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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 7, 2016

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

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

Dear Friends,

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

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

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

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

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

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

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

Best regards,

Bill Perry

TRADE POLICY AND TPP

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

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

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

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

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

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

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

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

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

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

Taiwan has brought a Steel antidumping case against China.

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

TPP IN THE LAME DUCK KEEPS ON TICKING

As mentioned in my last blog post, I believe that if Hilary Clinton is elected, President Obama will push for the Trans Pacific Partnership (“TPP”) to come up for a vote during the Lame Duck Session.  Many Congressional leaders appeared to  oppose tbringing up TPP in the Lame Duck.  But with Hilary Clinton’s resurgence in the Polls after the first debate, there is more talk about the TPP coming up in the Lame Duck, the period after the Presidential election and before the end of the year, as President Obama pushes hard for passage of the legislation.

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

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

Kasich stated that

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

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

Kasich further stated,

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

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

Kasich further stated:

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

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

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

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

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

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

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

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

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

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

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

Samuelson then states:

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

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

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

TRADE

CHINA IMPORTS: KNOW YOUR RISKS

By Adams Lee, Harris Moure International Trade Group

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

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

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

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

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

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

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

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

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

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

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

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

By Adams Lee, Harris Moure International Trade Group

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

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

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

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

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

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

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

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

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

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

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

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

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

CAFC MAGNESIUM METAL DECISION

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

STEEL TRADE CASES

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

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

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

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

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

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

STAINLESS STEEL SHEET AND STRIP FROM CHINA

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

TRADE CASES AGAINST EUROPE

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

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

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

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

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

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

AD and CVD duties can only be imposed if there is injury to the US industry, which is determined by the ITC.  But in determining injury, the law directs the ITC to cumulate, that is add together all the imports of the same product from the various foreign countries.

The real question many companies may have is how can AD and CVD rates be reduced so that the European company can start exporting to the US again.  US AD and CVD laws are considered remedial, not punitive statutes.  Thus, every year in the month in which the AD or CVD order was issued, Commerce gives the parties, including the domestic producers, foreign producers and US importers, the right to request a review investigation based on sales of imports that entered the US in the preceding year.

Thus, the AD order on electrical steel from Germany was issued in December 2014.   In December 2016, the German producer can request a review investigation of the electrical steel that entered, was actually imported into, the US during the period December 1, 2015 to November 31, 2016.

EU companies may ask that it is too difficult to export a 17 metric ton container of covered product to the US, requesting a nonaffiliated importer to put up an AD of 50 to over 100%, which can require a payment of $1 million USD or more.  In contrast to European law, however, the US AD and CVD law is retrospective.  Thus the importer posts a cash deposit when it imports products under an AD or CVD order, and the importer will get back the difference plus interest at the end of the review investigation.

More importantly, through a series of cases, Commerce has let foreign producers export smaller quantities of the product to use as a test sale in a review investigation if all other aspects of the sale are normal.  Thus in a chemical case, we had the exporter put a metric ton of the chemical in question in a container with other products and that metric ton served as the test sale to establish the new AD rate.

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

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

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

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES

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

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

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

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

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

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

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

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

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

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

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

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

CUSTOMS LAW

IMPORTING GOODS FROM CHINA: THE RISKS ARE RISING

By Adams Lee, Harris Moure International Trade Group

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

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

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

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

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

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

By Emily Lawson, Harris Moure International Trade Group

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

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

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

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

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

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

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

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

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

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

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

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

The Court went on to state:

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

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

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

HONEY AND FURNITURE

FURNITURE

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

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

HONEY

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

ANTITRUST LAW

VITAMIN C ANTITRUST CASE—THE REAL ANTIDUMPING BACK STORY

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

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

As the Court of Appeals stated in its opinion:

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

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

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

The Court of Appeals specifically determined in the decision that:

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

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

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

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

The Court of Appeals went on to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CRIMINAL IP/TRADE SECRET CASE

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

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

U.S. Attorney Kevin E. VanderSchel stated:

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

SECTION 337 AND IP CASES

NEW 337 CASES

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

Commodity:

Device Holders

Filed by:

James B. Altman

Firm/Organization:

Foster, Murphy, Altman & Nickel, PC

Behalf of:

Nite Ize, Inc.

Description:

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

CHINESE VERSION OF 337 ARTICLE

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

阻止来自中国的侵权产品:337条款调查案

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

 

 

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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE POLICY, TRADE, PRODUCTS LIABILITY, 337/IP ANTITRUST AND SECURITIES

Shanghai Bund at Night China Flags Cars with Trademarks obscuredTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER JANUARY 13, 2016

Dear Friends,

This January newsletter will cover trade policy, trade, general litigation, 337/patents, antitrust and securities .

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

Best regards,

Bill Perry

TRADE POLICY

TPP RUNS INTO HEADWINDS

As predicted in past blog posts, on December 28, 2015, the Wall Street Journal reported that the US Election Debate was complicating the passage of the Trans Pacific Partnership (“TPP”) in Congress. The Wall Street Journal specifically stated:

The trade agreement is expected to lead to some job losses and boost competition for some companies—including labor-intensive manufacturers and Detroit auto makers.

Still, many economists say it would generate overall gains to U.S. gross domestic product and increase incomes for many Americans in ways that improve the overall economy.

The TPP’s potential to create vocal middle-class losers makes the agreement harder to pass in an election year, since the winners, even if more numerous, are likely to be less motivated.

GOP lawmakers and officials, backed by big businesses, have more reliably supported trade agreements than Democrats, who tend to be closer to the labor movement. Among the broad electorate, blue-collar workers of both parties are skeptical of freer trade.

Recently Republican voters have emerged as bigger opponents, a shift not lost on the tea-party movement and Mr. Trump. In a recent Wall Street Journal/NBC News poll, 56% of Democrats said free trade is good for America, compared with 48% of Republicans.

Trade experts say Mr. Trump’s policies would make him, if elected, the biggest fan of tariffs since the late 19th century presidency of William McKinley. . . .

For Mr. Cruz or another GOP president, White House policy on trade would likely depend on whether the party is controlled by the pro-business wing that has dominated the party since World War II or shifts toward protectionist ideas espoused by Mr. Trump.

Meanwhile on December 10, 2015, Senate Majority Leader Mitch McConnell (R-Ky.) announced that there would be no vote on the TPP until after the election.  McConnell indicated that he was undecided on the vote, but he was sure that the TPP would be defeated if it were sent to Capitol Hill next spring or summer.  McConnell further stated:

“It certainly shouldn’t come before the election. I don’t think so, and I have some serious problems with what I think it is. But I think the President would be making a big mistake to try to have that voted on during the election. There’s significant pushback all over the place.

Yeah, I think it would be a big mistake to send it up before the election.

The next president, whoever that is, will have the authority to either revisit this one, if it doesn’t pass, or finish the European deal or other deals, and give Congress a chance to weigh in on it,”

McConnell who opposes the tobacco provisions in the TPP, has joined with Sen. Orrin G. Hatch (R-Utah), the Senate Finance Committee chairman, who was also a key supporter of the fast-track legislation, but has raised particular concerns about provisions related to pharmaceutical companies. Utah has a growing pharmaceutical industry.

McConnell’s and Hatch’s concerns have reduced the enthusiasm among the Republicans as the debate over trade policies on the 2016 campaign trail has become entangled in Presidential politics. Several top contenders for the GOP presidential nomination, including Donald Trump and Sen. Ted Cruz (Tex.), have denounced the pact, and all of the Democratic candidates, including Hillary Clinton and Bernie Saunders, oppose it.

On January 7, 2016, however, the White House pushed for a TPP vote sooner rather than later, arguing for a quick vote warning that a delay of the vote to the lame-duck session of Congress or into the next administration would be a significant lost opportunity. White House Press Secretary Josh Earnest said in a press briefing that Congress should act quickly to ratify the plan amid recent turbulence in the China stock market, which some media reports have said is in its worst shape since the global financial crisis.  He further stated that the best way for the U.S. economy to weather volatility in international markets is through the TPP:

“I’m not suggesting that Congress should fast-forward through that process and vote today.  But I am suggesting that we should move expeditiously through this process and that Congress should not wait until the end of the year or even next year to approve the Trans-Pacific Partnership agreement.”

One point in favor of TPP is that on January 4, 2016 the National Association of Manufacturers announced that they were in support of the TPP. NAM President and CEO Jay Timmons stated:

“After careful analysis, the NAM will support the TPP as it will open markets and put manufacturers in a much stronger position to compete in an important and growing region of the world.

We recognize this agreement is not perfect, and there are some principled objections to the TPP, so the NAM will continue to work closely with its members to address remaining barriers.

Importantly, we encourage the administration to work closely with the industry, Congressional leaders and the other TPP governments to address these key issues.”

Subsequently, a coalition of top U.S. CEOs from the Business Roundtable gave the TPP a firm endorsement, but urged the Obama administration to quickly alter portions of the deal that are not up to par. As the Business Round Table International Engagement Committee stated:

“We want Congress to approve the TPP this year. To that end, we are urging the administration to quickly address the remaining issues that impact certain business sectors in order to ensure the broadest possible benefits to all sectors of U.S. business, which will enable the broadest support possible for the TPP.”

But in addition to tobacco and pharmaceutical problems in the TPP, another issue is banking and data flows. On January 12, 2016, in a letter to three Cabinet Secretaries, a bipartisan group of 63 Congressional representatives urged the Obama administration officials to correct the Trans-Pacific Partnership’s exclusion of financial services from the agreement’s e-commerce chapter, warning that the current text of the deal leaves banks exposed to risky data storage rules. The letter stated:

“Omission of these disciplines in the TPP is a missed opportunity to ensure that all U.S. companies benefit from strong rules prohibiting localization requirements. We note that such disciplines can be included in trade agreements while maintaining the ability of U.S. regulators to protect consumers through prudential regulation.”

The TPP’s e-commerce chapter contains a general ban on the localization of data through the establishment of expensive in-country servers. But the lawmakers argued that the banking, insurance and securities industries are not different from other sectors that depend on the unimpeded flow of data to keep their businesses running in the World marketplace.  The letter further states:

“These types of requirements not only impair the competitiveness of U.S. companies but also reduce overall data security and create inefficiencies. We request that your agencies use all available measures to address the existing gaps in the TPP. In addition, going forward, we request that there be a single approach that prohibits localization requirements in future trade and investment agreements.”

Recently, John Brinkley writing for Forbes rebutted many of the Arguments against the TPP.  See http://www.forbes.com/sites/johnbrinkley/2016/01/13/for-trans-pacific-partnership-opponents-noting-short-of-perfect-will-suffice/#29e99cb6563d433c578b563d

TPP TEXT AND TRADE ADVISORY REPORTS

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

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

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

On December 2nd and 3rd, 2015 various trade advisory groups operating under the umbrella of the United States Trade Representative (“USTR”) Group issued reports on the impact of the TPP on various industries and legal areas. All the reports can be found at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/advisory-group-reports-TPP and many of the reports are attached here, ITAC-16-Standards-and-Technical-Barriers-to-Trade Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy ITAC-15-Intellectual-Property ITAC-9-Building-Materials-Construction-and-Non-Ferrous-Metals ITAC-10-Services-and-Finance-Industries ITAC-12-Steel ITAC-11-Small-and-Minority-Business ITAC-14-Customs-Matters-and-Trade-Facilitation ITAC-8-Information-and-Communication-Technologies-Services-and-Electronic-Commerce ITAC-6-Energy-and-Energy-Services ITAC-2-Automobile-Equipment-and-Capital-Goods ITAC-3-Chemicals-Pharmaceuticals-Health-Science-Products-and-Services ITAC-5-Distribution-Services Intergovernmental-Policy-Advisory-Committee-on-Trade ATAC-Sweeteners-and-Sweetener-Products ATAC-Grains-Feed-Oilseed-and-Planting-Seeds ATAC-Processed-Foods ATAC-Fruits-and-Vegetables ATAC-Animals-and-Animal-Products Agricultural-Policy-Advisory-Committee. Almost all of the reports are favorable, except for the Steel Report, which takes no position, and the Labor Advisory Report, which is opposed because it is the position of the Unions.

