US CHINA TRADE WAR–TRUMP SIMPLISTIC APPROACH TO TRADE INJURES US COMPANIES, US AGRICULTURE BADLY HURT, NAFTA NOT GOING WELL, SECTION 301 AND 232 CASES, TRADE ADJUSTMENT ASSISTANCE, SOLAR, FALSE CLAIMS ACT, MORE CASES

White House Washington DC

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 30, 2017

 

Dear Friends,

As stated in many past blog posts, it is easy for Candidate Trump to talk protectionism, but President Trump is now learning it is much more complicated.  Trump’s decision to push protectionism endangers his standing with a core constituency—farmers and rural America.  As stated below, Trump’s decision to tear up the Trans Pacific Partnership (“TPP”) has already had a major negative impact on farmers.

Trump’s call for an economic war with China and other countries is already having a ramification.  Trump’s threat to pull out of NAFTA is not helping the US position in the negotiations.  Trump simply does not understand the ramifications of the trade deal when he terminated the TPP or when he threatens to tear up NAFTA.

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

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

Trump simply did not understand the dynamics of the Trans Pacific Partnership (“TPP”) and the ramifications of simply terminating it.  During the campaign, Candidate Trump stated that the TPP was a bad deal and if only he led the negotiating the team, it would be a better deal.  Thus, Trump argued that the TPP deal should be terminated and the US should then negotiate bilateral deals with the eleven countries in the TPP.

But two major problems with that strategy are becoming very clear.  First the United States Trade Representative (“USTR”) does not have the personnel to negotiate 11 separate trade deals with the individual countries.  It took more than five years to negotiate the TPP.  With Trump’s steep cuts to the Government bureaucracy, the government resources simply are not there.

Second, Trump did not understand the dynamics of the TPP deal.  During those negotiations, countries could give the US concessions because they would get offsets from other countries and the importance of gaining access to the markets of 11 other countries was worth the concession to the US.

But with no other countries in bilateral deals, the other countries are less willing to make the concessions the US is demanding.  In fact, as Robert Lighthizer, the USTR, has discovered, many of the countries in the TPP do not want to have a bilateral deal with the US.  They fear and rightly so that the US will demand too much.  Much easier to export and import from other countries.

The same problem is happening in the NAFTA negotiations.  Trump is threatening to leave NAFTA when he simply does not understand the dynamics of the deal and the devastating impact that such a withdrawal would have on US farmers and also US manufacturing industries, such as the US auto industry.  Trade is very complicated and running into the trade area like a bull in a China shop simply creates enormous damage.  That damage will be borne by the US agricultural industry and US manufacturers and that means the loss of 1000s if not 100s of thousands of jobs.

Labor unions and working men like the sound of being politically tough on trade and the foreigners, but when jobs are lost, those same people may not like the actual reality of a very protectionist policy.  Many American politicians, such as Donald Trump and Senators Chuck Schumer and Bernie Sanders, like to be tough on trade because foreigners do not vote.  But if the economy is hurt by Trump’s trade actions, his base will be hurt and he will not be the next President.  So there a lot riding on Trump’s trade policy and his Administration has run straight into the Wall of actual trade reality.

The only saving grace for Trump is that as evidenced by Senators Chuck Schumer and Bernie Sanders, the Democrats are even more protectionist than Trump.  But neither the Democrats nor Trump understand the true ramifications of simply walking away from trade deals that open up foreign markets.  The US agricultural industry is now learning those ramifications.

By kowtowing to the Steel industry with its 141,000 jobs, these trade actions could costs thousands, if not hundreds of thousands, of jobs in downstream industries and other industries, such as Agriculture. It is time for the United States to wake up to the benefits of trade.

It is also time for the United States to find a way to make its companies more competitive in the US and international markets as they exist now rather than erect protectionist barriers to international competition.  See the article on Trade Adjustment Assistance for Companies below and how companies, including steel companies, can be saved from import competition by making them competitive again.

USTR has also initiated a section 301 case against forced technology transfers in deals with China.  But in an August 30, 2017 article by Dan Harris, my partner, entitled “China US Trade Wars and the IP Elephant in the Room”, Dan states that in over one hundred deals with Chinese companies, he has not seen US companies forced to give over their Intellectual Property (“IP”) by the Chinese government.  Instead he has seen US companies make bad decisions leading them to give away their IP by their own volition.  If US companies do not protect their IP rights, they will lose them.  The US Government cannot protect against stupid mistakes.

Meanwhile, the Section 232 Steel and Aluminum cases remain on hold.  The Section 201 case against imports of Solar Cells continues with the ITC hearing being 11 hours long. The United States has intervened in a False Claims Act case against Furniture.  Commerce has also issued a circumvention determination in the Aluminum Extrusions case.

More Antidumping and Countervailing Duty and 337 cases have been filed against China and the trade beat goes on.

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

THE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—TRADE

Donald Trump’s political strategy is fight the cultural war, but win the next election because of his economic policy.  If jobs and wages are up, more companies move into the US, Trump’s firm belief is that he wins the next Presidential election.  Even Michael Moore, the Democratic gadfly, believes that Trump will win reelection by carrying the states that he already won.  See https://www.fastcompany.com/40459122/michael-moore-says-trump-is-on-track-to-win-again-in-2020.

There is only one fly in the ointment, flaw in this strategy—Trade.  If the Trump trade policy hurts farmers, Trump could lose the rural states: Iowa, Kansas, North Dakota, South Dakota, Montana, Wisconsin, Oklahoma, and Arkansas, to name a few and that could lead to Trump’s loss in the next Presidential election.

The economic nationalist Steve Bannon, who is credited with helping get Donald Trump elected by in part pushing the American First Trump policy, was recently forced out of the White House.  Before he left, however, Bannon made his trade position crystal clear.  in an article entitled “Steve Bannon Unrepetent”, in the American Prospect” magazine on August 16, 2017, Bannon stated with regards to trade policy:

“We’re at economic war with China,” he added. “It’s in all their literature. They’re not shy about saying what they’re doing. One of us is going to be a hegemon in 25 or 30 years and  it’s gonna be them if we go down this path.  . .

Bannon went on to describe his battle inside the administration to take a harder line on China trade, and not to fall into a trap of wishful thinking in which complaints against China’s trade practices now had to take a backseat to the hope that China, as honest broker, would help restrain Kim.

“To me,” Bannon said, “the economic war with China is everything. And we have to be maniacally focused on that. If we continue to lose it, we’re five years away, I think, ten years at the most, of hitting an inflection point from which we’ll never be able to recover.”

Bannon’s plan of attack includes: a complaint under Section 301 of the 1974 Trade Act against Chinese coercion of technology transfers from American corporations doing business there, and follow-up complaints against steel and aluminum dumping. “We’re going to run the tables on these guys. We’ve come to the conclusion that they’re in an economic war and they’re crushing us.”

From Bannon’s point of view, trade is economic war.

Although Bannon has since left the White House, President Trump and Commerce Secretary Ross apparently share Bannon’s thinking.  On August 22nd, without understanding the ramifications on his voter base, President Trump announced that he might simply cancel NAFTA.  Apparently, Trump believes that both Mexico and Canada are winning the economic war against the United States.

On August 28th, in an article entitled “Exclusive: Trump vents in Oval Office, “I want tariffs. Bring me some tariffs!”, Axios reported that in the first Oval Office meeting with Chief of Staff John Kelley and the last meeting with Steve Bannon, President Trump stated:

Trump, addressing Kelly, said, “John, you haven’t been in a trade discussion before, so I want to share with you my views. For the last six months, this same group of geniuses comes in here all the time and I tell them, ‘Tariffs. I want tariffs.’ And what do they do? They bring me IP. I can’t put a tariff on IP.”  . . .

“China is laughing at us,” Trump added. “Laughing.”

Kelly responded: “Yes sir, I understand, you want tariffs.” . . . .

Staff secretary Rob Porter, who is a key mediator in such meetings, said to the president: “Sir, do you not want to sign this?” He was referring to Trump’s memo prodding Lighthizer to investigate China — which may lead to tariffs against Beijing.

Trump replied: “No, I’ll sign it, but it’s not what I’ve asked for the last six months.” He turned to Kelly: “So, John, I want you to know, this is my view. I want tariffs. And I want someone to bring me some tariffs.”

Kelly replied: “Yes sir, understood sir, I have it.” . . .

Trump made sure the meeting ended with no confusion as to what he wanted.

“John, let me tell you why they didn’t bring me any tariffs,” he said. “I know there are some people in the room right now that are upset. I know there are some globalists in the room right now. And they don’t want them, John, they don’t want the tariffs. But I’m telling you, I want tariffs.” . . . .

Emphasis in the original.

Trump’s statements in this article ring true because during the Presidential campaign, Donald Trump made it very clear that he likes tariffs.

On August 28th, however, George Will in an Op-ed article entitled “Trump, The Novice  Protectionist” in Investors Business Daily responded to the Trump trade policy stating:

“Foreigners, however, have their uses. After the president trumpeted that the Dow surpassing the 22,000 mark was evidence of America’s resurgent greatness, The Wall Street Journal rather impertinently noted this: Boeing, whose shares have gained 50% this year and which accounted for 563 of the more than 2,000 points the Dow had gained this year en route to 22,000, makes about 60% of its sales overseas. Boeing has a backlog of orders for 5,705 planes, 75% going outside North America. For Apple, the second-biggest contributor (283 points) to this year’s Dow gain at that point, foreign sales are two-thirds of its total sales. Foreign sales are also two-thirds of the sales of McDonald’s, the third-biggest contributor (239 points).

Mark Perry of the American Enterprise Institute says that in the last 20 years the inflation-adjusted value of U.S. manufacturing output has increased 40% even though — actually, partly because — U.S. factory employment decreased 5.1 million jobs (29%).  . . . Increased productivity is the reason there can be quadrupled output from the same number of workers.  According to one study, 88% of manufacturing job losses are the result of improved productivity, not rapacious Chinese.

But those Democrats who think government should fine-tune everything are natural protectionists (Sen. Charles  Schumer: “They’re  rapacious, the  Chinese”)  and probably think Trump is too fainthearted because he is not protecting Americans from competition from Americans.  . . .”

TRUMP TRADE WAR—THE SIMPLISTIC APPROACH TO TRADE COULD WELL DAMAGE THE US ECONOMY AND DOOM THE TRUMP ECONOMIC PLAN

In the above articles about Bannon’s and Trump’s approach to trade along with the below op-ed article in the Wall Street Journal by Commerce Secretary Wilbur Ross, the Trump trade team reveal the protectionist bent of the Trump Administration, which is based, in part, on blind arrogance and a simplistic approach to trade policy.

The Bannon and Trump approach reveal fatal misunderstandings:  trade is a two-way street, and US exports are critical to the wellbeing of Donald Trump’s own constituents.  In international trade, what goes around comes around.  What the US does to other countries, they can do back to the US.

Moreover, Bannon, Ross and Trump are confusing economic warfare with economic competition.  The United States has always strongly believed that economic competition is good for the economy, the country and the US consumer.  The bedrock principle of the importance of economic competition to wellbeing of the US economy is the reason the US antitrust laws were enacted. As Deputy Assistant Attorney General Roger Alford of the US Justice Department’s Antitrust Division recently stated on August 30th at a Competition Policy Forum in Shanghai China:

Our continued engagement on this topic is significant for competition enforcement. We are the guardians of strong and vigorous competition for economic prosperity. Our lodestar is to promote competition, not to give preference to specific competitors, even when individual businesses jockey for advantage.  . . .

Emphasis added.

Bill Gates believed that Microsoft had to go to war with its competition, but frankly that is why Microsoft produced such good software.  CEOs of companies are driven by competition to produce better products at lower prices, which means stronger US companies and prosperity for the US economy and US consumers.  Stronger US companies means more jobs at higher wages.

Protecting US companies from international competition does not strengthen the US companies.  It weakens them and the poster child for such a point is the US Steel industry, which has had 40 years of protection from steel imports.

This is exactly why President Ronald Reagan was so opposed to protectionism.  As President Reagan stated above in June 1986: “Protectionism is destructionism. It costs jobs.”

Moreover, Steve Bannon and Donald Trump have not figured out one important point: Not only do companies compete against each other and States compete against each other, but the United States and other countries compete against each other.  The US decision to go the Protectionist route means it has given up competing, and, therefore, it will lose the economic war.  Trump’s and Bannon’s combined with the Democrat’s protectionist policies mean the US will lose the economic war because of its decision to look inward and no longer compete in the international economic marketplace.

US companies do not get stronger by protecting them from international competition, which simply promotes the mentality of international trade victimhood.  US companies get stronger by looking inward and working harder to become internationally competitive.  See the article about Trade Adjustment Assistance for Companies below.

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

The Trans Pacific Partnership, for example, combines the markets of 12 countries, now 11 with the US exit, into one “huge” trading block.  Since Mexico, Canada, Japan, Australia and New Zealand are part of that block, the TPP market is a much larger market than the US alone.  Mexico and Canada are also in a stronger trade position than the US because they already have free trade agreements with a number of other countries, including the EC, and that gives them a substantial competitive advantage getting into those markets.  This fact gives Canada and Mexico leverage in the NAFTA negotiations even though Trump, Lighthizer and Ross simply do not understand the dynamics of the deal.

Maybe this is a major reason US companies move to Mexico and Canada to get better access to other foreign markets.  The United States is competing with other countries too.

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

Also the upper class and upper middle class in China, which numbers between 250 to more than 300 million, have an income closer to the US and that segment of the China market is the same size, if not larger, than the US.  That is why in the push for the Trans Pacific Partnership (“TPP”), House Speaker Paul Ryan used to state that 75% of the World’s consumers are outside the United States.

But China is also not this overwhelming behemoth with an economic juggernaut that is going to crush the US.  Yes, it may have a larger market, but on a per capita basis, it is much smaller.  Thus, the US per capita income on average is $57,000 where the Chinese per capita income is $8,000.  China has its own problems—keeping its people happy and fed.

Along with these problems, China has major weaknesses, which can be exploited by the US.  China has a very high personal tax rate, which can be as high at 45%.  This high tax rate is why many Chinese have emigrated to the US, looking for a lower tax rate and a better opportunity to keep the money they earn.  If Trump can drive taxes lower, that may result in more entrepreneurs and businesses moving to the US, e.g. Foxconn.

Another problem is the Chinese government’s strict control of information flowing into China by its very strong control of the internet.  Strict control of the internet stops knowledge flowing into China, which especially hurts the country’s high tech sector.  When information and knowledge stop, economies do not do as well.  The free flow of knowledge and ideas is critical for the most advanced economies and yet that is not true in China.

But arrogance is one of the great sins because it blinds you to all options.  To make a better deal in trade negotiations, the Administration has to do its homework and first understand the actual American interest.  If one is going to make America great again, one must first understand what is the nature of America’s interest in trade.  This requires understanding the dynamics of the trade deal in question, which President Trump prides himself in doing.  The Trump Administration must understand the actual trade deal closely, the US leverage points and the US weaknesses, what trade deals will help the US and the what trade deals will hurt the US interest.  Donald Trump’s failure in trade negotiations is to understand the dynamics of the deal and the leverage that the US has in trade negotiations.  In other words, with regards to trade, Trump simply does not understand “The Art of the Deal”.

In ripping up the TPP without even trying to renegotiate, Trump failed his own test because he did not understand the elements of the deal.  Trump’s philosophy was to do away with multilateral deals because they fall to the lowest common denominator and do only bilateral deals because that gives the US more control over the deal and if the country does not live up to its side of the bargain cancel the deal.

The problem with that approach is first the US government does not have the personnel at USTR, which is very lean and mean, to negotiate 11 separate trade deals with all the countries in the TPP.  It took more than 5 years to negotiate the TPP.

But secondly and more important, in recent bilateral negotiations, Canada, Mexico and Japan have all told the US do not assume that in bilateral deals or NAFTA, the United States will get the same deal it would have gotten in the TPP.  In fact, as indicated below, many countries in the TPP simply do not want to do a bilateral deal with the US—too much work.  Canada, Mexico and Japan were willing to give the US a better deal because they would gain access to a much greater market, the market of 11 additional countries.  That gave countries the political ability to play one national interest against another national interest.  Thus, Canada could give in to the US on dairy products because of the potential access to the much larger TPP market, including the Japanese and US markets.  Thus, countries in the TPP could use tradeoffs with other countries to open their markets further to US exports.  Those trades offs and the market access to the markets of 12 different countries does not exist with a bilateral deal with just the US.

On August 24, 2017, in an article entitled “Revived TPP may exclude trade concessions sought by US”, Nikkei, a Japanese newspaper, stated:

TOKYO — Japan is proposing suspending trade concessions made to the U.S. as part of the Trans-Pacific Partnership in order to resurrect the pact with the 11 remaining members.

Tokyo sounded out that proposal to other nations in the “TPP 11,” as those members became known after the U.S. withdrew from the deal. Senior negotiators will cite items they wish to see shelved during three days of talks starting Monday in Australia.

Washington had secured a number of major concessions from other nations in exchange for lower American tariffs on their exports. Though President Donald Trump pulled the U.S. out of the deal, those concessions remain on the TPP’s books — to the consternation of other members.

