate will not bring up the bill because Republican Senate Majority leader Mitch McConnell does not personally support the bill, McConnell has also stated that he knows that a majority of the Senators that support the Ex-Im Bank have the votes to pass the bill. In fact, the passage of the TPA through the Senate happened only because Washington State Democratic Senators Patty Murray and Maria Cantwell along with Republican Senator Lindsay Graham obtained an agreement from Mitch McConnell for a vote on the Senate floor on Ex-Im bank in exchange for their vote on TPA. Once bipartisan majorities are established in both the House and Senate, final passage should be only a matter of time.

The broader significance of the move is that dozens of House Republicans dared to try it at all and push back the conservative Republicans, who for purist free market ideological reasons have blocked the EX-Im bank.

The little-known lending agency has long supported U.S. jobs by helping companies find markets overseas, but conservatives have turned its demise into a rallying cry against corporate welfare. Jeb Hensarling, the Republican chairman of the Financial Services and Ohio Congressman, has made it a personal mission to kill the bank.

As the three Republican members that led the discharge movement, Stephen Fincher, R-Tenn., Adam Kinzinger, R-Ill., and Chris Collins, R-N.Y., stated that they simply had no choice but to pursue the drastic parliamentary move:

“This Republican-led petition is a procedure to stand up to Washington’s broken system that is killing thousands of American jobs and jeopardizing thousands more. Our constituents expect us to fight for them and get the job done, but Congress has failed to even hold a vote to reform and reauthorize the Ex-Im Bank.”

Republican and Democratic Representatives have been under intense pressure from business groups complaining that the expiration of the bank’s charter has resulted in job losses for companies big and small.

It is ironic that a Congressman from Ohio, which is hurting for manufacturing and other jobs, is the one leading the charge to stop the Ex-Im Bank, which will result in thousands of jobs leaving the United States.

Because of the failure to authorize the Ex-IM Bank and its U.S.-based export credit financing, General Electric Co. stated that it would be forced to move 500 turbine manufacturing jobs to China and Europe. The failure to reauthorize the Ex-Im Bank may also explain Boeing’s recent announcement to assemble airplanes in Tianjin, China.

Ideological purity, just like protectionism, destroys jobs in the United States. Just because a Conservative minority with an ideological purity agenda decides the United States should not provide such export financing does not mean that the EC, China, India, Japan, Korea and other countries will make the same decision. A decision not to authorize the Ex-Im Bank simply makes the United States not competitive with other countries. Just as US companies must meet the challenges of global competition so must the United States Government.

TRADE

WTO GIVES UNITED STATES DEADLINE TO SOLVE CVD PROBLEM IN MANY CASES AGAINST CHINA

On October 9, 2015, the World Trade Organization (“WTO”) gave the US government an April 1, 2016 deadline to comply with a WTO decision overturning 17 US countervailing duty determinations against China, including cases against Solar Cells and Solar Products, Wind Towers, Oil Country Tubular Goods, and other Steel cases. The Arbitrator specifically stated:

In the light of the … considerations relating to the quantitative and qualitative aspects of implementation in the present case, and the margin of flexibility available to the implementing member within its legal system, the arbitrator considers that the particular circumstances of this case justify a reasonable period of time for implementation close to the 15-month guideline.

The WTO overturned the Commerce Department CVD decisions on several grounds, but one of the more important was the decision/presumption that Chinese state-owned companies enterprises are “public bodies” under WTO rules. Therefore, according to Commerce, when a Chinese company purchases a raw material input from such state-owned company, by definition the product is subsidized. In contrast, the WTO ruled that the key criterion for evaluating public bodies is not state ownership but whether the entities in question have the authority to carry out governmental functions.

The WTO panel decision in its July 2014 decision found the US Commerce Department in violation of the Subsidies Agreement based on several different principles, including State-Owned Companies and the failure to consider benchmarks in China to value the subsidy. The US appealed, but the WTO Appellate Panel not only affirmed the panel report, but found many other problems with the Commerce Department determinations

On determining the time for Commerce to comply with the WTO determinations, the WTO arbitrator did not have much sympathy for the Commerce Department argument that it should be given more time to comply with the determination, stating:

It is to be recalled that the implementing member is expected to use all available flexibilities within its legal system to ensure ‘prompt compliance’ with the DSB’s recommendations and rulings. Prioritizing these investigations reflects the exercise of a flexibility that is available to the USDOC and which it is expected to utilize.

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.

THE OCTG STEEL STORY — COURT OF INTERNATIONAL TRADE OVERTURNS COMMERCE OCTG DETERMINATION AGAINST KOREA

One of the more interesting cases is the appeal of the Commerce Department’s determination against Korea in the Oil Country Tubular Goods (“OCTG”) case. The OCTG story starts with the US OCTG industry along with the union bringing an antidumping case against China. Since Commerce does not real use real numbers in China cases, it was easy to wipe out $4 billion in Chinese imports by using import statistics in India as surrogate values and coming up with rates ranging from 32 to almost 100%. The Chinese left the US market because of the artificial antidumping rates.

The US Steel Industry and the Union assumed that US companies would get the Chinese tonnage that was blocked by the Commerce Department order and, of course, that is not what happened. Instead, OCTG producers in Korea, India, Taiwan, Philippines, Saudi Arabia, Ukraine, Thailand and Turkey replaced the Chinese. Saying that this was unfair and accusing the other companies of dumping, in 2013 the US OCTG industry and Steel Union brought another round of antidumping and countervailing duty cases against these countries.

But since the countries are market economy countries, the Commerce Department had to use real prices and costs in the countries in question to determine whether dumping is taking place. So what were the Antidumping rates in the attached February 2014 preliminary determination fact sheet, OCTG PRELIMINARY AD DETERMINATION FACT SHEET,  in the new round of OCTG cases—Korea 0%, India 0% for the company that cooperated, Philippines 8.9%, Saudi Arabia 2.92%, Taiwan 0 and 2.65%, Thailand 118% because they did not cooperate, Turkey 0% and 4.87%, Ukraine 5.31%, and Vietnam 9.57%.

The OCTG case against Korea, in particular, was a very difficult problem for the US Steel industry and Union because if the 0% Korean Preliminary Determination had remained, no antidumping order would be issued against Korean OCTG and they would have been free to continue shipping substantial quantities to the US market. Moreover, the Korean producers were the ones that took most of the Chinese market share.

In looking at these rates, however, one has to keep these cases in perspective. The first OCTG case against Korea was filed in 1983 to 1984. How do I know, because the first OCTG cases were my cases as a line attorney at the US International Trade Commission. The point is that market economy companies can use computer programs to run their prices and costs and make sure they are not dumping and “dump proof” the company. Since the Korean steel companies know that they will be targeted with these cases, this is just what they did.

This is not gaming the system. The Antidumping and Countervailing are unfair trade statues, and the companies simply eliminated their unfair acts.

As a result of the February 2014 preliminary determinations, predictably the US OCTG Industry and Union were outraged and went to Congress. On June 25, 2014 at a hearing in front of the Senate Finance Committee, the most powerful trade committee in the US Congress, the Industry and Union screamed about unfairness. See http://www.finance.senate.gov/hearings/hearing/?id=e2227102-5056-a032-5262-9d177c5f753f Move the buffering slider to minute 41 when the hearing starts. There is a recess in the hearing so you need to move the buffering slider to 1 hour 47 minutes when the hearing resumes.

During the Senate Finance Committee hearing, Senators called for aggressive trade enforcement in antidumping and countervailing duty cases, including Steel and in particular Oil Country Tubular Goods (“OCTG”), and against China. The Senators described the importance of the legislation they have introduced to stop transshipment and make sure that antidumping and countervailing duty laws are enforced.

The two most prominent witnesses at the Senate Finance Committee were Leo Gerard, International President of the United Steel Workers, and Mario Longhi, President of the United States Steel Corporation. Mr. Gerard proudly claimed at the hearing that the USW has brought antidumping and countervailing duty cases blocking billions of dollars in imports from China.

The hearing was stacked with US producers and a union complaining about China and other countries. No US importers were allowed to testify and present the other side of the argument. When Congress decides to listen to only one side of the trade argument, there is no fair and balanced portrayal of trade problems. The trade war simply gets worse and everyone loses.

At the hearing, Leo W. Gerard, International President, United Steelworkers (“USW”), stated:

USW members and non-union workers alike know firsthand the pain inflicted by foreign predatory, protectionist and unfair trade practices. In industry after industry, they have seen other nations target the U.S. market to fuel their own economic policies, to create jobs for their people and capture the dollars of our consumers. These practices have increasingly resulted in the downsizing of manufacturing and the loss of good family supportive jobs, as companies have offshored and outsourced their production.

The USW has been as successful as it can be in its efforts to counter unfair trade, but it’s a losing game. Indeed, the only way we win is by losing. Lost profits, lost jobs, closed factories, hollowed out communities – that is the price the trade laws demand to show sufficient injury to provide relief. In the year or more it takes to bring a trade case and obtain relief, foreign companies can continue to flood the market. By the time that relief may be provided, the industry is often a shadow of its former self, too many workers have lost their jobs and their families and the communities in which they live have paid a heavy, and often irrevocable, price. . . .

First, as many of the Members of the Committee know, the USW is fighting to ensure that the Department of Commerce carefully review the facts in the Oil Country Tubular Goods (OCTG) case in which they issued a preliminary finding that imports from South Korea would not be subject to dumping margins. We believe this preliminary finding is flawed. Indeed, Senators sent a letter to the Administration asking for a careful review and that effort was mirrored by more than one-third of the House joining in that call. . . .

The second issue, and a critical one, is the issue of currency manipulation. China is the worst culprit, but other nations are following their lead. China has been able to essentially subsidize its exports and tax imports into its market through currency cheating.

Mario Longhi, President, United States Steel Corporation, stated:

. . . . The approach and manner in which foreign companies are dumping thousands of tons of products into the U.S. market leads business leaders such as me to conclude that American steel companies are being targeted for elimination. . . .

Let me illustrate for you how this harm occurs. . . . A year ago, U. S. Steel and other domestic Oil Country Tubular Goods (OCTG) producers filed a trade case against nine countries based on the enormous 113-percent increase of imported OCTG products into this market between 2010-2012. Primarily South Korean companies are the main violators, but companies from India, Vietnam, Turkey and several other countries also dump very significant volumes. . . .

China tried to do the same thing in 2008. We fought and won an OCTG dumping case in 2009, but not before many facilities were idled, thousands of steelworkers lost their jobs, and our communities and our families sustained significant and long-lasting injury.

After we won the case, Chinese producers essentially abandoned the U.S. OCTG market, a clear sign that they could not compete when the playing field was leveled.

As the American economy and our energy demands rebounded, American steel companies spent billions of dollars to improve OCTG facilities across the country. In the past 5 years, U. S. Steel spent more than $2.1 billion across our facilities, $200 million on new facilities at our Lorain Tubular Operations in the last two years alone. However, the respite for the OCTG industry from illegally dumped products was short-lived. Foreign producers quickly seized this opportunity and began flooding our market.

The only difference between 2009 and today is that South Korean and other foreign OCTG producers are cleverer. South Korean companies are effectively targeting our market since they do not sell this product in their own home market or (in substantial volumes) to other nation. Over 98% of what is produced in South Korea is exported directly to the U.S.

Earlier this year, the Department of Commerce issued disappointing preliminary findings that failed to recognize and punish illegally dumped South Korean products. After decades of dumping practice, it appears that these companies have learned to circumvent our trade laws and illegally dump massive amounts of steel products in this market with ease and agility.

So it is not surprising that in advance of the impending final decision by the Department of Commerce, last month, the total OCTG imports hit a high of 431,866 net tons, a 77.4% percent change year/year. The South Koreans exported to the U.S. nearly 214,000 net tons of OCTG in May, an increase from the monthly average of 27,000 net tons in the prior 12 months. They are trying to dump as much product as they can before the final ruling.

The South Korean gamesmanship of our system of laws is disquieting. Their efforts are unchecked and repugnantly effective. . . .

So with enormous Congressional pressure on Commerce, in the final determination the rates for the Korean companies went to 9 to 15%. The only problem for US Steel and the Unions is that Commerce Department determinations can be appealed to the Court of International Trade. It is now clear that the only one who gamed the US trade laws was US Steel itself.

In the attached final determination, factsheet-multiple-octg-ad-cvd-final-071114, to push Korean antidumping rate up, instead of using the actual lower profit rates for Korean OCTG producers and Korean sales of other comparable steel products of about 5 to 6%, which Commerce used in the preliminary determination, Commerce used a 26.11% profit for Tenaris, SA (Tenaris), an Argentinian global producer and seller of OCTG, as described in a research paper prepared by a student at the University of Iowa School of Management. Sounds reasonable right?

On September 2, 2015, in the attached Hu Steel v. United States and US Steel et al., CIT KOREA OCTG, Judge Restani in the Court of International Trade reversed the Commerce Department’s determination in the OCTG from Korea case. Judge Restani first noted:

When using constructed value to calculate the normal value, the constructed value is to include “the actual amounts incurred and realized by the specific exporter or producer being examined . . . for selling, general, and administrative expenses, and for profits, in connection with the production and sale of a foreign like product, in the ordinary course of trade, for consumption in the foreign country.” 19 U.S.C. § 1677b(e)(2)(A). If such data is unavailable, however, Commerce must resort to one of three alternatives for calculating an appropriate amount for selling, general, and administrative expenses, and profits:

(i) the actual amounts incurred and realized by the specific exporter or producer being examined in the investigation or review for selling, general, and administrative expenses, and for profits, in connection with the production and sale, for consumption in the foreign country, of merchandise that is in the same general category of products as the subject merchandise,

(ii) the weighted average of the actual amounts incurred and realized by exporters or producers that are subject to the investigation or review (other than the exporter or producer described in clause (i)) for selling, general, and administrative expenses, and for profits, in connection with the production and sale of a foreign like product, in the ordinary course of trade, for consumption in the foreign country,
or

(iii) the amounts incurred and realized for selling, general, and administrative expenses, and for profits, based on any other reasonable method, except that the amount allowed for profit may not exceed the amount normally realized by exporters or producers (other than the exporter or producer described in clause (i)) in connection with the sale, for consumption in the foreign country, of merchandise that is in the same general category of products as the subject merchandise, [i.e., what is commonly referred to as the “profit cap.”] . . . .

For the Preliminary Determination, Commerce considered three possible options for CV profit: . . . “[(1)] the 5.3% profit reflected in the audited financial statements for seven Korean OCTG producers, [(2)] the profit earned by HYSCO on its home market sales of non-OCTG pipe products, and [(3)] the 26.11% profit for Tenaris, SA (Tenaris), an Argentinian global producer and seller of OCTG,” as described in a research paper prepared by a student at the University of Iowa School of Management.