NEW TRADE AND CUSTOMS ENFORCEMENT BILL

On December 9, 2015, in the attached announcement, Trade-and-Environment-Policy-Advisory-Committee.pdf, Senate Finance Chairman Orrin Hatch, House Ways and Means Chairman Kevin Brady and Senate Finance Committee Ranking Member, Ron Wyden, announced a final agreement on the Trade Facilitation and Trade Enforcement Act of 2015.

A copy of the bill, the conference report and summary of the bill are attached, Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015 CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE. The bill has not yet passed the Senate.

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

Interest groups on both sides of the issue have increased their political attacks in the debate over China’s market economy status. On December 11, 2016, pursuant to the WTO Agreement, the 15 year provision, expires.

More specifically, the United States faces a looming deadline under the WTO Agreement with regard to the application of this nonmarket economy methodology to China. Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, provides:

  1. Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

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

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

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

In November 2015 European Union Industry Commissioner Elzbieta Bienkowska told the European Parliament that geopolitical considerations must be weighed against the industrial interests of the EU in the evaluation of extending market economy status (NME) to China.

On October 30, 2015, it was reported that during a visit to China, German Chancellor Angela Merkel backs more ‘market economy status’ for China – with certain conditions. More specifically, German Chancellor Angela Merkel stated:

“Germany supports, in general, China’s claim to get the market economy status. At the same time China has to do some homework, for example in the area of public procurement. But we want to advance the process – as we want to do that with the EU-China investment agreement.”

Under the NME methodology, administering authorities in countries administering antidumping laws, such as the US Commerce Department, do not use actual costs and prices in China to determine antidumping rates. Instead the administering authorities use values in various surrogate countries, which in the Commerce Department’s case, can change between preliminary and final determinations and various review investigations to determine the foreign value.  As a result, neither the Commerce Department nor other foreign countries can know whether China is truly dumping.

The European Union Industry commission is seen as strongly favoring a change to market economy status for China, but the European parliament has not taken such a strong stand.

In the U.S., the Commerce Department has taken the position that it will not automatically bestow market economy status on China, but will consider if it meets the statutory criteria for doing so in the context of a specific case if it receives a properly filed petition.

Other countries that are not likely to bestow automatic market economy status to China at the end of 2016 are Japan, Canada, Brazil and India.

On Dec. 30, Chinese Foreign Ministry Spokesperson Lu Kang made clear that China is pushing for the granting of market economy status, stating:

“We hope that the EU can set a good example in obeying the WTO rules and take substantive actions to meet its obligations under Article 15 of the Protocol, which will also facilitate the development of China-EU economic and trade ties.”

Steel industries and unions in both the US and EU are fighting hard against giving China market economy status. As indicated below, steel experts have been pointing to the large overcapacity of the Chinese steel industry.  But with almost all Chinese steel blocked from entry into the US by large antidumping and countervailing duties, it is questionable how much weight such arguments will be given.

The only two major Chinese steel products still coming into the US are galvanized and cold-rolled steel, and based on surrogate values, Commerce just issued very high antidumping and countervailing duty rates against both products, wiping them out of the US market. Currently, if not all, almost all, steel products from China are covered by an AD order and often also a 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.

On Dec. 22, the United Steelworkers (“USW”) union, according to a USW press release, held a private meeting in Minnesota with White House Chief of Staff Denis McDonough, as well as Senators Amy Klobuchar (D-MN) and Al Franken (D-MN), at which they discussed the “urgency of federal, state and local government authorities to provide more immediate relief against the global onslaught of steel imports that have shut down half of the region’s steel sector mining jobs,”  Emil Ramirez, director for USW District 11 — which covers Midwestern states including Minnesota, Missouri and Montana — said at the meeting that the union is “at war with China’s illegal steel imports flooding into our market.” He added that China had in some months in 2015 dumped more than 100,000 tons of cold-rolled steel into the U.S. market, contributing to mining job losses in Northern Minnesota’s so-called “Iron Range” A day later, the union welcomed what it called a “whopping” 255.8% preliminary AD rate on Chinese corrosion-resistant steel based on surrogate values, despite the fact that all the other antidumping rates against other countries based on actual prices and costs were in the single digits or 0s.

On October 26, 2015, Leo Gerard, who heads the Steel Union, sent the following attached letter,USW CHINA NME , to USTR Michael Froman about steel imports and China’s market economy status:

Dear Ambassador Froman:

I am writing to you regarding the Transatlantic Trade and Investment Partnership (TTIP) and the potential for U.S manufacturing interests to be adversely affected by how the European Union (EU) may change its current treatment of the People’s Republic of China (China) as a non-market economy.

As you well know, under the terms of China’s Protocol of Access to the World Trade Organization, other WTO members had the right to treat the PRC as a non-market economy (NME) for purposes of antidumping and countervailing duty laws. One clause regarding the treatment of China expires on December 11, 2016, but the remaining language continues to operate. This has led to an active effort by China to end its treatment as a non-market economy by those countries which continue to treat it as such so as to gain preferential treatment. The media has suggested that while the EU has not decided how it will proceed, an internal EU memo argues for granting market economy treatment. This memo is not yet public. How China is treated under U.S. and EU antidumping laws is critical to workers and companies in both countries. With massive distortions in most aspects of the Chinese economy, changing China’s status before their economy in fact operates on market principles on a sustained and verifiable basis will have far reaching consequences for workers, companies and communities across the U.S. and the EU. If the EU makes a change in treatment of China under its antidumping law when China has not in fact truly engaged in comprehensive reform of its economy, there will be broad repercussions for how fair market conditions will be assessed in Europe and, in terms of U.S. exports to the EU, could result in dramatically lower opportunities for the export of America’s manufactured products.

As noted, press reports indicate that the EU is considering granting China market economy status in the near future, despite overwhelming evidence of the continued state-led direction, intervention, subsidization and control of that country’s economy and its firms. If the EU chooses to grant China this preferential status, either for the country as a whole or for individual sectors or firms, it will subject U.S. products to a potential risk of having to compete against unfairly traded products in the EU and, potentially, as components in products shipped to the U.S. or to third country markets. Thus, the EU’s decisions in this area must be addressed as part of the ongoing TTIP negotiations and that any alterations in their treatment of China as a NME be subject to dispute resolution and potential compensation for any adverse effects it may have on the U.S., producers and workers

The TPP negotiations have overshadowed the TTIP negotiations and, as a result, many important issues are receiving limited attention. The EU’s potential actions in this area must not be viewed simply as a matter for the EU Commission to consider but, rather, must be addressed in terms of their potential impact on the U.S. manufacturing sector and its employees.

I look forward to working with you on this important matter.

Sincerely,

Leo W. Gerard

International President

CHINA CURRENCY APPROVED BY THE INTERENATIONAL MONETARY FUND AS A MAIN WORLD CURRENCY

In the past, one of the arguments that Commerce has used to deny China market economy status is that the Chinese yuan/RMB is not convertible.   On November 30, 2015, however, in the attached announcement, IMF PRESS RELEASE, the International Monetary Fund (“IMF”) announced that the Chinese renminbi will become the fifth currency to be included in the organization’s international reserve asset that supplements member countries’ official reserves.

As the IMF stated the renminbi, or RMB, will join the U.S. dollar, the euro, the Japanese yen and the British pound on Oct. 1, 2016, in a basket of currencies known as the Special Drawing Right, which plays a critical role in providing liquidity to the global economic system, especially during financial crises, the IMF said.

IMF managing director Christine Lagarde stated that the executive board’s decision is “an important milestone” recognizing China’s integration in the international financial system:

“It is also a recognition of the progress that the Chinese authorities have made in the past years in reforming China’s monetary and financial systems. The continuation and deepening of these efforts will bring about a more robust international monetary and financial system, which in turn will support the growth and stability of China and the global economy.”

Lagarde’s decision was based on a paper prepared by IMF staff, which determined that the RMB is a “freely usable” currency.

The IMF. designation, an accounting unit known as the special drawing rights, bestows global importance. Many central banks follow this benchmark in building their reserves, which countries hold to help protect their economies in times of trouble. By adding the renminbi to this group, the IMF effectively considers a currency to be safe and reliable.

EXIM BANK RISES FROM THE DEAD BUT THEN RUNS INTO A NEW ROADBLOCK

Congress let the Export-Import (“EXIM”) Bank’s lending authority expire after June 30, but a number of Republicans in the House of Representatives, including Congressman Dave Reichert, currently Chairman Subcommittee on Trade, House Ways and Means,  joined Democrats to force a vote in October to resurrect the Bank. The House attached Ex-Im to a highway funding bill and stopped ten amendments that would have limited the bank’s scope. This highway/Ex-Im bill passed the House 363 to 64.  In December negotiators from both chambers of Congress reached an agreement that revived the bank’s lending authority through Sept. 30, 2019.

On December 3, 2015, the Senate passed the Transportation Bill with the Reauthorization of the EX-IM Bank, and on December 4, 2015, President Obama signed the bill into law.

The arguments for the EX-IM Bank are many, as Steve Myrow, who used to work at the EXIM Bank, stated in an Article in The Hill on July 9, 2014:

The debate over reauthorizing the Export-Import Bank has become the latest proxy battle between the conservative and establishment wings of the Republican Party. However, this issue should not be used as an ideological litmus test. Instead, it should evoke a practical and constructive dialogue about how best to level the playing field for American businesses overseas while protecting taxpayers here at home.

Founded in 1934, the Export-Import Bank’s mission has not changed throughout its 80-year history. Its raison d’être has always been to create jobs at home by financing the sale of American goods and services abroad. Ex-Im Bank does not compete with private-sector lenders, but rather seeks to match the foreign government support that U.S. firms’ foreign competitors enjoy.

When I served in the bank’s leadership in President George W. Bush’s administration, our overarching goal was to steer the bank between two beacons — one focused on creating jobs and the other on protecting the taxpayers.

We believed, as did members of Congress on both sides of the aisle, that an ideal way to navigate these two beacons was to convert the bank into one of the only truly self-sustaining government agencies.

By making the bank stand on its own two feet and rely solely on its revenue stream to fund its operations, we not only made it possible for companies to grow high-quality domestic jobs, but we earned a profit for the taxpayers.

Few government agencies can claim to have reduced the deficit, a fact that should be especially welcome during the current era of austerity.

Nevertheless, some of the bank’s Congressional detractors argue that it distorts the market by providing a subsidy. It’s true that in a perfect market, subsidies should not exist. But unfortunately, the real world is not a perfect market. Most countries that meaningfully benefit from international trade provide varying degrees of export subsidies.