If all the 11 participants agree unanimously, any such concession would be put on hold, and national regulations governing that element of the pact would remain in place.
But the suspensions would be lifted if and when the U.S. decides to return to the partnership.

While the remaining members are leaning toward keeping the lower tariffs agreed on among the initial group, they are likely to revisit specific trade rules.

The U.S. sided with major domestic drug companies and settled on an effective eight-year window before competitors can have access to proprietary pharmaceutical data. That moratorium exceeds international standards, and other countries think it would impede development of cheap generics. All members of the TPP 11 are expected to agree on freezing that provision.

Other provisions that may be suspended involve copyright protection periods, fair-competition policies governing state-owned enterprises and the opening of government procurement to foreign capital.

American exports would face a competitive disadvantage if an 11-member TPP goes into force. Tokyo hopes that U.S. meat industry leaders will speak up in favor of rejoining the trade deal.

Trade is the one weak link in Trump’s economic plan.  As indicated below, the decision to kill the TPP has already had a major negative impact on US agriculture and part of Trump’s base, the rural states, where agriculture is king.

SIMPLICITY IS OFTEN A GOOD TRADE POLICY BUT NOT WHEN THE POLICY IS SIMPLE MINDED AND NARROWLY FOCUSED

Trump has slowed down the Section 232 Steel and Aluminum Investigations because its “complicated”, but when Bannon and Trump take a very simplistic, black and white view of trade, it is extremely dangerous to the US economy and Donald Trump’s own constituents.

This is not a fight between Globalism and America First.  The America First strategy requires the Administration to understand deeply the interest of the United States and the interest of all the significant US industries in trade negotiations, including agriculture, not just the narrow Steel and Aluminum Industries. The Trump and  Bannon statements indicate a deep failure to analyze why Trump won the election and what the interest of the entire United States is in trade negotiations and also the interest of Donald Trump’s own constituents, the voters that elected Donald Trump President.

Bannon thinks that if we create a trade war with China and are tough on them we will win the economic trade war with China. But Bannon truly has forgotten why voters elected Donald Trump.

First, it was not just the US Steel and Aluminum industries that put Trump in the White House, it was the working man in many manufacturing plants throughout the United States.  Because of their economic, black white view of the World, Trump and Bannon want to put up barriers to steel imports to protect the US Steel industry and its 141,000 jobs without realizing the damaging impact of such an action on the millions of jobs in the downstream steel consuming industries.  Truthfully, if Donald Trump is going to be reelected, Trump himself, his trade team and Steve Bannon cannot be so simple minded.

More importantly Donald Trump also won because of farmers.  Although Trump won the States in the Blue Wall, Michigan, Ohio, Pennsylvania and Wisconsin, he was also able to win the Presidency because he won the US heartland, including the states of Iowa, Kansas, Nebraska, Wyoming, Montana, North Dakota, South Dakota, Arizona, Oklahoma, Utah and Florida.  What do those states have in common and in common with Wisconsin—Agriculture.  And the Trump trade policy is and has seriously hurt US farmers because US farmers are dependent on exports.

As the US Wheat Federation stated in the Section 232 Steel case, half of US wheat is exported.  Putting up protectionist walls invites retaliation against US agricultural exports.

Finally, one other point in direct response to Steve Bannon’s and Trumps statement, substantial trade relations prevent real shooting wars.  As indicated below in the Section 301 article, China is becoming more amenable on North Korea because of its enormous trade relationship with the United States.  The total US China trade relationship is $578.6 billion with $115.8 billion in US exports and $462.8 billion in imports from China.

In direct contrast, the US trade relationship with Russia is much, much smaller.  The total US Russia trade relationship is $38.1 billion with $11.2 in US exports and $27 billion in imports from Russia.  Truly peanuts in the global trade market.  It is better to compete with countries in the economic arena as compared to a real war, where millions die.

DEMOCRATS MORE PROTECTIONIST THAN DONALD TRUMP

The only saving grace for Donald Trump on trade is that the Democrats are even more protectionist.  On August 13th, Senator Chuck Schumer, who heads the Democrats in the Senate, told John Catsimatidis on his New York AM 970 radio show “The Cats Roundtable” that he is closer now to President Donald Trump than he ever was with former President Barack Obama on trade.  Senator Schumer stated:

“Trade is the thing [China cares] most about, and they’ve been treating us very badly on trade for a long time, frankly,.  I was closer in trade views to Donald Trump than I was to either George Bush or Barack Obama, on China anyway. I think we were much too easy on them. But if we got tough on them now, maybe they would relent, but we have to be real tough. So far, the administration has not been as tough as they should be, as far as I’m concerned.”

The Trump Administration should be very tough with China on trade, but it should carefully analyze what its true interests are and the interests of US voters that elected Donald Trump.  The US government should do everything in its power to drop barriers to US exports in China and other countries.  But protectionism for protectionism’s sake will not cure the problems of US manufacturing and right the US China trade balance

TRUMP’S TRADE WAR HURTS US AGRICULTURE AND US FARMERS

As mentioned in prior newsletter, the ox that will be gored by Trump’s trade policy is agriculture and that is just what is happening.  On August 7, 2017, in the attached extensive article entitled “Trump’s Trade Pullout Roils Rural America”, Trump’s Trade Pullout Roils Rural America – POLITICO Magazine, Politico did its homework and described in detail the deep negative impact of the Trump trade policy on US agriculture:

EAGLE GROVE, Iowa—On a cloud-swept landscape dotted with grain elevators, a meat producer called Prestage Farms is building a 700,000-square-foot processing plant. The gleaming new factory is both the great hope of Wright County, which voted by a 2-1 margin for Donald Trump, and the victim of one of Trump’s first policy moves, his decision to pull out of the Trans-Pacific Partnership.

For much of industrial America, the TPP was a suspect deal, the successor to the North American Free Trade Agreement, which some argue led to a massive offshoring of U.S. jobs to Mexico. But for the already struggling agricultural sector, the sprawling 12- nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime “breadbasket of the world”—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.

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

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

“I’m scared to death,” said Ron Prestage, whose North Carolina-based family pork and poultry business made its huge investment in the plant near Eagle Grove in part to reap expected gains from the TPP. “I don’t guess I’ve gone beyond the point of no return on the new plant, but we did already start digging our wells and started moving dirt.”

He and other agricultural business people and workers have reason for concern.

On July 6, the EU, which already exports as much pork to Japan as the United States does, announced political agreement on a new deal that would give European pork farmers an advantage of up to $2 per pound over U.S. exporters under certain circumstances—a move which, if unchecked, is all but certain to create a widening gap between EU exports and those from the United States.

European wine producers, who sold more than $1 billion to Japan between 2014 and 2016, would also see a 15 percent tariff on exports to Japan disappear while U.S. exporters would continue to face that duty at the border. For other products, the deal essentially mirrors the rates negotiated under the TPP, which the United States has surrendered, giving the EU a clear advantage over U.S. farmers.

The EU’s deal is all the more noteworthy because American farmers were relying on the TPP—to which the EU was not a member—to give them an advantage over European competitors. But in a further rebuke to the United States, Tokyo decided within a matter of weeks to offer the European nations virtually the same agricultural access to its market that United States trade officials had spent two excruciating years extracting through near-monthly meetings with their Japanese counterparts on the sidelines of the broader TPP negotiations; the United States is now left out.

The EU, which also recently inked a deal with Vietnam, is now moving forward with talks with Malaysia and is in the process of modernizing a pre-existing trade deal with Mexico.

Meanwhile, a bloc of four Latin-American countries—Mexico, Peru, Chile and Colombia, known as the Pacific Alliance—is quickly becoming the leading force for free trade in the region, announcing near the end of June it would commence its own negotiations with New Zealand, Australia and Singapore, heedless of its neighbor to the north.

On its own, Australia, which in 2015 cut a deal to undersell the United States in beef exports to Japan, announced another round of scheduled tariff cuts with Japan. Without the TPP, Australian ranchers eventually will enjoy a 19 percent tariff advantage over U.S. competitors. Australia is also prioritizing the conclusion of trade talks with Indonesia, the largest nation in Southeast Asia by gross domestic product.

The remaining 11 TPP countries have already met two times, with a third meeting planned, to move ahead with the revival of the deal without the United States. The so- called TPP-11 would be in direct response to Trump’s trade policy. Economic forecasts already show projected gains for countries involved. Canada, according to one estimate, could permanently gain an annual market share of $412 million in beef and $111 million in pork sales to Japan by 2035, because lower tariffs would enable it to eclipse America’s position in the market.

As China, which was never a part of the TPP, senses blood in the water, it is moving quickly to assert itself, rather than the United States, as the region’s trade arbiter. China is aiming to close talks by the end of this year on its behemoth Regional Comprehensive Economic Partnership—a trade agreement involving 15 other Asia-Pacific countries.

None of these deals are yet in effect. But already there are signs that competitors are gaining market share over U.S. producers in the post-TPP landscape, as Pacific nations take a closer look at alternatives to U.S. exporters.

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

Japan, which saw the TPP not only as a source of economic growth but a counterweight to China, is now taking the lead in salvaging the deal. Its goal is to have some sort of agreement between the 11 other countries in place for the annual summit of Asia-Pacific leaders in November. Trump is expected to attend, creating the awkward possibility that he will witness all the handshakes and back slaps as his fellow leaders congratulate themselves on a deal.

For his part, Trump once promised a slew of “beautiful” deals to replace the TPP, but his administration has yet to lay out a detailed strategy. U.S. Trade Representative Robert Lighthizer told lawmakers that an analysis is underway to determine where it makes most sense to pursue negotiations.

In the meantime, Lighthizer, a trade attorney who pressured Japan to voluntarily restrain its steel exports when he was a trade official in the 1980s, said Tokyo should just go ahead and lower their tariffs without expecting anything in return.

“I think in the areas like beef and the others, they ought to be making some unilateral concessions, at least temporary concessions,” he told lawmakers in June. “And I don’t quite understand why that doesn’t happen.”

Lighthizer said the administration still hopes to strike bilateral trade deals—that is, separate agreements with individual countries—but he conceded that “some of the TPP countries don’t want to do bilaterals.” The value of the TPP for many countries was that they could justify giving up protective tariffs in exchange for their own access to the markets of a wide pool of countries; many are unwilling to make such concessions for the smaller gains of a bilateral deal.

Lighthizer acknowledged that even Japan, at least for the time being, may not be interested in one-on-one negotiations with the U.S. . . .

That leaves workers in 13,000-person Wright County, whose survival depends largely on agriculture, with relatively few signs of optimism. Trump’s decision to walk away from the TPP has stoked uncertainty about U.S. trade policy and, more notably, the president’s commitment to rural America.

“He fooled a lot of people,” said Sandy McGrath, mayor of Eagle Grove, who is not affiliated with any party and did not support Trump. . . .

But the plant’s success will depend largely on export opportunities. More than 26 percent of the pork produced in the U.S. in 2016 was exported to foreign markets. And more than $1.5 billion of the nearly $6 billion in U.S. pork exports in 2016 headed for Japan.

“At the time those investment decisions were made, the U.S. had never turned down a free trade opportunity,” said Dermot Hayes, an agricultural economist at Iowa State University, referring to the Prestage plant and other pork-industry investments.

Hayes said the livestock industry had in its sights a future of expansion amid soaring export growth. After Trump’s withdrawal from the TPP, “that has pretty much disappeared,” he said. . . .

In April, when Trump was on the verge of withdrawing from NAFTA, Maier said he watched corn prices plummet in anticipation of the president’s decision. Trump relented, at the request of Perdue, the agriculture secretary, who appealed to the president with colorful maps showing the president’s base was largely concentrated in states that heavily rely on agriculture.

Ultimately, Trump agreed to renegotiations with Canada and Mexico instead. But Maier remains wary that, despite pledges by the administration to “do no harm” for agriculture, the mere act of reopening the deal with Canada and Mexico, the two largest destinations for U.S. agricultural exporters, could mess up what has been a very good thing for American farmers in the Midwest.

“Farmers are willing to open up NAFTA, but if we open up NAFTA, there’s the risk of going backwards,” he said. . . .

The Obama administration, backed by a large cadre of free-trade Republicans, used that reality to grow support for the TPP among businesses and agricultural interests eager to grab a better foothold in a fast-growing area of the world where the U.S. has few formal trade deals.

But through the slow churn of negotiations, the dazzlingly complex deal among 12 countries soon fell victim to time and circumstance. After more than five years of talks, bleary-eyed trade negotiators were finally able to close the deal at an Atlanta hotel on October 5, 2015. But the agreement quickly became mired in election politics. Labor unions and blue-collar voters declared it to be a successor to NAFTA, which was blamed for the loss of factories. And while the U.S. trade commission predicted the deal would be broadly beneficial to the overall economy, some areas including food and agriculture were predicted to score more gains than others.

Even as supporters of the deal insisted it would put U.S. manufacturers on a stronger footing versus overseas competitors by enforcing higher labor and environmental standards, Trump and Bernie Sanders used anti-TPP fervor as a key plank of their campaign platforms, declaring that it would cost America jobs. Even Hillary Clinton, normally a supporter of freer trade, turned on the deal, saying she wanted to negotiate better terms.

Trump escalated his rhetoric on trade after the primaries and Congress, which has final say on trade deals, shied away from bringing TPP up for a vote. After Trump’s victory, the fate of the deal in the GOP-controlled Congress was all but sealed as Republican lawmakers put it aside to concentrate on tax reform and a bid to roll back Obamacare.

On his first full day in office, Trump signed an executive order withdrawing from the TPP, calling the action a “great thing for the American worker.”

“The Trans-Pacific Partnership is another disaster done and pushed by special interests who want to rape our country, just a continuing rape of our country,” Trump said during a campaign stop in Ohio. “That’s what it is, too. It’s a harsh word: It’s a rape of our country.” . . .

But even as Iowa was voting for Trump by 51 percent-42 percent, its farmers were looking to Asia as their savior. . . .

But despite Trump’s intense personal interest in trade, the White House has been slow to build the dream team of negotiators the president promised on the campaign trail. Lighthizer, who once served as a deputy U.S. trade representative under President Ronald Reagan, was confirmed on May 11. The people tapped to serve in the agency’s three deputy positions await confirmation, as does the administration’s pick for chief agriculture negotiator.

Iowa’s Republican Sen. Chuck Grassley says he thinks a trade deal with Japan would make up for much that was lost for agriculture by dropping TPP, but it will take “a lot more personnel, a lot more time to get it done, a lot more separate actions by Congress.”

As far as the administration’s strategy to get there, Grassley, who still owns his farm in Butler County, Iowa, said he hasn’t gotten much direction.

“I asked Lighthizer maybe a month ago in a meeting, and I didn’t get an answer,” Grassley said in a recent interview. “In a sense he answered, but not very definitively because their policy isn’t established.” . . .

Maybe the lesson of TPP demise for the protectionist firebreathers is be careful what you wish for.  The negative ramifications of not doing the TPP appear to be infinitely higher than doing the trade deal.

NAFTA NEGOTIATIONS

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

But Trump keeps stirring the pot with his anti-NAFTA rhetoric. On August 22nd, during a speech in Phoenix President Trump announced that he might simply cancel NAFTA.

As Politico stated on August 23rd, “Trump’s  threat  of  NAFTA  withdrawal lose its edge”:

“Canada and Mexico appear to have reached a conclusion that when President Donald Trump threatens to withdraw from NAFTA, it is a negotiating ploy that is all bark and no bite. . . .

Instead, concerns were raised from within the United States government, where officials and lawmakers who support the deal see little value in the president repeatedly going to the well of harsh rhetoric in a way that makes the United States’ negotiating position more difficult.

“I don’t know a single person with a working brain cell that thinks that’s a good idea,” said one U.S. government source close to the talks, referring to renewing the threat of terminating the deal. “It’s a stupid message to send during the  negotiations.”

Part of the reason Mexico and Canada might be less intimidated by Trump’s bluster is that they have plenty of other trading partners to fall back on if the relationship with the U.S. sours. Both countries have separate deals in place with the European Union — Mexico is currently ramping up talks to update theirs — and both are part of the effort to reboot the Trans-Pacific Partnership, which the remaining 11 members are pushing toward completion even without the U.S.

But after Trump cast aside the TPP almost immediately upon taking office, the U.S. has fewer such options to fall back on — so pro-NAFTA lawmakers and those from export- dependent states have repeatedly urged him to focus on modernizing and updating NAFTA, rather than terminating it.

House Ways and Means Chairman Kevin Brady — whose home state of Texas counts Mexico as the No. 1 market for its exports, followed by Canada — cautioned Trump on Wednesday to be more aware of the effects his words have on the country’s trade relationships.

“The president’s rhetoric is red-hot, and it creates real impact,” Brady said during a town hall discussion at AT&T headquarters in Dallas. “I think the rhetoric, the words from the president matter, so I’d like to see that take a different approach in tone.”

Brady, whose powerful committee oversees trade on Capitol Hill, is one of a core group of Republicans whose support will be crucial if the administration succeeds in renegotiating a new deal with Canada and Mexico, since it will likely have to go through Congress for approval . . ..

The political question is whether Trump would discard NAFTA in the face of what certainly would be fierce resistance from Congress and industries like agriculture, which would take a significant hit in that event amid a sustained downturn in the farm economy.