The Court noted that the domestic industry’s petition itself used a profit number of 7.19 and 7.22%

Judge Restani went to state that US Steel, in effect, gamed the system because it submitted the Tenaris number in the Iowa Student study after the preliminary determination during the final investigation in such a way that the Korean producers could not provide alternative evidence to rebut the Tenaris number:

In conclusion, the court determines that this was not a simple technical violation that can be overlooked, but rather plaintiffs were substantially prejudiced by Commerce’s acceptance and use of U.S. Steel’s untimely submitted new factual information. On remand, Commerce may simply remove this information from the record and reconsider its CV profit determination based on the information that was submitted in accordance with the regulatory deadlines.

Alternatively, Commerce must determine if and how, at this late date, the prejudice caused by accepting the Tenaris financial statement in violation of the regulations can be rectified.

In a footnote, Judge Restani also stated:

Moreover, this appears to be the first time that Commerce had relied upon a CV profit source that was not based on either production or sales in the home market. . . . The court recognizes that Commerce might have legitimate justifications for this departure, but it does not change the fact that Commerce used data that was submitted late to come to a conclusion that was seemingly at odds with its prior practice, with the result being a large increase in the respondents’ dumping margins sufficient to support an order. This is a make or break issue and Commerce should do its utmost to be fair in such circumstances.

Finally Judge Restani also reversed the Commerce Department because it refused to consider the “Profit Cap” in the statute which limits the profit amount so as not to “exceed the amount normally realized by exporters or producers (other than the exporter or producer described in clause (i)) in connection with the sale, for consumption in the foreign country . . . .” Judge Restani stated:

Even when the record evidence is deficient for the purposes of calculating the profit cap, Commerce must attempt to calculate a profit cap based on the facts otherwise available, and it may dispense with the profit cap entirely only if it provides an adequate explanation as to why the available data would render any cap based on facts available unrepresentative or inaccurate.

The use of an appropriate profit cap seems especially important in this case. The goal in calculating CV profit is to approximate the home market profit experience of the respondents. . . . The profit data imbedded in Tenaris’s financial statement does not appear to be based on any sales or production in Korea. It therefore appears to be a relatively poor surrogate for the home market experience. Additionally, record evidence suggests that Tenaris is a massive producer of OCTG with production and associated services around the world. . . . Record evidence also suggests that Tenaris’s profits are among the highest in the world and that this profit figure is due in large part to Tenaris’s sales of unique, high-end OCTG products and global services. . . .

The Korean producers, on the other hand, appear to be rather modest in comparison, both in the size of their operations and in the products and services they offer. . . . As Commerce recognized in the preamble to its own regulations, “the sales used as the basis for CV profit should not lead to irrational or unrepresentative results.” . . . It appears that dispensing with the profit cap requirement entirely in this case could run the risk that the CV profit rate will be unrepresentative of the respondents’ expected home market experience.

This case is a major defeat for the US Steel industry. We still have to wait and see what Commerce does on remand but if they do what they did in the original preliminary determination, the antidumping order will be lifted on OCTG from Korea.

WELDED LINE PIPE FROM KOREA AND TURKEY

On October , 2015, in the attached fact sheet, factsheet-multiple-welded-line-pipe-ad-cvd-final-100615, the Commerce Department announced the preliminary determination in Welded Line Pipe from Korea and Turkey. The Antidumping rates for the Korean companies range from 2.53% to 6.19%. The antidumping rates for Turkey range from 6 to 22.9%.

Commerce also terminated the Countervailing Duty investigation against Korea because it found the subsidies were de minimis.

COLD ROLLED STEEL PRODUCTS FROM BRAZIL, CHINA, INDIA, JAPAN, KOREA, RUSSIA AND UNITED KINGDOM

On September 10, 2015, the US International Trade Commission (“ITC”) issued a preliminary affirmative injury determination and now the case continues at the Commerce Department.

OTHER TRADE CASES AGAINST CHINA

ACTIVATED CARBON

On October 2, 2015, the Commerce Department issued the attached final determination in the 2013 to 2014 antidumping review investigation. Activated Carbon 13-14 AR Decision Memo Final Results AD AR 10-2-15 Activated Carbon 13-14 AR Final Results AD AR 10-5-15 The Antidumping Rates range from 0% to $1.05 a kilogram and increased because Commerce switched surrogate countries from Philippines to Thailand.

SOLAR CELLS

Although there are rumbles of possible negotiations of a US China agreement on Solar Cells and Solar Product, there is no concrete evidence of an actual agreement yet.

As stated before, the real victims of US China Trade War and Antidumping and Countervailing Duty cases are upstream and downstream US producers. Of the approximately 130 antidumping and countervailing duty orders against China, approximately 80 of them are raw material inputs, such as chemicals, metals and steel.

In the Solar Cells/Solar Products case, the real victims are the upstream producers, world class US producers of polysilicon, which goes into Chinese and other solar cells. Because, as President Reagan predicted, China reacted to the US Solar Cells/Solar Products cases by bringing their own case against $2 billion in US exports of polysilicon, major US producers, such Dow and REC Silicon, are in serious trouble.

On September 23, 2015, the Montana Standard reported that REC Silicon in Moses Lake, Washington may have to close its production facility:

REC Silicon — which has a production plant near Butte — could lay off 400 workers at its plant in Moses Lake, Washington, if a snarl over Chinese-imposed tariffs isn’t resolved soon.

It’s unclear exactly how the Moses Lake layoff would affect the Butte REC plant, which employs 260 full-time workers about five miles southwest of town. But a company spokeswoman said Moses Lake will “likely” suffer the majority of cuts, if it comes to that.

The potential cuts — and possible shut-down of the Moses Lake plant — are due to a four-year solar trade dispute between China and the United States.

In the Article, Francine Sullivan, REC counsel and vice president of legal and business development, stated:

There are no confirmed layoffs in Butte. “It’s not a shut-down notice, but if the trade case continues, we may be forced to close down Moses Lake. We haven’t made a final decision about Moses Lake. . . . putting the Moses Lake plant at risk because 80 percent of the plant’s polysilicon goes to customers in China.

Tore Torvund, REC Silicon CEO stated that they were looking for a US China Solar agreement every day:

We are at a critical juncture. We are looking at this every day. If we can’t get a resolution in the short term, we will be faced with this tough decision.”

Sullivan further stated:

It’s logical that most of the costs will come out of Moses Lake. We’ll look to do anything we can to keep the plant alive.

BOLTLESS STEEL SHELVING

On October 21, 2015, Commerce published in the Federal Register the attached antidumping and countervailing duty orders in the Boltless Steel Shelving Units from China case, STEEL SHELVING AD ORDER STEEL SHELVING CVD ORDER.

PET RESIN FROM CHINA

In the attached fact sheet, PET RESIN PRELIM CHINA, the Commerce Department issued a preliminary determination in Certain Polyethylene Terephthalate Resin from China and a number of other countries. Although the antidumping rates for the other countries were in the single digits, based on surrogate values from import statistics in Thailand, the Commerce Department found antidumping rates ranging from 125.12 to 145.94% for the Chinese companies.

In deciding to use Thailand as the surrogate country, Commerce looked at a list of the following potential surrogate countries: Bulgaria, Ecuador, Romania, South Africa, Thailand, and Ukraine.

OCTOBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On October 1, 2015, Commerce published the attached Federal Register notice, OCT REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Barium Carbonate, Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers.

For those US import companies that imported Barium Carbonate, Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers from China during the antidumping period October 1, 2014-September 30, 2015 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. In the recent Solar Cells 2012-2013 final review determination, for example, the following Chinese companies were determined to no longer be eligible for a separate antidumping rate and to have the PRC antidumping rate of 238.95%:

(1) Shanghai Suntech; (2) Wuxi Sunshine; (3) Changzhou NESL Solartech Co., Ltd.; (4) CSG PVTech Co., Ltd.; (5) Era Solar Co., Ltd.; (6) Innovosolar; (7) Jiangsu Sunlink PV Technology Co., Ltd.; (8) Jiawei Solarchina Co., Ltd.; (9) Jinko Solar Co., Ltd.; (10) LDK Solar Hi-tech (Suzhou) Co., Ltd.; (11) Leye Photovoltaic Science Tech.; (12) Magi Solar Technology; (13) Ningbo ETDZ Holdings, Ltd.; (14) ReneSola; (15) Shanghai Machinery Complete Equipment (Group) Corp., Ltd.; (16) Shenglong PV-Tech; (17) Solarbest Energy-Tech (Zhejiang) Co., Ltd.; (18) Suzhou Shenglong PV–TECH Co., Ltd.; (19) Zhejiang Shuqimeng Photovoltaic Technology Co., Ltd.; (20) Zhejiang Xinshun Guangfu Science and Technology Co., Ltd.; (21) Zhejiang ZG-Cells Co., Ltd.; (22) Zhiheng Solar Inc.; and (23) LDK Hi-Tech (Nanchang Co., Ltd.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On July 30, 2015, OFAC issued an Advisory, entitled “Obfuscation of Critical Information in Financial and Trade Transactions Involving the Crimea Region of Ukraine,” to call attention to practices that have been used to circumvent or evade the Crimean sanctions. While billed as an “Advisory,” the agency’s release stands as a warning to the financial services and international trade sectors of their obligation to implement adequate controls to guard against such evasive practices and ensure compliance with their obligations under the Crimean sanctions.

On May 21, 2015, the Commerce Department filed changes to the export rules to allow unlicensed delivery of Internet technology to Crimea region of Ukraine, saying the change will allow the Crimean people to reclaim the narrative of daily life from their Russian occupants. Under a final rule, which is attached to my blog, www.uschinatradewar.com, individuals and companies may deliver source code and technology for “instant messaging, chat and email, social networking” and other programs to the region without first retaining a license from the federal government, according to Commerce’s Bureau of Industry and Security.

Commerce stated:

“Facilitating such Internet-based communication with the people located in the Crimea region of Ukraine is in the United States’ national security and foreign policy interests because it helps the people of the Crimea region of Ukraine communicate with the outside world.”

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached to my blog are copies of the PowerPoint or the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. In addition, the blog describes the various sanctions in effect against Russia.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank. The “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions can be found at www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx.

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which is attached to my blog, which President Obama signed into law on December 19, 2014. Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

“At this time, the Administration does not intend to impose sanctions under this law, but the Act gives the Administration additional authorities that could be utilized, if circumstances warranted.”

The law provides additional military and economic assistance to Ukraine. According to the White House, instead of pursuing further sanctions under the law, the administration plans to continue collaborating with its allies to respond to developments in Ukraine and adjust its sanctions based on Russia’s actions. Apparently the Administration wants its sanctions to parallel those of the EU. As President Obama stated:

“We again call on Russia to end its occupation and attempted annexation of Crimea, cease support to separatists in eastern Ukraine, and implement the obligations it signed up to under the Minsk agreements.”

Russia, however responded in defiance with President Putin blasting the sanctions and a December 20th Russian ministry statement spoke of possible retaliation.

One day after signing this bill into law, the President issued an Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (the “Crimea-related Executive Order”). President Obama described the new sanctions in a letter issued by the White House as blocking:

New investments by U.S. persons in the Crimea region of Ukraine

Importation of goods, services, or technology into the United States from the Crimea region of Ukraine

Exportation, re-exportation, sale, or supply of goods, services, or technology from the United States or by a U.S. person to the Crimea region of Ukraine

The facilitation of any such transactions.

The Crimea-related Executive Order also contains a complicated asset-blocking feature. Pursuant to this order, property and interests in property of any person may be blocked if determined by the Secretary of the Treasury, in consultation with the Secretary of State, that the person is operating in Crimea or involved in other activity in Crimea.

The EU has also issued sanctions prohibiting imports of goods originating in Crimea or Sevastopol, and providing financing or financial assistance, as well as insurance and reinsurance related to the import of such goods. In addition, the EU is blocking all foreign investment in Crimea or Sevastopol.

Thus any US, Canadian or EU party involved in commercial dealings with parties in Crimea or Sevastopol must undertake substantial due diligence to make sure that no regulations in the US or EU are being violated.

CUSTOMS, LACEY ACT VIOLATIONS AND PRODUCTS LIABILITY

JUSTICE DEPARTMENT ANNOUNCES THAT LUMBER LIQUIDATORS PLEADS GUILTY TO CUSTOMS AND LACEY ACT VIOLATIONS AND AGREES TO PAY MORE THAN $13 MILLION IN FINES

On October 22, 2015, the Justice Department announced that Lumber Liquidators has pled guilty to a felony conviction for import of illegal timber from China and agreed to pay at $13 million penalty, the largest fine ever under the Lacey Act. In the attached announcement, Lumber Liquidators Inc. Pleads Guilty to Environmental Crimes and Agrees to, the Justice Department states:

Virginia-based hardwood flooring retailer Lumber Liquidators Inc. pleaded guilty today in federal court in Norfolk, Virginia, to environmental crimes 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. . . .

Lumber Liquidators was charged earlier this month 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. The charges describe Lumber Liquidators’ use of timber that was illegally logged in Far East Russia, as well as false statements on Lacey Act declarations which obfuscated the true species and source of the timber. 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.

“Lumber Liquidators’ race to profit resulted in the plundering of forests and wildlife habitat that, if continued, could spell the end of the Siberian tiger,” said Assistant Attorney General John C. Cruden for the Justice Department’s Environment and Natural Resources Division. “Lumber Liquidators knew it had a duty to follow the law, and instead it flouted the letter and spirit of the Lacey Act, ignoring its own red flags that its products likely came from illegally harvested timber, all at the expense of law abiding competitors. Under this plea agreement, Lumber Liquidators will pay a multi-million dollar penalty, forfeit millions in assets, and must adhere to a rigorous compliance program. We hope this sends a strong message that we will not tolerate such abuses of U.S. laws that protect and preserve the world’s endangered plant and animal species.” . . .

“Companies knowingly accepting illegally sourced materials need to recognize there are far-reaching consequences to their actions,” said Special Agent in Charge Clark E. Settles of U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) Washington, D.C. “In this case, in addition to violating U.S. customs law, Lumber Liquidators contributed to the potential eradication of an endangered species simply to increase profit margins.” . . . .

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.

For example, Lumber Liquidators employees were aware that timber from the Russian Far East was considered, within the flooring industry and within Lumber Liquidators, to carry a high risk of being illegally sourced due to corruption and illegal harvesting in that remote region. Despite the risk of illegality, Lumber Liquidators increased its purchases from Chinese manufacturers using timber sourced in the Russian Far East. . . .

Under the plea agreement, Lumber Liquidators 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.

