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

IMPORTERS OF RECORD AND FALSE CLAIMS ACT HAMMER AGAINST TRANSSHIPMENT

House of Representatives US Capitol North Side Night Stars WashTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 3, 2016 

Dear Friends,

Set forth below are two more articles on importer of record liability for antidumping and countervailing duties and the False Claims Act hammer against illegal transshipment around US antidumping and countervailing duties.

Best regards,

Bill Perry

IMPORTERS OF RECORD LIABILITY FOR ANTIDUMPING AND COUNTERVAILING DUTIES

The US Importer of Record is liable for antidumping and countervailing duties. The Importer of Record is the company listed in Block 26 of the U.S. Customs 7501 form. When I told a former US Senator this, he responded by saying he “thought the Chinese company was liable for the duties, not the US company.”

Under US Antidumping, Countervailing Duty and Customs laws, the Importer of Record must exercise reasonable care in importing products and in filling out Customs forms. The Importer of Record must correctly state the products’ country of origin and also whether Antidumping and Countervailing duties apply to the imported products. A knowingly false statement on a Customs form constitutes criminal fraud.

If AD or CVD rates go up in a subsequent review investigation, the Importer of Record is retroactively liable for the difference, plus interest. Retroactive liability for AD and CVD cases is a particular problem involving goods imported from China, because the Commerce Department treats China as a nonmarket economy (“NME”) country. Dumping is generally defined as selling products in the United States below their normal value, which generally means selling products in the United States below their prices in the home market or below the fully allocated cost of production.

Since China is a NME, Commerce refuses to use actual China prices and costs to determine whether a company is dumping. It instead uses complicated consumption factors for raw materials and other inputs and multiplies the factors by surrogate values from five to ten constantly changing countries to calculate a cost of production for the Chinese company. All this makes it impossible for the Chinese manufacturer/exporter to know whether it is dumping, never mind the US importer.

In the Mushrooms from China antidumping case, from the time the antidumping order was  issued in 1999 through numerous subsequent yearly review investigations, many antidumping rates were in the single digits because Commerce used India as the surrogate country. But when in 2012 Commerce switched from India to Columbia as the surrogate country, the Antidumping rates went from less than 10% to more than 200% because of surrogate values for straw and cow manure in Columbian import statistics. The Importers of Record then became liable for the difference in the duty rates, plus interest.

How can you as an importer of products from China (or from anywhere else for that matter) avoid getting hit with a massive antidumping or countervailing duty fee? Do not become the Importer of Record. The dollars saved by this can be staggering.

In the Wooden Bedroom Furniture from China initial investigation, for example, I represented a company importing from a Chinese furniture company.  Based on my advice, the importer pushed the Chinese furniture producer to become the importer of record for its own sales to the company.

In the initial investigation, the Chinese furniture company received an AD rate of 16%.  In the first review investigation, however, Commerce determined that the questionnaire data did not verify and issued the Chinese furniture company an AD rate of 216%.

The US company estimated that the Chinese producer exported $100 million, which created $200 million in retroactive liability for US importers.  The Chinese company then decided not to do the second review investigation creating another $200 million in retroactive liability for a total of $400 million in retroactive liability created by just one Chinese company.

My client, however, escaped liability because it was not the importer of record on the sales from that Chinese company, but many US import companies were not so lucky and went bankrupt.

If your company is the Importer of Record and its antidumping or countervailng duty rates go up, you need to realize that U.S. antidumping and countervailing duty laws are remedial, not penal statutes. This means requesting review investigations at the Commerce Department, appealing adverse rulings to the Courts and working with Customs can often substantially reduce your duties or even eliminate them entirely. Chinese exporters also can (and often do) use the Commerce review process to reduce their antidumping and countervailing duty rates so that they can export to the US again.

BEWARE THE FALSE CLAIMS ACT HAMMER WHEN IMPORTING PRODUCTS FROM CHINA

Chinese companies and the U.S. importers of their products often tell me that they are not concerned about U.S. Antidumping (“AD”) and Countervailing Duty (“CVD”) orders because they can “just get around those orders by transshipping the products to Malaysia, Vietnam, Philippines, Sri Lanka, India, or some country before sending them on to the United States.” Their plan is to relabel the products with a new country of origin and then export the products to the US free of AD and CVD duties, without US Customs and Border Protection (“CBP”) ever being the wiser.