Back in April, intense lobbying from the Hill and on the farm helped talk Trump down from inking a prepared executive order to withdraw from the deal. News of the planned order sparked such a public outcry and flurry of reaction in support of the deal that business and trade insiders sometimes refer to it as “Black Wednesday.” . . .”

Meanwhile, a chorus of industries are telling the Administration not to be so tough in the NAFTA negotiations because tweaks are fine, but the failure of the NAFTA deal would be disastrous to US industry and US agriculture.  On August 10th Automobile and Auto Parts makers urged the Administration to cool down the rhetoric on rules of origin for automobiles and auto parts because major changes to automobile rules of origin through NAFTA modernization could have the unintended consequence of making North America’s auto industry less competitive.  As Charles Uthus, vice president of international policy at the American Automotive Policy Council, the main lobbying arm of U.S. auto companies in Washington, stated:

“It’s the highest automotive rule of origin anywhere that you can find. It’s already extremely rigorous, very difficult to meet as it is. To actually strengthen it, there is a huge risk of unintended consequences.”

Ann Wilson, senior vice president of government affairs for MEMA, stated:

“Our members really struggle with finding a connection between changing the rules of origin and the reshoring of jobs. They do not see that connection.”

On August 17th Politico reported that Trump’s tough rhetoric has created intense hatred in Mexico, which will make it politically very difficult for Mexico to make concessions or agree to a deal that would clearly benefit the US.  Thus, Mexican President Enrique Peña Nieto is not afraid to walk away from the table if needed, potentially overturning the entire U.S.-Mexico bilateral trade relationship in the process.

Again, Trump does not understand the dynamics of the deal and the fact that since Mexico has more trade agreements than the US, it has leverage and is not afraid to walk away from the table.

Thus, both Mexico and Canada are resisting US pressure for a new “national content” provision in NAFTA’s auto trade rules to encourage more parts to be made in the United States.  As Mexican Economy Minister Ildefonso Guajardo stated:

“It will not be best practice to introduce that kind of rigidities into the industrial process.  It’s not good for American companies. It’s not good for Mexican companies.”

Canadian Foreign Minister Chrystia Freeland also stated: “Canada is not in favor of specific national content in rules of origin”.

Meanwhile, the Canadian Dairy Producers stated that they will fight any U.S. effort to duplicate in NAFTA the dairy concessions secured through TPP negotiations. As Yves Leduc, director of policy and international trade for the Dairy Farmers of Canada, stated, “Not a possibility – as far as we are concerned, we would never agree to that.”

The small amount of dairy access that Canada granted the U.S. during the TPP talks – equal to 3.25 percent of Canada’s domestic milk production – was balanced out by concessions Canada secured in negotiations involving all of the 11 other countries. Those circumstances don’t apply to NAFTA, which involves only three countries. As Leduc stated, “To ask us to open up our market to allow more subsidized goods from the U.S. to enter the Canadian market, the answer is simple: It’s no.”

Meanwhile, US famers joined with Canadian and Mexican farmers to urge US negotiators to not let specific demands undermine the market access US farmers and ranchers enjoy under the existing agreement.  Although all three groups want to lower trade barriers to exports and imports, it was their unified position to defend existing market access that was most notable, given the fear on the farm that Trump could use agriculture as a bargaining chip to satisfy his obsession with reducing America’s trade deficit in manufactured goods.

THE PHRASE “FREE BUT FAIR TRADE” IS A FRAUD BECAUSE COMMERCE HAS SO DEFINED DUMPING AS TO FIND ALMOST EVERY IMPORT DUMPED

In an article along the same lines as the Bannon article and the Trump quote, on August 1, 2017, Commerce Secretary Wibur Ross penned an article in the Wall Street Journal entitled, “Free Trade Is a Two Way Street”.  In the article, Commerce Secretary Ross argued that many countries erect barriers to US exports, but then went on to state:

“Both China and Europe also bankroll their exports through grants, low-cost loans, energy subsidies, special value-added tax refunds, and below-market real-estate sales and leases, among other means. Comparable levels of government support do not exist in the U.S. If these countries really are free traders, why do they have such formidable tariff and nontariff barriers?

Until we make better deals with our trading partners, we will never know precisely how much of our deficit in goods is due to such trickery. But there can be no question that these barriers are responsible for a significant portion of our current trade imbalance.

China is not a market economy. The Chinese government creates national champions and takes other actions that significantly distort markets. Responding to such actions with trade remedies is not protectionist. In fact, the World Trade Organization specifically permits its members to take action when other countries are subsidizing, dumping and engaging in other unfair trade practices.

Consistent with WTO rules, the U.S. has since Jan. 20 brought 54 trade-remedy actions— antidumping and countervailing duty investigations—compared with 40 brought during the same period last year. The U.S. currently has 403 outstanding orders against 42 countries.

But unfortunately, in its annual reports, the WTO consistently casts the increase of trade enforcement cases as evidence of protectionism by the countries lodging the complaints. Apparently, the possibility never occurs to the WTO that there are more trade cases because there are more trade abuses.

The WTO should protect free and fair trade among nations, not attack those trade remedies necessary to ensure a level playing field. Defending U.S. workers and businesses against this onslaught should not be mislabeled as protectionism. Insisting on fair trade is the best way to ensure the long-term strength of the international trading system.

The Trump administration believes in free and fair trade and will use every available tool to counter the protectionism of those who pledge allegiance to free trade while violating its core principles. The U.S. is working to restore a level playing field, and under President Trump’s leadership, we will do so.

This is a true free-trade agenda.”

Let me begin by saying no one has a problem with US government actions challenging foreign, including Chinese, barriers to US exports.  Every Administration be it Republican or Democrat has taken a tough stance to drop foreign barriers to US exports.  In fact, many Senators and Congressmen are pressuring the Trump Administration for more free trade agreements because they remove barriers to US exports.  The TPP, Trans Pacific Partnership, would have dropped tariffs down to 0 on more than 18,000 products exported by US companies, many agricultural products.

Although no one doubts that the Chinese market is significantly distorted, many foreign markets and in some cases US markets are significantly distorted.  The US steel market with the many outstanding trade orders blocking steel imports is a good example of a significantly distorted market in which the US price for steel is much higher than the World market price.

Also no one doubts that many countries subsidize their exports or dump in the US market.  For many years, the Commerce Department was able to find very high dumping rates on Japanese imports in antidumping cases by using price to price comparisons, which found that Japanese prices were significantly higher, sometimes four times higher, than US prices for the same Japanese product.  That is classic dumping using higher prices in the home market to fuel lower prices to the United States.

The Japanese companies were able to use dumping because the Japanese Government erected non-tariff trade barriers to block imports from the US and other countries creating very high domestic Japanese prices.  To protect its mikan /tangerine industry, for example, for many years Japan blocked all imports of citrus fruit.  But it is also interesting to note that there are no outstanding countervailing duty/anti-subsidy orders against Japanese products.

The Chinese governments, especially the local governments, also subsidize their exports and provide low interest loans to their companies, but so does the US government, through its subsidies in the Agriculture area, and the State Governments, which will waive state income taxes or help with low interest loans, to encourage production of companies, such as Foxconn, to move to their states.

But the US Countervailing Duty law applies to China now and the Commerce Department has not been shy in finding Chinese imports into the United States to be subsidized.  It should be noted, that the WTO has overturned 28 US Countervailing Duty cases against China, in part, because the WTO has ruled that Chinese state-owned companies are not necessarily the Chinese government itself, as the Commerce Department has ruled.

The US too has state-owned companies, such as the Tennessee Valley Authority, which provides electricity to certain parts of the US.  Should foreign governments assume that all electricity from the TVA is subsidized because it is owned by the US government?

The major problem, however, is the Commerce Department’s application of the antidumping law.

In the 1980s, James Bovard authored a book called the “Fair Trade Fraud”, which outlined many of these same problems in the US antidumping law.  But nothing has changed.  Instead Commerce has just developed new methodologies to increase antidumping rates even higher.

Moreover, the same economic warfare arguments were made about Japan in the 1980s.  Although China does not have clean hands, that does not mean that every single import from China is unfairly traded.  In fact, I would argue that a significant percentage, if not the majority, of imports from China are fairly traded.  The Chinese government simply does not care about the Chinese Mushroom, Honey, Crawfish or Shrimp industries and does not set the prices for those products or any of the inputs.  Does the Chinese government really care about the price of cow manure in China, a major input for mushrooms?

Remember Commerce over decades has so distorted the US antidumping law that it finds dumping in 100% of the cases from China because it refuses to look at actual prices and costs in China.  If you have a hanging judge, does that mean every single import from China is dumped/unfairly traded?

Instead, Commerce should start easing the restrictions on the market economy status of China so as to determine which Chinese companies are truly dumping in the US market and nail them to the wall.  Commerce should make its antidumping cases against China mirror actual reality in China, not for the Chinese companies, but for US importers and downstream customers.

Right now, because of its refusal to use actual prices and costs in China, neither Donald Trump, nor Wilbur Ross nor the Commerce Department know which Chinese companies are truly dumping and which Chinese companies are not.  Until Commerce starts uses actual prices and costs in China, no one will know which Chinese company is truly dumping,

Finally, the Commerce Department decision to tilt the playing ground and find dumping in every antidumping and countervailing duty case against China and also against almost all every other foreign county has created a situation so that the public perception is that almost every import into the US is dumped.  These hanging judge decisions fuel the protectionist/isolationist political rhetoric in the United States badly damaging US industry and agriculture.  It has also led to a mentality by many US companies of international trade victimhood.  We poor US companies simply cannot compete in the international or US market because all foreign exports and US imports are subsidized or dumped.

Instead, US companies want to rely on US government issued protectionist walls to protect themselves from competition rather than finding a way to make the US companies competitive again.  See the article on Trade Adjustment Assistance for Companies below.

SECTION 232 STEEL AND ALUMINUM CASES STALLED

The Section 232 Steel and Aluminum cases continue to be stalled.  On August 21ST,  Politico reported:

“WHITHER THE NATIONAL SECURITY STEEL INVESTIGATION? White House chief strategist Steve Bannon’s departure from the White House . . tipped the balance of Trump’s economic advisers firmly toward the more centrist “globalist” wing – and that could mean that two reports examining whether to limit imports of steel and aluminum for national security reasons could be indefinitely delayed. The Commerce Department has prepared a report on its findings that is circulating among agencies, but the administration has decided to dial down the investigations as it turns its attention to tax reform . . . .

Part of the reason is the departure of Bannon, who had been a major proponent of the move. But the decision to put off the investigations was also made in part because of opposition from business groups and Republican lawmakers who were worried it would hurt steel users and the broader economy, the news report said. .

Although President Donald Trump and Commerce Secretary Wilbur Ross thought they had found a panacea, cure all, for US trade problems, using Section 232 National Security cases to put large tariffs and/or quotas on Steel, Aluminum and other raw material products, something happened on the way to the Trump trade heaven—reality.  The major problem is that the steel industry has only 141,000 jobs at stake while downstream steel users have millions of jobs at stake.

As background, on April 20, 2017, President Trump and the Commerce Department in a press announcement and fact sheet along with a Federal Register notice, Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce Section 232 Investigation on the Effect of Imports of Steel on U.S COMMERCE FED REG SECTION 232 NOTICE, announced the self-initiation of a Section 232 National Security case against imports of steel from every country.  See video of Trump signing the Executive Order with Secretary Ross and Steel Producers at https://www.youtube.com/watch?v=EiVfNOl-_Ho.

Commerce held a hearing on May 24th in this case.  The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.

In the past Secretary Ross has stated that the Section 232 case is meant to fill the gaps created by the patchwork of antidumping and countervailing duties on foreign steel, which he said have provided only limited relief to the U.S. industry.

Under the terms of the executive order, an interagency group will present a report to the White House within 270 days that identifies goods that are essential for national security and analyzes the ability of the defense industrial base to produce those goods.

If the Secretary reports affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”

Although Commerce Secretary Wilbur Ross pledged to get the Section 232 Steel and Aluminum reports to President Trump’s desk by the end of June, that did not happen as the Administration began to realize the impact a broad tariff on steel or aluminum raw material inputs would have on downstream steel and aluminum users, which are dependent on high quality, competitively priced steel products to produce competitive downstream products made from steel and aluminum.

In response to the delay in the Section 232 Steel case, American steel industry executives appealed directly to President Donald Trump for immediate import restrictions because steel imports have surged back to 2015 levels.  As the letter states:

“The need for action is urgent. Since the 232 investigation was announced in April, imports have continued to surge.  Immediate action must meaningfully adjust imports to restore healthy levels of capacity utilization and profitability to the domestic industry over a sustained period.”

The American Iron and Steel Institute (AISI), an industry trade group, reported on Wednesday that total steel imports through July this year were up 22 percent from the same period a year ago, with imports taking 28 percent of the U.S.  market.

In the letter, Steel company executives from Nucor Corp., U.S.  Steel, ArcelorMittal and Commercial Metals Co. said the sustained surge of steel imports into the United States had “hollowed out” much of the domestic steel industry and was threatening its ability to meet national security needs.

“Your leadership in finding a solution to the crisis facing the steel industry is badly needed now. Only you can authorize actions that can solve this crisis and we are asking for your immediate assistance.”

The collateral damage to the many US producers that produce downstream steel products created by any across the board tariffs on steel imports makes it very difficult for the Administration to use a broad brush to fix the steel problem.  That is the problem with purely protectionist decisions.  They distort the US market and simply transfer the problems of the steel industry to other downstream industries.

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

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

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

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

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

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

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

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

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

Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  To retrain the worker for a new job, the average cost per job is $5,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

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

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

“WASHINGTON – U.S. Secretary of Commerce Wilbur Ross today announced $13.3 million in U.S. Economic Development Administration (EDA) grants to support 11 Trade Adjustment Assistance Centers (TAACs) in California, Colorado, Georgia, Illinois, Massachusetts, Michigan, Missouri, New York, Pennsylvania, Texas, and Washington that help manufacturers affected by imports adjust to increasing global competition and create jobs.

“The Trump administration is working every day to help America’s manufacturers, their workers, and their communities,” said Secretary Ross. “This funding is one element of a government-wide effort to restore American jobs and strengthen U.S. manufacturing.”

The 11 grants include:

$1.7 million to the University of Michigan, Ann Arbor, for the Great Lakes Trade Adjustment Assistance Center

$1.2 million to the Mid-Atlantic Employers’ Association, King of Prussia, Pennsylvania, for the Mid-Atlantic Trade Adjustment Assistance  Center

$978,000 to the New England Trade Adjustment Assistance Center, Inc., North Billerica, Massachusetts

$1.1 million to the Research Foundation, State University of New York Binghamton, for the New York, New Jersey and Puerto Rico Trade Adjustment Assistance Center

$1.2 million to the University of Colorado at Boulder for the Rocky Mountain Trade Adjustment Assistance Center . . .

$1 million to the University of Missouri–Columbia for the Mid-America Trade Adjustment Assistance Center …

$1.2 million to the Trade Task Group, Seattle, Washington, for the Northwest Trade Adjustment Assistance Center…

EDA’s Trade Adjustment Assistance for Firms program funds 11 Trade Adjustment Assistance Centers across the nation. The centers support a wide range of technical, planning, and business recovery projects that help companies and the communities that depend on them adapt to international competition and diversify their economies.  . . .

The mission of the U.S. Economic Development Administration (EDA) is to lead the federal economic development agenda by promoting competitiveness and preparing the nation’s regions for growth and success in the worldwide economy.”  . . .

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

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

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

In the attached article entitled “Steel Competitiveness Seriously?”, Steel Competitiveness, William J. Bujalos, the head of the Mid-Atlantic Trade Adjustment Assistance Center,  makes the proposal to expand the program to help large manufacturing companies, including steel producers.  Mr. Bujalos states:

“Current reports suggest that the nation’s steel industry is experiencing a rebound – a rebound driven by a growing collective confidence about America’s economic future.

That’s all good but irrelevant because confidence is not a strategy for growing the nation’s global competitiveness. What is relevant is the extent to which our companies are able to grow other much more important things, like metrics critical to their competitive success. Do that and the power of any confidence index won’t matter.

Let me explain. Since 1998 I have been leading the nation’s Trade Adjustment Assistance for Firms (TAAF) program in the Mid-Atlantic region. My business experience during the last 50 years has yielded insight into the kinds of things that have the highest probability for success at reversing an enterprise’s negative fortunes irrespective of the competitive battlespace that they’ve chosen to play in. Prior lives involved corporate management in both private and public sectors (large and small companies) in a wide variety of markets that included: management consulting, chemicals, plastics, medical devices, pharmaceuticals, automotive systems, battery tech and steel – and I’ve learned that there are some things that are universal …

For example, I’m a believer that, for businesses of all stripes, there is only one true asset to be quantified and listed on the Balance Sheet – knowledge. Nothing else really matters at the end of the day. And the overarching value of TAAF is that it is this nation’s singularly effective business model that injects it directly into a company’s bloodstream over an extended period of time, i.e. half a decade. That sort of holistic, long-term approach yields the biggest chance for success because it has a high probability of permanently upgrading a company’s core DNA.