IP/PATENT AND 337 CASES

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

On August 21, 2015, Lusida Rubber Products, Inc. filed the attached trade secret unfair competition case against Point Industrial, LLC, Zu Guo 16 (Michael) Xu, Wei Wei (Jackie). Lusida Shanghai complaint

On August 28, 2015, Willis Electric Co., Ltd. filed the attached patent case against Polygroup Limited (Macao Commercial Offshore), Polygroup Macau Limited (BVI), and Polytree (H.K.) Co. Ltd. POLYGROUP

On September 8, 2015, Blizzard Entertainment, Inc., and Valve Corporation filed the attached copyright case against Lilith Games (Shanghai) Co. Ltd., uCool, Inc., and uCool Ltd. BLIZZARD COPYRIGHT

On September 11, 2015, Segway Inc., Deka Products Limited Partnership and Ninebot (Tianjin_ filed the attached patent complaint against Inventist, Inc. Segway v Inventist complaint

ANTITRUST

There have been developments in the antitrust area.

CHINA ANTI-MONOPOLY CASES

T&D JANUARY REPORT

In September and October T&D also sent us their attached August and September reports on Chinese competition law, T&D Monthly Antitrust Report of August 2015 TD Monthly Antitrust Report of September 2015.

SECURITIES

Securities Update October 2015

Recent Developments in Chinese Reverse Mergers and Corporate Governance

A decade after the heyday of “reverse mergers” of Chinese companies who entered the U.S. securities market through U.S. registered companies, some of these deals are beginning to unravel. There are recent federal enforcement actions and prosecution of some key persons who arranged such deals. The U.S. government alleges that the participants violated U.S. securities law by engaging in practices that misrepresented the actual value of the company’s stocks and personally profiting from such practices.

On September 10, 2015, the U.S. Attorney’s Office in Manhattan announced criminal charges against Benjamin Wey, a New York-based financier.[1] Wey gained a reputation for orchestrating reverse mergers of Chinese companies with publicly traded companies in the United States in order to sell securities in the United States. The charges against Wey include wire fraud, securities fraud, and money laundering. Wey allegedly conspired with family members and a Swiss stock broker to control large blocks of stocks in companies that he helped to engage in reverse mergers from 2007 to 2011. He allegedly manipulated the prices of those stocks in order to sell his shares at a significant profit. U.S. federal agents arrested Wey during a dawn raid on his home, and he posted bail for $10 million, secured in part by his $2 million house.

Also on September 10, 2015, the U.S. Securities and Exchange Commission (SEC) issued an order against Shawn A. Becker, an unlicensed broker who participated in the reverse merger of several Chinese firms (China Auto Logistics Inc., Guanwei Recycling Corp., and Kandi Technologies Corp.).[2] These companies entered the U.S. securities market through an engineered acquisition of a U.S. shell company. Becker allegedly drove up the closing price of the company’s unregistered stocks (a practice called, “marking the close”), in order to induce investors to purchase the stocks from 2009 to 2012.

Becker allegedly profited from the arrangement by taking commission from the sales of the pink-sheet stocks, while the principals of the shell company profited by offloading their shares in the company.[3] Under the terms of Becker’s settlement and the S.E.C. order, he is barred from participating in brokerage activities. In order to apply to engage in brokerage services, he would first need to disgorge profits and satisfy any arbitral awards against him as a result of his activities.

There are also developments involving allegations of corporate misgovernance by some companies. On September 30, 2015, Focus Media of Shanghai, a major Chinese digital display advertising company, agreed to a $55.6 million settlement with the SEC.[4] The U.S. government alleges that Focus Media failed to disclose the fact that the company sold shares in a subsidiary to company insiders at a favorable price several months before they resold these shares to a private equity firm at six times the previous price. The investigation allegedly uncovered deficiencies in the company’s books and records for documentation regarding these transactions. It appears that the circumstances of the transactions may not have been properly disclosed to the company’s board of directors. SEC thus accused Focus Media and its Chief Executive Officer, Jason Jiang, with providing materially inaccurate information to the board of directors regarding the transactions and with failure to maintain books and records as required by securities law. Focus Media agreed to pay $34.6 million in penalties. Jiang agreed to pay $21 million in penalties, disgorgement of profits, and pre-judgment interest. The SEC order further notes that Jiang’s liability is a personal debt that is not dischargeable in bankruptcy.

Like Focus Media, some other companies also face accusations that they did not properly maintain books and records. In a recently filed case in the Delaware Court of Chancery, stockholders allege that China Integrated Energy, a Delaware company that registered its common stock with the SEC in 1999, has failed to make required annual and periodic financial disclosures for the years 2012 through 2015.[5] In 2014, the company filed an annual Form 10-K statement that disclosed the fact that the company’s shares fell from $8.30 per share in 2010 to $0.80 per share in 2011. The plaintiffs seek access to the company’s books and records under Delaware law.

These developments involving Chinese companies in the United States come at a time of increasing regulatory scrutiny of the securities market in China. Because of the recent upheavals in stock prices in China, the Chinese government directly intervened in the markets by prohibiting the sales of stocks by major shareholders who hold more than 5% of common stock in companies for a period of six months. The China Securities Regulatory Commission recently announced eight penalty cases against persons who violated that order, totaling RMB 22 million (U.S. $4.5 million) in fines.[6]

FOREIGN CORRUPT PRACTICES ACT

Recently, Dorsey& Whitney LLP issued its attached September 2015 Anti-Corruption Digest,AntiCorruptionDigestSept2015. The Digest states with regards to China:

China

Continental, the German supplier of automobile parts, is reported to have replaced its tire sales management team in China due to allegations of corruption. The new management, which has been in charge since July, is said not to be commenting on the matter while the investigation is in process.

The matter reportedly involves allegations that members of the previous management team gained financial benefits on a personal level through business deals conducted by the company. Further reports state that the extent to which the former employees allegedly enriched themselves is currently unknown.

SECURITIES COMPLAINTS

On September 29, 2015, Malcolm Cork, Vision Capital Advantage Fund LP, et al filed the attached complaint against China Integrated Energy, Inc. in Delaware Court alleging that the company had failed to make required annual and periodic financial disclosures for the years 2012 through 2015. DELAWARE COMPLAINT CHINA ENERGY

On October 5, 2015, Gary Buelow filed the attached partial class action securities case against Alibaba Group Holding Ltd., Jack Ma and a number of banks and securities companies. BUELOWSMA

On October 9, 2015, Guangyi Xu filed the attached class action securities case against China Cache International Holdings Ltd., Song Wang, Jing An, and Ken Vincent Qingshi Zhang. CHINA CACHE CASE

On October 21, 2015 Rustem Nurlybayev filed the attached partial class action securities case against Alibaba Group Holding Ltd., Jack Ma and a number of banks and security companies. RUSTEMSMALL

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

Best regards,

Bill Perry

[1] B. Van Voris, “New York Global Group’s Wey Charged in Reverse-Merger Fraud,” Bloomberg Business, Sept. 10, 2015, available at http://www.bloomberg.com/news/articles/2015-09-10/new-york-global-group-founder-charged-with-securities-fraud.

[2] In the Matter of Shawn A. Becker, No. 3-16805 (S.E.C. Sept. 10, 2015), available at http://www.sec.gov/litigation/admin/2015/34-75891.pdf.

[3] A. Wolf, “Ex-Stock Broker Sanctioned Over Reverse Merger Scheme,” Law360, Sept. 10, 2015, available at http://www.law360.com/articles/701620/print?section=securities.

[4] E. Beeson, “China’s Focus Media, CEO Settle With SEC For $55.6M,” Law360, Sept. 30, 2015, available at http://www.law360.com/articles/709353/print?section=securities; see In the Matter of Focus Media Holdings, Ltd., No. 3-16852 (S.E.C. Sept. 30, 2015), available at http://www.sec.gov/litigation/admin/2015/33-9933.pdf.

[5] Verified Complaint, Cork v. China Integrated Energy, Inc. (Del. Ch. Ct. Sept. 29, 2015).

[6] A. Rubeinstein, “China Imposes $4.5M In Fines In Illegal Trading Crackdown,” Law360, Sept. 30, 2015, available at http://www.law360.com/articles/709035/print?section=securities.

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

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

Suzhou Garden of the Humble Administrator ChinaNovember 29, 2013

ANNOUNCEMENT

On December 3, 2013, former Congressman Don Bonker of APCO and I will be speaking in Vancouver, Canada at a breakfast conference held by the American Chamber of Commerce on “The Trans-Pacific Partnership Demystified: A Discussion of Trade Opportunities for American and Canadian Businesses”.

Attached is a copy of the Speech announcement. Hope to see some of you in Vancouver, Canada.  AMCHAM – Dec 3 TPP Event – INVITE (2)

“TRADE IS A TWO WAY STREET”

NEWSLETTER

Dear Friends,

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

I have just returned from a trip of more than 2 weeks in China.  While in China, we discussed US and Chinese antidumping and antitrust cases and other US Litigation against Chinese companies along with the US Importers Lobbying Coalition.  In addition, we circulated the attached PowerPoint description in English and Chinese of Dorsey’s Trade and Litigation Team.  FINAL CHINA TRADE LITIGATION POWERPOINT NOV 2013 Final CHINESE China Trade Litigation PowerPoint Nov 2013

TRADE

SOLAR CELLS ANTIDUMPING AND COUNTERVAILNG DUTY CASE—SETTLEMENT AND THIRD COUNTRY CELLS LOOPHOLE

Apparently, negotiations between the US and China in the Solar Cells case have slowed down because there have been no further developments that have been announced publicly.

Meanwhile, however, the U.S. Department of Commerce and Customs are continuing to press Chinese exporters and US importers of solar panels to demonstrate that their imports of Chinese modules and panels fall outside of existing antidumping (AD) and countervailing duty (CVD) orders by proving that they contain solar cells in the Chinese panels and modules that are produced in third countries.

Solar cells produced in countries, such as Taiwan and Malaysia, fall outside the scope of the trade remedy orders imposed by Commerce, even if they are assembled into modules and panels and shipped by companies in China. Many Chinese companies – even those that manufacture cells – have thus begun incorporating cells made in third countries in order to make sure those products shipped to the U.S. are not affected.

As mentioned in my last post, the Commerce Department continues to investigate, but has not launched a formal circumvention inquiry yet.  In addition to Commerce, Customs is requiring similar documents to prove that the solar cells were actually produced outside of China.  On November 16, 2013, USTR Michael Froman said that a close partnership between USTR and U.S. Customs and Border Protection (“CBP”) was the key to enforcing trade duty orders against Chinese solar panels.

After touring the Los Angeles port the USTR said in a statement that the U.S. takes a “whole-of-government” approach to trade enforcement. As one example, the USTR explained that his office and Customs had partnered to protect the U.S. solar industry by challenging unfair trade practices on the part of China through disputes at the World Trade Organization and enforcement of U.S. trade remedy laws.

“When it comes to solar, the Obama administration is enforcing U.S. trade remedy laws and U.S. rights under WTO agreements,” Froman said. “At the same time, [Customs] is stepping up reviews of imports of solar panels from China to determine whether they are improperly evading payment of antidumping and countervailing duties.”

USTR also pointed to the coming WTO multilateral negotiations in Bali on trade facilitation measures, which would  streamline customs procedures, and is “poised to close” the proposed Trans-Pacific Partnership with 11 other Pacific Rim countries.

Unfortunately, the November 27, 2013 reports are that the WTO multilateral negotiations in Bali have broken down, in part over the Trade Facilitation report, which means the Trans Pacific Partnership and other negotiations will become even more important.

ATTACK ON SUNTECH

On November 6, 2013, Solar World launched an attack in the Solar Cells case arguing that Commerce should raise Suntech’s antidumping cash deposit rate from 29.14 to 250% because it is now owned by a new company.  SOLAR SHUNFENG  In the attached submission, Solar World argues:

“On behalf of SolarWorld Industries America Inc. (“SolarWorld”), Petitioner in the above-captioned investigations, we respectfully request the U.S. Department of Commerce (“the Department”) to instruct U.S. Customs and Border Protection (“CBP”) to assess antidumping and countervailing duties on all entries of crystalline silicon photovoltaic cells, whether or not assembled into modules (“solar cells and modules”), imported into the United States by Shunfeng Photovoltaic International Ltd. (“Shunfeng”) or related entities at the PRC-wide rate of 249.96 percent and the All Others rate of 15.24 percent. . . .”

“Publicly available information now indicates that Suntech has ceased to exist as an independent entity and is thus no longer entitled to these separate rates. In March of this year, Suntech was forced into bankruptcy proceedings after defaulting on U.S. bond payments.  This month, Shunfeng, a mid-size solar manufacturer in China, announced that it won a bid to purchase the main unit of Suntech’s assets, i.e., Wuxi Suntech Power Co.  Reports indicate that Shunfeng has paid a deposit of CNY500 million ($82 million) to acquire Suntech, and is expected to pay an additional CNY2.5 billion (or $410 million).”

“In light of this acquisition, solar cells and modules produced by the former Suntech entity will now be imported into the United States by Shunfeng. While Shunfeng participated in the original investigation, it did not submit an application for a separate rate. Antidumping duties on imports of Chinese solar cells and modules from Shunfeng, therefore, are assessed at the PRC-wide rate of 249.96 percent, while countervailing duties are assessed at the All Others rate of 15.24 percent.”

“Given the recent asset acquisition, the PRC-wide and All Others rates now also apply to solar cells and modules manufactured by the former Suntech entity and imported by Shunfeng. Shunfeng is not entitled to Suntech’s separate rates absent a request for a changed circumstances review, a full investigation, and a final determination by the Department.  Indeed, based on publicly available information about the nature and structure of the transaction, in particular that Suntech’s assets were purchased out of bankruptcy, it is unlikely that Shunfeng would be entitled to Suntech’s separate rates.”

HARDWOOD PLYWOOD—NEGATIVE ITC INJURY DETERMINATION

On November 5, 2013, in a very surprising decision, the US International Trade Commission (“ITC”) reached a negative, no injury, no threat of material injury determination in the antidumping and countervailing duty case on hardwood plywood from China.  All five voting Commissioners reached a negative determination.

In its opinion, the Commission found that although subject import volume increased from 2010 to 2012, it did so solely at the expense of nonsubject imports and that there was no “significant correlation between subject import prices and the domestic industry’s prices or shipment volumes. Prices for the subject imports trended upward throughout the period of investigation for all six of the products.”

The ITC also determined that “the underselling did not cause a shift in volume from the domestic like product to the subject imports. To the contrary, for most of the pricing products, quarterly shipments of domestically produced hardwood plywood were greater in 2012 when total subject import volume was at its peak, than in 2010.  We also note that despite the prevalent underselling over the period of investigation, the domestic industry did not lose market share.  Rather, as discussed above, the domestic industry’s share of apparent U.S. consumption increased steadily throughout the period of investigation while lower‐priced subject imports also gained market share.  To the extent that subject imports gained market share, they did so at the expense of nonsubject imports and without depressing domestic prices. . . .”

“Most of the industry’s trade and employment indicators improved during the period of investigation, including in interim 2013 as the industry continued to recover from the recession. The domestic industry’s U.S. shipments increased steadily from 2010 to 2012 and were higher in interim 2013 than in interim 2012.”

Two factors that may have had an indirect impact on the case were the Commerce decision and the impact on downstream industries.