Some identify specific firms as their national champions and others, like China, even provide financing on terms more akin to development assistance.

To put it another way, should the U.S. unilaterally disarm just because atomic weapons are undesirable? Of course not. We need a nuclear arsenal because other countries have them. The same is true for maintaining an export credit agency. Ex-Im Bank’s role is to ensure that U.S. exporters get a fair chance to compete based on quality, price and service, rather than on the basis of financing assistance.

For the full article, see http://thehill.com/blogs/pundits-blog/international/211664-congress-should-bank-on-success

But despite the many arguments in favor of the EXIM bank and the passage of the reauthorization, EXIM is not out of the woods yet. Senator Shelby, Chairman of the Senate Banking Committee, has held up nominations for the EXIM bank Board of Directors.  Because there is no quorum, the failure to appoint a new director means that no large projects, such as the sale of Boeing airplanes or sales of GE products, can be approved.

EXIM’s board of directors has only two of the five members it is supposed to have, including Chairman Fred Hochberg. That means it cannot approve loans above $10 million, which make up about a third, value-wise, of EXIM’s transactions.

More specifically, Democrats have sought consent for the nomination of Patricia Loui-Schmicker to the EXIM Bank board of directors, despite the fact that the White House sought a second term for her in March 2015. Loui-Schmicker is needed to give the Ex-Im bank five-member board a quorum. The panel reviews Ex-Im Bank loans above $10 million.

On January 11th, President Obama withdrew the nomination of Democrat Loui-Schmicker and nominated John Mark Mcwatters, a former staffer to House Financial Services Chairman Jeb Hensarling, to fill one of the vacant Republican seats on the Export-Import Bank’s board of directors. McWatters’ former boss, Hensarling, chairman of the House’s Financial Services Committee, has led efforts to shut down the Export-Import Bank.

Senate Banking Committee Chairman Richard Shelby, who opposed Ex-Im’s reauthorization last year, however, has expressed little interest in acting on any nominees to fill its board openings. On January 11, 2016, Senator Shelby indicated that clearing the panel’s backlog of nominees might not see much progress before his March 1 primary in Alabama, stating, “I’m in the primary now.  That’s what’s going to eat a lot of my time up – always does.”

When asked about the McWatters nomination, to fill one of the vacant Republican seats on the Export-Import Bank’s board of directors, Shelby stated, “I’m in a primary right now. We’re in no hurry to hold hearings.”

As Democratic Senator Sherrod Brown stated, “The Ex-Im Bank can’t operate because the Senate Banking Committee won’t do its job.”

No wonder Boeing is going to manufacture airplanes in China.

TRADE

ALUMINUM EXTRUSIONS FINAL 2013-2014 REVIEW INVESTIGATION

On November 20, 2015, the Commerce Department issued the attached final determination in the 2013-2014 antidumping review investigation of aluminum extrusions from China, ALUMINUM EXTRUSIONS FINAL. Based on surrogate values, Commerce issued antidumping rates of 86.01%, but for companies that did not cooperate, Commerce issued antidumping rates of only 33.28%.

In addition, in the attached Countervailing Final Determination for 2013, CVD Aluminum Extrusions 2013 Final Review Notice.3424528-01 CVD Aluminum Extrusions 2013 Decision Memo.3424530-01, Commerce issued a countervailing duty rate ranging from 3.59% to 222.82% with most companies receiving a rate of 61.36% rate.

MEXICO ALUMINUM EXTRUSIONS PROBLEM

Meanwhile, US producers are growing concerned over a large stockpile of aluminum extrusions at a casting facility in Mexico. Aluminicaste Fundición de México S. de RL de CV, a producer of secondary billet, slab and forging billet, is storing around 850,000 tonnes of aluminum extrusions at its San José Iturbide, Mexico, facility.

It was reported that the extrusions had been shipped directly from extrusion plants in China and were being remelted into billet at the Mexico facility. The source told the American Metals Market:

“Yes, it’s about 850,000 (tonnes) on the ground. The quality of the metal is very good. It’s coming from billets that are extruded in China, shipped to Mexico, and made back into billet. They are currently casting at full capacity, which is about 100,000 (tonnes) per year.”

“It’s a lot of metal. Even me, I have not seen that much metal before. It was 300,000 (tonnes) about a year ago and quickly grew to 850,000 (tonnes).”

The practice of importing extrusions from China and remelting them into billet is not illegal or known to violate any law.

NEW TRADE CASES COMING—RAW ALUMINUM

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

As indicated in the attached letter, NEW ALUMINUM CASES COMING, on November 24, 2015, the US Aluminum Association and the Canadian Aluminum Producers complained about Chinese aluminum production and the subsidies they receive:

Dear Secretary Kerry and Minister McKenna,

We write to you representing aluminum producers in the United States and Canada. We are concerned about China’s state-planned and carbon intensive aluminum industry which has amassed considerable overproduction. This not only leads to a distortion of international trade impacting our entire value chain, but also undermines global efforts to decarbonize the economy. . .  .

Only ten years ago China supplied 24% of the world’s primary aluminum. Today, spurred by energy subsidies, Chinese manufacturers have more than doubled their output and supply 52% of all primary aluminum produced globally. At the same time, this massive increase in production entails a significant environmental consequence.

Aluminum production in China is the most carbon intensive in the world, with its coal-based smelters emitting significantly more greenhouse gases per ton of aluminum than its North American counterparts. In fact, a ton of aluminum produced in China is at least twice as carbon-intensive as that same metal produced in North America. Given the rapid expansion of high-carbon aluminum production in China, many of the efficiency and emission reduction gains made by the global aluminum industry over the last several decades are being offset. . . .

The U.S. and Canadian aluminum industry is concerned that overproduction in China will continue unabated and is insufficiently regulated. These commitments represent a critical opportunity for China to advance energy efficiency and emissions reductions targets in support of global commitments to address climate change.

We appreciate your support to help us to reestablish fair trade conditions and to make a significant contribution to advancing a low-carbon global economy. . . .

Letters, like this, are usually a sign that an antidumping/countervailing duty case is coming. In addition, US aluminum producers have launched a new China Trade Task Force with their target being “illegal” Chinese government subsidies. In a letter to USTR Michael Froman, the US producers asked USTR to intervene on behalf of an industry that supports thousands of jobs:

“Illegal Chinese subsidies — such as direct grants, interest free loans, transfers of low cost state owned land, and preferential regulatory treatment — have collapsed the global price of aluminum.

This price drop has forced aluminum smelters across the United States to close while Chinese government continues to prop-up its producers through these unfair and illegal subsidies.”

THE ONGOING STEEL CASES

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

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

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

But all the other countries, including Russia, which has market economy status, received antidumping rates in the single digits or 0s for no dumping. Steel will continue to flow into the United States in large amounts because such small antidumping and countervailing duty rates simply will have no effect.

The decisions also indicate why the Unions and the Steel industry will fight very hard in Congress and before the Administration to push the Commerce Department to continue using the nonmarket economy methodology against China. It easy for Commerce to find dumping when it uses fake numbers/surrogate values from third countries, which have no relationship to actual prices and costs in China.

COLD ROLLED STEEL FROM CHINA, BRAZIL, KOREA, INDIA AND RUSSIA

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

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

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

CORROSION RESISTANT STEEEL PRODUCTS—GALVANIZED STEEL PRODUCTS FROM CHINA, INDIA, ITALY, KOREA AND TAIWAN

On December 22, 2015, in the attached factsheet, factsheet-multiple-corrosion-resistant-steel-products-122215, Commerce announced its affirmative preliminary determinations in the antidumping duty (AD) investigations of imports of corrosion-resistant steel products from China, India, Italy, and Korea, and its negative preliminary determination in the AD investigation of imports of corrosion-resistant steel products from Taiwan.

China received antidumping rates of 255.8%, but antidumping rates from the other countries were very low.

India received rates ranging from 6.64 to 6.92%.  Italy received rates from 0 to 3.11%.  Korea received rates from 2.99 to 3.51%.  Taiwan’s antidumping rates were all 0s.

Although the US industry was pleased with the rate against China, AK Steel Corp. stated, “we are disappointed that the preliminary dumping margins for India, Italy, South Korea and Taiwan were not higher as they do not appear to adequately address the dumping that we believe is occurring in the U.S. market.”

Because Commerce uses market economy methodology in antidumping cases against these countries, companies in those countries can use computer programs to eliminate or reduce significantly their antidumping rates. Foreign steel companies know they will be targeted by US antidumping and countervailing duty cases, and, therefore, prepare for such suits by eliminating the unfair acts.

The fact that the antidumping and countervailing duty rates in these cases are so low strongly indicate that the US Steel Industry’s problem is not steel imports. The problem is the US steel industry’s failure to modernize their facilities and remain competitive with the rest of the world.

In the parallel countervailing duty investigation, certain Chinese companies earned margins exceeding 235 percent while Taiwanese producers were given no CVD rates at all.

HOW NME METHODOLOGY IN ANTIDUMPING CASES LEADS TO OVER CAPACITY IN CHINESE STEEL AND ALUMINUM INDUSTRIES

Meanwhile, US experts complain about Chinese overcapacity in the Steel and Aluminum industries. In a December 1, 2015 article, one expert, Terence P. Stewart, Law Offices of Stewart and Stewart, which represents the Unions and various steel companies in US antidumping and countervailing cases against China, including the recent Off the Road Tires case against China, complained about Chinese overcapacity in the Steel and Aluminum industries and their distortive impact on the World steel and aluminum markets stating:

In the United States, the domestic steel industry is in the midst of a major crisis as they try to deal with waves of imports that seem to flow directly (i.e., imports from China) and indirectly (i.e., from other countries facing import challenges from China in their home markets and hence expanding their exports) from massive excess capacity in China and in other countries. . . .

The story is being repeated in the aluminum sector as well with many unwrought aluminum facilities being closed in the US and other western countries in recent years and some trade cases being filed. Indeed, Alcoa recently announced the idling of three facilities in the U.S. (New York and Washington) with a capacity of more than a half million tons —a significant portion of the remaining capacity in the United States. The problem again flows from massive excess capacity in China.

In both sectors, the underlying facts are similar. In the late 1990s, Chinese capacity amounted to 10-15 percent of global capacity. With massive government incentives, state ownership and support, by 2014 each industry had ballooned to have more than half of global capacity having accounted for nearly 80 percent of global capacity expansions. . . .

Without concerted efforts by China itself and its trading partners, the balance will be achieved only at the expense of countries that had nothing to do with the creation of the problem — a grossly inequitable and economically and politically unacceptable outcome. . . .

The Article goes on to complain that China should do this and do that, such as establishing “voluntary export restraints on all product sectors where it has serious excess capacity to reduce the problems it has created for its trading partners” and “China could implement the many remaining reforms needed to have its economy actually operate on market forces.” It should be noted that voluntary export restraints and prices floors are export restraints, which are specifically prohibited in the China-WTO Agreement.  In fact, when in the past the Chinese government tried to set price floors to deter dumping, the US government took the Chinese government to the WTO and US antitrust cases were filed against the Chinese companies.

The Article goes on to state:

All of China’s major trading partners need to encourage China to solve its internal problem quickly. Trading partners need to be prepared to act quickly to apply such pressure as will enable China to overcome any internal reluctance to face the significant challenges. This means using the tools that currently exist, including WTO disputes, to make clear the enormous damage being done to others by China’s subsidy practices. . . .