In my view steel companies don’t operate in markets that are fundamentally any different from markets in general. No markets are forgiving. No customer base is loyal. Some players don’t play fair. No amount of investment is worth it if indigenous leadership is of poor quality. So as a direct consequence, all companies that are serious about permanently enhancing their global competitiveness must achieve mastery over stuff like: competitive intelligence, customer intelligence, market dynamics intelligence, costs/managerial finance, talent/leadership development, product development, planning effectiveness, etc., etc., etc.

In other words: it’s the knowledge stuff that’s critical and little else. And in my humble opinion, focusing the attributes that TAAF brings to the table on that industry on a larger scale would yield stunning results.

The TAAF business model places its nationwide network of Trade Adjustment Centers (i.e. TAACs) in the unique position of being the right catalyst at the right place at the right time. Does it always work? Certainly not. What does? But it works better than just about anything else in America’s tool kit. It is unique. And here’s the kicker, we don’t ask for equity. On behalf of the American taxpayer we simply insist on pure, unadulterated, robust, and relentless commitment from the Chief Executive Officer down to the shop floor. Absent that? Well, it’s unfortunate but some companies probably should fail.

This approach really works, without costing a great deal of money or causing economic disruption while at the same time providing our political establishment the cover it needs to smooth passage of critical treaties – and, because a company must match our injection dollar-for-dollar throughout the process, the American taxpayer is assured of management’s total and focused commitment for one simple reason … they share in the risk!

Bottom line? The long-term holistic approach is effective. The business model, stipulating unique strategies addressing each company’s unique circumstances, is effective. The program’s neutral economic impact is effective. It’s ability to support passage of trade agreements while not impeding the benefits of free trade is effective. It’s ability to lessen the costs associated with the engagement of outside expertise to reengineer critical business processes is effective.

And I firmly believe that it’s application is not limited to America’s smallest makers – only its funding is. For several decades that’s been little more than an afterthought.

Consider …

  • All manufacturing companies were at one time small ones.
  • All manufacturing companies are impacted by globalization.
  • Small ones need outside expertise to teach them basic stuff.
  • Larger ones need outside expertise to teach them sophisticated stuff.
  • Small makers, because they’re learning the basics and have little resources to tap, take a longer time to turn the corner.
  • Larger makers, because the basics are already inculcated and they have the requisite resources at hand, can turn the corner at much higher speed.
  • And if you were the Chief Executive of a tier-one domestic manufacturer, would you doubt for a minute –
    • That your supply chain probably has several thousand companies in it?
    • That extensive improvement in their performance would have a significantly positive impact on your performance?
  • Improvement in the performance of the small cohort will increase the probability that fewer will fail because a greater proportion will grow into larger ones – driving concomitant growth in good-paying manufacturing jobs and the creation of wealth. Go ahead. Beat that with a stick!”

For those who would simply dismiss the idea as impossible and too simplistic, watch the video.  The program works.  See http://mataac.org/howitworks/.

TRUMP AND CHINA

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD

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

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

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

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

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

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

The United States Trade Representative (“USTR”) will hold a hearing on October 10th at the International Trade Commission and public comments are to be submitted by September 28th.

In an August 30, 2017 article by Dan Harris, who heads my law firm, on his China law blog at http://www.chinalawblog.com/2017/08/china-us-trade-wars-and-the-ip-elephant-in-the-room.html, entitled “China-US Trade Wars and the IP Elephant in the Room”, Dan states that in over one hundred negotiations with Chinese companies, he has not seem the Chinese government demand IP rights.  What he has seen is bad negotiating:

“I have been called by reporters at least a half dozen times in the last couple of weeks regarding the Trump Administration’s planned investigation of China’s IP practices. But what I tell these reporters fits so badly with THE narrative that my name is not showing up in print. Sorry, but I can’t help it.

Here’s the situation. The Trump Administration is claiming that China’s government forces American companies to relinquish its IP to China and my problem is that despite my firm having worked on literally hundreds of China transactions that involve IP, I have very little proof of this. So no real story there.

Here though is the story as seen from my eyes and from the eyes of the China attorneys at my firm, readily conceding that we have not seen even close to everything.

We have never been involved in a China transaction where it has been clear to us that the Chinese government has forced our client to relinquish its IP to China. We have though been involved in a million transactions where the Chinese party on the other side — sometimes a State Owned Entity, but way more often not — has vigorously and aggressively sought to get our client to part with its IP for a very low price. Is the Chinese government behind this sort of pressure? Don’t know? Probably sometimes, but probably most of the time not. If the transaction involves rubber duckies, we can assume not. If it involves next generation computer chips, well that is probably a very different story.

Anyway, as we write on here so often, there are many terrible technology transfer and other sorts of IP deals to be had with Chinese companies and we have too often — even against our China attorneys’ clear counsel to our clients not to do it — seen our clients make bad deals that will involve them turning over their IP with little to no chance of receiving full value for it. But these companies have not been forced, not in the sense that any government was forcing them to do anything. These companies were simply willing to take huge risks either because they could not grasp the risks or because they felt they had no other choice for financial reasons.

In Three Myths of China Technology Transfers, we wrote about how our clients all too often forge ahead with bad deals and why, and we nowhere mention government compulsion:

A Chinese company that intends to violate a licensing agreement and run off with the foreign company’s IP will usually have a very clear plan. What the China lawyers in my office call the Standard Plan works as follows. First, the Chinese company will negotiate in a way that guarantees a weak license that cannot be enforced against them by the foreign party. The tricks used to do this are quite standardized. Second, the Chinese company will ensure that it does not make any (or else it makes very few) payments until after it has already received the technology. If the Chinese company makes any payment at all, it will make a minimal number of payments, usually late and in violation of the agreement and then once it has received enough of the technology it seeks, it will cease making any payments entirely.

When our China attorneys encounter a Chinese company clearly working on the Standard Plan, we warn our clients. However, it is also typical for our clients to nonetheless want to forge on ahead. The client will usually explain how their situation is unique and that means the Chinese could not possibly be planning to breach.

We discuss again in China Technology Transfers: The Relationship and Deal Structure Myths how it is that American companies lose their IP to Chinese companies and we again leave out government force:

Due to a partnership relationship, the foreign side often wrongly believes it is somehow better protected against IP theft. The foreign side then lets down its guard, only to learn that its China partner has appropriated its core technology. This sense of partnership is most common with SMEs and technology startups, especially those companies whose owner is directly involved in the relationship with the Chinese entity.

In China and The Internet of Things and How to Destroy Your Own Company I rant about technology companies that literally destroy themselves by failing to do enough to protect their IP from China:

Well for what it is worth, I will no longer describe technology companies as a whole as our dumbest clients when it comes to China. No, that honor now clearly belongs to a subset of technology companies: Internet of Things companies. And mind you, we love, love, love Internet of Things companies. For proof of this, just go to our recent post, China and the Internet of Things: A Love Story. Internet of Things (a/k/a IoT) companies are sprouting all over the place and they are booming. Most importantly for us, they need a ton of legal work because just about all IoT products are being made in China, more particularly, in Shenzhen. And just about all IoT products need a ton of complicated IP assistance.

So then why am I saying they are so dumb about China? Because they are relinquishing their intellectual property to Chinese companies more often, more wantonly, and more destructively than companies in any other industry I (or any of my firm’s other Chinese lawyers) have ever seen. Ever. And by a stunningly wide margin.

I then list out the following as “my prime example, taken from at least a half dozen real life examples in just the last few months”:

IoT Company: We just completed our Kickstarter (sometimes Indiegogo) campaign and we totally killed it and so now we are ready to get serious about protecting our IP in China.

One of our China Lawyers: Great. Where are you right now with China?

IoT Company: We have been working with a great company in Shenzhen. Together we are working on wrapping up the product and it should be ready in a few months.

China Lawyer: Okay. Do you have any sort of agreement with this Chinese company regarding your IP or production costs or anything else?

IoT Company: We have an MOU (Memorandum of Understanding) that talks about how we will cooperate. They’ve really been great. They have told us that they would enter into a contract with us whenever we are ready.

China Lawyer: Can you please send us the MOU? Have you talked about what that contract will say?

IoT Company: Sure, we can send the MOU. It’s one page. No, we haven’t really talked much beyond just what we need to do to get the product completed.

China Lawyer: Okay, we will look at your MOU and then get back to you with our thoughts.

Then, a day or two later we a conversation like the following ensues:

China Lawyer: We looked at your “MOU” and we have bad news for you. We think there is a very good chance a Chinese court would view that MOU as a contract. (For why we say this, check out Beware Of Being Burned By The China MOU/LOI) And the Chinese language portion of the MOU — which is all that a Chinese court will be considering — is very different from the English language portion. The Chinese language portion says that any IP the two of you develop (the IoT company and the Chinese manufacturer) belongs to the Chinese company. So what we see is that as things now stand, there is a very good chance the Chinese company owns your IP. This being the case, there is no point in our writing a Product Development Agreement because your Chinese manufacturer is not going to sign that.

IoT Company: (And I swear we get this sort of response at least 90 percent of the time) I’m not worried. I think you have it wrong. I’m sure that they will sign such an agreement because we orally agreed on this before we even started the project.

China Lawyer: That’s fine, but I still think it makes sense for you to at least make sure that the Chinese company will sign a new contract making clear that the IP associated with your product belongs to you, because if they won’t sign something that says that, there is no point in our drafting such a contract and, most importantly, there is no point in your paying us to do so.

So far not a single such IoT company has been able to come back to us with an agreement from their Chinese manufacturer to sign.

Again, no government force, just an overzealous and insufficiently careful foreign company.

Now before anyone excoriates me for ignoring reality, let me say that I have read about instances where the Chinese government has “forced” foreign companies to turn over their IP to China; high speed rail is an often cited example of that. And I do not doubt that it happens in critical industries (nuclear power would be another example). And I am also not unaware of how China is increasingly forcing foreign companies to store their data in China, which absolutely puts technology at risk. But even in these instances the foreign company has some choice. Not good choices, I know. And arguably it is no choice at all when the decision is between doing business in China or not. The last thing I want to do is get all philosophical on anyone regarding what constitutes choice so I will leave it to our individual readers to determine for themselves where on the continuum of force and choice they want to put any and all of the above.

There is plenty to complain about how China protects IP and there is plenty to complain about how China protects foreign companies that do business in China or with China, but I am just not sure complaining about forced IP transfers goes at the top of that list for most American companies. When I talk with American and European and Australian companies about China their biggest legal complaint is invariably how expensive it is for them to comply with China laws and how they resent that their Chinese competitors generally are not held to the same legal standards.

A couple of years ago, I gave the following testimony before The US-China Economic and Security Review Commission of the United States Congress:

I was introduced as an expert, and I’d like to qualify that by saying do not think of myself as an expert. I am just a private practice lawyer who represents American and Australian companies and some European and Canadian companies as well in China.

I’m going to tell you a little bit about what we do so you can get a little bit better perspective of where I’m coming from on this. The bulk of my firms’ clients are small and medium-size businesses, mostly American businesses, but some European and Australian and Canadian businesses as well. Most of them have revenues between 100 million and a billion a year. Our clients are mostly tech companies, manufacturing companies and service businesses.

About 20 percent of our work is for companies in the movie and entertainment industry. We have some clients in highly-regulated industries, like health care, senior care, banking, insurance, finance, telecom and mining, but those companies make up less than ten percent of our client base.

Most of the China work we do for our clients is relatively routine. We help them register as companies in China. We register their trademarks and copyrights in China. We draft their contracts with Chinese companies. We help them with their employment, tax and customs matters. We oversee their litigation in China, and we represent them in arbitrations in China. We help them buy Chinese companies.

For our clients, the big anti-foreign issue is whether they will be allowed to conduct business at all in China as that is certainly not always a given. Certain industries in China are shut off or limited to foreign businesses acting alone. For our clients, publishing and movies are most prominent.

Essentially anything that might allow for nongovernmental communication to or between Chinese citizens is problematic, but it is not clear to me that these limitations are intended to be anti-foreign, as China does not really want any private entities, foreign or Chinese, engaging in these activities without strict governmental oversight.

So do these limits against foreign companies arise from anti-foreign bias or just the Chinese government’s belief that it can better control Chinese companies? To our clients, that distinction doesn’t matter.

On day-to-day legal matters, our clients are almost invariably treated pursuant to law, and so long as they abide by the law, they seldom have any problems. The problem for our clients isn’t so much how the Chinese government treats them; it’s how they are treated as compared to their Chinese competitors who are less likely to abide by the laws and more likely to get away with it.

I have no statistics on this. I doubt there are any statistics on this, but I see it and I hear it all the time.

I see it when one of our clients buys a Chinese business that has half of its employees off the grid and has facilities that are not even close to being in compliance with use laws, and I know foreign companies cannot get away with that.

And I hear it from Chinese employees of our clients who insist that there is no need for our clients to follow various laws. They insist there is no need to follow various laws and to do so is stupid. Is this disparity due to anti-foreign bias or is it due to corruption? Again, for our clients, the answer is irrelevant.

Is the Trump administration’s IP investigation a negotiating ploy done as much to get at disparate treatment as it is to get at forced technology transfers? I do not think it is, but some who know more about such things tell me it may be.

CNN was the only one of the media companies that both interviewed me on the above issues and ended up quoting me and I like how it handled the issue in its article, President Trump is set to crank up the pressure on China over trade:

Beijing has other ways of getting its hands on valuable commercial information. Officials often insist on taking a close look at technology that foreign companies want to sell in China.

“Chinese government authorities jeopardize the value of trade secrets by demanding unnecessary disclosure of confidential information for product approvals,” the American Chamber of Commerce in China said in a report published in April.

Some experts say that handing over technology has effectively become a cost of doing business in China — a market too big for most companies to ignore.

“Many Chinese companies go after technology hard and the tactics they use show up again and again, leading us to believe there is some force (the government?) teaching them how to do these things,” said Dan Harris, a Seattle-based attorney who advises international companies on doing business in China.

“The thing is that the foreign companies that give up their technology usually do so at least somewhat of their own volition,” he told CNNMoney. “Yes, maybe they need to do so to get into China, but they also have the choice not to go into China, right?”

Closing the stable door?

Other analysts say that the U.S. administration is coming to the problem too late.

“Intellectual property (IP) theft is yesterday’s issue,” wrote Lewis of the Center for Strategic and International Studies.

“In part because of past technology transfer and in part because of heavy, sustained government investment in science and research, China has developed its own innovative capabilities,” he wrote.

“Creating new IP in the United States is more important than keeping IP from China.”

These are really complicated issues and I realize the above is more of a stream of consciousness “thoughts dump” than a coherent position paper. So more than ever, I’d love to hear your thoughts in the comments below.”

Dan’s point is that it is often bad negotiating tactics by the US side that leads to companies giving away their technology, not Chinese government pressure.

On August 15th, Investors Business Daily speculated that “Trump’s Trade War With China Is War On North Korea By Other Means” stating:

“But they [the Chinese government] may have underestimated Trump: He has the will, and likely the political support, for an even-more damaging war with China over trade. With the U.S. China’s largest market — in 2016, U.S. imports from China totaled nearly half a trillion dollars — a trade war is a serious threat to China, which is already showing signs of economic slowing.

That’s what’s behind Trump’s sudden decision to investigate China’s rampant theft of U.S. intellectual property. And on trade grounds only, Trump is right to investigate this, since it’s enshrined in both U.S. law and international trade treaties that egregious trade violations warrant retaliatory actions if the violations aren’t fixed.

The U.S. has been jawboning China on this for years, to no effect. China for years has seen the U.S. as a paper tiger, too feckless to act on its own behalf. Now, Trump is showing it otherwise. . .

Once again, Trump the savvy business negotiator seems to know his foe’s weak points.

Perhaps hoping to stall Trump’s trade action, China announced that it would cease North Korean imports of coal, iron and lead, and seafood, starting Sept. 5, in keeping with U.N. sanctions imposed on Kim Jong Un’s regime.

In a joint statement Monday, Secretary of State Rex Tillerson and National Security Advisor Gen. James Mattis made explicit the link between China, trade and North Korea: “China is North Korea’s neighbor, sole treaty ally and main commercial partner,” they wrote. “Chinese entities are, in one way or another, involved with roughly 90% of North Korean trade. This affords China an unparalleled opportunity to assert its influence with the regime.”

The clear message: If you support North Korea’s regime economically, we’ll hurt you economically in return. It’s a Trumpian twist on Von Clausewitz’s famous dictum about war and politics: “(A trade) war is the continuation of politics by other means.”

As we’ve said before, we take a back seat to no one in advocating on behalf of free trade. But when one side routinely and systematically steals hundreds of billions of dollars worth of intellectual property, that’s no longer free trade. It’s piracy. . . .

North Korea’s nuclear blackmail, aided by China’s patronage, is not acceptable. If it takes trade sanctions to get China’s diplomatic attention, so be it. It’s time that China’s charade over its support of North Korea comes to an end.”

On August 8th, in an article entitled “Second Thoughts on Trade with China” William Galston for the Wall Street Journal stated:

“It is China’s techno-nationalism that poses the greatest threat to our future. In 2006 the Chinese government adopted a long-term plan to promote what it called “indigenous innovation.” As James McGregor, a leading expert on the Chinese economy, writes, China’s leading-edge firms were directed to obtain technology from their multinational partners through “co-innovation and re-innovation based on the assimilation of imported technologies.”