As mentioned in the last newsletter and blog, the Commerce Department used Bulgaria as the surrogate country to find dumping by Chinese hardwood plywood companies.

In addition, as indicated in past newsletters and blog posts, US downstream producers of kitchen cabinets, doors and windows have been very vocal in their opposition to these cases because of the very damaging effect any antidumping and countervailing duty orders on Chinese hardwood plywood could have on US downstream industries.

Although the ITC cannot take these two factors into direct account in their determination because they are not statutory factors to be considered, they could have an indirect effect and may have made certain ITC Commissioners more predisposed to reach a negative injury determination if there was a way to do so.

WOOD FLOORING — COMMERCE DEPARTMENT ANTIDUMPING REVIEW INVESTIGATION

Meanwhile, the Commerce Department has issued a preliminary determination in the first antidumping review investigation in the Wood Flooring from China case raising the antidumping rate slightly from 3.88% to 4.77%.  See the attached preliminary determination.  Wood_Flooring_AD Prelim_FR_signed_pub[2]

This decision will not have any actual impact on the US market, however, because it is only Commerce Department final determinations in review investigations that set new cash deposit and assessment rates for imports of wood flooring from China.

COMMERCE NEW SAMPLING METHODOLOGY

On November 4, 2013, the Commerce Department issued the attached Federal Register notice announcing that it was changing its respondent selection methodology in antidumping review investigations to include sampling. SAMPLYING NME METHODOLOGY COMMERCE  As it stands now, in choosing the “mandatory” respondents in antidumping review investigations, Commerce generally creates a list of the Chinese exporters during the relevant review period and picks the two or three largest exporters of the products under investigation during that period.

As mandatory respondents in antidumping review investigations, Chinese export companies must respond to the entire 100 page Commerce Department questionnaire and numerous supplemental questionnaires and be subject to Commerce Department verifications.   Because of the substantial added work, mandatory respondent companies can often pay more than $100,000 in legal fees.  Such high legal fees can cause smaller Chinese export companies simply to give up, which, in turn, can create enormous liability for US importers because of retroactive liability.

As the Department states in the attached Federal Register notice:

“As explained in the Proposed Methodology, when the number of producers/exporters (“companies”) involved in an AD investigation or review is so large that the Department finds it impracticable to examine each company individually, the Department has the statutory authority to limit its examination to: (1) A sample of exporters, producers, or types of products that is statistically valid  based on the information available to the administering authority at the time of selection, or (2) exporters and producers accounting for the largest volume of subject merchandise from the exporting country that can reasonably be examined.  The Department has, to date, generally used the second option in proceedings in which limited examination has been necessary. One consequence of this is that companies under investigation or review with relatively small import volumes have effectively been excluded from individual examination.”

“Over time, this creates a potential enforcement concern in AD administrative reviews because, as exporters accounting for smaller volumes of subject merchandise become aware that they are effectively excluded from individual examination by the Department’s respondent selection methodology, they may decide to lower their prices as they recognize that their pricing behavior will not affect the AD rates assigned to them.  Sampling such companies under section 777A(c)(2)(A) of the Tariff Act of 1930, as amended (the “Act”), is one way to address this enforcement concern. . . .”

“The statute requires that the sample be “statistically valid.”  The Department has interpreted this as referring to the manner in which the Department selects respondents.  Therefore, to ensure the statistical validity of samples, in the Proposed Methodology, the Department proposed employing a sampling technique that: (1) is random; (2) is stratified; and (3) uses probability-proportional-to-size (“PPS”) samples. Random selection ensures that every company has a chance of being selected as a respondent and captures potential variability across the population.  Stratification by import volume ensures the participation of companies with different ranges of import volumes in the review, which is key to addressing the enforcement concern identified above. Finally, PPS samples ensure that the probability of a company being chosen as a respondent is proportional to its share of imports in the respective stratum.”

“In general, the Department will normally rely on sampling for respondent selection purposes in AD administrative reviews when the following conditions are met: (1) There is a request by an interested  party for the use of sampling to select respondents; (2) the Department has the resources to examine individually at least three companies for the segment; (3) the largest three companies (or more if the Department intends to select more than three respondents) by import volume of the subject merchandise under review account for normally no more than 50 percent of total volume; and (4) information obtained by or provided to the Department provides a reasonable basis to believe or suspect that the average export prices and/or dumping margins for the largest exporters differ from such information that would be associated with the remaining exporters.”

COMMERCE NAME CHANGE—NOW ENFORCEMENT AND COMPLIANCE

On October 22, 2013, the Commerce Department changed the name of the organizational unit assigned to administer and calculate antidumping and countervailing duty rates from “Import Administration” to “Enforcement and Compliance.”  In the attached Federal Register notice, COMMERCE NAME CHANGE Commerce states that “The revision more accurately reflects the breadth of the agency’s activities with respect to the enforcement of, and compliance with U.S. trade laws and agreements.”

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

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

CUSTOMS

HONEYGATE GOES ON

On November 15, 2013, the Justice Department announced that a Federal judge in Illinois sentenced Jun Yang, a U.S.-based honey broker, to three years in federal prison for his role in a scheme to evade nearly $38 million in antidumping duties on imports of Chinese honey into the U.S.  In March Jun Yang pled guilty to mislabeling Chinese honey and declaring falsely to Customs that the honey originated from India or Malaysia to avoid the antidumping duties on Chinese honey.  Yang has already paid $2.89 million in penalties to the US government.

According to Gary Hartwig, an agent with U.S. Immigration and Customs Enforcement’s Homeland Security Investigations unit “This is a significant sentence against a perpetrator of one of the largest food fraud schemes uncovered in U.S. history.  Together with our partners at Customs and Border Protection, we will continue to protect American industries from deceptive import practices, while facilitating the lawful flow of goods across our borders that is so critical to the U.S. economy.”

DOJ said that an undercover HSI agent helped uncover the scheme. Court filings show that Yang delivered 778 container loads of honey to processors and distributors that were falsely declared as Malaysian or Indian imports while knowing that all or some of the honey had originated in China.

Yang’s arrest was part of an ongoing government probe of Chinese honey smuggling operations that allegedly evaded a total of $180 million in antidumping duties.

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

On October 31, 2013, Rockstar Consortium filed a patent case against Huawei.  ROCKSTAR HUAWEI

On November 7, 2013, Mobile Telecommunications Technologies filed a patent case against ZTE. ZTE CASE

On November 8, 2013, Secure Nova LLC filed a patent case against ZTE. SECURE ZTE CASE

On November 15, 2013, Bendpak filed a trademark, trade secrets, unfair competition case against Qingdao Lianhai Hydraulic Machinery Co. QINGDAOTMK

On November 26, 2013, Long Corner Consumer Electronics filed a patent case against Huawei. LONGCORNER HUAWEI

On November 26, 2013, Crossroads Systems Inc. filed a patent case against Huawei. CROSSROADS HUAWEI

On November 26, 2013, Memory Integrity filed a patent case against Hisense. HISENSE

ANTITRUST

VITAMIN C CASE

The Vitamin C case is wrapping up at the District Court level.

As mentioned in my last post, the October 16, 2013 proposed settlement agreement with China Pharmaceutical Group Ltd. and Weisheng Pharmaceutical Group Co., Ltd. provided for the payment of Plaintiffs’ legal fees of $7.8 million plus $1.5 million in expenses by the Chinese companies.  In other words, the Chinese respondent companies pay the legal fees of the US lawyers bringing the case.

On November 26, 2013, in the attached memorandum order and decision, VITAMIN C JUDGMENT the Federal Court rejected arguments by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) that as a matter of law they should not be found guilty under Section 1 of the Sherman Act for price fixing.  The effect of the Court’s decision is to leave in place a judgment of $153 million damages award against the two companies.

The most important part of the decision is the response to Hebei and NCPGC’s arguments that the Act of State, Foreign Sovereign Compulsion, and International Comity doctrines bar the jury’s verdict as a matter of law under the US antitrust law.  As the Court states in the attached decision on pages 1-3:

“First, defendants argue that the jury’s verdict against them is barred as a matter of law by the doctrines of act of state, foreign sovereign compulsion, and international comity.  In essence, defendants contend that the Court’s prior rulings that Chinese law did not compel defendants’ actions were erroneous and that plaintiffs’ claims never should have been brought before a jury.  . . . The Court stands by and reaffirms its prior rulings that Chinese law did not compel defendants to engage in antitrust violations, that the doctrines of act of state and international comity do not bar plaintiffs’ suit, and that it was inappropriate to present evidence about the meaning of Chinese laws to the jury. Nothing has changed from these pretrial rulings and defendants have stated no additional grounds to revisit them.”

“Moreover, defendants ignore that one purpose of the trial in this matter was to determine whether, regardless of what Chinese law authorized, defendants’ conduct was actually compelled by the Chinese government as a matter of a fact. Therefore, the Court instructed the jury that it was required to return a defense verdict if defendants proved, by a preponderance of the evidence, that the Chinese government actually compelled them to fix the price or limit the supply of vitamin C and defendants have not challenged this instruction.”

“There was ample evidence presented at trial from which the jury could have found that the Chinese government did not actually compel defendants’ decisions to fix the price and limit the supply of vitamin C – including evidence suggesting that the “verification and chop” mechanism did not actually compel defendants to enter into anticompetitive agreements and that the Vitamin C Subcommittee of the Chamber of Commerce of Medicines and Health Products Importers and Exporters (the “Chamber”) was a voluntary trade association. Moreover, in rejecting the compulsion defense, the jury necessarily assessed the credibility of witnesses’ testimony and, on a Rule 50(b) motion, the Court may not second-guess those determinations. . . .”

“Nor, despite defendants’ suggestion, was it error for the Court to exclude from the jury copies of Chinese laws and regulations and witness testimony about the meaning and content of those laws. Pursuant to Fed. R. Civ. P. 44.1, the determination of foreign law is a question of law. It is for the Court, not for the jury, to decide questions of law and the Court did so when it ruled that, as a matter of law, Chinese law did not compel defendants’ conduct. Accordingly, defendants’ renewed motion for judgment as a matter of law based on the act of state, foreign sovereign compulsion, and international comity doctrines is denied.”

The Court rejected the arguments of the two Chinese companies and in addition issued an injunction enjoining the Chinese companies from fixing prices in the future.

During my recent trip to China, many Chinese companies and the Chambers of Commerce simply did not realize that US judgments against Chinese companies can be enforced through Chinese bank branches in New York City.  We are presently representing a major Chinese bank in litigation in New York City in which the US lawyer, David Boies, is attempting to get money damages from the Chinese bank in China through its bank branch in New York city.  This same lawyer, David Boies, is a Plaintiff attorney in the Vitamin C case.

The times they are a changing and the Chinese companies should understand that they are now vulnerable to attacks from US litigation.

JAPANESE AUTO PARTS ANTITRUST CASES

On November 26 and 27, 2013, the Justice Department issued two announcements that Toyo Tire and Rubber TOYO GUILTY and Stanley Electric STANLEY ELECTRIC had agreed to plead guilty to price fixing on automobile parts installed in US cars.  Although these Auto Parts antitrust cases are against Japanese and Taiwan companies, they should be of interest to Chinese auto parts and other companies and US importers.

With regards to the plea by Toyo, the Justice Department issued the attached announcement stating:

“Japan-based Toyo Tire & Rubber Co. Ltd. has agreed to plead guilty and to pay a $120 million criminal fine for its role in two separate conspiracies to fix the prices of automotive components involving anti-vibration rubber and driveshaft parts installed in cars sold in the United States and elsewhere, the Department of Justice announced today.”

“According to a two-count felony charge filed today in U.S. District Court for the Northern District of Ohio in Toledo, Toyo engaged in a conspiracy to allocate sales of, to rig bids for, and to fix the prices of automotive antivibration rubber parts it sold to Toyota Motor Corp., Nissan Motor Corp., Fuji Heavy Industries Ltd. – more commonly known by its brand name, Subaru – and certain of their subsidiaries, affiliates and suppliers, in the United States and elsewhere.  . . .”

“In addition, according to the charge, Toyo engaged in a separate conspiracy to allocate sales of, and to fix, raise and maintain the prices of automotive constant-velocity-joint boots it sold to U.S. subsidiaries of GKN plc, a British automotive parts supplier. . . .”

“Today’s charge is the latest step in the Antitrust Division’s effort to hold automobile part suppliers accountable for their illegal and collusive conduct,” said Renata B. Hesse, Deputy Assistant Attorney General for the Department of Justice’s Antitrust Division. “The division continues to vigorously prosecute companies and individuals that seek to maximize their profits through illegal and anticompetitive means.”

“The department said the company and its co-conspirators carried out the conspiracies through meetings and conversations, discussed and agreed upon bids, price quotations and price adjustments, and agreed to allocate among the companies certain sales of the anti-vibration rubber and constant-velocity-joint boots parts sold to automobile and component manufacturers.”

“Including Toyo, 22 companies and 26 executives have been charged in the Justice Department’s ongoing investigation into the automotive parts industry. All 22 companies have either pleaded guilty or have agreed to plead guilty and have agreed to pay more than $1.8 billion in criminal fines. Of the 26 executives, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements calling for significant prison sentences. . . .”

“The charges are the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by each of the Antitrust Division’s criminal enforcement sections and the FBI.”

CHINA ANTITRUST CASES

On November 25, 2013, the Wall Street Journal reported that Qualcomm is subject to an antitrust investigation in China and Cisco is facing retaliation because of the actions of the US Congress against Huawei.  The investigation by the NDRC in China is regarding Qualcomm’s patent royalties on chips used for handsets.

Qualcomm’s chief executive acknowledged the investigation and indicated that the investigation is in response to U.S. restrictions on Chinese companies and revelations about surveillance by the National Security Agency.

Qualcomm, however, is the largest maker of processors and communications chips for mobile phone and has a dominant position in the high-speed technology called LTE that Chinese carriers are moving to adopt.

Qualcomm charges for patent royalties to mobile phone makers for use of its chips have resulted in South Korean and Japanese antitrust cases. Qualcomm is appealing adverse rulings in both countries.

In an interview with the Wall Street Journal, Qualcomm Chief Executive Paul Jacobs said the de facto U.S. ban on telecom gear maker Huawei Technologies and revelations about NSA spying were affecting Qualcomm’s business in China.  Executives of Cisco Systems also recently suggested that Chinese customers are cutting purchases of US tech gear because of the reaction to the US ban.

What goes around, comes around.

SECURITIES

COMPLAINTS

A number of new securities complaints cases have been filed against Chinese companies.