Finally, the U.S., EU and other trading partners with trade remedy laws that have found China to be a nonmarket economy, should ensure that their industries and workers can obtain the full measure of trade remedy relief existing laws, regulations and practices provide until such time as China has in fact achieved the serious reforms still needed for its economy to work on market principles.

Unfortunately, US industries and domestic experts never ask the real question. Why should the Chinese government and Chinese companies listen to these complaints when the US government and governments in other countries continue to attack China using antidumping and countervailing duty cases based on fake numbers?

As indicated above, US antidumping and countervailing duty orders and ongoing cases have the effect of blocking almost 100% of Chinese steel from the US market. Since the US steel industry, the Unions and their representatives have declared a trade war with China, why should the Chinese government and companies listen to the United States?

In talking with Chinese Government officials in the past, they told me that US antidumping cases could be ok because they could be used to regulate Chinese production. Some Chinese companies undoubtedly are truly dumping.  If Chinese companies get hit with real very high antidumping rates based on actual prices and costs in China, that could cause the company to shut down.

But when antidumping cases are based on phony numbers/surrogate values, which have no relationship to the actual situation in China, the US government creates a game and the Chinese government and the Chinese companies will simply play or not play the game. But they will not listen to sanctimonious arguments from US experts, who do not want the Chinese to compete on a level playing field with the US and other countries, such as Russia and Iran, and instead want to continue a trade war with China based on fake numbers.

SOLAR CELLS REVIEW DETERMINATION

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

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

DRAWN STAINLESS STEEL SINKS FINAL

In the attached decision, on November 10, 2015, Commerce issued its final determination in the first 2012-2014 review in the Drawn Stainless Steel Sinks case with antidumping rates ranging from 2.82 to 9.83%, AD STEEL SINKS 2012-2014FED REG., AD DECISION MEMO 2012-2014

In addition, the countervailing duty rate for one company, Guangdong Dongyuan Kitchenware Industrial Co., Ltd. is  9.83%.  SeeCVD SINKS 2012-2013FEDREG

CIT REMANDS GLYCINE CASE BACK TO COMMERCE BECAUSE OF ITS PUNITIVE 453% ANTIDUMPING RATE.

On November 3, 2015, in Baoding Mantong Fine Chemistry Co., Ltd. v. United States, the Court of International Trade in the attached decision, BAODING VS US PUNITIVE CALCULATION, reversed the Commerce Department’ s determination in Glycine from China, holding that Commerce had issued a 453% punitive tariff against Baoding in violation of the remedial purpose of the statute. As the CIT stated:

“The court rules that Commerce failed to fulfill its obligation to determine the most accurate margin possible when it assigned Baoding a weighted average dumping margin of 453.79%, which on the record of this case was not realistic in any commercial or economic sense and punitive in its effect. The court directs Commerce to determine a new margin for Baoding that is the most accurate margin possible, that is grounded in the commercial and economic reality surrounding the production and sale of Baoding’s subject merchandise, and that is fair, equitable, and not so large as to be punitive.”

As Judge Stanceu further stated:

“In assigning Baoding such a huge margin, Commerce has lost sight of the purpose of the antidumping duty statute, which is remedial, not punitive. The 453.79 percent margin is undeniably punitive in effect, regardless of the department’s intent, and it violates the department’s obligation to treat every party before it fairly and equitably as well as the obligation to arrive at the most accurate margin possible.”

Judge Stanceu said the agency was misstating the law, and that the facts demonstrate that the margin assigned is “commercially impossible.”

ROLLR BEARINGS PRODUCED IN THAILAND FROM CHINA SUBPARTS CANNOT BE COVERED BY BEARINGS ORDER AGAINST CHINA

On December 22, 2015 in the attached decision, Peer Bearing Company-Changshan v. United States,PEER BEARING CASE, the Court of International Trade held that roller bearings made in Thailand from Chinese parts were not subject to an anti-dumping duty order against Chinese bearings because the production process in Thailand had the effect of substantially transforming the roller bearings into a product of Thailand, not China.

MELAMINE FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY ORDERS

On December 1, 2015, Commerce issued the attached antidumping and countervailing duty orders against Melamine from China, MELAMINE AD ORDERS. The Antidumping rate for China is 363.31% and the Countervailing Duties range from 154 to 156.9%.

LARGE RESIDENTIAL WASHERS FROM CHINA

On December 16, 2015, Whirlpool filed a major antidumping and countervailing duty case against Large Residential Washers from China. According to the Petition, the real target companies are the Korean companies, Samsung and LG, and their production facilities in China.

The specific products covered by the petition are:

the term “large residential washers” denotes all automatic clothes washing machines, regardless of the orientation of the rotational axis, with a cabinet width (measured from its widest point) of at least 24.5 inches (62.23 em) and no more than 32.0 inches (81.28 em), except as noted below.

Also covered are certain parts used in large residential washers, namely: (1) all cabinets, or portions thereof, designed for use in large residential washers; (2) all assembled tubs designed for use in large residential washers which incorporate, at a minimum: (a) a tub; and (b) a seal; (3) all assembled baskets 11 designed for use in large residential washers which incorporate, at a minimum: (a) a side wrapper; 12 (b) a base; and (c) a drive hub; 13 and (4) any combination of the foregoing parts or subassemblies.

Excluded from the scope are stacked washer-dryers and commercial washers. The term “stacked washer-dryers” denotes distinct washing and drying machines that are built on a unitary frame and share a common console that controls both the washer and the dryer. The term “commercial washer” denotes an automatic clothes washing machine designed for the “pay per use” segment . . .

The relevant pages of the petition, including the full scope, the list of Chinese exporters and US importers, are attached, Whirlpool Petition Scope Exporters Importers 121615.

NEW OFF THE REOAD TIRES CASE

On January 8, 2016, Titan Tire Corporation (Titan) and the United Steel, Paper, and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, ALF-CIO (USW) filed a new antidumping and countervailing duty case against Pneumatic Off-the-Road Tires from India, China and Sri Lanka.  The relevant parts of the petition, including the scope and the list of Chinese exporters and US importers, are attached, US Importers Pneumatic Tires Petition Volume I General Issues Injury Cover Scope 1-8-16 Chinese Exporters Pneumatic Tires .

The specific products covered by this antidumping and countervailing duty case are:

New pneumatic tires designed for off-the-road (OTR) and off-highway use, subject to exceptions identified below. Certain OTR tires are generally designed, manufactured and offered for sale for use on off-road or off-highway surfaces, including but not limited to, agricultural fields, forests, construction sites, factory and warehouse interiors, airport tarmacs, ports and harbors, mines, quarries, gravel yards, and steel mills. . . . .

While the physical characteristics of certain OTR tires will vary depending on·the specific applications and conditions for which the tires are designed (e.g., tread pattern and depth), all of the tires within the scope have in common that they are designed for off-road and off-highway use.

Except as discussed below, OTR tires included in the scope of the proceeding range in size (rim diameter) generally but not exclusively from 8 inches to 54 inches. The tires may be either tube-type40 or tubeless, radial or non-radial, and intended for sale either to original equipment manufacturers or the replacement market.

Certain OTR tires, whether or not attached to wheels or rims, are included in the scope. However, if a subject tire is imported attached to a wheel or rim, only the tire is covered by the scope. Subject merchandise includes certain OTR tires produced in the subject countries whether attached to wheels or rims in a subject country or in a third country. . . .

This is the second antidumping and countervailing duty case the USW has filed against off-the-road tires from China. The USW stated that un-mounted off-the-road tires from China are already covered by antidumping and countervailing duty orders, but that mounted tires from China are not subject to those duties. Thus, this second case has been brought to close the loophole.

Some of the Chinese companies named in the complaint are: BDP Intl Ltd (China), Betel Holding Group, Lizhong Group, Qingdao Huifuxin Tyre, Qingdao J & G International Trading Co., Qingdao Keter Tyre, Qingdao Milestone Tyres Co., Ltd., Qingdao Rhino International Co., Ltd., Qingdao STW Tire Co., Ltd., Qingdao Tide Tire, Shandong Hawk International Rubber Industry Co., Ltd., Shandong Taishan Tyre Co., Ltd. Shandong Zhaoyuan Shengrun Wheel Assembly Co., Ltd. Shandong guanxian Cartwheel Co., Ltd., Shenzhen CJG Model Products, THI Group Ltd., Trans Knight Inc., relleborg China/Trelleborg Wheel Systems (Xingtai) Ltd. , Weifang Jintongda Tyre Co., Ltd., Weifang Lutong Rubber Co., Ltd., Weihai Zhongwei Rubber Co., Ltd., Wendeng Sanfeng Tyre Co., Ltd., Wenling Yaoding Machinery Co., Ltd., Wuxi Kinetic Machinery Co., Ltd., Wuxi Superior Wheel Company LLC, Xingyuan Tire Group, Yantai Wonray Rubber Tire Co. Ltd.

JANUARY ANTIDUMPING ADMINISTRATIVE REVIEWS

On January 4, 2015, Commerce published the attached Federal Register notice, DOC JAN 2016 REVOEW INVESTIGATIONS AD AND CVD OPPTY, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of January . The specific antidumping cases against China are: Calcium Hypochlorite, Carbon and Certain Alloy Steel Wire Rod, Crepe Paper Products, Ferrovanadium, Folding Gift Boxes, Potassium Permanganate, and Wooden Bedroom Furniture.

The specific countervailing duty cases are: Calcium Hypochlorite, Carbon and Certain Alloy Steel Wire Rod, Certain Oil Country Tubular Goods, Circular Welded Carbon Quality Steel Line Pipe.

For those US import companies that imported Calcium Hypochlorite, Carbon and Certain Alloy Steel Wire Rod, Crepe Paper Products, Ferrovanadium, Folding Gift Boxes, Potassium Permanganate, and Wooden Bedroom Furniture from China during the antidumping period January 1, 2015-December 31, 2015 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability.  In the recent Solar Cells 2012-2013 final review determination, for example, the following Chinese companies were determined to no longer be eligible for a separate antidumping rate and to have the PRC antidumping rate of 298:

(1) Shanghai Suntech; (2) Wuxi Sunshine; (3) Changzhou NESL Solartech Co., Ltd.; (4) CSG PVTech Co., Ltd.; (5) Era Solar Co., Ltd.; (6) Innovosolar; (7) Jiangsu Sunlink PV Technology Co., Ltd.; (8) Jiawei Solarchina Co., Ltd.; (9) Jinko Solar Co., Ltd.; (10) LDK Solar Hi-tech (Suzhou) Co., Ltd.; (11) Leye Photovoltaic Science Tech.; (12) Magi Solar Technology; (13) Ningbo ETDZ Holdings, Ltd.; (14) ReneSola; (15) Shanghai Machinery Complete Equipment (Group) Corp., Ltd.; (16) Shenglong PV-Tech; (17) Solarbest Energy-Tech (Zhejiang) Co., Ltd.; (18) Suzhou Shenglong PV–TECH Co., Ltd.; (19) Zhejiang Shuqimeng Photovoltaic Technology Co., Ltd.; (20) Zhejiang Xinshun Guangfu Science and Technology Co., Ltd.; (21) Zhejiang ZG-Cells Co., Ltd.; (22) Zhiheng Solar Inc.; and (23) LDK Hi-Tech Nanchang Co., Ltd.