In practice, this meant giving American firms an offer Don Corleone would have recognized—either to “share their technologies with Chinese competitors—or refuse and miss out on the world’s fastest-growing market.” China’s ultimate goal is to use forced technology transfer to replace the U.S. as the world’s leading economy. . . .

Existing legal tools may not suffice to end these discriminatory practices. Although the WTO prohibits mandatory technology transfers, the Chinese government’s position is that trading technology for market access is purely a business decision. Protectionist government purchases are a key part of China’s strategy. . . .

If turning over our technological crown jewels to a foreign power is against the national interest, then our government should have the power to prevent it. But wielding this power without blowing up the international trade regime will not be easy.”

On August 21st, in an editorial entitled “Yes, China Steals U.S. Intellectual Property, But That Doesn’t Mean Trade With China Is A Bad Thing” Investors Business Daily tempered its initial response on the Section 301 case stating:

“Everyone is angry at China right now, and perhaps with good reason. China’s regime often bends trade rules to its own needs, and breaks them or ignores them when it’s convenient. . . .

The U.S. shouldn’t tolerate cheating on trade, by China or anyone else. It’s a matter of jobs and income for Americans and the companies that employ them.

Even so, that doesn’t mean everything China has done has been bad for the U.S. Far from it.

A new study, ” How Did China’s WTO Entry Benefit U.S. Consumers?” from the prestigious National Bureau of Economic Research, shows why. It notes that from the time China joined the World Trade Organization in 2000 to 2006, the U.S. inflation index for factory goods fell an estimated 7.6%.

This might not sound like a lot, but it is. “The resulting savings were large,” the study says. “U.S. manufacturing sector production was valued at $4.5 trillion in 2014, so if prices had been 7.6% higher, that production would have cost $340 billion more.”

That is, profits for U.S. firms were likely billions of dollars higher over that six-year period than otherwise. And prices to American consumers fell.

How did this happen? The simple answer is freer trade. China cut its average tariff on manufacturing inputs from 15% in 2000 to 9% in 2006, a 40% reduction. Meanwhile, China’s government lifted export limits on its domestic companies, got rid of capital requirements, eased restrictions on foreign investment, raised its limits on textile exports and lowered the number of goods that required import licenses.

The result: China’s factory exports to the U.S. surged 290% from 2000 to 2006.

According to the study, “69% of the growth was driven by new exporters offering a widening variety of products, while 16% was created by incumbent firms exporting new products.”

The lower tariffs and other reductions in trade restrictions led to a Chinese   productivity boom, with an average 10% per year gain in productivity for Chinese companies that exported to the U.S. As for the price of U.S. manufactured goods, about two-thirds of the 7.6% reduction in factory prices here was due to China’s tariff cuts.

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

For its part, China’s communist    government in the  early  2000s  found   that taking  its hands off  the economy’s windpipe and engaging with the rest of the world through trade was  an  effective  strategy for making its economy grow. We  also  benefited  from that.

Now the Trump administration is warning an increasingly hostile China that its recent trade violations aren’t acceptable. China, in response, has blasted the U.S. for its “protectionism.”

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

In early 2000, China’s brilliant economic guru Premier Zhu Rongyi believed that China should join the WTO, not for the benefit of the United States or Europe, but for the benefit of China.  Premier Zhu realized that China would benefit from free trade by breaking down its own protectionist walls, which isolated China from the rest of the World.

It is somewhat ironic that the United States is apparently moving in the opposite direction, building protectionist walls to protect its companies from foreign competition.  Many US politicians have fallen into the trap of international trade victimhood because they simply do not understand the benefits of free trade to the United States.

SECTION 201 SOLAR CELLS CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.  If the ITC reaches an affirmative determination, within 60 days the President must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

At the ITC, Section 201 cases are a two stage process.  The ITC must first determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”  The ITC has determined that the investigation is “extraordinarily complicated” and will make its injury determination within 128 days after the petition was filed, or by September 22, 2017. The Commission will submit to the President the report required under section 202(f) of the Act (19 U.S.C. § 2252(f)(1)) within 180 days after the date on which the petition was filed, or by November 13, 2017.

Prehearing briefs and posthearing briefs have been filed at the ITC and the ITC hearing was held on August 15th and was reportedly 11 hours long.

If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017. Attached is the ITC public prehearing staff report, 2017.08.01 ITC Solar 201 Prehearing Report PUB.

The Staff Report shows that imports are up, value of imports are down, but US producers’ production and capacity have increased during the period of investigation 2012-2016.  Moreover, US producers’ profits and sales have increased in the period.  This is a very mixed staff report with no clear trends and could lead to a negative ITC injury determination on September 22nd.

Meanwhile, sixteen US senators have urged the ITC to consider how the increased tariffs on foreign solar cells could hurt the broader domestic solar industry. The letter specifically stated:

“We respectfully request that the commission carefully consider the potential negative impact that the high tariffs and minimum prices requested would have on the tens of thousands of solar workers in our states and on the hundreds of companies that employ them.”

The letter was signed by Senators: Heinrich (D-N.M.), Tillis (R-N.C.), Bennet (D- Colo.), Feinstein (D-Calif.), Whitehouse (D-R.I.), Perdue (R-Ga.), Gardner (R-Colo.), Heller (R-Nev.), Van Hollen (D-Md.), Moran (R- Kan.), Scott (R-S.C.), Cardin (D-Md.), King (I-Maine), Collins (R-Maine), Markey (D-Mass.) and Cortez Masto (D-Nev.).

ALUMINUM EXTRUSIONS CIRCUMVENTION

On July 26, 2017, in the attached memorandum, prc-aluminum-extrusions-ar-072617, the Commerce Department published in the Federal Register a notice of affirmative final determination of circumvention of the antidumping and countervailing duty orders on aluminum extrusions from the People’s Republic of China. The Department determined that heat-treated extruded aluminum products that meet the chemical specifications for 5050 grade aluminum alloy, regardless of producer, exporter, or importer, constitute later-developed merchandise, are circumventing the orders.

As a result of the Department’s anti-circumvention determination, all heat-treated extruded aluminum products from the People’s Republic of China that meet the chemical specifications for 5050 grade aluminum alloy are considered to be in-scope merchandise and must be included in responses to the Department’s questionnaires.

FALSE CLAIMS ACT—FURNITURE

In a previous blog post,  I mentioned that the real hammer against transshipment of products to evade trade orders is not recent legislation from Congress, but the False Claims Act.  Under the False Claims Act, private parties can file suits in Federal District Court alleging fraud on the US government because of foreign exporters and US importers decision to use transshipment and other methods to evade US antidumping and countervailing duties.  Under the FCA, the relator can look back at 10 years of past imports and the antidumping duties in question can be over 100, 200 or even 300%.  Under the FCA the remedy is triple damages and when looking at imports over such a long period of time, the remedy can result in enormous payouts.

The private party files an FCA complaint as a relator on behalf of the US government.  The US government then decides whether or not to intervene in the case.  If the US government chooses to intervene, the relator is entitled to 15 to 25% of the recovery of the US government.  In one small FCA case here in Washington regarding medical bills, a clerk at a hospital received a payout of $2 to 3 million so anyone can be a relator.

More on point, In an intervention complaint, US GOVT INTERVENTION BLUE FURNITURE CASE, the US government intervened in a False Claims Act filed against evasion of millions of dollars in antidumping duties on imports of wooden bedroom furniture from China.

The lawsuit brought by University Loft Co., an Indiana-based wooden bedroom furniture company, accuses Florida-based Blue Furniture Solutions LLC, founder and president and its chief financial officer  of importing wooden bedroom furniture from China without paying the 216.01 percent anti-dumping rate by making false statements to U.S. Customs and Border Protection (“CBP”).

In doing so, Blue Furniture escaped paying millions of dollars in duties and fees owed to the federal government from 2011 through 2015, the suit says.

The complaint states:

“To avoid the payment of anti-dumping duties and fees, defendants conspired with their Chinese manufacturers and exporters to fraudulently avoid customs duties and underpay fees owed to the United States by making false representations in entry documents about the nature and value of the imported merchandise.”

Specifically, the complaint states that Blue Furniture falsely identified its entries to Customs and Border Protection with codes and descriptions for merchandise that are not subject to antidumping duties.  But the complaint states that many of the wooden chests, dressers, nightstands, wardrobes and many of the beds imported were subject to antidumping duties.

In addition, the FCA complaint accuses the Florida-based company of instructing its China-based manufacturers and exporters how to mislabel and misclassify the merchandise on documents to be shown to CBP.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

STAINLESS STEEL FLANGES FROM CHINA

On August 16, 2017, the Coalition of American Flange Producers and its individual members, Core Pipe Products, Inc., and Maass Flange Corporation filed new antidumping and countervailing duty cases against imports of Stainless Steel Flanges from China and India.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law. Team’s newsletter-EN Vol.2017.30 Team’s newsletter-EN Vol.2017.32 Team’s newsletter-EN Vol.2017.33.

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

WI-FI ENABLED ELECTRONIC DEVICES

On August 29, 2017, Sharp Corporation and Sharp Electronics Corporation filed a section 337 case against imports of Wi-Fi Enabled Electronic Devices.  The respondent companies named in the complaint are:

Hisense Co., Ltd., China; Hisense Electronic, Co., Ltd., China; Hisense International (Hong Kong) Co. Ltd., Hong Kong; Hisense USA Corporation, Suwanee, Georgia; Hisense Electronics Manufacturing Company of America Corporation, Suwanee, Georgia; Hisense USA Multimedia R&D Center, Inc., Suwanee, Georgia; and Hisense Inc., Huntington Beach, California.

If you have any questions about these cases or about Trump and Trade, including the impact on agriculture, the impact on downstream industries, the Section 232 and 301 cases, the 201 case against Solar Cells, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US China Trade War–Trump, Weak Strong Free Trade Arguments, Steel, 337

US Treasury Department Albert Gallatin Statue Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR JULY 14, 2016 

Dear Friends,

This blog post is the third and fourth article 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 probable demise of the TPP and the strong arguments against protectionism.

The first article outlined the problem and why this is such a sharp attack on the Trans Pacific Partnership 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.

Subsequent articles will discuss why the Commerce Department’s policy has led to increased protectionism, the Probable Demise of the TPP, failure of Congressional Trade Policy and what can be done to provide the safety net that will allow Congress again to vote for free trade agreements so that 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.

In addition, set forth are articles on developments involving steel trade litigation, including the suspension of Section 337 Steel Trade Case, antidumping and countervailing duty reviews against Chinese companies, and a new 337 case against Chinese companies.

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

WEAK FREE TRADE ARGUMENTS AND STRONG FREE TRADE ARGUMENTS

There are two reasons for the sharp rise in protectionism—Weak Free Trade Arguments and the Commerce Department’s methodology in antidumping and countervailing duty cases.

By its own regulation the Commerce Department finds dumping and subsidization in almost every single case, especially against China.  But the problem with the Commerce Department’s methodology, which is not based on reality, it fuels the myth advocated by the Steel industry, the Union and Donald Trump himself that all imports are dumped and all imports are subsidized and the general feeling of global trade victimhood.  We US companies and workers simply cannot compete because all imports are dumped and subsidized so the answer is put up the protectionist walls.

That is simply not true.  The next article will talk about the intricacies of the Commerce Department and why the Commerce Department’s methodology results in its finding dumping and subsidization in more than 95% of the cases and how that has had such a bad impact on the perceptions of the average American.

But before addressing that issue, this post will describe the Weak Free Trade Arguments Against Protectionism and the Strong Arguments against Protectionism.

WEAK FREE TRADE ARGUMENTS

But what are the free trade arguments that can counter the tidal wave of protectionism from Trump and Sanders supporters and the real collateral damage caused by trade agreements, including the 2.4 million jobs connected to granting China most favored nation status.  As the US International Trade Commission (“ITC”) reported in its May report on the Trans Pacific Partnership (“TPP”), if the Trade Agreement is enacted, although agricultural and service companies will benefit, manufacturing will see a net decrease in jobs “by $10.8 billion (0.1 percent) lower with the TPP Agreement” than without the Agreement.

On March 15, 2016 Morton Kondrake and Matthew Slaughter in a Wall Street Journal article made the theoretical economic case for free trade entitled, Making the Case for Trade Reagan’s ‘Protectionism is Destructionism’ Message was True” and spoke about the benefits of trade but then went on to state that the solution is simply “creative destructionism” and more job training and assistance to communities hurt by trade:

Divided though the four leading presidential candidates are on so many topics, united they stand on one: the assertion that trade hurts America.

All four oppose the U.S. ratifying the Trans-Pacific Partnership. All four demonize trade the same way. Donald Trump blasts that “foreigners are killing us on trade,” while Bernie Sanders inveighs against “disastrous trade agreements written by corporate America.” . . .

Where is the leader with the courage to tell the truth? To say that trade made this nation great, and that trade barriers will destroy far more jobs than they can ever “save.” To explain how trade translates into prosperity and new jobs, and how the disruptions inevitable in a trading economy can be managed for the benefit of those who need help. . . .

First, trade has generated substantial gains—not losses—for America overall.  .  . . The overall gains are large. Trade and related activities—spurred by accords such as the North American Free Trade Agreement, or Nafta, have boosted annual U.S. income today by about 10 percentage points of GDP relative to what it would have been otherwise. This translates into an aggregate gain of about $1.8 trillion in 2015—thousands of dollars per U.S. household every year.

Future trade agreements will bring more gains. A 2016 analysis by Peter A. Petri and Michael G. Plummer estimates that the TPP—which will eliminate more than 18,000 tariffs that other countries today impose on U.S. exports—will boost U.S. national income by about $130 billion annually. Part of this gain will be due to the higher average wages Americans earn as a result of more trade.

The second important pro-trade narrative is that creative destruction—the movement of people and capital from weaker businesses to stronger ones and new opportunities—is how many of the gains from trade arise. And because trade is only one of the forces driving this continual churn, the scale of creative destruction is vast. In December, for example, America’s creation of almost 300,000 payroll jobs was the net outcome of 5.4 million new jobs created and 5.1 million old jobs destroyed. Technology innovation and other drivers of long-run economic prosperity also entail more gains to “winners” than costs to “losers.”

This points to the third key theme: The way to support those affected by trade is not with tariffs that will destroy the jobs of other Americans that depend on trade. The solution is to drop trade barriers to maximize trade’s gains—and then design well-targeted supports for workers and communities that need help.  . . .

We need to build a broader, more-responsive safety net to assist workers in transition regardless of the reason. For instance, unemployment insurance and trade-adjustment assistance should become part of an integrated program that offers a menu of options to all displaced workers. . . .

But the problem with the Kondrake/ Slaughter article is that the person who created the term “creative destructionism” would not agree with their central thesis that creative destructionism is such a great benefit that everyone should embrace capitalism and free trade.  Joseph Schumpeter, the famous Harvard Economist,  in his book “Capitalism, Socialism and Democracy” first coined the term “creative destructionism”.  The central thesis of his book, however, was that Schumpeter did not believe that Capitalism could long survive and that is why he was an Austrian socialist.  He did not believe that Capitalism would long survive because of the collateral damage it creates and the gap between the rich and the poor.  Although Capitalism causes all boats to rise, there will always be a gap between the rich and the poor and people will focus on the gap rather than the fact that all boats are rising.

It is very difficult to throw theoretical economic arguments to counter the real loss of jobs in US manufacturing industries.  Will this rosy article of Free Trade truly offset the arguments made by the international trade losers of thousands of closed factories and millions of lost manufacturing jobs?  Don’t think so.  Simple theoretical arguments do not wash in the face of blown up factories and millions of lost jobs.

One economist who agrees with this point is Daniel Altman, an economist, who published in article entitled “Economics Has Failed America” on May 19, 2016 pointing out some real problems with the economic arguments in favor of free trade:

As a recovering economist writing on behalf of my erstwhile field, I would like to apologize to every American who has lost a job or a livelihood because of globalization. Economics has failed you. It has failed you because of ideology, politics, and laziness. It has failed you because its teachings are woefully incomplete, and its greatest exponents have done almost nothing to complete them.

There are “positive” questions in economics that have mathematical answers — things that simply must be true — and then there are “normative” questions that amount to value judgments on points of policy. In economics classes, we teach the former and usually stop short when faced with the latter. This leaves a hole in any discussion of economic policy; students acquire first principles but rarely consider real-world applications, because to do so would presuppose a social or political point of view.

In the case of free trade and globalization, this omission has been disastrous.  . . .

Yet the redistribution required to generate this broad improvement in living standards is hardly addressed, or sometimes even mentioned. To do so would be to step into the muddy mire of normative questions.

Should the government take from some people in order to give to others? Who should give the most, and who should receive? What exactly should they receive? . . .

Tyler Cowen and Alex Tabarrok of George Mason University offer this breezy guidance: “Job destruction is ultimately a healthy part of any growing economy, but that doesn’t mean we have to ignore the costs of transitioning from one job to another. Unemployment insurance, savings, and a strong education system can help workers respond to shocks.” It may be worth noting that Cowen is a frequent critic of unemployment insurance on his blog. . .  .