On October 29, 2013, Pang filed a class action securities case against NQ Mobile and various Chinese individuals. PANGNQ

On October 30, 2013 Hiller filed a class action securities action against NQ Mobile and various Chinese individuals. HILLER NQ

On November 5, 2013 Gangaramai filed a class action securities action against NQ Mobile and various Chinese individuals. GANGNQMOBILE

On November 14, 2013 Martin filed a class action securities action against NQ Mobile and various Chinese individuals. MARTINNQMOBILE

In talking with insurance brokers in China, it is now clear that the reason that the Chinese individuals are named in Class Action Securities cases is that insurance companies often insure the individuals that are in management or on the Board of Directors, but not the companies themselves

FOREIGN CORRUPT PRACTICES ACT

In November 2013, three Dorsey partners, Tom Gorman, who was formerly with the enforcement division of the US Securities and Exchange Commission, Nick Akerman, Nike Burkill and Aidan Colclough published the attached Anti-Corruption Digest regarding the Foreign Corrupt Practices Act and other UK Legal Actions against bribery. FCPA DIGEST

With regards to China the Dorsey partners state:

“FCPA Compliance in China “

“The US China Business Council (the “USCBC”) has published a report which provides an insight into practices which can assist companies doing business in the higher risk environment of the PRC. The report, entitled Best Practices for Managing Compliance in China, is based on a survey of 30 companies doing business in China, spanning a variety of industry sectors.”

“The survey highlights compliance practices currently being utilized by companies doing business in China. These include:

— Entertainment. One of the key risks faced by companies stems from commercial and government entertainment. 94% of the firms responding in the survey reported using mandatory monetary thresholds or limits on the amount that can be spent on entertainment and gift giving. 44% of those companies use global company wide limits in U.S. dollars while 56% keep the thresholds in local currency. The average threshold for entertainment expenses in China is about $72 per event.

–Gifts. Gift giving is a key issue because it is a customary practice in China. Most companies reported that they discourage gifts. When they are unavoidable, typically firms favor giving gifts of minimal monetary value with corporate logos such as flash drives, calendars, notebooks and small toys directly related to the business of the company. Most companies also maintain a threshold for gifts. The average amount for those in the survey was $57.

–Whistleblowers. Nearly all of the companies in the survey offer hotlines for staff to anonymously report compliance concerns. The most successful are those with multi-lingual support and local call-in numbers.

–Joint ventures. Given the local laws restricting the modes of foreign investment in China, these present one of the most challenging issues. Companies in the survey stated the importance of continually discussing compliance to ensure that it is considered a priority in the partnership. Given that a foreign partner may not always have direct input with regards to the joint venture’s day-to-day operations, the respondents noted that it is vital to ensure that senior leaders at the joint venture company continually reinforce the compliance message.”

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

Best regards,

Bill Perry

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

Houhai Lake at Night With Drum and Bell Tower Beijing, China TraDear Friends,

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

TRADE

SOLAR CELLS—BEAT GOES ON

On September 26th there were reports that the United States and China have been negotiating for the past several weeks toward a settlement of existing trade remedy cases affecting Chinese solar cells that would set a minimum floor price and limit Chinese imports.   Apparently, the arrangement would be similar to the one China reached with the European Union, which also included a floor price and provisions aimed at limiting Chinese imports.  Another US objective is to remove Chinese duties affecting U.S. exports of solar-grade polysilicon to China.

Apparently, negotiations have taken place, but it is still unclear how intense the talks are at this time or whether they are anywhere close to a breakthrough.   Sources report that the U.S. Trade Representative (“USTR”), which is leading the negotiations for the U.S. side, has been talking to the domestic manufacturing industury.  As mentioned before since antidumping and countervailing duty orders have already been issued, there cannot be a suspension agreement.

One speculation is that the US and Chinese government could enter into a memorandum of understanding like the U.S-Canada lumber agreement.   Regarding who has more leverage in the negotiations, as described below, with the third country loophole in place, since the Chinese companies can source the cells from Taiwan, Chinese companies may not be that affected by the Trade Remedy orders.  But certain Chinese producers make most of their money by producing solar cells in China, not the modules and panels.

Furhter increasing the pressure, there was quite a flurry in the newspapers as the Chinese Ministry of Commerce (“MOFCOM”) announced on September 20th its preliminary countervailing duty of 6.5% against Polysilicon from the United States against Hemlock and AE Polysilicon.  Other US producers, such as REC Silicon, received a 0% CVD rate. The CVD duty is in addition to the antidumping rates on polysilicon from 53 to over 60% on certain exporters.  See attached announcement.  MOFCOM ANNOUNCEMENT POLYSILICON

One trade publication quoted me stating that “I really think the United States, for the first time, has encountered a trade war,” Perry said. “All of a sudden, when it throws a rock at China, China throws two or three back.”

In addition, certain newspaper assumed that the countervailing duty replaced the antidumping duty against US polysilicon and the newspapers declared victory for the US side.  See http://www.renewableenergyworld.com/rea/blog/post/print/2013/09/china-escalates-trade-war-with-us-over-polysilicon-upping-tariffs-to-63-5

But the reality is quite different.  Just like the United States, the Chinese countervailing duty is added to the antidumping duty against US polysilicon so US producers/exporters are still under enormous pressure because of the Chinese trade case.  The U.S. imports of polysilicon into China were roughly $2 billion, while the imports of Chinese solar cells to the U.S. were roughly $4 billion.  The looming uncertainty has already cost the U.S. manufacturing jobs.  As mentioned in my last post, an August 18th article in the Seattle Times stated that Hemlock Semiconductor, the third-largest polysilicon producer, announced plans in January to lay off 400 employees at its Michigan and Tennessee plants, citing an oversupply of solar panels because of the potential for Chinese tariffs.  The article also stated that REC Silicon said the trade issues caused it enough uncertainty as far back as January of 2013 to delay a $1 billion capacity expansion at its Moses Lake plant in Washington.

The MOFCOM Polysilicon Decision increased pressure on the United States to negotiate a settlement agreement.  On September 23rd, a US solar industry association, the Solar Energy Industrial Association, released a proposed settlement of the solar cells and polysilicon trade cases.  SEIA SETTLEMENT PROPOSAL  In the attached announcement issued on September 23rd, the SEIA states:

“With no end in sight to the ongoing solar trade dispute between the United States and China, the Solar Energy Industries Association (SEIA) is offering an industry compromise between the U.S. and Chinese solar industries, which could serve as the centerpiece for a fair, negotiated settlement of outstanding issues, benefit end users, and encourage the proliferation of solar energy in the United States and globally. . . .

For months, SEIA has been working behind the scenes in Washington and Beijing to resolve the current conflict and head off an escalation of trade sanctions. SEIA has warned U.S. negotiators that any settlement similar to the recently announced EU-China agreement would represent a blow to the U.S. solar industry because of an expected increase in solar prices. SEIA also believes that any resolution of the U.S.-China solar dispute must recognize the interests of all stakeholders, including American consumers, and not just one segment of the industry.

Highlights of SEIA’s proposed solution include:

• Chinese companies would agree to create a fund that would benefit U.S. solar manufacturers directly and help to grow the U.S. market. Money for the fund would come from a percentage of the price premium Chinese companies are currently paying to third-country cell producers to get around U.S. trade sanctions, reducing costs and supply chain distortion for Chinese companies.

• The Chinese government would also agree to end its antidumping and countervailing duty investigations on U.S. polysilicon exports to China, and remove the threat of artificial cost increases in a key raw material in the solar value chain, benefiting not just Chinese solar companies but all users of solar energy.

• In return, the U.S. antidumping and countervailing duties orders would be phased out.”

In other words, the SEIA is proposing that the US Solar Industry and the Chinese solar industry simply come together and sing Kumbhaya, a let’s get together song, and everything will be fine again.  The reality is much different.

Although the United States and Chinese governments apparently are negotiating, the first problem with any settlement agreement is that the Chinese government has to agree.  With the Third Country loophole in place, that is if foreign solar cells are put in Chinese panels and modules, the panels and modules are not in the antidumping and countervailing duty case, Chinese modules and panels are not shut out of the US.  In fact, estimates are that the price difference between Chinese and Taiwan solar cells is an estimated 5 to 10 cents so the prices for modules and panels in the United States have only gone up by about $10.  Such a small prices increase has no impact on the US market.  So unless Commerce closes the loophole on its own or because of Court appeals, the Chinese government has no incentive to enter into such a settlement agreement.

Moreover, the US Solar Cell industry has no interest in such a settlement agreement.  In response to SEIA proposal, US counsel representing the US solar cell producers, including Solar World, indicated that they did not have any any intention of giving up unless and until China’s unfair trade practices have stopped.

Counsel for the US industry indicated that his clients are highly skeptical of any arrangement or settlement with China given its history of predatory trade pract1ces.  Since no agreement was negotiated in the initial investigation, getting the US industry’s agreement will be critical to any Solar Cells agreement because the Petitioners, including Solar World, must agree to withdraw their complaint.

This fight will definitely go on.

HARDWOOD PLYWOOD CASE

Another major trade fight is the antidumping and countervailing duty case against Hardwood Plywood from China.  On September 17, 2013, the Commerce Department issued its final antidumping and countervailing duty determinations in the Hardwood Plywood from China case.  As indicated in the attached notice, COMMERCE DEPARTMENT FACT SHEET HARDWOOD PLYWOOD the Antidumping rates range from 55.76% to 62.55% for the mandatory respondents and 59.46% for the rest of the Chinese companies that cooperated in the investigation and 121% for the Chinese companies that did not cooperate.

In the Countervailing Duty case, the three companies that were chosen as mandatory respondents received 0%.  But as mentioned before, even though the Chinese companies that were individually examined received 0%, the Commerce Department’s methodology does not let the Department go negative on the rest of China.  Despite the 0% dumping rates for the mandatory Chinese respondent companies, all other Chinese companies, more than 100 companies, received a 13.58% Countervailing Duty rate.  Fairness Commerce style.

In addition, how did the Commerce Department calculate an antidumping rates of approximately 55 to 62% for Chinese companies?  By using Bulgaria as the surrogate country.  Do you really think that Bulgaria is a more market driven economy than China?  Of course not, but that is not the point.

On September 19, 2013 at the ITC injury hearing Senator Wyden from Oregon testified for the US Industry stating:

“The growing tide of Chinese imports is sinking the boat of the American hardwood plywood industry . . .Left unchecked, these illegal trade practices undermine economic growth, struggling Oregon communities, and encourage more of these unacceptable trade practices by China and others who seek to play by their own rules. . .  American communities that are reliant on manufacturing had been brought “to the brink of economic collapse because of unfair trade.”

But who is the real loser in the Hardwood Plywood case, not the Chinese nor the US hardwood plywood industry.  The real losers in the Hardwood Plywood case are the downstream US producers of cabinets, furniture, boats, paneling and in home construction, crating and packaging, store fixtures, flooring underlayment and many other products, some of which are located in Oregon.

As Mr. Simon, the co-chairman of American Alliance and for Hardwood Plywood, and Mr. Titus, the executive vice president of the US Kitchen Cabinet Manufacturers Association, state in the attached article from the Wall Street Journal, “Protectionists Pick Your Pocket Again, You’ll Pay More for Cabinets, and Anything Made with Chinese Plywood and US jobs will be lost too” WSJ ARTICLE:

“Many thousands of U.S. factories depend on a steady, affordable supply of this plywood for the products they will sell at home and abroad.  Whether those downstream manufacturers sink or swim may be determined in Washington this week in two separate events—a ruling and a hearing.

The damage to U.S. manufacturers that rely on hardwood plywood has already begun. The combined tariffs have jolted supply chains, spiking the cost of imported hardwood plywood and creating painful shortages due to a lack of domestic supply. The first to suffer will be American jobs in manufacturing and woodworking. .. . Today, many U.S. manufacturers that depend on imported Chinese hardwood plywood fear that the tariffs will force the production of cabinets, furniture and other products now made in the U.S. to sites overseas. The domestic kitchen and bath-cabinet industries alone have $8.2 billion in annual sales. But how will the U.S. industry, hit by tariffs, compete with kitchen cabinets and other products made abroad—that can be shipped to the U.S. free of import duties? Competition will come from Canada and Mexico as well as China. . . .

This point was reinforced by Mr. Carl Spencer of Spencer Cabinetry, who testified at the ITC on behalf of the Kitchen Cabinetry industry in the attached article from Woodworking Network, ” Plywood Antidumping Ruling: Upside-Down System of Justice”  See  http://www.woodworkingnetwork.com/wood-blogs/industrial-woodworker/production-industry-guest-blogs/Upside-Down-System-of-Justice-226075531.html?page=2#sthash.wgd6pcex.dpbs

In the Article, Mr. Spencer states:

“My in-depth exposure has convinced me that a lot more American cabinetmakers need to get involved right away. This isn’t just someone else’s issue — our own very existence may be at stake, and it’s ten seconds to midnight. . . .”

“It’s a serious mistake for your readers to think this will not greatly affect them. Whether we buy any imported plywood or not, restricting the longstanding pipeline of hardwood plywood imported for use as secondary wood will trigger spot shortages and drive up prices of all domestic material for everyone.  That is the whole reason the Cartel of Six filed their complaint in the first place. . . .

“even though our hardwood plywood prices will go up a lot, they will not go up for our direct cabinetmaking competitors in China, Canada, Mexico, or elsewhere. As an example, we are already competing every day with Canadian companies, whose primary market is the United States.”

“From our point of view, our own government’s actions amount to a de facto stimulus, not for Americans, but instead for the Chinese, Canadian, and Mexican cabinet industries — all of whom can still buy plywood from China at the true world price. In the end, it is the American cabinet companies that will be punished, especially the small ones, and American jobs that will be lost.” . . .

“As it stands now, over 9,300 of us cabinet companies must now pay them for it for as long as we survive . .  .”

“The handwriting is on the wall. It might be well for the woodworking press to move their headquarters to Canada and have staff who speak Mandarin in order to better keep up with the new American cabinet industry.”

 

When the US government imposes antidumping and countervailing duties on US imports using an unfair process that is tilted in favor of US producers, the Government creates little monopolies.  When the products at issue are raw materials, the real losers are US producers of downstream products, which are either driven out of business because they cannot compete in the downstream market with imports that have access to the cheaper raw materials or forced to close their US production facilities and move to China.

NEW ANTIDUMPING AND COUNTERVAILING DUTY INVESTIGATIONS

MSG

On September 16, 2013, the Commerce Department initiated antidumping and countervailing duty review investigations on Monosodium Glutamate (“MSG”) from China. ITC Notice and Chinese companies in the review are listed below:

ITC NOTICE

Docket No: 2979

Document Type: 701 & 731 Petition

Filed By: Iain R. McPhie

Firm/Org: Squire Sanders (US) LLP

Behalf Of: Ajinomoto North America Inc.

Date Received: September 16, 2013

Commodity: Monosodium Glutamate (MSG)

Country: China and Indonesia

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of antidumping and countervailing duties on imports of Monosodium Glutamate (MSG) from People’s Republic of China and Republic of Indonesia.