GENERAL LITIGATION AND ARIBITRATION

DORSEY VICTORY IN SUPREME COURT HELPS FOREIGN COMPANIES

On December 1, 2015 the United States Supreme Court unanimously held that Dorsey’s client, OBB Personenverkehr AG (“OBB”), the national railway of the Republic of Austria, is entitled to foreign sovereign immunity in a lawsuit filed against it in federal court by a United States resident who was injured while boarding OBB’s train in Innsbruck, Austria.

The decision, authored by Chief Justice Roberts, has broad application and is significant in confirming that there are limits to the reach of American courts. It establishes that, in the commercial context, in order for a United States court to exercise jurisdiction over a foreign state, or an agency or instrumentality of a foreign state, the claims must be “based upon” commercial activity that occurred within the territorial limits of the United States. In reversing the Ninth Circuit Court of Appeals, the Supreme Court rejected the notion that a foreign state-owned railway could be sued in the United States, simply based upon the purchase of a Eurail pass on the Internet from a United State travel agency, curtailing the impact of the Internet on the jurisdictional reach of United States courts.  Instead, the Supreme Court held that courts must focus on what is “the ‘particular conduct’ that constitutes the ‘gravamen’ of the suit,” or its “essentials,” which here, was the accident that took place in Austria. In this case, the injured passenger could have sued in Austria instead, which forum afforded adequate legal remedies.

Dorsey lawyer Juan Basombrio, who argued the case before the Supreme Court on behalf of OBB, notes that the decision is significant from an international business and legal perspective: “Whereas the Ninth Circuit’s decision would have dragged foreign states and their agencies into United States court, the Supreme Court’s decision recognizes the importance of international comity; that is, the respect that nations afford to the courts of other nations with respect to matters that occur within their territory.”

Juan further notes that, “In a world that has become increasingly connected by international commercial transactions, and where there is also increasing friction in the relations between the United States and other nations, this is a seminal and important decision that will foster harmony between the United States and other nations at least in the commercial context.” Juan  explains that, “From the perspective of American business, this decision also will incentivize other nations to adopt similar rulings, which will protect American businesses from being dragged into court overseas.”

Finally, “The unanimous decision of the Supreme Court,” according to Juan, “also underscores that the Supreme Court is not a fractured Court, as it has been recently criticized, but instead can and has spoken with one voice in this important area of the law, which involves the foreign relations of the United States.”

Dorsey represented OBB at all stages of the litigation. Juan was lead counsel on the case from the trial court through the Supreme Court argument.

UKRAINE ATTACKS RUSSIA USING ARBITRATION

Ukrainian companies have initiated five arbitration proceedings against Russia that range from approximately $20 million to $1 billion.  The cases have been brought by a number of Ukrainian businesses including Ukraine’s largest bank, a real estate investment company, several petrol stations and a private airport.

The claims have been brought under a 1998 bilateral investment treaty meant to encourage economic cooperation and expansion between Ukraine and Russia and are to recover for alleged losses incurred after Russian troops invaded Crimea in 2014 and shut down or nationalized Ukrainian businesses without paying for them.

The claims were lodged at various times in the first half of 2015 in the Permanent Court of Arbitration in The Hague, an intergovernmental organization with approximately 115 member states. The parties that launched the claims include PrivatBank & Finance Co. Finilon LLC, or PrivatBank; and PJSC Ukrnafta, which is both publicly and privately owned and is one of Ukraine’s largest oil and gas companies.

The lawyer representing the Ukrainian companies stated:

Apparently, the bilateral investment treaty permits the investors of one country whose property has been appropriated by the other country to launch private arbitration proceedings either under the rules governing the Stockholm Chamber of Commerce or the United Nations Commission on International Trade Law.

IP/PATENT AND 337 CASES

337

On November 10, 2015, the Court of Appeals for the Federal Circuit (“CAFC”) in the attached Clear Correct v. ITC, CLEAR CORRECT V ITC, held that the International Trade Commission (“ITC”)  does not have the authority to expand the scope of Section 337 Intellectual property (“IP”) investigations to cover electronic transmissions of digital data imported into the United States.  In a 2-1 decision, the Court determined that such an expansion would:

run counter to the “unambiguously expressed intent of Congress.” . . . . Here, it is clear that “articles” means “material things,” whether when looking to the literal text or when read in context “with a view to [the term’s] place in the overall statutory scheme.” . . . . We recognize, of course, that electronic transmissions have some physical properties—for example an electron’s invariant mass is a known quantity—but common sense dictates that there is a fundamental difference between electronic transmissions and “material things.” . .  .

NEW 337 CASES

On November 5, 2015, Hydor USA, Inc. filed a section 337 case against imports for certain aquarium fittings and parts thereof from a Chinese company, Jebao Co., Ltd in Zhongshan City, Guangdong province, China.

On November 12, 2015, Belkin International, Inc. filed a section 337 case against imports of Computer Cables, Chargers, Adapters, Peripheral Devices and Packaging from China. The proposed respondents are: Dongguan Pinte Electronic Co., Ltd., China; and Dongguan Shijie Fresh Electronic Products Factory, China.

On November 17, 2015, FeraDyne Outdoors, LLC and Out RAGE, LLC filed a section 337 case against Arrowheads With Deploying Blades against the following Chinese respondents: Linyi Junxing Sports Equipment Co., Ltd., China; Ningbo Faith Sports Co., Ltd., China; Ningbo Forever Best Import & Export Co. Ltd., China; Ningbo Linkboy Outdoor Sports Co, Ltd., China; Shenzhen Zowaysoon Trading Company Ltd., China; Xiamen Xinhongyou Industrial Trade Co., Ltd., China; Xiamen Zhongxinyuan Industry & Trade Ltd., China; Zhengzhou IRQ Trading Limited Company, China; and Zhenghou Paiao Trade Co., Ltd., China.

On January 8, 2016, Covidien LP filed a section 337 case against imports of Surgical Stapler Devices from Chongqing QMI Surgical Co., Ltd., China.

CRIMINAL PATENT CASES

On January 5th, in U.S. v. Pangang Group Co. Ltd., the US government brought the attached criminal indictment, CHINA INDICTMENT, against Pangang Group Co. Ltd., a state-owned Chinese steel company, alleging that Pangang engaged in economic spying and stole manufacturing trade secrets from DuPont Co. through a California businessman and a former DuPont engineer, who have been sent to prison for their crimes.

Prosecutors claim Pangang stole trade secrets held by DuPont covering its proprietary method of manufacturing titanium dioxide, which is used to make cars, paper and other items appear whiter.

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

On November 4, 2015, SATA GmbH & Co. KG, a German corporation, filed a counterfeit trademark case against Zhejiang Refine Wufu Airt Tools Co., Ltd. and Prona Tools Inc. COUNTERFEIT SPRAY PAINT GUNS

On November 23, 2015, Penn Engineering & Manufacturing Corp. filed, a patent, trademark infringement and counterfeit case against Pemco Hardware, Inc., Dongguan Fenggang Pemco Hardware Factory, and Shenzhen Pemco Fastening Systems :Co., Ltd. PENN DONGGUAN

On December 3, 2015, Fellowship Filtering Technologies filed a patent case against Alibaba and Taobao Holding Ltd. and other Alibaba and Taobao companies. ALIBABA PATENT CASE

PRODUCTS LIABILITY CASES

On November 9, 2015, Neoteric Solution Inc. d/b/a Wowparts filed a products liability case against batteries supplied by Dongguan Hosowell Technology Co., Ltd, and Hosowell (HK) Technology Co., Ltd.DONGGUAN HOUSEWELL

On November 12, 2015, Momo Ren and Miao Xin Hu filed a class action products liability case for misbranding egg roll packages against Domega NY International Ltd., Dongguan City Tongxin Food Co., Ltd. and Net A Generation Food Stuffs Co., Ltd. EGG ROLL CASE

On November 23, 2015, Stephen and Diane Brooke filed a class action products liability case in the drywall area against The State-Owned Assets Supervision and Administration Commission of the State Council; Taishan Gypsum Co., Ltd. f/k/a Shandong Taihe Dongxin Co., Ltd.; Tai’an Taishan Plasterboard Co., Ltd.; Beijing New Building Materials Public Limited Co.; China National Building Material Co., Ltd.; Beijing New Building Materials (Group) Co., Ltd.; and China National Building Materials Group Corporation. BROOKE TAISHAN SAC

ANTITRUST

There have been developments in the antitrust area.

CHINA ANTI-MONOPOLY CASES

T&D NOVEMBER AND DECEMBER REPORT

In December and January T&D sent us their attached November and December reports on Chinese competition law. T&D Monthly Antitrust Report of November 2015 T&D Monthly Antitrust Report of December 2015

In early January 2016, T&D also sent us the latest attached draft translated into English of IPR Anti-monopoly Guideline from the National Development and Reform Commission of China (NDRC) released on the last day of 2015, i.e. December 31, 2015. IPR Guideline (draft) 20151231-EN

SECURITIES

FOREIGN CORRUPT PRACTICES ACT

Recently, Dorsey& Whitney LLP issued its attached December 2015 Anti-Corruption Digest,AntiCorruptionDigestDec2015. The Digest states with regards to China:

China: Setback in the Anti-Corruption Campaign

It has been reported that President Xi Jinping’s ongoing anti-corruption campaign has suffered a setback after a prominent official of the inspection team in charge of the government’s anti-corruption efforts, Liu Xiangdong, was removed from his post after allegedly being in possession of more than $31 million (£20 million) in cash.

Mr. Liu was accused of “violating inspection rules and leaking related secrets” and accepting large bribes. He was also stripped of his Communist Party membership and removed from his position, the Central Commission for Discipline Inspection, the party’s top anti- corruption committee, said in a statement on its website.

China: Corruption in the Education Sector

China’s anti-corruption campaign has already touched many of the country’s sectors and has now extended to the education sector with a number of officials at the Communication University of China being targeted.

The president of the university, Su Wuzhi, was reportedly removed from his post for having an office that was “severely beyond the official standards, using university funds to hold banquets in public venues and putting gifts sent to the university on display in his own office without registering them.”

Lv Zhisheng, the vice president of the university, was also removed from office for allegedly failing to enforce frugality rules, leading to “chaos in financial management” of the institution, such as expenditures in “fancy cars” which exceeded budgets.

An official announcement from the Education Ministry is said to have called for increased monitoring of the education sector to ensure that “the high aims” of the party were upheld.

SECURITIES COMPLAINTS

On November 24, 2015, the Securities and Exchange Commission filed an insider trading case against two Chinese individuals, Yue Han and Wei Han, who presently reside in China. SEC VERSUS HAN

On November 24, 2015, Amy Liu and a number of individuals filed a class action securities case for fraud against China North East Petroleum Holdings Ltd. (“CNEP”). Defendant CNEP is a Nevada corporation with its sole asset being ownership of Song Yrun North East Petroleum Technical Services Co., Ltd, a subsidiary operating in China. On September 5, 2013 CNEP transferred all CNEP assets and all CNEP liabilities to Ju Guizhi, a CNEP director and mother of CNEP CEO Wang Hongiun, for the purpose of effecting a merger into CLP Huaxing Equity Changchun City Investment Limited (“CLP”), a limited liability chinese corporation majority owned and controlled by Ju Guizhi and Wang Hongiun, NEVEDA SHAREHOLDERS SUIT.