Finally, R. Glenn Hubbard . . . and Anthony Patrick O’Brien of Lehigh University are the only ones who mention the program designed to accomplish redistribution: “It may be difficult, though, for workers who lose their jobs because of trade to easily find others. That is why in the United States the federal government uses the Trade Adjustment Assistance program to provide funds for workers who have lost their jobs due to international trade. These funds can be used for retraining, for searching for new jobs, or for relocating to areas where new jobs are available. This program — and similar programs in other countries — recognizes that there are losers from international trade as well as winners.”

The Trade Adjustment Assistance (TAA) program has a budget of about $664 million, or roughly 0.004 percent of gross domestic product.

This means one dollar of every $25,000 in income generated by the United States goes to help people here who have been hurt by globalization. They don’t receive the cash directly; they just have to hope that the program — which offers retooling, retraining, and relocation, among other services — will aid their transition to new jobs.

There aren’t many beneficiaries, either.  . . .

The problem with Mr. Altman’s article is that he does not realize that there are two TAA programs and the one that works is the TAA for Companies program.  The funding for that program has been cut to $12.5 million a year.  He also does not realize that the best arguments against protectionism are not economic, they are historical.

Congressman Jim McDermott may have put it the best in a recent article, “Workers do not want a handout, they want jobs”:

Trump, Sanders voters don’t want handouts — they want jobs

A popular knock on voters who support Donald Trump or Bernie Sanders because they have been “left behind” by free trade, globalization and technological progress is that they want a handout from Uncle Sam.

But the truth is the opposite: These voters want to work. They want jobs. And that’s the key to understanding their support for Trump or Sanders. . . .

In this political season, I’ve been asking some of them and their friends, and their now-adult kids, which presidential candidates they find appealing. Only two find support:  Sanders, the Vermont socialist, and Trump, the New York billionaire. Both candidates appeal to a working class that is frustrated, fed up and downright angry.

Neither can be bought.

STRONG HISTORICAL ARGUMENTS IN FAVOR OF FREE TRADE

The strong arguments for Free Trade, however, are not economic.  The best arguments are historical: Japan, China, and the Smoot Hawley Tariff.  Those who do not learn from history are doomed to repeat it.

An even more important argument, however, is that protectionism does not work.  It does not save the companies and the President who understood that point was Ronald Reagan.

But first the historical arguments.

Japan

The recent experience of Japan can show what happens when a country listens to the Siren Calls of protectionism.

In the 1980s, when I joined the US International Trade Commission (“ITC”), the number one target country on the trade hit parade was not China.  It was Japan.  It was exporting numerous products to the United States that caused injury to various US industries.  In fact, I had lived in Japan and studied Japanese and thought after my career in Federal Government at the ITC and Commerce Department I would work on trade cases, including antidumping cases, against Japanese companies.

That did not happen.  Why?  In the early 1990s, after Ezra Vogel published his book “Japan as Number One”, the entire Japanese economy imploded.  Japanese exports dropped like a rock, and Japan entered what is called the lost decade, which now has become lost decades.

In my opinion, Japan’s lost decades have been caused by its trade policy.  Japan did exactly what Donald Trump is advocating, it put Japan first through its mercantilistic trade policy.  While living in Japan and later at the Commerce Department, I discovered numerous non- tariff trade barriers that Japan had put into place to protect its domestic industries.

American skis could not be sold in Japan because as one Japanese government official stated snow is different in Japan than the United States.  American beef could not be sold in Japan because as another Japanese government official stated Japanese intestines were shorter than American intestines.

In fact, in the trade area, there was antidumping case after antidumping case against Japanese companies.  The problem was prices in Japan were multiple times higher than the same product sold by the same company to the US.  In some cases, based on actual price comparisons and actual calculated antidumping rates, Japanese antidumping rates were over 400% because the Japanese company priced the same product in Japan four times higher than the same product sold in the United States.

In effect, the Japanese government’s anti-trade protectionist policy created a very high price market in Japan.  Japanese companies sold at very high prices in the Japanese market, ramped up production to drive down per unit costs and then used high prices in the Japanese market to fuel exported products at very low prices to the US market.  Classic dumping.

The Japanese government also made it very difficult for foreign companies, including US companies, to set up true joint ventures in Japan.  Keep the foreigner out was the motto of Japan.

But what was the ultimate effect of this high priced protectionist trade policy, massive bubbles in the land and stock markets.  At one point the land in the Imperial Palace in Tokyo was worth more than the land in the entire state of Illinois.  Those high land prices were used to fuel a very high stock market in Japan.  The Japanese stock market bubble burst and then land prices fell.  Japan entered a massive recession/depression and it lost decade(s) of economic growth.

Also when doing antidumping cases in other countries and the issue of using third country prices, I noticed that Petitioners always pushed Commerce to Japan because Japanese protected market prices were always higher than US prices.  Japanese raw material prices were higher too.  Because of trade cases in the US and other countries, Japanese production plants left Japan creating hollowed out industries as the companies sought to get around trade rules and also access to lower raw material costs.  After the US FTA with Korea, the best-selling car in Korea is the Toyota produced in the United States.

China

The other historical lesson is China.  In 1949 when Mao Tse Tung won the Chinese revolution, he also wanted to make China great again.  Mao decided that he would make China great by putting up on the protectionist walls and the Chinese themselves would make themselves self -sufficient by producing everything they needed.

In the Great Leap Forward in the early 1950s, Mao declared that the Chinese people would create backyard steel industries and Chinese peasants melted down cooking pots into raw steel to show that they could produce steel.  The Great Leap Forward led to one of greatest famines in World history and millions died.

When Deng Xiaoping came into power he immediately opened up the country.  Because of the Mao protectionist policies, China had fallen behind the World in technology.  Deng Xiaoping looked for ways to bring technology to China and develop their own.

Premier Zhu Rongyi, China’s great economic reformer, refused to follow the Japanese model and invited Western companies to set up joint ventures in China.

Thus, during the Obama Administration, when GM was having problems with its US manufacturing operations and facing bankruptcy, the one part of the company it was especially trying to save was its China operations.  The Buick had become the bestselling car in China.

As one Chinese individual remarked to me, why when China and many other countries have rejected the Socialist model is the United States moving towards the Socialist model and putting up protectionist walls.

Smoot Hawley

On April 25, 2016, former Congressman Don Bonker in an article entitled “Presidential Election Politics and Perils of Protectionism” warned that the anti- trade rhetoric in the Presidential election could lead to the return of the Smoot Hawley tariffs, stating:

This year’s presidential election is not lacking in absurdity, another example being a Republican billionaire and a socialist Democrat in sync on what has become a contentious issue, attacking trade agreements by declaring they are “disastrous” or being negotiated by “stupid people”.  . . .

What they have tapped into is the viral protectionism spreading across the country, embedded in Midwestern states that suffered job losses as American companies shifted their manufacturing operations to low-wage countries like Mexico and China.

Both Trump and Sanders are clueless or blatantly dismissive of the consequences of such actions, but their insane rhetoric could lead to a trade war, even a collapse of the world trading system, should either ever make it to the White House. . . .

In this raucous presidential campaign, both sides slamming America’s trade policy could put our country on the perilous path of protectionism, thus undermining America’s presumed role as the leader in today’s global economy. Someone should remind both Trump, if ever he listens, and Sanders, ever the demagogue, that we’ve been down that path before, and it proved devastating.

In the 1928 presidential election, the Republican candidate Herbert Hoover campaigned on the populist anti-trade issue, pledging to restrict foreign imports if elected, a message that resonated with the commodity producers and manufacturers who felt betrayed in an emerging global economy, which set the stage for a Republican Congress poised to run amok on limiting imports.

Indeed, shortly after the elections, newly formed trade associations mobilized an unbridled frenzy of logrolling, jockeying for maximum protection for commodity and industry producers leading to enactment of the Smoot-Hawley Tariff Act that hiked import fees, some up to 100 percent, on over 20,000 foreign products. . . .

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

The Smoot Hawley tariff turned the Depression into the Great Depression.

PROTECTIONISM DOES NOT WORK—COMPANIES ARE NOT SAVED

The most important lesson, however, is that protectionism does not work.  The US Steel industry is a case study of this point.  After receiving 40 years of protectionism from steel imports, where are Bethlehem Steel, Jones and Loughlin and Lone Star Steel today—Green Fields.

Despite the antidumping order against Wooden Bedroom Furniture from China, that did not save the US furniture industry as many US factories and Chinese factories moved to Vietnam.  In fact, the Furniture case illustrates another point—the Whack a Mole problem in antidumping (“AD”) and countervailing duty (“CVD”) Trade cases.

Recently, the US Washing Machine industry dominated by Whirlpool screamed because after bringing AD and CVD cases against Samsung, Daewoo and LG in Korea, the companies moved to China so Whirlpool filed another case against China.  After AD and CVD orders are issued, multinationals and many other companies can move their production facilities to new countries which are not covered by US AD and CVD orders.  AD and CVD cases are meant to be rifle shots to stop unfair trade practices from a specific country, but US companies cannot bring AD and CVD cases against the World, although the US Steel Industry has tried.

In January 2008, Superior Graphite and SGL Carbon LLC filed an antidumping case against graphite electrodes from China, which lead to an antidumping order against China.  On July 13, 2016, after 8 years of protection, Superior announced the closing of its Russellville, Arkansas plant.  One reason was intense domestic competition and another reason imports from India.

The President that understood that protectionism does not work was Ronald Reagan.  Contrary to the implication in Donald Trump’s June 28, 2016 speech, entitled “Declaring American Economic Independence”, Reagan was not a protectionist.  He was very much a free trader, who specifically stated that protectionism does not work.

In his attached June 28, 2016speech, DJT_DeclaringAmericanEconomicIndependence, Donald Trump stated in part:

President Reagan deployed similar trade measures when motorcycle and semiconductor imports threatened U.S. industry. His tariff on Japanese motorcycles was 45% and his tariff to shield America’s semiconductor industry was 100%.

On June 28, 1986, 40 years to the day before, however, Ronald Reagan gave the attached speech BETTER COPY REAGAN IT SPEECH, about international trade and against protectionism, stating in part:

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

You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.   . . .

Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively.  . . .

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

So, the danger is approaching. Should this bill become law, foreign governments would respond, and soon a vicious cycle of trade barriers would be jeopardizing our hard-won economic prosperity.

The first part of Reagan’s speech almost sounds like a point by point rebuttal of Donald Trump’s June 2016 speech.  The last part of the speech specifically points out the perils of protectionism.  Ronald Reagan lived through the Great Depression and learned from history.  He did not want to repeat the Smoot Hawley Tariff Act mistake again.

Donald Trump points at two cases during the Reagan administration—Motorcycles and Semiconductor Chips.  The interesting point is that I was at the ITC and Commerce Department in the Reagan Revolution in the 1980s when the Motorcycles and Semiconductor Chips cases took place and have personal knowledge about what happened.  Those cases and the reason for them are very different from the trade actions that Donald Trump is talking about.

In the Motorcycles 201 case, in the early 1980s Harley Davidson sought temporary relief under the Escape Clause to help it adjust to import competition, especially from Japan.  It won the case and received a three-year tariff rate quota on imports of certain subassemblies from Japan.  The noteworthy point is that after two years in the mid- 1980s, Harley told the US government to lift the quota/tariff because it no longer needed the protection from imports.  The 201 case gave Harley the short term protection it needed to adjust to import competition.

Contrast that temporary relief with antidumping and countervailing duty orders against steel, chemicals and metals, some of which have been in place for 20 to 30 years.

In the 1980s Semiconductors cases, the Commerce Department was very tough in those case and even initiated its own 256K DRAM case.  The Semiconductor cases resulted in a Semiconductors agreement with Japan.  But while at the Commerce Department in the 1980s, the Secretary of Commerce was Malcolm Baldrige, a brilliant secretary.  Baldridge believe that his job was to protect the crown jewels of American manufacturing—the High Tech industry.

What Donald Trump is proposing is protecting the low tech manufacturing industries, such as the Steel industry.  Ronald Reagan did not fall into that trap.

If Donald Trump goes forward with his plans to use protectionist tariffs to protect the low tech industry, we can expect countries, such as China, Korea, Canada, Mexico and other countries, to retaliate against the US high tech industry. In February 2015, China fined Qualcomm, a US company, $1 billion for violations of the Chinese antimonopoly law.  That is $1 billion of the $10 billion Qualcomm had earned during 2014 selling computer chips to China.

In fact, the employment in the entire US steel industry is less than one high tech company.  So Trump’s idea is to protect the Steel Industry, but the sacrifice is the US High Tech industry with 100s of thousands of high paying jobs.

One of the problems in international trade is what the Chinese call the Frog in the Well syndrome.  The Frog lives inside the Well and thinks that is the World.  As House Speaker Paul Ryan has said many times, the vast majority of consumers live outside of the United States.  When I lived in Beijing during 2005-2007, the US Commercial Attaché gave a speech and mentioned that 75% of all Chinese have a color television set. That is now probably close to 95% of 1.6 billion people, a larger market than the US market.

But all this does not mean that nothing can be done to save US manufacturing companies that have been battered by imports.  As explained in past and subsequent articles, something can be done and it does not have any protectionist effect—The Trade Assistance for Firms/Companies program.  Although it receives only $12.5 million annually in support, the program saves US companies and the jobs that go with them but without putting any protectionist barriers in place.

STEEL TRADE CASES

ITC SUSPENDS STEEL 337 CASE

On May 26, 2016, the US International Trade Commission (“ITC”) initiated the section 337 case against Chinese steel import on the basis of three primary counts:

(1) a conspiracy to fix prices and control output and export volumes, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) the misappropriation and use of U.S. Steel’s trade secrets; and (3) the false designation of origin or manufacturer, in violation of the Lanham Act, 15 U.S.C. § 1125(a).

On July 8, 2016, the ITC, in the attached order, ITC STEEL ORDER, temporarily suspended the Section 337 against steel imports brought by US on the grounds that the issues it raises fall within the Commerce Department’s jurisdiction in antidumping and countervailing duty cases.

The Commission’s order specifically states, in part:

U.S. Steel’s antitrust claims explicitly rely upon determinations by the Commission and the Commerce Department that the Chinese government subsidizes the Chinese steel industry, and that Chinese steel manufacturers sell their products at less than fair value. . . .

U.S. Steel’s false designation of origin claims are based explicitly upon Respondents’ alleged evasion of antidumping and countervailing duty orders issued by the Commerce Department. . . .

As discussed above, the Complaint identifies several ongoing Commerce Department investigations .  . . and the Commerce Department recently issued final determinations in these investigations finding countervailing duties and sales at less than fair value.

The record thus shows that the present matter comes at least “in part” within the purview of the antidumping and countervailing duty laws, and Section 337(b)(3) therefore requires that the Commission notify the Secretary of Commerce. . . .

The ITC’s suspension stays all discovery and motions in its investigation of U.S. Steel’s claims of an alleged price-fixing conspiracy involving misappropriation of trade secrets and false manufacturing designations in the importation of carbon and alloy steel products.

The suspension followed seven responses from a number of Chinese steel companies to U.S. Steel’s complaint arguing that the claims were based explicitly upon respondents’ alleged evasion of AD and CVD orders and identified several ongoing Commerce Department investigations into steel products.

STAINLESS STEEL SHEET AND STRIP FROM CHINA

On July 12, 2016, in the attached factsheet, factsheet-prc-stainless-steel-sheet-strip-cvd-prelim-071216, Commerce announced its affirmative preliminary determination in the countervailing duty (“CVD”) investigation of imports of stainless steel sheet and strip from China.  Since many Chinese companies refused to cooperate because of China’s nonmarket economy status, Chinese companies received CVD rates ranging from 57.3% to 193.12%

JULY ANTIDUMPING ADMINISTRATIVE REVIEWS

On July 5, 2016, Commerce published the attached Federal Register notice, OPPORTUNITY JULY 2016, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of July. The specific antidumping cases against China are:   Carbon Steel Butt-Weld Pipe Fittings, Certain Potassium Phosphate Salts, Certain Steel Grating, Circular Welded Carbon Quality Steel Pipe, Persulfates, and Xanthan Gum

The specific countervailing duty cases are: Circular Welded Carbon Quality Steel Pipe, Potassium Phosphate Salts, Prestressed Concrete Steel Wire Strand, and Steel Grating.

For those US import companies that imported : Butt-Weld Pipe Fittings, Potassium Phosphate Salts, Steel Grating, Circular Welded Carbon Steel Pipe, Persulfates, Steel Wire Strand and Xanthan Gum during the antidumping period July 1, 2015-June 30, 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.

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.

While in China recently, I found so many examples of Chinese solar companies or US importers, which did not file requests for a review investigation.  In one instance, although the Chinese companies obtained separate rates during the initial investigation, the Petitioner appealed to the Court.  Several Chinese companies and US importers did not know the case was appealed, and the importers now owe millions in antidumping duties because they failed to file a request for a review investigation in December 2015.