Status: 701-TA-503-504 and 731-TA-1229-1230 (Preliminary)

The Chinese respondent producers and exporters in the MSG case are: Fufeng Group, Meihua Holdings Group, Henan Lotus Flower Gourmet Powder Co., Ltd, COFCO Biochemical (Anhui) Co. Ltd.), Shandong Linghua Monosodium Glutamate Incorporated Co. , Jining Jusheng Gourmet Powder Food Co., Ltd., Shandong Xinle Monosodium Glutamate Foods Co. Ltd.,  COFCO Limited, Ningxia Eppen Bio-Tech Co., Ltd., Huanyu Gelin Food Development Co Ltd., Haerbing Juhua Biotech Co. Ltd, Fujian Province Jianyang Wuyi MSG Co., Ltd., and Shandong Qilu MSG Group Co.,

GOES

On September 18, 2013, an antidumping and countervailing duty petition was filed against Grain Oriented Electrical Steel from China.   Notice and Chinese companies are listed below:

ITC NOTICE

Docket No: 2980

Document Type: 701 & 731 Petition

Filed By: John M. Herrmann

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: AK Steel Corporation, Allegheny Ludlum LLC, and the United

Steelworkers

Date Received: September 18, 2013

Commodity: Grain-Oriented Electrical Steel

Countries: People’s Republic of China, The Czech Republic, The Federal Republic of Germany, Japan, The Republic of Korea, Poland, and the Russian Federation.

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of antidumping and countervailing duties on imports of Grain-Oriented Electrical Steel from the People’s Republic of China, The Czech Republic, The Federal Republic of Germany, Japan, The Republic of Korea, Poland, and The Russian Federation.

Status:  701-TA-505 & 731-TA-1231-1238

The Chinese respondents in the GOES case are: Anshan Iron & Steel Group Corporation, Hebei Shougang Qian’an Iron & Steel Co., Ltd. (subsidiary of Beijing Shougang Co. Ltd.), Baoshan Iron & Steel Co., Ltd. (subsidiary of Baosteel Group headed by parent company Shanghai Baosteel Group Corporation) (“Baosteel”), and Wuhan Iron & Steel Co. Ltd. (”Wuhan” or “WISCO”).

As indicated below, the ironic point is that the Chinese Government has levied antidumping and countervailing duties on US exports of GOES to China.  Although the US has taken the GOES case to the WTO and won a victory, the orders stay in place in China.  The 3 plus years that the orders have been in place, however, have allowed the Chinese GOES industry to catch up and now export GOES to the US, which is causing problems for the US GOES industry.

In the Steel Antidumping and Countervailing Duty Wars between the US and China, what goes around, comes around.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

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

CHINESE ANTIDUMPING AND COUNTERVAILING DUTY LAW

POLYSILICON

Attached is the Chinese Government’s Ministry of Commerce (“MOFCOM”) September 20th announcement of preliminary countervailing duties to be levied on polysilicon imports from the US.  MOFCOM ANNOUNCEMENT POLYSILICON

SILICON STEEL—GOES

The US battle with the Chinese government on its antidumping and countervailing duty orders against GOES from the US is still being fought out.  In response to the August 12th announcement by MOFCOM that it had met its WTO obligations in the GOES case, on September 11, 2013, the USTR stated that it is “currently evaluating China’s re-determination of antidumping and countervailing duties on GOES from the United States” and that if the Chinese government’s actions are not sufficient to comply with the WTO’s recommendations and rulings, the US could initiate further proceedings at the WTO.

As the recent US antidumping and countervailing petitions against GOES from  China indicate, however, the US GOES industry has already lost its technical/tactical advantage.

Although the US Steel industry complains about Chinese antidumping and countervailing duty cases against US GOES exports, in light of US refusal to use actual prices and cost in China calculate dumping rates and the Commerce Department’s methodology that finds dumping and subsidization in 100% of the cases against China, such criticism has a very hollow ring.

CUSTOMS

HONEY CASE

On September 30, 2013, a US agent for a dozen Chinese honey importers was sentenced to three years in prison for her role in smuggling operations that allegedly avoided nearly $40 million in US antidumping duties. At a federal court hearing in Chicago, Hung Yi lin -who pled guilty last year to three counts of entry of goods into the U.S. by means of false statements- was also ordered to pay $512,852 in restitution, but avoided the six-year prison sentence sought by prosecutors.

Lin, 43, also known as Katy Lin, allegedly played a pivotal role in helping her clients falsify documents on shipping containers loaded with Chinese-origin honey from 2009 to 2012, making it appear that they were filled with sugars or syrups. Through her California-based company KBB Express, Lin brought in $11.5 million of honey into the US avoiding almost $40 million in antidumping duties.

Ms. Lin’s attorney argued that his client was simply a hardworking immigrant, who was merely a freight forwarder and did not profit from the scheme.  Ms. Lin in tears told the US Judge Milton I. Shadur that she was not attempting to flee prosecution, when she was arrested on her way out of the country.  “I’m really sorry if anything I did hurt this country. I came here for my dream . . . .”

In response, however, the Assistant US Attorney argued that the Mr. Lin’s role was absolutely critical in the sophisticated scheme.  The Assistant U.S. Attorney also stressed the damage to the U.S. honey industry when the price of honey collapsed due to the smuggling operation and other similar schemes.

PATENTS

337 CASES

CAFC DETERMINATION –MICROSOFT NO DOMESTIC INDUSTRY UNDER 337

On October 3, 2013, the third day of the Government shutdown, we can say that at least the Courts are open. Today the Court of Appeals for the Federal Circuit (“CAFC”) issued its attached decision in Microsoft v. US International Trade Commission (“ITC”) and Motorola in which Microsoft appealed an ITC determination of no violation in a 337 case.  MICROSOFT DOMESTIC INDUSTRY  The CAFC affirmed the ITC on almost every part of the decision, remanding on one small aspect of one patent back to the ITC.  The most important issue is the its decision on domestic industry, which will effect future 337 cases against China.

In that decision, which is attached, the CAFC dismissed one part of Microsoft’s patent case becasue Microsofit did not establish that the patented invention, the specific patent in question, was actually practiced in the United States and, therefore, there was no domestic US industry with regards to this patented product.  The CAFC stated:

“Microsoft’s failing was simple. Although Dr. Olivier purported to identify “client applications” in an example application that Microsoft provides to third party phone manufacturers, Microsoft failed to show that any such “client applications” are actually implemented on any third-party mobile device.  .  .  According to the ALJ, because Microsoft did not point to evidence that its expert examined client applications in fact running on third-party mobile phones or confirmed how they operated, Microsoft failed to show that there is a domestic industry product that actually practices the ’376 patent.  . . .In this appeal, we do not reach Microsoft’s challenge to the non-infringement determination because we find substantial evidence to support the Commission’s finding of no domestic industry, which suffices to support its finding of no violation based on this patent. There is no question about the substantiality of Microsoft’s investment in its operating system or about the importance of that operating system to mobile phones on which it runs.”

“But that is not enough under the statute. Section 337, though not requiring that an article protected by the patent be produced in the United States, unmistakably requires that the domestic company’s substantial investments relate to actual “articles protected by the patent.”  19 U.S.C. §§ 1337(a)(2), (3). A company seeking section 337 protection must therefore provide evidence that its substantial domestic investment—e.g., in research and development—relates to an actual article that practices the patent, regardless of whether or not that article is manufactured domestically or abroad. . . .”

“We conclude that there is substantial evidence to support the Commission’s determination that Microsoft failed to meet that requirement. . . . The Commission did not lack substantial evidence to support its finding that Microsoft simply failed to identify any actual phones with the required components performing as required.  . . .”

“On that basis, the Commission could find that Microsoft failed to show that any Microsoft-supported products practiced the ’376 patent. We therefore affirm the Commission’s finding of no proven domestic industry, and hence no section 337 violation, involving this patent.”

SUPREME COURT ARGUMENTS ON DOMESTIC INDUSTRY

On September 9, 2013, in Nokia v. US International Trade Commission, Nokia attempted to persuade the Supreme Court to take jurisdiction and overturn the CAFC’s January 2013 decision in Interdigitial Communications LLC et al v.  International Trade Commission and Nokia Inc. that licensing of specific patents by InterDigital in the United States was enough to be a domestic industry under section 337.  Nokia argued that nonpracticing entities should not be considered a domestic industry under section 337.

In response, according to InterDigital, when it ruled that it had satisfied the domestic industry requirement, the CAFC simply followed “the intent of Congress to enlarge the domestic industry requirement to cover licensing activities – when those activities are substantial and connected to exploitation of the patents at issue. . . .”  InterDig Brief

In the attached Supreme Court brief, the ITC sided with InterDigital.  ITC BRIEF  19 USC 1337(a)(3) (C) specifically provides that a domestic industry “shall be considered to exist if there is in the United States with respect to the articles protected by the patent, “substantial investment in the patent’s exploitation, including engineering, research and development or licensing”.  The ITC pointed to record evidence that InterDigitial had “invested a total of approximately $7.6 million in salaries and benefits for employees engaged in its licensing activities, and it received almost $1 billion in revenues from portfolio licenses (including the patents in suit) related to its cellular technology. . . .”

In addition, the ITC pointed to the CAFC’s explanation that in 19 1337(a)(3)(C) Congress intended to protect “innovators who did not actually produce goods in this country, but who were injured by the importation of goods that incorporated the technology that they had invented or sought to license”.

NEW 337 CASE

HANDHELD MAGNIFIERS

On September 26, 2013, a new 337 case was filed against Aumed Group Corp. in China on handheld magnifiers. See notice below:

Docket No: 2984

Document Type: 337 Complaint

Filed By: Matthew B. Lowrie

Firm/Org: Foley & Lardner

Behalf Of: Freedom Scientific, Inc

Date Received: September 26, 2013

Commodity: Handheld Magnifiers

Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Handheld Magnifiers and Products Containing Same. The proposed respondents are Aumed Group Corp., China; and Aumed Inc., San Carlos, CA.

MARINE SONAR DEVICES AGAINST HONG KONG

On September 20, 2013, a new 337 case was filed on Marine Sonar Imaging Devices against a Hong Kong company.  See notice below.

Docket No: 2981

Document Type: 337 Complaint

Filed By: M. Scott Stevens

Firm/Org: Alston and Bird LLP

Behalf Of: Navico Inc. and Navico Holding AS

Date Received: September 20, 2013

Commodity: Marine Sonar Imaging Devices

Description:  Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Marine Sonar Imaging Devices, Products  Containing the Same, and Components Thereof. The proposed respondents are: Raymarine Inc., Nashua, New Hampshire; Raymarine UK Ltd., United Kingdom;  and In-Tech Electronics Ltd, Hong Kong.

NEW PATENT BILL PROPOSES TO MAKE IT MORE DIFFICULT FOR NPES/PATENT TROLLS

The House of Representatives released the attached draft patent bill on September 23, 2013 aimed at making it more difficult for patent trolls, non-practicing entities (“NPEs”), to bring patent cases.  HOUSE PATENT BILL  The bill will raise the pleading requirements, making it more difficult for NPEs to file frivolous suits.  The pleading requirements would also increase the cost and complexity of patent cases.

The bill would also require the losing party in patent cases to pay the costs of the prevailing party unless the judge finds that the suit was “substantially justified,” creating an exception in patent cases to the “American rule” that parties are generally responsible for paying their own attorney’s fees.

NEW PATENT CASES AGAINST HUAWEI, ZTE, HANGZHOU COMPANY AND OTHER CHINESE COMPANIES

On September 9, 2013, ACQIS filed a patent complaint against Huawei.  ACQIS HUAWEI

On September 17, 2013, C. B. Worldwide Inc. filed a patent complaint against Chinese companies, Hangzhou Yizhan Pet Products, Allara China Ltd., Shanghai ITCPC Import and Export Co. and Petlike.  The complaint alleges misappropriation of technology, patent infringement and breach of contract.  CHINA TOYS HANGZHOU

On September 25, 2013, Nidec Motor Corporation filed a patent complaint in the Federal District Court in Missouri against Broad Ocean Motor, Broad Ocean Technologies and Zhongshan Broad Ocean Motor Co., Ltd.

On September 26, 2013, James Grove and LF Products filed a patent case against COSTCO and Global Furniture (Zhejiang) Co. Ltd.  ZHEJIANG COSTCO

On September 26, 2013, SPH America filed patent complaints against Huawei and ZTE.  SPH ZTE   SPH HUAWEI

On September 30, 2013 and October 1, 2013, Super Interconnect Technologies filed patent complaints against Huawei and ZTE.  SUPER INTERCONNECT ZTE   SUPER INTERCONNECT HUAWEI

ANTITRUST

JUSTICE DEPARTMENT’S SYSTEMATIC INVESTIGATION OF ASIAN CARTELS

To illustrate that antitrust cases against Chinese companies for price fixing are not just China bashing, the following are additional examples of the major movement by the Justice Department and private plaintiffs in the United States to go after cartels, price fixing by foreign companies, aimed at the US market.  Well known antitrust experts have told me that Justice is targeting foreign cartels, especially Asian cartels, and is systematically going through industry after industry looking for evidence of price fixing.

In light of the ongoing cases against Vitamin C, Magnesium and Bauxite from China, it is just a matter of time before the Justice Department and Private Plaintiffs start to target Chinese companies for price fixing on various products.  One of the first targets of such price fixing investigations may be auto parts.

NINE JAPANESE AUTO PARTS COMPANIES PLEAD GUILTY TO PRICE FIXING CARTEL

On September 26th, the Justice Department issued the attached announcement that Nine automobile parts manufacturers and two executives agreed to plead guilty to fixing prices on automobile parts sold to U.S. car manufacturers and installed in U.S. cars.  FULL DOJ NOTICE AUTO PARTS SEPT 26  NINE JAPANESE AUTO PARTS COMPANIES PLEAD GUILTY

 The nine Japanese Companies agreed to pay a total of more than $740 million in Criminal fines.  The September 26th announcement states as follows:

“Nine Japan-based companies and two executives have agreed to plead guilty and to pay a total of more than $740 million in criminal fines for their roles in separate conspiracies to fix the prices of more than 30 different products sold to U.S. car manufacturers and installed in cars sold in the United States and elsewhere . . .  The department said that price-fixed automobile parts were sold to Chrysler, Ford and General Motors, as well as to the U.S. subsidiaries of Honda, Mazda, Mitsubishi, Nissan, Toyota and Fuji Heavy Industries–more commonly known by its brand name, Subaru.”

“These international price-fixing conspiracies affected more than $5 billion in automobile parts sold to U.S. car manufacturers, and more than 25 million cars purchased by American consumers were affected by the illegal conduct,” said Attorney General Eric Holder. “The Department of Justice will continue to crack down on cartel behavior that causes American consumers and businesses to pay higher prices for the products and services they rely upon in their everyday lives.”

“Some of the price-fixing conspiracies lasted for a decade or longer, and many car models were fitted with multiple parts that were fixed by the auto parts suppliers,” said Scott D. Hammond, Deputy Assistant Attorney General of the Antitrust Division’s criminal enforcement program. “The Antitrust Division has worked hand in hand with its international competition colleagues who have provided invaluable assistance to the Justice Department in breaking up these worldwide price-fixing cartels.”