On December 10, 2015, Shouming Zhang, a Chinese individual, filed the attached fraud case against several US companies and a Chinese individual alleging three Los Angeles-area companies and an attorney of swindling her into investing in an $8 million business deal with promises that she would obtain an EB-5 visa, CHINA NATIONAL COMPLAINT EB5.

Shoumin Zhang — whose visa application was denied — accuses Arcadia, California-based Americana One LLC of committing fraud and breach of contract by luring her into paying $500,000 for the supposed renovation of a commercial building. Zhang says that after she discovered the $8 million investment was a fraud, she visited the U.S. to personally ask AFRC and Americana One to seek a refund of her money.

Through the Immigrant Investor Pilot Program, the U.S. government offers EB-5 visas to foreigners who make certain business investments in the country. A website for AFRC offers consultations for the program, which allegedly requires only $500,000 of investment in exchange for permanent resident status in the U.S.

On December 14, 2015 Sally Mogle filed a class action securities case against Mattson Technology, Inc., Beijing E-Town Dragon Semiconductor Industry Investment Center and Dragon Acquisition Sub, Inc. and a number of individuals. BLOCK SEMICONDUCTOR ACQUISITION

On December 22, 2015, Philip Durgin filed a class action securities case against Mattson Technology, Inc., Beijing E-Town Dragon Semiconductor Industry Investment Center and Dragon Acquisition Sub, Inc. and a number of individuals. BEIJING DRAGON

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

Best regards,

Bill Perry

 

US CHINA TRADE WAR–DAMAGE CAUSED BY AD ORDERS, TRIUMPH AND TRAGEDY OF TAAF, TPP DEVELOPMENTS, NEW TRADE/CUSTOMS LAW

US Capitol North Side Construction Night Washington DC ReflectioTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR DECEMBER 10, 2015

Dear Friends,

Attached is the first half of the December blog post, which covers the collateral damage caused by US Antidumping Orders on downstream US production by the numerous antidumping orders against raw material inputs from China, which directly damage and in some cases destroy downstream US production.  The Article describes why the Import Alliance is so important to counter this trend.

The second article is on the Triumph and Tragedy of Trade Adjustment Assistance for Companies, the only truly successful trade remedy the US government has in its arsenal to help US companies injured by imports.

This update goes into detail on the Trans Pacific Partnership (“TPP”) and when it might come up for a vote in Congress, the impact of Presidential politics, especially against Donald Trump, on the TPP, the ITC TPP investigation and the appointment of Congressman Dave Reichert of Washington State as the Chairman of the Subcommittee on Trade, House Ways and Means Committee.

Finally, on December 9th, Senate Finance Committee and House Ways and Means announced Agreement on the Trade Facilitation and Trade Enforcement Act of 2015.  Copies of the Bipartisan bill and Conference Report are attached below.

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

Best regards,

Bill Perry

THE IMPORTANCE OF THE IMPORT ALLIANCE FOR US MANUFACTURING AND PRODUCTION—THE DAMAGE ANTIDUMPING CASES CAUSE TO DOWNSTREAM AND UPSTREAM PRODUCERS

US Law firms representing domestic producers in antidumping (“AD”) cases like to grab the mantle of helping US producers stay in business and saving US jobs.  They do not want Congress or the general public to look at the collateral damage created by US AD orders against China on downstream US production.  In truth, US AD cases against China have destroyed more jobs than they have saved.

All AD orders can do is delay the decline of the US industry, they cannot save the companies.  But in delaying the decline, these same AD orders destroy downstream value added production, where the US is often among the most efficient producers in the World.

These points were made by importers in the Import Alliance at meetings with Congressional Trade Staff and a Congressman on Capitol Hill on November 18th in Washington DC.  The Import Alliance has four objectives.  The first two objectives are:

(1)       Eliminate retroactive liability for US importers and join the rest of the World in making antidumping and countervailing duty orders prospective.

(2)      Work for market economy treatment for China in 2016 as provided in the US China WTO Agreement for the benefit of US importers and downstream companies.

As of November 17, 2015, as the US International Trade Commission (“ITC”) states in the attached list, NOVEMBER 172015 AD CVD ORDERS, there are 128 outstanding antidumping and countervailing duty orders against China.  More than 70 of those Antidumping and Countervailing Duty Orders are against raw material inputs, chemicals, metals and steel, that go into downstream US production.

The outstanding chemical AD and countervailing duty (“CVD”) orders against China cover imported products such as polyvinyl alcohol used to produce adhesives and polyvinyl buturyl for auto safety glass.  Another product is sulfanilic acid used to provide Optical Brighteners in the US Dye Industry, which, in turn, resulted in the antidumping order against Stilbenic optical brightening agents.  Other chemicals covered by AD and CVD orders are potassium permanganate in place since 1984 used to purify water, potassium permanganate salts, chloropicrin, barium chloride, glycine used to produce the cooling effect in candies, furfural alcohol, persulfates, barium carbonate, Tetrahydrofurfuryl alcohol, Carbazole violet pigment 23, chlorinated isocyanurates used in swimming pool chemicals, certain activated carbon used to purify various chemicals and to produce products used in nuclear plants, certain polyester staple fiber, sodium hexametaphosphate, sodium nitrite, citric acid, xanthan gum, monosodium glutamate, calcium hypochlorite and melamine.

Often these AD and CVD orders cover products that are not even produced in the United States.  Because of this situation, many US producers dependent on the raw materials simply close US production and move overseas.

The following Chinese metal products are covered by AD and countervailing duty (“CVD”) orders: magnesium ingots, magnesium, and pure magnesium, magnesium carbon bricks used in downstream magnesium dye casting industry and to produce light weight auto parts.  All light weight auto part production has moved to Canada and Mexico because of the antidumping orders on Chinese magnesium.  Other Chinese metal products covered by antidumping and countervailing duty orders are silicon metal critical for use in US foundries, silicomanganese, foundry coke, ferrovanadium, and  graphite electrodes used in the steel industry and downstream metal production, aluminum extrusions, the order has been expanded to cover many downstream products produced from aluminum extrusions, including curtain walls/sides of buildings, lighting equipment, geodesic domes, refrigerator handles, and subcomponent auto parts, electrolytic magnesium dioxide used to produce batteries, which, in part, led to the closure of Panasonic’s battery plant in the US, and refined brown aluminum oxide.

The Magnesium antidumping order, in particular, has led to enormous job loss in the downstream industries.  The Magnesium AD order protects one company in Utah and between 200 to 400 jobs by wiping out thousands, if not tens of thousands of jobs in the downstream industries.

In 2004-2005 43 US companies sold magnesium die castings in the US market.   As of two to three years ago, according to National Association of Dye Casters (“NADCA”), less than 12 US companies now produce magnesium die castings in the United States.  NADCA estimates that 31 US companies have ceased pouring magnesium in the United States because of the antidumping order against magnesium from China.  US companies, such as Lunt in Illinois, simply went out of business because of the Magnesium from China Antidumping order.  In 2010, when NADCA did the survey, it estimated a job loss of 1,675 direct jobs.  Now the jobs loss has swelled to over 2,000 and closer to 10,000 supporting jobs.

Where did the magnesium jobs and companies go?  Many companies and projects simply moved to Mexico or Canada.  Magnesium is used to produce light weight auto parts.  Many OEM magnesium parts manufacturers moved all their production to Mexico. Five Tier 1 steering wheel manufacturers, for example, have magnesium die casting and wheel assembly plants in Mexico, including TRW, AutoLiv, Takata, Key Safety Systems and Neaton.  GM intends to import Buick cars from China into the US.  Could the Magnesium AD order be one of the reasons?

After Chinese chemical and metal products, almost every steel product from China is covered by an AD order and often also a 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.  Almost every steel product from China is covered by an AD and CVD orders, except for galvanized steel products and cold rolled steel, which are presently the subject of ongoing AD and CVD investigations.

As one person working in the Trade Adjustment Assistance for Companies program remarked to me, the Antidumping and Countervailing Duty orders against Steel explain why so many companies in the TAA program use steel as an input.

If these Chinese products were truly dumped, then AD orders should be issued.  Since Commerce considers China a nonmarket economy country (“NME”) and refuses to use actual prices and costs in China to determine dumping, however, it does not know whether the products are dumped.  For more discussion of the 2016 China NME problem, see my last blog post and the dumping canard argument and many other prior posts and my next newsletter.

Congressmen may not care that retail products go up several dollars because of AD orders, but what happens when the AD orders in place injure downstream US producers, sometimes literally closing the companies down and destroying downstream jobs.  Does that make a difference to Congress?

Also the AD and CVD orders on Solar Cells and Solar Products has led to problems for REC Silicon in Moses Lake, Washington, which produces the upstream product, polysilicon, used to produce solar cells.  China has retaliated against the United States producers by bringing its own AD and CVD cases against the United States for US exports of polysilicon, wiping out the US polysilicon from the China market.  As stated in the last blog post, REC Silicon has deferred a $1 billion investment and possibly could close its plant in Moses Lake.

Because of the impact of AD and CVD orders on downstream US production, the Import Alliance has two other objectives:

(3)       End user production companies should have standing in antidumping and countervailing duty cases.

(4)       The United States should join the rest of the World in antidumping and countervailing duty cases, including Canada, the EC and yes China, and have a public interest test.

This is also why the Import Alliance for America is so important for US importers and US end user companies.  The real targets of antidumping and countervailing duty laws are not Chinese companies.  The real targets are US companies, which import products into the United States from China or use raw materials in downstream production process.

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

Ten US Importers have agreed to form the Import Alliance for America.   On November 18th, Importers in the Alliance met with a Congressman and Congressional Trade Staff in Washington DC in the first of several meetings to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US AD and CVD laws, on US importers and US downstream industries.  For more information, see the Import Alliance website at http://www.importallianceforamerica.com.

THE TRIUMPH AND TRAGEDY OF TAA FOR FIRMS/COMPANIES

But what is the answer to this import problem?  What is the answer for US companies caught in the cross hairs of import competition from China and many other countries and facing potential bankruptcy?

Not more protection. Antidumping and countervailing duty cases cannot be brought against the World.  As stated in many past blog posts, all antidumping and countervailing duty cases do is slow the decline in the US industry, not cure the disease.  A great example of this is the US Steel Industry and the demise of such well-known steel companies as Bethlehem Steel, Lone Star Steel and Jones and Laughlin.  Many of these companies have simply ceased to exist despite 40 years of protection from steel imports under the US antidumping and countervailing duty laws.

Instead, I firmly believe the answer lies in the small program—the TAA for Companies (also called TAA for Firms) (“TAAF”). The Triumph of TAAF is that it has been reauthorized for 5 years.  The tragedy is that its budget has again been cut to $12.5 million nation-wide.

TAA for Companies (TAAF) is probably the most effective trade remedy the United States has in its arsenal, but it is not given the resources it needs to do the job.   I believe in this program and sit on the board of the Northwest Trade Adjustment Assistance Center, the regional office in the Northwest that administers the program.  Since 1984, NWTAAC has been able to save 80% of the injured companies that got into the program.  For more information see www.nwtaac.org.  The big news is that TAAF nationwide recently had a great validation and, at the same time, a bewildering set back.