NEW SECTION 337 INTELLECTUAL PROPERTY CASE FILED AT ITC AGAINST CHINA

On July 11, 2016, Cambria Company LLC filed section 337 case at the ITC against Quartz Slabs and Portions.  The proposed respondents, including a Chinese company, are: Stylen Quaza LLC DBA Vicostone USA, Dallas, Texas; Vicostone Joint Stock Company, Vietnam; Building Plastics Inc., Memphis, Tennessee; Fasa Industrial Corporation, Ltd, China; Foshan FASA Building Material Co., Ltd., China; Solidtops LLC, Oxford, Maryland; Dorado Soapstone LLC, Denver, Colorado; and Pental Granite and Marble Inc., Seattle, Washington.

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

Best regards,

Bill Perry

US CHINA TRADE WAR–WEAK FREE TRADE ARGUMENTS CREATE PROTECTIONISM AND PROBABLE DEMISE OF TPP, STEEL, ANTIDUMPING REVIEWS AND NEW 337 CASE

White House Night Pennsylvania Ave Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MAY 19, 2016 UPDATE

Dear Friends,

The ITC has released its report on the Trans Pacific Partnership and a new 337 cases have been filed against US importers and Chinese companies on inflatable devices.

Best regards,

Bill Perry

ITC RELEASES TPP REPORT

On May 18, 2016, The US International Trade Commission (“ITC”) released its attached report on the Trans Pacific Partnership Agreement (“TPP”), ITC TPP REPORT.  The Main Findings of the ITC Report are set forth below.  The Report was a mixed bag finding that the overall US economy would grow by 0.23% by $57.23 billion by year 15 of the Agreement (2032) with agriculture being the biggest winner followed by services with a modest increase in employment.  But the ITC report also found that manufacturing, natural resources and the energy sectors would lose business by $10.8 billion (0.1 percent) lower with the TPP Agreement than it would be compared with baseline estimates without the agreement.

But the major gains with the TPP are in the other areas with the ITC finding that “the two new electronic commerce provisions that protect cross-border data flows and prohibit data localization requirements to be crucial to the development of cross-border trade in services.  . . .”

Outside Parties emphasized:

“the importance of TPP chapters addressing intellectual property rights, customs and trade facilitation, investment, technical barriers to trade, sanitary and phytosanitary standards, and state-owned enterprises.”

With the release of the ITC TPP Report, the Congress is free to take up the passage of the TPP.  U.S. Trade Representative Michael Froman stated that the ITC’s report will be just one of the arguments the Administration will use to push Congress to vote on the ratification of the agreement before President Barack Obama leaves office.  Froman specifically stated:

“The ITC report provides another strong argument for why TPP should be passed this year. It is part of a growing body of evidence that shows that TPP will benefit our economy at home and allow the U.S. to help set the rules of the road for trade in the Asia Pacific.”

Although Congressional experts originally indicated a possibility of taking the TPP up during the summer, the strong protectionist tide in the Presidential Election has prompted many experts both in and out of Congress to predict that the lame-duck session of Congress following the November elections as the first real opportunity for Congress to consider the TPP.

In a conference call with reporters, however, Froman revealed that USTR is moving forward with an expedited implementation of the TPP to make sure that the 11 other nations in the agreement are ready to comply with its terms as soon as the Agreement takes effect.  Usually the implementation process does not begin until the deal is ratified, but as USTR Froman states:

“We’ve begun an accelerated implementation process to be sure that we can give members of Congress the confidence they need that by the time the agreement enters into force that our trading partners will have fully complied with the terms of the agreement and that their constituents will get the full benefit of the deal.”

The ITC’s Report Main Findings are:

“The Commission used a dynamic computable general equilibrium model to determine the impact of TPP relative to a baseline projection that does not include TPP. The model estimated that TPP would have positive effects, albeit small as a percentage of the overall size of the U.S. economy. By year 15 (2032), U.S. annual real income would be $57.3 billion (0.23 percent) higher than the baseline projections, real GDP would be $42.7 billion (0.15 percent) higher, and employment would be 0.07 percent higher (128,000 full-time equivalents). U.S. exports and U.S. imports would be $27.2 billion (1.0 percent) and $48.9 billion (1.1 percent) higher, respectively, relative to baseline projections. U.S. exports to new FTA partners would grow by $34.6 billion (18.7 percent); U.S. imports from those countries would grow by $23.4 billion (10.4 percent).

Among broad sectors of the U.S. economy, agriculture and food would see the greatest percentage gain relative to the baseline projections; output would be $10.0 billion, or 0.5 percent, higher by year 15. The services sector would benefit, with a gain of $42.3 billion (0.1 percent) in output. Output in manufacturing, natural resources, and energy would be $10.8 billion (0.1 percent) lower with the TPP Agreement than it would be compared with baseline estimates without the agreement.

Many stakeholders consider two new electronic commerce provisions that protect cross-border data flows and prohibit data localization requirements to be crucial to the development of cross-border trade in services, and vital to optimizing the global operations of large and small U.S. companies in all sectors.

TPP would generally establish trade-related disciplines that strengthen and harmonize regulations, increase certainty, and decrease trade costs for firms that trade and invest in the TPP region. Interested parties particularly emphasized the importance of TPP chapters addressing intellectual property rights, customs and trade facilitation, investment, technical barriers to trade, sanitary and phytosanitary standards, and state-owned enterprises.

NEW SECTION 337 CASE FILED AGAINST CHINA

On May 19, 2016, Intex Recreation Corp. and Intex Marketing Ltd. filed a new section 337 case against imports of Inflatable Products and Processes for Making the Same from China.  The respondent companies are in China and Hong Kong.  Please see relevant notice below:

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 Inflatable Products and Processes for Making the Same. The proposed respondents are: Bestway (USA) Inc., Phoenix, Arizona; Bestway Global Holdings Inc., China; Bestway (Hong Kong) International Ltd., Hong Kong; Bestway Inflatables & Materials Corporation, China; and Bestway (Nantong) Recreation Corp., China.

If anyone wants a copy of the complaint, please feel free to contact me.

US CHINA TRADE WAR MAY 12, 2016 BLOG POST

Dear Friends,

As mentioned in my last blog post, as of May 1, 2016, I am no longer at the Dorsey law firm.  The transition is complete and my new law firm is Harris Moure, here in Seattle and my new e-mail address is bill@harrismoure.com.  The US China Trade War blog and newsletter are now coming from Harris Moure.

As also mentioned, Dan Harris, my partner, has a very famous blog, www.chinalawblog.com, which is followed by many companies that are interested in doing business in and with China.  Dan is determined to enlarge my readership so he is pushing me to write more smaller articles and take long articles, such as those on the TPP and the rise of protectionism in the US, and make them a series.

In that light, set forth below is the first 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 probable demise of the TPP.  The first article will outline the problem and why this is such a sharp attack on the Trans Pacific Partnership and some of the visceral arguments against free trade.  The second article will explore in depth the protectionist arguments and the reason for the rise of Donald Trump and Bernie Sanders and the weak free trade arguments to counter the protectionism.  The final article will focus on the Probable Demise of the TPP, failure of Congressional Trade Policy and what can be done to provide the safety net that will allow Congress again to vote for free trade agreements so that 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.

In addition, set forth are several developments involving steel trade litigation, antidumping and countervailing duty reviews against Chinese companies and a new 337 patent case against Chinese companies.

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

Best regards,

Bill Perry

WEAK FREE TRADE ARGUMENTS CREATE THE RISE OF TRUMP/SANDERS PROTECTIONISM AND PROBABLE DEMISE OF TRANS PACIFIC PARTNERSHIP (“TPP”)

Three weeks ago former Democratic Congressman Don Bonker, a good friend, told me “The TPP is dead”.  Don has always been very skeptical that the Trans Pacific Partnership (“TPP”) would pass Congress.

Don also believes Hilary Clinton will beat Trump in a landslide, and the Democrats will take both the Senate and the House.  Although Clinton may win, I do not believe that it will be a blowout and do not believe the Republicans will lose both the Senate and especially the House.

Don told me he did not know one person voting for Trump.  My 95 old mother voted for Trump in the Massachusetts primary because as a former Republican state committeewomen, she saw a groundswell of Trump support from Democrats, with many, such as her hairdresser, asking “how do I become a Republican to vote for Trump”.  The last time she saw that was 1980 when Reagan won the Presidency and took Massachusetts.  In fact, the Massachusetts Registry of Voters has reported 100s of thousands of Democrats switching parties to vote for Trump.  Massachusetts is a very, very Blue Democratic state.

Another good friend, a Oregon factory owner, told me he is voting for Trump and all of his friends are voting for Trump.  A recent Quinnipac poll has Trump and Clinton in a dead heat in the three crucial swing states—Florida, Ohio and Pennsylvania.

This is momentum and the momentum at the present time is with Trump.  With momentum Trump will be able to expand his base, but it is questionable whether Clinton can do so.

But it is the second point of Don’s argument that is of interest to this audience.  If the Democrats take the Congress, he firmly believes the US will become much more protectionist because of the Democratic relationship to the labor unions.  All the labor unions are opposed to the TPP.

So the Democrats are becoming even more protectionist as well as the Republicans under Donald Trump.  This is a huge groundswell of US protectionism on both sides of the political equation, which could very well kill the TPP and move the United States down a very protectionist path.

On the Republican side, Trump himself has condemned the TPP and in Cosa Mesa, California and subsequent speeches stated that in a Trump Administration there will be no free trade agreements.  In fact, in an April 28, 2016 editorial on Trump’s recent Foreign Policy speech, the Wall Street Journal’s one sharp disagreement with Trump is his trade policy:

“Mr. Trump’s threats of trade wars with China, Mexico and Japan may please nationalists, but such brinkmanship could well provoke another global recession.  American interests must come first but the trade-offs are inevitably complex Republican and Democratic Presidents since the 1930s have concluded that trade is a net benefit to the economy. . . .”

In an April 27, 2016 article in the Wall Street Journal entitled “How Trump Killed Reaganism”, William Galston states:

Economic issues were secondary, which permitted business-oriented Republican elites to dominate their party’s economic agenda with free trade, a welcoming immigration policy and efforts to “reform”—that is, cut—major entitlement programs. As late as George W. Bush’s second term, these concerns remained paramount.

With the onset of the Great Recession, however, the alliance between the white working class and business elites began to fray. Workers blamed trade for the loss of millions of manufacturing jobs, and blamed immigrants for declining wages as well as for rising welfare expenditures and social disorder. Amid rising economic uncertainty, these voters were in no mood to put their remaining sources of economic reassurance—Social Security and Medicare—on the chopping block. “Limited government” meant cutting programs for the undeserving poor, not for working- and middle-class households.

Enter Donald Trump, who proposes to turn Reaganism on its head.  . . . Mr. Trump rejects current trade treaties as bad bargains struck by inept U.S. negotiators and paints immigration as an assault on American workers and society itself.

So it has come to this: A mercantilist isolationist is the odds-on favorite to win the Republican presidential nomination. Whether or not he goes on to win the general election, the Republican Party cannot return to what it once was.

The Reagan era has ended, and what comes next is anyone’s guess.

With the Indiana primary, Trump consolidated his position as the nominee for the Republican party, but what about Bernie Sanders on the Democratic side?  He won the Indiana primary and recently the West Virginia primary.  In response to my last article on the Trump Impact on Trade Policy, one Canadian exporter/US importer contacted me to say that Trump’s position on international trade is why it is better to support Senator Bernie Sanders:

I read your interview on LinkedIn about the Trump effect on International trade if he becomes President.  It was short, and sweet and pretty well summed up most people’s feelings who are in business.  We debate both him and Bernie Sanders up here in Canada and find it all fascinating.  The people who are supporting Trump would actually be better served supporting Sanders for his beliefs, with his policies better serving the “less” educated.  Trumps policies will bury his followers and they don’t seem to grasp it at all.  Protectionism is SO PASSE it’s scary they are even discussing it.

The e-mail illustrates an important problem with the Bernie Sanders alternative.  When it comes to international trade, Donald Trump and Bernie Sanders are two peas in a pod.  Frankly, on trade Bernie Sanders may be more protectionist than Donald Trump.  Why??

Trump has said that when he talks about high tariffs on Chinese imports, that is only a threat, a bargaining ploy to get better leverage in any negotiation with China and other countries.  Thus during the Florida debate Donald Trump clarified his stance on increased tariffs for foreign goods, stating that he would consider massive hikes as “threats” designed to force China and other countries to “behave.”

In the Florida debate, Trump specifically called the 45 percent “tax” on Chinese imports a threat:

It was not a tax, it was a threat. It will be a tax if they don’t behave. Take China as an example. I have many friends, great manufacturers, they want to go into China. They can’t. China won’t let them. We talk about free trade. It’s not true free trade, it’s stupid trade.

Trump went on to state that China is dumping its goods into the US market with “no tax, no nothing, no problems.” Trump further argued that U.S. manufacturers cannot get into the Chinese market:

I have the best people, manufacturers, they can’t get in. When they get in, they have to pay a tremendous tax.  If [China and other countries] don’t follow the rules and regulations so that we can have it equal on both sides, we will tax you. It doesn’t have to be 45, it could be less. But it has to be something because our country and our trade and our deals and most importantly our jobs are going to hell.

On the Democratic side, Bernie, who wants to keep labor union support, is not making threats.  In fact, Bernie Sanders on trade is just as protectionist, if not more protectionist than Donald Trump as illustrated on his Presidential website, which states, in part:

Bernie Sanders believes that the top priority of any trade deal should be to help American workers. Unfortunately, as Bernie has warned year after year, American trade policy over the last 30 years has done just the opposite. Multinational corporations – who have helped to write most of these trade deals – have benefited greatly while millions of American jobs have been shipped overseas.

American trade policy should place the needs of American workers and small businesses first.

Bernie’s strong opposition to destructive “free trade” deals began with NAFTA in 1993. . . .    As with NAFTA, Bernie warned in 2000 that Permanent Normal Trade Relations with China would help multinational corporations at the expense of workers and the environment. ….

The TPP follows in the footsteps of the previous pro-corporate trade deals. It lacks safeguards to protect American jobs and the environment while giving massive benefits to large multinational corporations. . . .

Bernie has stated repeatedly that his top priority is making sure that all Americans have access to good paying jobs. For this reason he has been a leader in Congress in the fight against the free trade agreements that have been negotiated over the past three decades. Bernie’s passionate warnings against these deals have, unfortunately for American workers, all been proven right as these trade deals have offshored a massive amount of decent paying jobs and have closed tens of thousands of factories across our country. . . .

Why is Bernie against most trade agreements?

He believes that free trade agreements like NAFTA, Permanent Normal Trade Relations with China, and the U.S.-Korea Free Trade Agreement have allowed too many American jobs to move overseas. . . .

As he said in 1993 on the House floor before voting against it, “NAFTA may be a good deal for the people who own our corporations, but it is a bad deal for American workers, for our family farmers, and it is bad for the environment.”

And Bernie is nothing if not consistent. Here he is over 20 years later warning against the Trans-Pacific Partnership:

“Let’s be clear: the TPP is much more than a “free trade” agreement. It is part of a global race to the bottom to boost the profits of large corporations and Wall Street by outsourcing jobs; undercutting worker rights; dismantling labor, environmental, health, food safety and financial laws; and allowing corporations to challenge our laws in international tribunals rather than our own court system.

With regard to trade with China, Bernie Sanders states on his Presidential website:

Bernie firmly believes that current trade relations with China are detrimental to job growth and wealth equality in the United States. Referring specifically to the 2015 Trans-Pacific Partnership [which does not include China], Bernie has decried trade deals with China as being “designed to protect the interests of the largest multi-national corporations at the expense of workers, consumers, the environment and the foundations of American democracy.” . . .

Time and time again, Bernie has voted against free trade deals with China. In 1999, Bernie voted in the House against granting China “Most Favored Nation” status. In 2000, Bernie voted against Permanent Normal Trade Relations with China which aimed to create jobs, but instead lead to the loss of more than 3 million jobs for Americans.

“Let’s be clear: one of the major reasons that the middle class in America is disappearing, poverty is increasing and the gap between the rich and everyone else is growing wider and wider is due to our disastrous unfettered free trade policy.” . . .

With these statements, Bernie Sanders sounds just like Donald Trump.  To see Bernie Sanders in action on trade, see his statements on the Senate floor against the Trans Pacific Partnership and China.  See http://feelthebern.org/bernie-sanders-on-trade/ and http://feelthebern.org/bernie-sanders-on-china/.

In his China speech, just like Senator Sessions, who advises Donald Trump on trade, Sanders confuses normal trade relations with China with a Free Trade Agreement, stating that PNTR was a free trade agreement with China.  When the US gave normal trade relations with China, it did not set up a Free Trade Agreement with China.  Permanent Normal Trade Relations (“PNTR”) only means that China is treated like all other countries, such as Iran, Syria, Russia, Ukraine and many other countries.  There is no unfettered free trade agreement with China.

Both the Democrats and the Republicans have now made international trade and free trade agreements one of the burning issues in the Presidential election.  On March 10, 2016, CNN Reporter Stephen Collinson in an article entitled, “How Trump and Sanders tapped America’s Economic Rage” stated:

Finally, somebody is listening. Donald Trump and Bernie Sanders might be poles apart in their politics and temperament, but they are voicing visceral feelings of economic disenfranchisement and alienation among pessimistic voters who feel they’ve been ignored for years.