“Today’s charges should send a message to companies who believe they don’t need to follow the rules,” said Ronald Hosko, Assistant Director of the FBI’s Criminal Division. “If you violate the laws of this country, the FBI will investigate and put a stop to the threat you pose to our commercial system. The integrity of our markets is a part of the foundation of a free society.”

“Including those announced today, 20 companies and 21 executives have been charged in the Antitrust Division’s ongoing investigation into price fixing and bid rigging in the auto parts industry. All 20 companies have either pleaded guilty or have agreed to plead guilty and have agreed to pay more than $1.6 billion in criminal fines. Seventeen of the 21 executives have been sentenced to serve time in U.S. prisons or have entered into plea agreements calling for significant prison sentences.”

“Each of the companies and executives charged today has agreed to cooperate with the department’s ongoing antitrust investigation. The plea agreements are subject to court approval. The companies’ and executives’ agreed-upon fines and sentences are:

• Hitachi Automotive Systems Ltd. to pay a $195 million criminal fine;

• Jtekt Corporation to pay a $103.27 million criminal fine;

• Mitsuba Corporation to pay a $135 million criminal fine;

• Mitsubishi Electric Corporation (MELCO) to pay a $190 million criminal fine;

• Mitsubishi Heavy Industries Ltd. to pay a $14.5 million criminal fine;

• NSK Ltd. to pay a $68.2 million criminal fine;

• T.RAD Co. Ltd. to pay a $13.75 criminal fine;

• Valeo Japan Co. Ltd. to pay a $13.6 million criminal fine;

• Yamashita Rubber Co. Ltd. to pay a $11 million criminal fine;

• Tetsuya Kunida, a Japanese citizen, to serve 12 months and one day in a U.S. prison, and to pay a $20,000 criminal fine; and

• Gary Walker, a U.S. citizen and former executive of a U.S. subsidiary of a Japan-based automotive products supplier to serve 14 months in a U.S. prison, and to pay a $20,000 criminal fine.”

 

At a news conference about the guilty plea, Scott D. Hammond, Assistant Attorney General of the Antitrust Division’s Criminal Enforcement Program, stated as follows in the attached statement:

“We have seen a pattern during the course of this investigation. The detection of one auto part conspiracy has led to the discovery of other conspiracies involving a new set of products, a new group of conspirators and a new list of victims. And as the Attorney General said, our work isn’t done. . . .”

“The companies and executives charged today will pay a heavy price for their conduct. As of today, more than $1.6 billion in criminal fines have been obtained thus far and 17 auto parts executives are currently serving prison time or are awaiting sentencing. The deterrent impact of their sentences should resonate in boardrooms around the world.”

“As today’s charges demonstrate, global cartels operating largely outside of our borders often constitute the biggest competitive threat to our economy, our businesses and our consumers. The Antitrust Division and the FBI have worked closely with our international competition colleagues to break up these worldwide price-fixing cartels.”

SCOTT HAMOND SPEECH

LIQUID CRYSTAL DISPLAY (LCDS) FROM TAIWAN

In San Francisco, a criminal antitrust trial is proceeding against Borlong Bai of AU Optronics in Taiwan for his involvement in a cartel to price liquid crystal displays.  AUO, its US subsidiary  and two executives were convicted of price fixing last year and two other executives were found not guilty.  Bai’s attorneys are arguing that although he was a manager of AUO’s division that sold LCDs to laptop computer companies, Bai simply used the information he received to outmaneuver his rivals and not to fix prices.

The Justice Department is arguing that Bai was essential to the global conspiracy to fix prices of LCDs.

ANTITRUST AG BILL BAER SPEECH ON CRIMINAL ANTITRUST CASES LCDS FROM TAIWAN

On September 25, 2013, Bill Baer, the Assistant Attorney General for the Antitrust Division at the Justice Department spoke to the Georgetown Law’s 7th Annual Global Antitrust Enforcement Symposium on the importance of the lesson from the LCDs case against Taiwan companies.  BAER DOJ STATEMENT  Mr. Baer stated in the attached speech:

“Criminal enforcement is a large part of what we do at the Division. Effective sanctions matter there too. Guided by the federal Sentencing Guidelines, our prosecutors seek criminal sentences that are consistent with statutory considerations and reflect the seriousness of the offense, promote respect for the law, provide just punishment, afford deterrence, protect the public, and offer defendants an opportunity for effective rehabilitation.”

“Last year, for the first time, the division recommended that a criminal antitrust defendant be required, as a condition of its probation, to retain an independent corporate monitor to develop and implement an effective antitrust compliance program. The defendant, AU Optronics Corporation (AUO), its U.S. subsidiary, and two of its top executives, had been convicted at trial for their role in a conspiracy to fix the price of liquid crystal display (LCD) panels – a conspiracy that had a significant impact on U.S. commerce.”

“Rarely has a company needed an effective antitrust compliance program as much as AUO. AUO was founded the very month the LCD conspiracy began. From its inception, AUO’s standard operating procedure was collusion. “Antitrust compliance program” was not in its lexicon. Even after conviction, AUO continued to employ convicted price-fixers and indicted fugitives. As a result, the division argued that there was no reason to believe that AUO’s conviction and the imposition of a criminal fine – even a large fine – would deter AUO from engaging in future collusive conduct.”

“The court agreed.  In addition to a $500 million fine, the court sentenced AUO and its subsidiary to three years of probation during which the companies are required to develop, adopt, and implement an effective compliance and ethics program, and to retain an independent monitor to oversee that program. Consistent with the division’s willingness to request external monitors in the civil context, the division will consider seeking conditions of criminal probation that include independent monitors when faced with circumstances in which the division is not persuaded that penalties alone will deter future illegal behavior.”

Attached are two class action complaints filed in October against Japanese auto parts.  As a result of the Justice Department plea agreements, Japanese auto parts companies and probably eventually Taiwan auto parts companies are exposed to $100s of millions, if not billions of dollars in liability under private right of action triple damage antitrust cases.  AUTO PARTS SWITCHES PANASONIC  DIAMOND AUTO PARTS AT CASE

US FTC CHAIRWOMAN STATES THAT CHINA NEEDS TO ENSURE PROCEDURAL FAIRNESS IN ITS ANTITRUST PROCEEDINGS

On September 25, 2013, at a conference in Washington DC, FTC Chairwoman Edith Ramirez questioned the Chinese Government’s fairness in antitrust proceedings.  Ms. Ramirez stated:

“While every country must determine its own competition policy, we believe consumers and competition policy are best served when competition enforcement is based solely on economic analysis of effects on competition.  But if other factors nonetheless enter into competition decisions, their nature and effect should be transparent.”

The problem with Ms. Ramirez’s statement is that the Chinese government’s first experience with US government fairness is through the US antidumping laws.  For decades, the Chinese companies and government have been subjected to Commerce Department antidumping and countervailing duty proceedings, which are clearly not fair and transparent.  With its surrogate country and surrogate value analysis, Commerce Department determinations in antidumping cases on their face are arbitrary and capricious.  Using Bulgaria as a surrogate country in the Hardwood Plywood case is just such an example.

The procedural unfairness inherent in US antidumping and countervailing duty laws affects the entire legal relationship between the US and China.  Chinese government officials and many Chinese companies sincerely believe that the United States is simply out to bash Chinese companies and procedural fairness be damned.

What is sauce for the goose is sauce for the gander.  If the Commerce Department uses inherently unfair procedures in its antidumping and countervailing duty investigations, which have no basis in economic reality, from the Chinese government’s point of view why should it base its competition policy on “economic analysis of effects of competition.”

CLASS ACTION ANTITRUST CASE AGAINST KOREAN NOODLE COMPANIES

On September 5, 2013, the attached class action antitrust case complaint was filed in Federal District Court in California by Stephen Fenerjian against Korean noodle companies for price fixing on exports of noodles to the United States.  The target companies are: Nong Shim Company Ltd., Nong Shim America Inc., Ottogi Company Ltd., Ottogi America, Inc., Samyang Foods Company Ltd., Samyang (USA) Inc., Korea Yakult Co., Ltd., and Paldo Company Ltd.  KOREAN NOODLES ANTITRUST CASE

SECURITIES

SEC GRANTS DELAY IN PROCEEDING AGAINST US ACCOUNTING FIRMS FOR REFUSING TO RELEASE AUDIT DOCUMENTS OF CHINESE COMPANIES

On October 2, 2013, in the attached order, SEC ORDER ACCOUNTING FIRMS the U.S. Securities and Exchange Commission (“SEC”) granted a request from an administrative law judge to give an additional 100 days to determine whether top accounting firms, such as Ernst & Young, Deloitte and Price, Waterhouse, have to produce audit document of Chinese company clients that are suspected of defrauding their US investors through reverse mergers.  In December 2012 the SEC started this case because it believes the accounting firms, including the Big 4, have refused to to cooperate with document requests in an investigation into China-based companies whose securities are publicly traded in the U.S. in violation of US security laws.  The accounting firms argue that they fear violating Chinese secrecy laws.  As evidenced by the complaints on this site, the SEC has cracked down in the last few years on fraudulent reverse mergers, in which Chinese companies have used existing public shell company to merge with a private operating company, leaving the shell company as the surviving legal entity.  The crackdown, however, has been delayed by the Chinese privacy laws, which bar China-based auditors, including the subsidiaries of US accounting firms, from turning over Chinese client information.

The accounting firms have been fighting requests for audit paperwork related to Chinese companies accused of fraud on US investors.  In July, following bilateral investment talks, the U.S. announced that China had agreed to turn over certain audit documents to the SEC and the Public Company Accounting Oversight Board.  That deal came shortly after the PCAOB announced a memorandum of understanding with the China Securities Regulatory Commission and the country’s Ministry of Finance to ease restrictions on release of audit information in fraud investigations.

COMPLAINTS

A number of new securities complaints cases have been filed against Chinese companies.

On September 26, 2013, the Securities and Exchange Commission (“SEC”) filed the attached  securities fraud complaint against Lee Chi Ling (“Lee”) and Perfect Genius Limited (“Perfect Genius”), alleging securities fraud in a classic “pump and dump”scheme from at least June 2004 through at least February 2006 to manipulate the price of the common stock of China Energy Savings Technology, Inc.   PERFECT GENIUS

On September 26, 2013, the SEC filed a securities fraud complaint against defendants Chan Tze Ngon, a/k/a Chen Zi Ang and Ron Chan, (“Chan”), and Jiang Xiangyuan (“Jiang”).  The case involves two securities fraud schemes engineered by former high level officials of ChinaCast Education Corporation (“ChinaCast”) to steal about $100 million out of the company by diverting monety to their private accounts.  CHINA CAST

On September 27, 2013, the SEC filed a securities fraud complaint against Universal Travel Group (UTG), a China-based travel company, UTG’s former ChiefExecutive Officer Jiangping Jiang (“Jiang”); and UTG’s former Chief Financial Officer, Jing Xie (“Xie”) for diverting $41 million in public and private stock offerings in the United States to numerous unknown parties in Hong Kong and the PRC. In an interesting note, the attached complaint also includes consent judgements by UTG, Jian and Xie in which they agree to the SEC charges and agree to pay fines and penalties.  Even in China, you can run, but not hide.  UNIVARSAL TRAVEL

On September 30, 2013, Another class action securities case was filed against Light in the Box Holding, a Beijing company, and two Chinese individuals for securities fraud.  LIGHT IN THE BOX

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

Best regards,

Bill Perry

US CHINA TRADE WAR —DEVELOPMENTS IN TRADE, CUSTOMS, PATENTS, AND SECURITIES

Jinshang Park from Forbidden City Yellow Roofs Gugong Palace BeiDear Friends,

There have been some new developments in the trade, customs, patents, and securities areas.

TRADE

NEW ANTIDUMPING CASE AGAINST CHINA ON CONCRETE STEEL RAIL TIE WIRE

On Tuesday, April 23, a new antidumping case was filed against Concrete Steel Rail Tie Wire from China.  The alleged antidumping rate is 54%.  Attached is a copy of the relevant pages of the petition.  Steel Rail Tie Wire Petition-4-25-13  The ITC Preliminary Conference will be held on May 14, 2013.  See attached ITC notice. ITC PRELIM NOTICE

HARDWOOD PLYWOOD ANTIDUMPING PRELIM —  FAIRNESS COMMERCE STYLE

On April 30th, Commerce issued its preliminary antidumping duty determinaton and the hardwood plywood companies got nailed again.  The two mandatory companies received, in effect, 0% duty rates.  But one hundred and one Chinese exporters, the rest of China, which is supposed to get the average rate or at least a rate that reflects commercial reality, received 22%. Keep in mind that the US importers pay these antidumping duties, not the Chinese exporters.  See the attached fact sheet.  factsheet_China-Hardwood-Decorative-Plywood-Prelim-30APR13

GOVT AND PETITIONER’S COUNSEL AWARDED LEGAL FEES AND COSTS FROM CHINESE COMPANY IN TIANJIN MAGNESIUM CASE

Attached is an opinion of the Court of International Trade awarding the government and Petitioner’s counsel $42,344 in legal fees and costs from TMI for TMI’s obstructive behavior in trade proceedings.  TIANJIN MAGNESIUM SANCTIONS CASE

As the CIT stated in the attached opinion:

“TMI’s repeated efforts — through counsel — to obstruct Commerce’s exercise of its statutory duties, to delay proceedings through frivolous argumentation and filings, and to mislead the court on material matters of fact and law constitute an intolerable level of vexatiousness and bad faith.  . . . Given TMI’s persistent misconduct before this Court and before Commerce, an award of fees and costs related to its problematic filings in this case is warranted and necessary to deter additional costly distractions in future trade proceedings.”

CUSTOMS

HONEY RICO ACTION

On April 19, 2013, three US honey producers filed a class action lawsuit in the Federal Court in Illinois against Honey Holding Ltd. under RICO, the Racketeer Influenced and Corrupt Organizations Act alleging that Honey Holding had defrauded the US government and domestic honey makers by “landering” cheap altered versions of Chinese honey to disguise its country of origin and evade the Honey antidumping order.

Plaintiffs are asking for triple damages plus attorney fees.  The RICO Act or RICO is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization. The RICO Act focuses specifically on racketeering, and it allows the leaders of a syndicate to be tried for the crimes which they ordered others to do or assisted them in doing.

Attached is a copy of the complaint HONEY HOLDING COMPLAINT, which alleges that:

“Plaintiffs, on behalf of themselves and Class Members, bring this action as a national class action under Title XI (“RICO”) of Public Law 91-452, 84 Stat. 922 (1970) (as codified at 18 U.S.C. §§ 1961–1968, as amended) and the common law against Defendants for their fraud, negligent misrepresentation, conspiracy, and clandestine and wrongful importation and dumping of Chinese honey (and possibly honey from other unlawful source countries) on the United States honey market without paying the corresponding antidumping duties, by reason of which, Defendants substantially depressed the price of honey legitimately produced, packed, marketed, and sold in the United States by Plaintiffs and Class Members, damaged the Government in its governmental functions, and damaged Plaintiffs and Class Members in their businesses and/or property.  . . .”