Wrong.

Not only has CBP become expert at discovering such evasions, but the penalties — both civil and criminal — when caught have become very harsh. Importers that knowingly falsely label the country of origin on their imports are subject to significant fines and penalties under 19 USC 1592 and to criminal prosecution under 18 USC 542 (import by using false statement) and 18 USC 545 (smuggling). Lying about a product’s country of origin can subject you, the importer, to 20 years in Federal prison.

Immigration and Customs Enforcement (“ICE”) has conducted criminal investigations against a number of products under AD and CVD orders, including honey, saccharin, citric acid, lined paper products, pasta, polyethylene bags, shrimp, catfish, crawfish, garlic, steel, magnesium, pencils, wooden bedroom furniture, wire clothing hangers, ball bearings and nails. Many of these investigations have led to criminal convictions and large fines and penalties.

US importers have also been prosecuted and sentenced to prison for bringing in Chinese products, such as honey, garlic, wooden bedroom furniture and wire clothing hangers, by means of false Country of Origin statements so as to evade US AD and CVD orders.

Many Chinese companies do not realize that U.S. Customs laws can be used to go after not only US importers that have filed the false documents at Customs, but through a conspiracy charge against Chinese (and other foreign exporters) involved in setting up the transshipment. In one case, a Chinese seafood executive was arrested at a seafood show in Belgium based on a US extradition warrant for evasion of a US AD order and ending up spending six months in a Belgian prison before he was released.

US Customs, ICE and the Justice Department can be very tough investigators and prosecutors.

The real hammer against evasion of US AD and CVD orders, however, is the False Claims Act (“FCA”).  The FCA ( 31 U.S.C. § 3729) allows people or companies, designated a “Relator”, to file what are termed “qui tam” lawsuits against individuals or companies that directly or indirectly defrauded the Federal government.  Through qui tam lawsuits, the informants or “whistleblowers” may recover triple damages on the government’s behalf.  Anyone who knows of the fraud, including a competitor company, may file a qui tam lawsuit, and they do.

Relators can be competing companies in the United States, China or elsewhere or even individual employees working at those companies.  Relators file these qui tam actions to attack competitors and to get 15 to 30 percent of whatever the triple damages the U.S. Government recovers as a result of the lawsuit.

The most likely to file these lawsuits are your foreign competitors, Chinese competitor, U.S. competitors, U.S. importers, your employee at your Chinese exporting company, your employee at your U.S. importing company.  But sometimes they are brought by someone who simply learned of what you are doing.  Because the person or company that brings such an action can be awarded millions and even tens of millions of dollars, the incentive to file is huge. If you want to get a better idea of just how lucrative these lawsuits can be, do a Google search for lawyers looking to take on qui tam lawsuits. There are hundreds, if not thousands of lawyers, willing and eager to take such suits.  Reportedly the most lucrative Google keyword search is “qui tam”.

The qui tam relator’s lawsuit is filed confidentially and is not served on the defendants, but on the US Government.  The US Government then determines whether to intervene and pursue the action or settle the matter with the defendant. If the U.S. Government intervenes, it takes on primary responsibility for the case. If the U.S. Government decides not to intervene, the relator may dismiss the lawsuit or pursue the lawsuit on its own.

Under the False Claims Act, relators and the government can look backward as much as ten years after the date on which the violation was committed. When looking at imports over 10 years subject to antidumping orders with very high rates of over 50 to over 300%, the amounts being evaded are usually enormous. In one False Claims Act we handled, the antidumping duties evaded were over $80 million. When those duties were tripled, and additional penalty sums were added for false statements and attorneys’ fees, the complaint against numerous importers exceeded $300 million. Our original complaint has resulted in an ongoing penalty action for $80 million against one U.S. importer, with the relator entitled potentially to $12 to $24 million of this sum.

Both the U.S. Government and private companies and individuals have huge incentives to bring more False Claims Act cases against those who transship and seek to evade U.S. antidumping and countervailing duties.

If you are exporting to the United States or importing into the United States, you need to be wary of the hammer against transshipment—the False Claims Act.

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