The billionaire and the democratic socialist are in different ways speaking for vast populations of Americans who feel threatened by globalization, who question the benefits of “free trade” that political leaders have peddled for decades and who believe distant elites control the economy in ways detrimental to their lives and prospects.

It is turning out to be a potent electoral brew –which has lifted insurgent candidates like Trump and Sanders throughout the 2016 cycle and challenged foes like Hillary Clinton and establishment Republicans who have found it tougher to reconcile the grass-roots anger. . . .

Trump’s message is explosive, identifying culprits in what he sees as the corrupt cabal of Washington politicians and supposedly sinister outsiders, like illegal immigrants, job-stealing Chinese firms or tough negotiators who run rings around effete U.S. officials in places like Vietnam and Japan. To his backers, he is the fiercest shark in a global pool who, if nothing else, will have the rest of the world again fearing America’s bite. . . .

The story was similar on the Democratic side, where 57% of Democratic voters in Michigan said trade takes away U.S. jobs. Among people who thought so, Sanders was the most popular candidate.

“I think the key to him winning in Michigan was his clear message on the trade policies,” Sanders campaign manager Jeff Weaver told CNN . . . . “Michigan is a state that has been devastated by bad trade deals. He has opposed every one and Secretary Clinton has supported almost every one. People in Michigan know what the real impact of that is.”

But Sanders has established a narrative difficult to counter. His approach to Americans’ anxieties is to offer a “political revolution,” one that would rewrite the rules of the American economy — and the global one — according to a much more progressive blueprint.

His denunciations of Wall Street “oligarchs” and complaints of a “rigged” economy and a “corrupt” campaign finance system play into the feelings of his supporters that they are powerless to address the worsening conditions of their lives.

He hammers NAFTA and pacts with China, that have boosted global trade flows, fed America’s addiction for cheap goods from abroad, but also left a trail of victims in industrial states where the manufacturing base just could not compete with the low-wage rising economies of Asia and elsewhere.

And Clinton has also yet to come up with an effective riposte to assaults by Sanders on her paid speeches to Wall Street firms after she stepped down as secretary of state.

The Sanders win in Michigan has some of his supporters sensing that a campaign that seems inexorably trending away from him may at least thrive through the journey through primaries in Rust Belt states like Pennsylvania, Illinois and Wisconsin that often turn on blue-collar issues.

And even if he cannot catch Clinton, Sanders can take credit for dragging her to her left on economic questions, as she now speaks in her stump speech about the need to make hollowed out American communities “whole” again. . . .

To see the entire article, see http://www.cnn.com/2016/03/09/politics/sanders-trump-econom… 3/11/2016

Although it is certain that Hilary Clinton will win the Democratic nomination, Bernie Sanders has forced Clinton to move to the left and take a much tougher stance on international trade.  There is talk that Hilary may take Senator Sherrod Brown of Ohio, as her Vice President, a  very strong protectionist, who is viscerally opposed to the TPP.

The hot protectionist rhetoric of Donald Trump and Bernie Sanders have made international trade one of the center points of the election.  The simple truth is that when weak academic, theoretical economic arguments for free trade meet the hard visceral arguments of bombed out US factories and the loss of millions of manufacturing jobs, the free trade arguments melt away.

On March 15, 2016, the New York Times in an article entitled, “On Trade, Angry Voters Have a Point” stated:

Were the experts wrong about the benefits of trade for the American economy? . . .

Voters’ anger and frustration, driven in part by relentless globalization and technological change, may not propel either candidate to the presidency. But it is already having a big impact on America’s future, shaking a once-solid consensus that freer trade is, necessarily, a good thing.

“The economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword,” wrote Jared Bernstein, former economic adviser to Vice President Joseph R. Biden Jr.

What seems most striking is that the angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true:  The benefits from trade to the American economy may not always justify its costs. . . .

In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs. . . .

The Chinese export onslaught, however, left a scar on the American working class that has not healed. That disproportionate impact suggests Washington officialdom might do well to reassess its approach to future trade liberalization. . . .

Perhaps most important, the new evidence from trade suggests American policy makers cannot continue to impose all the pain on the nation’s blue-collar workers if they are not going to provide a stronger safety net.

That might have been justified if the distributional costs of trade were indeed small and short-lived. But now that we know they are big and persistent, it looks unconscionable.  (emphasis added.)

One of the reasons for the sharp rise in protectionism is the weak safety net, trade adjustment assistance, especially trade adjustment assistance for companies, which will be discussed in follow-up articles on this topic,

On March 15, 2016, Phyllis Schafly, a well-known Republican pundit, stated on Invstors.com that the Republican candidates are turning against trade deals, stating:

The first question asked of the presidential candidates at the most recent Republican debate, hosted by CNN in Miami on March 10, was “whether trade deals have been good for the American workers.”

Moderator Jake Tapper observed that one of Donald Trump’s “signature issues” has been his criticism of “disastrous trade deals” that have destroyed many good middle-class jobs that existed a generation ago. . . .

Ohio Gov. John Kasich likes to remind everyone that he “grew up in a blue collar family,” but votes he cast during his 18 years in Congress helped to decimate the manufacturing base of his home state. Kasich voted for the North American Free Trade Agreement in 1994, and in 2000 he voted to grant the “normal” trading privileges, which allowed China to enter the World Trade Organization. . . .

Sen. Ted Cruz once voted in favor of presidential trade authority before reversing himself on the subsequent vote last year. Cruz now says he opposes the TPP, but Congress has never rejected a trade deal after giving the president the authority to negotiate it.

“I am different in one primary respect, and that’s trade,” Trump insisted in the debate, explaining that “trade deals are absolutely killing our country.” He has proposed tariffs to offset abusive practices such as currency devaluation by “certain countries that are taking advantage of the United States and laughing at our stupidity.” . . . .

According to the 200-year-old theory of free trade, workers who lose manufacturing jobs to China should be able to find new jobs in other industries that benefit from a trade surplus, such as the pharmaceutical industry, or in non-tradable industries such as medicine and legal services. But millions of these workers, many of whom are men struggling to support their families, have not found adequate replacement jobs.

Some settle for lower-paying jobs, while others give up entirely, creating a social issue as well as an economic one. The percentage of men between 25 and 54 years old who are not employed has tripled in the last half century, and many who had been working at $40-per-hour manufacturing jobs are now receiving only $10-per-hour jobs at Wal-Mart or fast-food joints. . . .

In the general election in November, there will be millions of voters ready to cast their ballots for a candidate who stands up for American workers rather than catering to lobbyists who seek free-trade deals.

Pat Buchanan, a well-known Republican conservative, who also ran for the Presidency, stated in an April 4, 2016 commentary entitled  “What Trump has Wrought,” states:

But this city of self-delusion should realize there is no going back for America. For, whatever his stumbles of the last two weeks, Trump has helped to unleash the mightiest force of the 21st century: nationalism. Transnationalism and globalism are moribund.

Buchanan further states that Trump’s first issue is illegal immigration and building a wall along the Southern border to keep illegal immigrants out, but then goes on to state:

If immigration is the first issue where Trump connected with the people, the second is trade.  Republicans are at last learning that trade deficits do matter, that free trade is not free. The cost comes in dead factories, lost jobs, dying towns and the rising rage of an abandoned Middle America whose country this is and whose wages have stagnated for decades.

Economists who swoon over figures on consumption forget what America’s 19th-century meteoric rise to self-sufficiency teaches, and what all four presidents on Mount Rushmore understood.

Production comes before consumption. Who owns the orchard is more essential than who eats the apples. We have exported the economic independence Hamilton taught was indispensable to our political independence. We have forgotten what made us great.

China, Japan, Germany – the second, third and fourth largest economies on earth – all owe their prosperity to trade surpluses run for decades at the expense of the Americans. . . .

Patriotism, preserving and protecting the unique character of our nation and people, economic nationalism, America First, staying out of other nation’s wars – these are as much the propellants of Trumpism as is the decline of the American working and middle class.

Trump’s presence in the race has produced the largest turnout ever in the primaries of either party. He has won the most votes, most delegates, most states. Wisconsin aside, he will likely come to Cleveland in that position.

If, through rules changes, subterfuge and faithless delegates, party elites swindle him out of the nomination, do they think that the millions who came out to vote for Trump will go home and say: We lost it fair and square?

Do they think they can then go back to open borders, amnesty, a path to citizenship, the Trans-Pacific Partnership and nation building?

Whatever happens to Trump, the country has spoken. And if the establishment refuses to heed its voice, and returns to the policies the people have repudiated, it should take heed of John F. Kennedy’s warning: “Those who make peaceful revolution impossible, make violent revolution inevitable.”

For full article, see http://www.wnd.com/2016/04/what-trump-has-wrought/

The point is that both political wings of the the United States are becoming very protectionist in response to strong pressure from US voters.  On the right, Donald Trump, who is now the presumptive nominee of the Republican party, is firmly against all trade agreements, including the TPP.  On the left, Bernie Sanders in many ways is more protectionist than Trump and has succeeded in pulling Clinton to a much more protectionist position.

Understand that one reason newspapers, such as the Wall Street Journal, are attacking Trump on trade is that the Republican party traditionally has been very free trade, while the Democratic party, which relies on labor union support, has been much more protectionist.  The only reason that the TPP was completed is because Trade Promotion Authority was enacted into law last summer in 2015.  The only reason TPA passed the Congress is that the Republicans won both the Senate and the House.

Prior to the election, Senator Harry Reid, who heads the Democrats in the Senate, blocked all the trade bills, including the TPA, from coming to the Floor of Congress.

So to my liberal friends who think that Bernie Sanders would be more free trade than Donald Trump and the Republicans, that is simply not the fact.

Sanders has succeeded in pushing Hilary to be more protectionist and that is not good for the passage of the TPP. As John Brinkely of Forbes predicted several months ago, in a Presidential year with regards to the TPP, anything can happen and it has.  The United States is becoming much more protectionist.

Bill Reinsch, president of the National Foreign Trade Council, which has been a driving force for trade liberalization for over 100 years, recently stated:

There are always winners and losers in trade deals, but the losses tend to be short-term and specific while the gains are usually long-term and diffuse.  So you’ve got a growing mass of cranky, alienated voters.

Daniel Ikenson, director of the free market oriented Cato Institute’s Center for Trade Studies, recently stated:

It’s almost like there’s a reckoning coming due here.  The base of the Republican party is really growing increasingly skeptical of trade and Trump is the perfect demagogue to tap into that sentiment and magnify the concerns.

The next article in this series will deal first with the visceral gut wrenching arguments against free trade and the weak free trade arguments in response.  The article after that will deal with the probable demise of the TPP and finally the solution to the trade crisis, truly creating a safety net to help companies and workers adjust to import competition.  Only when there is a true safety net will the dialogue on free trade change.

THE ONGOING STEEL CASES

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

NEW STEEL ANTIDUMPING AND COUNTERVAILING DUTY CASE

On April 8, 2016 Arcelormittal USA LLC, Nucor Corp., and SSAB Enterprises LLC filed a new antidumping and countervailing duty case against imports of Certain Carbon and Alloy Steel-Cut-To-Length Plate from Austria, Belgium, Brazil, China, France, Germany, Italy, Japan, Korea, South Africa, Taiwan and Turkey.

APRIL 12 AND 13 USTR COMMERCE HEARINGS ON STEEL

On April 12, 2016, at a hearing in Washington DC members of Congress, union representatives and steel executives pushed the United States Trade Representative (“USTR”) to initiate antidumping proceedings at the Commerce Department against huge imports of subsidized and antidumping Chinese steel imports arguing that the administration needs to step in to protect domestic industry.

At the present time, however, there are very few major Chinese steel products not blocked by US antidumping and countervailing duty measures.  Preliminary determinations have been issued against galvanized and cold-rolled steel from China with very high antidumping and countervailing duty rates against both products, wiping them out of the US market.  Many, many Chinese steel products from China are currently covered by an antidumping (“AD”) order and often also a countervailing duty (“CVD”) order, including carbon steel plate, hot rolled carbon steel flat products, circular welded carbon quality steel pipe, light walled rectangular pipe and tube, circular welded carbon quality steel line pipe, circular welded austenitic stainless pressure pipe, steel threaded rod, oil country tubular goods, prestressed concrete steel wire strand, seamless carbon and alloy steel standard line and pressure pipe, high pressure steel cylinders, prestreessed concrete steel rail tire wire, non-oriented electrical steel, and carbon and certain alloy steel wire rod.

Despite 100s of outstanding AD and CVD orders against steel imports from China and other countries, the American steel market has shrunk to 86 million tons of production, competing against the more than 100 million tons China exports, out of 1.2 billion tons of total production.  But most of that Chinese steel was exported to other countries and third country imports from countries, such as Korea, Taiwan, India, and other countries, with low if not 0%, antidumping and countervailing duty rates are entering the United States.

Leo Gerard, president of the United Steelworkers, said the best way to save the American steel industry is for the Obama administration to step out publicly and get involved in initiating antidumping proceedings.

Although transshipment has been a substantial problem, if legitimate importers are involved, they expose themselves to criminal prosecution for Customs fraud.  US Customs law is certainly not a toothless as it is portrayed.

Sen. Amy Klobuchar, D-Minn., also urged the Commerce Department and Department of Homeland Security to step up enforcement at the nation’s ports, including increased inspections and possibly turning away ships carrying illegally subsidized steel.

U.S. Trade Representative Michael Froman, in opening statements as well as questions to the panelists, pointed to more than $1 billion in recent U.S. exports of steel products and touted the 149 current AD and CVD orders against imported steel, $900,000 in seizures for flouting those duty orders and a 10 percent increase in Commerce Department staff to work on unfair trade practice proceedings.

Democratic Senator Sherrod Brown of Ohio, Hilary Clinton’s possible running mate, urged the administration to support a section 201 petition if brought by a segment of the steel industry, which he said should lead to quick imposition of “appropriate” tariffs.  Steel pipe and tube producers seem to be most interested in the section 201 option. Other steel industry segments see it as too uncertain, given that the World Trade Organization has overturned all but one global safeguard the U.S. imposed in the past, including the 2001 section 201 steel case.

Senator Brown raised another option: WTO cases against China’s overcapacity, which appears to refer to a challenge claiming that the exports of its excess capacity driven by subsidies are undercutting or depressing the price of steel in the World market. “The only way to address this is with a WTO case,” Brown said. “China is in violation of its WTO obligations.”

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

As mentioned in the last newsletter, on April 26, 2016, US Steel Corp filed a major 337 unfair trade case against all the Chinese steel companies seeking an exclusion order to bar all imports of carbon and alloy steel from China.

U.S. Steel Corp. is accusing Chinese steel producers and their distributors of conspiring to fix prices, stealing trade secrets and false labeling to avoid trade duties.  It is asking the U.S. International Trade Commission (“ITC”) to issue an exclusion order excluding all the Chinese steel from the US market and also cease and desist orders prohibiting importers from selling any imported steel that has already been imported into the United States.

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

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

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

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

On April 27, 2016, the Chinese Ministry of Commerce (“MOFCOM”) urged the ITC and US government to reject U.S. Steel’s request to ban all imports from China’s biggest steel mills over allegations of price-fixing and trade-secret theft.

MOFCOM stated that U.S. Steel’s request for an investigation under Section 337 of the Tariff Act was better suited for intellectual property disputes than for commodities like steel. The country said the complaint should be dismissed in favor of “dialogue, communication and joint efforts to address the problem of excess capacity” in the steel market.

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

As mentioned in my last blog post, on April 18, 2016 the United Steelworkers Union filed a section 201 safeguard case against aluminum imports from all countries at the US International Trade Commission (“ITC”).

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

MAY ANTIDUMPING ADMINISTRATIVE REVIEWS

On May 2, 2016, Commerce published the attached Federal Register notice, REVIEWS MAY 2016, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of May. The specific antidumping cases against China are:  Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Citrate Salt, Iron Construction Castings, Oil Country Tubular Goods, Pure Magnesium, and Stilbenic Optical Brightening Agents.

The specific countervailing duty cases are: Aluminum Extrusions and Citric Acid and Citrate Salt.

For those US import companies that imported :  Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Citrate Salt, Iron Construction Castings, Oil Country Tubular Goods, Pure Magnesium, and Stilbenic Optical Brightening Agents during the antidumping period May 1, 2015-April 30, 2016 or the countervailing duty period of review, calendar year 2015, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

Recently, there are many examples of Chinese solar companies or US importers, which did not file requests for a review investigation.  In one instance, although the Chinese companies obtained separate rates during the initial investigation, the Petitioner appealed to the Court.  Several Chinese companies and US importers did not know the case was appealed, and the importers now owe millions in antidumping duties because they failed to file a request for a review investigation in December 2015.

NEW 337 CASE AGAINST CHINA

On May 5, 2016, Aspen Aerogels Inc. filed a 337 patent case at the ITC against imports of Composite Aerogel Insulation Materials and Methods for Manufacturing from China against Nano Tech Co., Ltd. and Guangdong Alison Hi-Tech Co., Ltd. In China.

If anyone wants a copy of the complaint, please feel free to contact me.

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

Best regards,

Bill Perry

William E. Perry

Attorney

600 Stewart Street, Suite 1200
Seattle, Washington  98101
tel: 206.224.5657 – fax: 206.224.5659
cell: 206.235.4175
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