“At all relevant times, since as early as 2000, Defendants have participated in a worldwide conspiracy to deceive Government import authorities about the origin of honey produced in China, avoid paying the corresponding antidumping duties on the Chinese honey, defraud the United States honey market and substantially injure Plaintiffs and Class Members—legitimate domestic honey producers and packers—in their businesses and property. “

PATENTS

ZTE AND LENOVO

Attached are patent complaints filed by Wyncomm on April 13, 2013 against ZTE and Lenovo.  ZTE PATENT LENOVO

HUAWEI AND ZTE—POTTER VOICE    

Attached is a patent complaint filed on April 25, 2013 against ZTE and Huawei by Potter Voice Technologies.  ZTE POTTER VOICE

CHINESE SEMICONDUCTOR COMPANIES

Attached is a patent complaint filed on April 18, 2013 by Semcon Tech LLC against Semiconductor Manufacturing International Corporation, Semiconductor International Shanghai, Semiconductor Manufacturing International , Beijing and Tianjin, and Shenzhen and Siltech Semiconductor Shanghai  SHORT SEMICONDUCTOR PATENT

SECURITIES

US SECURITIES CASE BETWEEN TWO CHINESE COMPANIES IN US FEDERAL COURT

Attached is a securities complaint filed on April 17, 2013 in US Federal Court in California by one Chinese company suing another Chinese company for securities fraud under US Securities law.  The case is Great Dynasty International Financial Holdings Ltd. v. Haiting Li, Zhiyan Li, and Pacific Bepure Industry, Inc.  INTER CHINA SECURITIES CASE

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

Best regards,

Bill Perry

US CHINA TRADE WAR–ITC INJURY STANDARD, SOLAR, VITAMIN C

Shanghai Bund at Night China Flags Cars with Trademarks obscuredDear Friends,

While I have been away in China and Washington DC for three weeks working on various cases and at an oral argument in the Court of Appeals for the Federal Circuit, there have been some major developments in the Trade, Patents and Antitrust areas.

MAJOR VICTORY IN WOOD FLOORING ITC CASE

In my case, on March 20, 2013, we had a major victory in the Court of International Trade, in the attached Swiff Train et al, v. United States case, which has just been released last week to the public. PUBLIC CIT DECISION WOOD FLOORING  Judge Musgrave has sent the final affirmative injury determination by the US International Trade Commission (“ITC”) in the Multilayered Wood Flooring from China antidumping and countervailing duty case back to the ITC for a remand on a host of different issues.

The most important point in this remand decision, however, is that the Court has made clear that the ITC has to meet a higher level in finding causation in antidumping and countervailing duty cases.  Before the Commission and Court in this case and other cases, I have argued that the ITC must use a “but for” causation standard at a minimum in determining whether imports from China in antidumping and countervailing duty cases are a cause of material injury to the US industry.  The ITC has continually rejected these arguments and stated that the Commission does not have to use a “but for” standard in its injury determinations in countervailing duty and antidumping cases.

Many international trade practitioners also have criticized this argument and not used it.  Thus, the “but for” argument was not made by the respondents in the Solar Cells from China ITC injury investigation.

In Swiff Train v. United States, however, the Court of International Trade found differently.  More specifically, Judge Musgrave stated:

“Our appellate courts have explained that the “by reason of” language requires application of the “but-for” legal causation standard. . . .

The Commission needs to ensure that the subject imports, as compared to other economic factors affecting the domestic industry, were not (“sic”) a but-for cause of the injury. That is not the end of the analysis, though, because the statute requires that the injury caused be “not inconsequential, immaterial or unimportant.” 19 U.S.C. § 1677(7)(A). Thus, the Commission must determine whether the subject imports were a but-for cause of injury, as well as whether the quantum of injury was material or consequential. The court finds that the legal and factual analysis performed by the Commission in this instance misses the mark and thus the conclusion of material injury is not supported by substantial evidence.

Under applicable law, the Commission must reconsider its findings. In particular, the Commission must perform a “but-for” causation analysis of whether the subject imports materially injured the domestic industry. Paraphrasing the standard summarized in Price Waterhouse, the Commission should “begin by assuming that [the subject imports were] present at the time of [the POI], and then ask whether even if [the subject imports] had been absent, [the performance of the domestic industry] would have transpired in the same way”. Price Waterhouse, 490 U.S. at 240. The court directs the Commission to consider the impact of the subject imports “within the context of the business cycle and conditions of competition that are distinctive to the affected industry”, while considering whether the subject imports had a material “but-for” impact on the domestic industry.”

More importantly, the Court stated that although the Commission has discretion in how to apply the causation standard, the standard itself is set by the Court and that standard is now “but for” causation.

In footnote 7, the Court specifically stated:

“The Commission misunderstands its role in applying the statutory “by reason of” standard (explained in Gerald Metals and Mittal). While the Commission may, in its discretion, make findings regarding whether the standard is met or choose an evaluation methodology suited to a particular case, its discretion does not extend to defining the standard itself.”

This case will probably have a major impact on ITC injury determinations in many future antidumping and countervailing duty cases involving China if the “but for” causation standard is raised in briefing before the ITC.  This case will definitely raise the causation standard in ITC injury cases.

TRADE ARTICLE

Attached is an article that Don Bonker and I published in the China Daily on March 22, 2013 about the importance of avoiding a US China Trade War and of making US antidumping and countervailing duty laws less protectionist and more real.  CHINA DAILY MARCH 22ND  See http://usa.chinadaily.com.cn/epaper/2013-03/22/content_16335507.htm

Don and I also clarify that the real target of US Trade cases against China is the US company importing products into the United States.  We also emphasize the importance of US importers fighting in Washington DC to modernize US trade laws by giving market economy treatment to China in 2016, as required by the US China WTO Agreement, not for China, but for US importers.  As the Article states:

“While America’s trade laws are rightly intended to protect domestic producers from unfair trade practices, what is little understood is that the imposed tariffs actually penalize the US importers who end up paying the tariffs. In most cases, the vast majority of US importers are small and medium-sized US companies who are often unaware of this liability and must cope with what amounts to a heavy fine that can also be applied retroactively.

The duties, or tariffs, can be substantial. In a case involving the importation of wooden bedroom furniture, the duties for one Chinese exporter went from 16 to 216 percent, which amounted to an estimated $200 million liability that had to be paid by US importers purchasing the furniture. US importers are coping with millions of dollars in trade-related liability cases, ranging from garlic, crawfish and honey to citric acid, silicon metal, ironing tables, wooden bedroom furniture, steel wire nails and many products too numerous to mention, often causing US import companies to go bankrupt.

In some cases, prohibitive tariffs can be counterproductive. The Obama administration has clamped down on the importation of renewable energy products (wind towers, solar cells, etc), driving up costs of clean and efficient energy production, thus undermining what was a high priority for his first term. In the last two years, countless solar and wind towers plants have gone bankrupt due, in part, to the higher tariffs that make it difficult for these startups to be cost effective.

Reciprocity is inevitable if one country deems another of engaging in unfair or discriminatory trade practices. In response to the solar cells case, China has initiated an antidumping and countervailing duty case against the US for $2 billion worth of US-produced polysilicon that goes into Chinese solar cells, which are exported to the US. In a trade war, nobody wins.

How can we avoid going down the path of protectionism and possibly trigger a trade war with our most important trade partner?  Congress should re-write US trade laws to insure more balance and fairness to replace the current laws that strongly favor one set of US companies over others. A key issue in the near future is making China a market economy country. If China becomes a market economy, the Commerce Department will have to use actual costs and prices in China to calculate dumping rates.

But there will be resistance, to be sure, from those domestic companies who will fight any changes in the current system that maintains their competitive advantage. They are well equipped in the lobbying business given the coalitions formed to promote their interests on Capitol Hill and before government agencies. The importing companies must likewise collaborate to more effectively get their side of the story to the decision-makers to insure that the effects of prescribed duties on US importers are properly considered.”

TRADE—SOLAR CELLS

On March 19th before the Senate Finance Committee Subcommittee on Trade, Sen. Ron Wyden (D-OR) urged Acting U.S. Trade Representative Demetrios Marantis to consider a “global solution” to what he said was the “uncertainty” in the solar industry caused by trade remedy cases that U.S. manufacturers filed in 2011 to protect themselves against dumped and subsidized solar cells from China.

The irony is that Senator Wyden was one of the most visible proponents when Solar World filed its antidumping and countervailing duty case in the Fall of 2011.  Apparently the antidumping and countervailing duty orders have not worked.  U.S. manufacturers, such as SolarWorld, have told administration officials that the trade remedy orders now in place in the U.S. have not been that effective in raising prices in the U.S. market.  One company stated that prices have only gone up between five and 10 percent.

Obviously, the major reason is the Solar Cells loophole.  If the solar cells are produced in third countries and put in modules and panels in China, the modules and panels are outside of the antidumping and countervailing duty order.  But the volume of imports of solar panels into the United States has gone down compared to last year, as some of the smaller Chinese manufacturers have been forced out of the US market.  Prices, however, remain too low probably because of other economic factors, such as grid parity and the falling price of natural gas.

As stated on January 1, 2013 in Renewable Energy World, http://www.renewableenergyworld.com/rea/news/article/2013/01/the-solar-outlook-for-2013, most experts predict little impact from the US Solar Cells Antidumping and Countervailing Duty Orders Against China:

“The recently published U.S. Solar Market Insight Report, which was released by the Solar Energy Industries Association (SEIA) and GTM Research, states that the impact of tariffs imposed against Chinese solar manufacturer providers will be minimal, as they only apply to panels using Chinese manufactured solar cells – something that can be easily circumvented.

According to Shah, Chinese solar manufacturers will be virtually unaffected by the tariffs because of a pre-existing diversity in their solar product lines. “Today, the Chinese already diversify by using Taiwanese cells,” Shah explained, “so they’re just sending those Taiwanese cell modules to the U.S. instead.”

The SEIA report claims that “tariffs will not have a material impact on pricing in the U.S.” and goes on to explain that Taiwanese-obtained solar cells will come with a cost impact of less than $0.10 per watt.”  That equates to $3.00 usd per solar panel.  It does not change the product selling price at all.”

To have a truly global solution, however, in all probability the U.S., European Union, and China would have to be included and the agreement would have to include the polysilicon producers.  Wyden stated:

“I think it’s fair to say there’s a fair amount of market uncertainty now with respect to renewable energy, and particularly solar.  It seems to me there could be some real value in the United States looking to put together what I’ve essentially called … a kind of global resolution.”

This type of agreement has been discussed in the past, and industry sources, such as polysilicon producer, Dow Corning have stated that such an agreement would benefit the solar industry as a whole.  But although there is still time for an agreement in Europe, such an agreement would be more difficult in the US.  Formal “suspension” agreements pursuant to the antidumping and the countervailing duty law must be negotiated before antidumping and countervailing duty orders are issued so that the investigations can be suspended.

To date the Administration, including Acting USTR Marantis have been non-committal.  But with Congress involved, anything is possible.  At the hearing, Wyden stated that the U.S. should lead the way in settlement talks. “I think the United States ought to be leading those kinds of discussions. . . .”

In other words, for all the bluster and speeches, the US Solar Cell Trade War has not increased the price of solar cells in the United States by any significant amount; $3 a solar panel is not a significant impact.  But the Solar Cells case has smashed US importers and hurt US exporters of US produced polysilicon that goes into the Chinese solar cells.  One of the major problems with US antidumping and countervailing duty cases is that they do not work.  They do not help the US industry.  The major losers in a US China Trade War are US importers and US exporters.

US RESPONSE TO CHINA WTO SUBSIDY CASE

Attached is the US government’s March 15, 2013 response in the WTO to the Chinese government’s case against US Countervailing Duty cases against China.  US GOVT CVD RESPONSE

PATENTS

SOLAR POWERED GARDEN LIGHTS

Attached are just some of the March 27, 2013 complaints filed by Simon Nicholas Richmond against numerous Chinese companies and US retailers for patent infringement for imports of solar powered garden lights.  Some of the respondents are: Lumisol Electrical Ltd, Ningbo Hangshun Electrical Co. Ltd, Ethan Electronic Appliances (Ningbo” Co., Ltd., Robert Kang, Costco, Pine Top Sales, Quanzhou Bright Solar Energy Co., Ltd, Jeeyee Solar Energy Intl Development Co, True Value, Forever Gifts Texas and China, Daintilly, Liqiao Electronic Equipment, HSIN, HSN General Partner, HSN, Winchance Solar Fujian Technology, Co., LAR Fujian Technology, Coleman Cable, NII Northern International, The Home Depot, Kmart, Unbeatable Sale, Amazon, Wayfair, Menard, Plumber Surplus, Jiawei North America, Shenzhen Jiawei, Caremark, ACE Hardware, Target, Creative, Arrett Sales, Do It Best, Outsourcing in Asia, Bed Bath & Beyond, Cien Luen Industries, King of Fans and Lowe’s, Sears, Smart Solar and Import Specialties.  GARDEN LIGHTS 2 GARDEN LIGHTS 3 GARDEN LIGHTS 4 GARDEN LIGHTS 5 GARDEN LIGHTS 3272013

TRACTORS

On March 20, 2013 Briggs & Stratton Corporation filed a patent complaint against imports of Raven Tractors against Chongqing RATO Power Co., Ltd., RATO North America, and Denver Global Products, Inc.  See attached complaint.  BRIGGS STRATTON 3202013

ANTITRUST

US VITAMIN C ANTITRUST CASE

I was recently quoted in the attached Chinese Sina article in http://finance.sina.com.cn/column/international/20130319/101414877509.shtml SINA VITAMIN C ARTICLE about the Vitamin C antitrust case and in the attached article in Caijing Magazine VITAMIN C CAIJING ARTICLE.

The most recent news on the Vitamin C case is that Weisheng Pharmaceutical Company Ltd. and its parent, China Pharmaceutical Group Ltd., agreed to pay $22.5 million and comply with any injunction issued against any co-defendant to  settle price-fixing claims for vitamin C after dropping out of a class-action trial in New York federal court that walloped their co-defendants with a $54.1 million penalty, which tripled became $162 million.  Attached is a copy of the settlement agreement.  VITAMIN C SETTLEMENT

According to the Agreement, Weisheng and CPG will pay $20 million into an escrow account for the direct purchaser damages class within 40 days of the agreement’s execution, and the remaining $2.5 million within 365 days of the agreement’s final approval. They also will accept the terms of any injunction entered against a nonsettling defendant.

If you have any questions about these cases or areas, please feel free to contact me.

Best regards,

Bill Perry

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