In case you don’t know about TAAF, this is a program that offers a one-time, highly targeted benefit to domestic companies hurt by trade.  The benefit is not paid to the companies, but to consultants, who help the company adjust to import competition.   The program is amazingly effective.   Between 2010 and 2014, 896 companies with more than 90,000 employees were certified as trade impacted by TAAF after experiencing a 16% drop in sales and 17% drop in jobs.   During this 5 year period, participating companies in TAAF increased average sales by 40% and employment by 20%, achieving impressive double-digit productivity gains.   Essentially, all of the 15,090 jobs lost to imports before company participation in the TAAF program were regained by creating more than 15,140 new jobs by the end of the five year period, and 75,000 jobs were retained by helping these companies stay in business.   These impressive results occurred with TAAF program annual costs of approximately $15.3 million per year.

To put that in context, the very much larger TAA for Worker Program’s appropriation for FY 2015 was $711 million.  The TAA for Worker (TAAW) Program spends roughly $53,000 per year to retrain a single employee AFTER a job has been lost due to trade.   The mission for each program is very different – TAAF’s primary mission is to save the company AND the jobs, while TAAW’s mission is to retrain workers after the jobs have already been lost.   Now you should ask which is the smarter investment?

Arguments are made that TAAF costs the US government money.   When a company adjusts to trade and survives or even prospers, that company and all of its workers pay taxes.  The taxes on average wages for about 8,300 jobs would pay for this whole program. Companies in the TAAF program, however, regained 15,000 jobs and retained 75,000 jobs.  The real costs to government, however, are when companies don’t survive and good jobs are lost.

In fact, the TAAF program actually saves the US government millions of dollars each year by helping companies stay in business while saving their higher paying manufacturing jobs.  For every job saved, resources aren’t wasted on expensive training and other costly benefits, but can instead be used more productively to help trade impacted firms adapt to changes in the global economy as large FTA’s like the upcoming TPP are implemented.

An example using the TAAF program statistics from above describes what happens when TAAF program resources are cut.   If workers applied for benefits through the TAA for Workers (TAAW) Program for the 15,000 jobs lost due to imports, it would cost more than $795 million to retrain them using the $53,000 average cost figure.   The TAAF program not only saves the company but saves the high paying jobs that go with that company, and keeps tax revenues rolling in to contribute to local and national tax bases rather than acting as a cost burden.

The more stunning fact – if the TAAF program saves just 300 jobs per year on a national basis for which TAA for Worker resources of $53,000 aren’t required for retraining efforts, the program easily pays for itself up to its $16 million authorization level.  That is an extremely low bar to set considering that TAAF retained more than 75,000 jobs and created an additional 15,140 jobs during the last five year period.  This shows the short sightedness in cutting the program.

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

Amazingly, TAAF came into being over 40 years ago, before “globalization” was even a word.  On the eve of TPP – it’s never been so relevant.  The idea then, and now, is that changes in trade circumstances (often sudden and unpredictable) put U.S. companies and jobs in jeopardy.  In other word, government action through trade agreements, such as the TPP, change the US market and the market conditions under which companies operate in the United States.  Since government action through the trade agreement has changed the US market, I believe the US government has an obligation to help US companies adapt to the changing US market.

Global trade has evolved over the past 40 years and perhaps it’s time for trade policy to adapt to those changes.   The original mission for TAA was more concerned with the impact of increased imports on US workers, and the vast majority of funds have been dedicated to the TAA for Workers program.   The landscape has changed as more than 5 million manufacturing jobs have been lost in the last 40 years, and the mission for TAA must now shift to maintaining a robust core of manufacturing companies and jobs. Without a vibrant core of manufacturing firms, the US won’t have the capacity or capabilities to achieve growth through export expansion no matter how many free trade agreements are passed, and all the training in the world is not going to bring back those manufacturing jobs.

Earlier this summer, as explained in detail in past blog posts, Trade, including Trade Promotion Authority (“TPA”) and TAA were the hot topics on Capitol Hill.  During this process Congress authorized the TAA program for five years – a length of time and expression of confidence that nobody expected.  The series of events in the Congress were highly dramatic – it was a breakthrough in bipartisanship.

Many Senators and House Representatives played a significant role in pushing the trade legislation, including TAA, through Congress.  The Senators included Republicans Mitch McConnell and Orrin Hatch and Democrats Ron Wyden, Patty Murray and Maria Cantwell.   In the House, Republican Representatives, including Paul Ryan, Dave Reichert, and Jaime Herrera Beutler, voted for the TAA program along with over 90 other Republicans.  Democratic Representatives, including Suzanne Bonamici and many from the New Dem Coalition, such as Representatives Ron Kind, Derek Kilmer, Rick Larson, and Suzan DelBene, helped push the TAA and TPA legislation through Congress.

But, in the very next breath Congress cut the program’s appropriations to $12.5 Million. That’s $12.5 Million for the entire country – an investment of only $250,000 per state to help trade impacted manufacturing companies.

A couple of points to make here:

At $12.5M, TAAF will be able to serve less than 1 in 1,000 companies injured by import competition. Does anyone truly believe that import competition is seriously affecting less than one in 1,000 companies, especially with the coming passage of the TPP?

The inequity of funding for TAA programs must be addressed – FY 2015 appropriations for TAA for Workers was $711 million; TAA for Companies was $15 million.  Both programs play an important role in trade policy, but does it make sense to use the vast majority of funds for retraining efforts after jobs have been lost?  Or, should more of the funding be dedicated to saving both companies and jobs through the TAAF program?

As indicated below, the Labor Advisory Committee to the TPP, which is composed of Unions, estimates that TPP could cost the United States up to 330,000 jobs in the Manufacturing Sector.  Although this may be too pessimistic, the TPP will create losers, companies that do not do as well, and without a robust TAAF program how can those companies and jobs be saved?

TAAF has been evaluated repeatedly by GAO, CRS, and various outside evaluators, which conclude that instead of dying, TAAF companies have a 6% annual growth rate. That’s after an at least 5% decline year on year (the threshold for entering the program), which is an impressive turn-around for distressed companies.  TAAF has proven its worth, and the basic model is the most effective trade remedy that works in the 21st century.  Moreover, the TAAF solution does not change the US market or create the collateral damage associated with US antidumping and countervailing duty cases.  Instead, it teaches the company how to change, adapt and swim in the new market conditions caused by imports.

More importantly, TAAF changes the mindset of the injured companies away from Globalization victimhood to being competitive in the international market.  One Economic Development Council here in Washington State has the motto Compete Every Day, with Every One in Every Country Forever.  That is the type of mindset that turns companies around.  That is the type of mindset TAA for Companies promotes.

TPP TEXT AND TRADE ADVISORY REPORTS

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

The text of the Agreement is over 6,000 pages. We have downloaded the text of the various Chapters, which are listed below.  We have broken the Agreement down into three parts and have added consecutive page numbers to the Agreement in the right hand lower corner to make the Agreement easier to navigate.

For specific tariff changes on specific products, look at attached Chapter 2 National Treatment and Market Access for Goods, Chapters 1 – 2 – Bates 1 – 4115  This is the largest document because it includes all imported items by tariff number.  But this is the section that will impact most companies.  The other parts of the text covering Chapters 3 to 30 is posted on the blog, Chapters 3 – 30 – Bates 4116 – 5135. along with the Appendices, Annex 1 – 4 – Bates A-1-1074

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

On December 2nd and 3rd, 2015 various trade advisory groups operating under the umbrella of the United States Trade Representative (“USTR”) Group issued reports on the impact of the TPP on various industries and legal areas.  Attached are some of the reports,  Agricultural-Policy-Advisory-Committee ATAC-Animals-and-Animal-Products ATAC-Fruits-and-Vegetables ATAC-Grains-Feed-Oilseed-and-Planting-Seeds ATAC-Processed-Foods ATAC-Sweeteners-and-Sweetener-Products Intergovernmental-Policy-Advisory-Committee-on-Trade ITAC-2-Automobile-Equipment-and-Capital-Goods ITAC-3-Chemicals-Pharmaceuticals-Health-Science-Products-and-Services ITAC-5-Distribution-Services ITAC-6-Energy-and-Energy-Services ITAC-8-Information-and-Communication-Technologies-Services-and-Electronic-Commerce ITAC-9-Building-Materials-Construction-and-Non-Ferrous-Metals ITAC-10-Services-and-Finance-Industries ITAC-11-Small-and-Minority-Business ITAC-12-Steel ITAC-14-Customs-Matters-and-Trade-Facilitation ITAC-15-Intellectual-Property ITAC-16-Standards-and-Technical-Barriers-to-Trade Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy Trade-and-Environment-Policy-Advisory-Committee.pdf.   All the reports can be found at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/advisory-group-reports-TPP.

Almost all of the reports are favorable, except for the Steel Report, which takes no position, and the Labor Advisory Report, which is opposed because it is the position of the Unions.  Some of the relevant reports for various industries are as follows:

For Agriculture, see Agriculture Policy Advisory Committee, Animals and Animal Product, Fruits and Vegetables, Grains and Processed Foods.  See also Standards and Technical Barriers to Trade.  For Pharmaceuticals and Health Care, see Chemicals and Health Science products, plus Services.  For Banking see financial and services.  For Energy and Mining, see Energy and Energy Services plus Non-Ferrous Metals. For Intellectual Property, see IP Report and Information and Communications Technologies.  For Telecom, see Communication Technologies and also Standards. For Environmental, see Trade and Environment Policy Advisory Committee. For Customs and Trade, see Customs and Trade Facilitation.

TO TPP OR NOT TO TPP THAT IS THE QUESTION

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

Cut Tariffs on 18,000 products

New special 2 year safeguard for certain domestic industries that face a surge in imports

State-owned companies with TPP Countries must conduct commercial activities in accordance with market- based considerations

Vietnam must allow formation of independent labor unions

Malaysia will face trade retaliation if it does not improve its forced labor and human trafficking record

Bar countries from requiring the localized storage of data or surrender valuable source codes as condition of market entry

Require parties to commit to sustainable forest management and conserve at risk plants and animals.

On November 5, 2015, the United States Trade Representative Office (“USTR”) released the text and appendices of the Trans Pacific Partnership Agreement, which are over 6,000 pages long and are attached above. The clock has started to run, which means President Obama could technically sign the Agreement 60 days later or on February 3rd,.  Potentially Congress could take up the bill 30 to 90 days later.

But the big question is when will Congress take up the Agreement and can it be ratified.  Two weeks ago on Capitol Hill in discussions with legislative trade staff, they said the TPP has to start from the House of Representatives.  So that means that Paul Ryan, the new Speaker of the House, will probably have the final say, along with Senators McConnell and Hatch.

The new Chairman of the Subcommittee on Trade, House Ways and Means, Congressman Dave Reichert, stated recently that a House floor vote on TPP could be possible in late spring or early summer.  Given the timeline established by TPA requirements, the President will be able to sign TPP Feb. 3 and then send the implementing legislation to Congress after March 4.  Chairman Reichert stated that Congress would have 90 days to consider the agreement, but he would rather not see the House vote pushed into the end of July, adding that it would be possible for the pact to enter into force by January 2017.  Congressman Reichert expressed confidence that sufficient votes would be there to meet the simple majority threshold required under TPA, but he acknowledged that votes on trade agreements are always close.  See article below on the appointment of Congressman Dave Reichert of Washington State to the Chairmanship of the Subcommittee on Trade, House Ways and Means.

As Chairman Reichert further stated, “We’re probably looking somewhere around the May time frame—we’re thinking late spring, early summer.”  But he also indicated that there were many issues to be discussed before scheduling the vote.

In talking to a number of Congressional Trade Staff two weeks ago, they still have not read the entire 5,000 plus pages of the Agreement and digested it enough to know what is in it.

Reichert also stressed that the timing of any vote would be a leadership decision, stating:

We’re taking a measured approach, we’re studying the document and we’re working with other members of Congress and talking with our constituents to see where the troubles might exist for them on a particular product and also working closely with the ambassador [U.S. Trade Representative] Mike Froman.

Reichert also indicated that the International Trade Commission (“ITC”) report on the impact of the TPP agreement on the U.S. economy, which is due by May 18, would also have an impact on the vote.

Reichert further stated:

We are in study mode and talking with members who have issues and concerns about some of the language in TPP.  We’re just going to be moving forward, talking with constituents, talking with members, finding ways we can address these concerns.

Two notable areas of concern are the intellectual property rights protections for pharmaceutical drugs and the carve-out of tobacco from investor state dispute settlement.  The TPP has only 5 years of protection for biologic drugs when the Pharmaceutical companies wanted 12 years.

Reichert further stated, “If we lose some votes [because of the tobacco issue], we’ll have to work on our Democrat friends to pull through and support the effort to recover those losses”

As one Republican Trade Staffer, who is very close to the decision-making, told me, “We honestly do not know when the TPP will come up.”  The staffer went on to state that before the Agreement was finalized, USTR would state that “Substance drives the timeline.”  As the Staffer further stated, now “Addressing members’ [Congressional representatives’] concerns sets the timeline.”

One Democratic trade staffer in the Senate stated that he believes that the Presidential election will have an impact on the timing of a TPP vote in the Congress. If the TPP is looked upon as a positive by the US electorate, the Republicans may want to keep the issue on the table to use against Hilary Clinton in the election.  But if the TPP is looked upon as a negative, Congressional Republicans may want the vote to take place in Spring or Summer 2016 to take it off the table in the Presidential election.

Senate Republican trade staffers made the same point to me, “Maybe there will be no vote on TPP in 2016.”

Any issue this big coming up in a Presidential election year is by its very nature political so President politics will have an impact.  As indicated below, however, Presidential politics cuts several ways.  On the Democratic side, Bernie Sanders is adamantly against the TPP and Hilary Clinton has said she is opposed because she wants the union votes. On the Republican side, all the candidates, except Donald Trump, are in favor of the TPP, but Trump adamantly opposes it.

PRESIDENT OBAMA PUSHES FOR TPP

On November 10, 2015, President Obama made his case for the TPP on Bloombergview.com:

A Trade Deal for Working Families

By Barack Obama

As President, my top priority is to grow our economy and strengthen the middle class. When I took office, America was in the middle of the worst recession since the Great Depression — but thanks to the hard work and resilience of the American people, our businesses have created 13.5 million jobs over the past 68 months, the longest streak of private-sector job creation in history. The unemployment rate has been cut nearly in half — lower than it’s been in more than seven years. We have come back further and faster from recession than nearly every other advanced nation on Earth.

That’s real progress. But as any middle-class family will tell you, we have more to do. That’s why I believe the Trans-Pacific Partnership is so important. It’s a trade deal that helps working families get ahead.

At a time when 95 percent of our potential customers live outside our borders, this agreement will open up new markets to made-in-America goods and services. Today, exports support 11.7 million American jobs. Companies that sell their goods around the world tend to grow faster, hire more employees and pay higher salaries than companies that don’t. On average, export-supported jobs pay up to 18 percent more than other jobs.

These are good jobs — and this agreement will lead to even more of them. It would eliminate more than 18,000 taxes that various countries put on made-in-America products. For instance, last year, we exported $89 billion in automotive products alone to TPP countries, many of which have soaring tariffs — more than 70 percent in some cases — on made-in-America products. Our farmers and ranchers, whose exports account for roughly 20 percent of all farm income, face similarly high tariffs. Thanks to the TPP, those taxes will drop drastically, most of them to zero. That means more U.S. exports supporting more higher-paying American jobs.

At a time when our workers too often face an unfair playing field, this agreement also includes the highest labor standards of any trade deal in history. Provisions protecting worker safety and prohibiting child labor make sure that businesses abroad play by the same kinds of rules we have here at home. Provisions protecting the environment and combating wildlife trafficking make sure that economic growth doesn’t come at the expense of the only planet we call home.

And these commitments are enforceable –meaning we can hold other countries accountable through trade sanctions if they don’t follow through. So, these tough new rules level the playing field, and when American workers have a fair chance to compete, I believe they’ll win every time.

I’ve said many times that the Trans-Pacific Partnership is the right thing for our economy, for working Americans and for our middle class. But I’m not asking you to take my word for it. Instead, I’ve posted the agreement online. If you build cars in places such as Detroit, you can see for yourself how your products will have a better shot of hitting the road in places such as Japan. If you’re a farmer or rancher, you’ll see how your products will face fewer barriers abroad. If you’re a small-business owner, you’ll see how this agreement will mean less paperwork and less red tape.

Along with the text of the agreement, we’ve posted detailed materials to help explain it. It’s an unprecedented degree of transparency — and it’s the right thing to do. Not every American will support this deal, and neither will every member of Congress. But I believe that in the end, the American people will see that it is a win for our workers, our businesses and our middle class. And I expect that, after the American people and Congress have an opportunity for months of careful review and consultation, Congress will approve it, and I’ll have the chance to sign it into law.

Together, we’ve overcome enormous obstacles over the past seven years. We’ve taken an economy that was in free fall and returned it to steady growth and job creation. And we’ve put ourselves in a position to restore America’s promise not only now, but for decades to come. That’s what I believe this agreement will help us do.

UNIONS PUSH AGAINST IT

On December 4th, Union leaders from the United Steelworkers, United Mine Workers of America and the Service Employees International Union, who sit on the president’s Labor Advisory Committee for Trade Negotiations and Trade Policy, came out against the TPP in the report released by USTR, arguing that although the TPP creates some limited opportunities for increased exports, it will also increase trade deficits in several industries — such as auto, aerospace, textiles and call centers — and will kill US jobs.  As the Union members on the Labor Advisory Committee state in the attached report, Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy:

The LAC strongly opposes the TPP, negotiated between the United States (U.S.), Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. We believe that the Agreement fails to advance the economic interests of the U.S. and does not fulfill all of the negotiating objectives identified by Congress in the Trade Priorities and Accountability Act of 2015. The threat to future economic gains here in the U.S. and the standard of living of our people will be put in jeopardy by the Agreement. These threats will grow over time based on the potential for open-ended expansion of the TPP to countries ranging from Indonesia to China.

The LAC report goes on to state:

On behalf of the millions of working people we represent, we believe that the TPP is unbalanced in its provisions, skewing benefits to economic elites while leaving workers to bear the brunt of the TPP’s downside. The TPP is likely to harm the U.S. economy, cost jobs, and lower wages. . . .

The LAC entered the TPP process hopeful and optimistic that the TPP would finally be the agreement that broke the elite stranglehold on trade policy and put working families at the front and center. Unfortunately, we believe the TPP fails to strike the proper balance: of course it is difficult to convince Vietnam to implement freedom of association before the TPP enters into force once Vietnam has already agreed to provisions that will force it to pay higher prices for medicines and subject even its most basic laws to challenge by foreign investors in private tribunals. Given the misguided values enshrined in the TPP, it is no surprise that the economic rules it will impose will actually make it harder to create a virtuous cycle of rising wages and demand in all 12 TPP countries.

While the TPP may create some limited opportunities for increased exports, there is an even larger risk that it will increase our trade deficit, which has been a substantial drag on job growth for more than twenty years. Especially at risk are jobs and wages in the auto, aerospace, aluminum and steel, apparel and textile, call center, and electronic and electrical machinery industries. The failure to address currency misalignment, weak rules of origin and inadequate state-owned enterprise provisions, extraordinary rights provided to foreign investors and pharmaceutical companies, the undermining of Buy American, and the inclusion of a labor framework that has proved itself ineffective are key among the TPP’s mistakes that contribute to our conclusion that the certain risks outweigh the TPP’s speculative and limited benefits. . . .

The LAC urges the President in the strongest possible terms to reverse course now. Do not send this TPP to Congress. Instead, the TPP should go back to the negotiating table. We want to work with you and our counterparts in the other TPP countries to create a truly progressive TPP that uplifts working people, creates wage-led growth, diminishes income inequality, promotes infrastructure investment, protects intellectual property without undermining access to affordable medicines, and respects our democracy. . . .

The LAC went on to state with regards to Manufacturing:

Manufacturing—General

The Trans Pacific Partnership will seriously undermine the future of domestic manufacturing production and employment. As was noted in an initial evaluation of the TPP published in the Wall Street Journal, the combined U.S. trade deficit in manufacturing, including automobiles and auto parts, would increase by $55.8 billion under the TPP. Utilizing the conservative estimate of the Department of Commerce that each $1 billion in trade correlates to 6,000 jobs, the TPP will cost, at a minimum, 330,000 jobs in the manufacturing sector. That estimate does not include the indirect cost in terms of jobs or on wages and living conditions of all the primary and secondary workers who will be negatively affected by the agreement. Indeed, we believe that the job loss potential of the TPP is much higher.

The report is one of 27 from various advisory committees on trade policy, environment and industries released by the Office of the U.S. Trade Representative on December 4th, many of which backed the TPP.

Meanwhile on December 4, 2015, the United Auto Workers (“UAW”) called on Congress to reject the TPP, stating that the agreement threatens domestic manufacturing jobs.  The international executive board of the UAW, one of North America’s largest unions with more than 750 locals, unanimously voted against the TPP, saying the deal repeats many of the same mistakes as other free trade deals before it, such as the North American Free Trade Agreement, that led to stagnant wages, rising income inequality and plant closings in the U.S.

On November 10, 2015, the Blue Green Alliance, a coalition of labor and environmental groups, continued to attack the TPP as a threat to U.S. jobs and climate change policies.  Members of the Alliance include the AFL-CIO, the Sierra Club and the United Steelworkers, each of which has taken a leading role in steering the fight to defeat the TPP.  Although the Union attacks are well-known, the Sierra Club Executive Director Michael Brune aimed his attack at the TPP’s investor state dispute settlement mechanism, which he claimed will give corporations even more power to challenge governments’ air, water and climate protection rules.

PRESIDENTIAL POLITICS—WALL STREET JOURNAL GOES AFTER TRUMP ON TPP AND TRADE

Meanwhile, trade issues and the TPP have been the subject of Presidential politics, with George Melloan writing an opinion piece for the Wall Street Journal on November 3, 2015 comparing Donald Trump to Herbert Hoover and the Smoot-Hawley Tariff:

Donald Trump, Meet Herbert Hoover

Today’s ardent foe of free trade has a soul mate in the president who signed Smoot-Hawley into law.  Donald Trump sees unpredictability as a virtue, so one can only guess what his policies would be if he makes it to the Oval Office. Yet because he continues to lead the Republican pack with the election only a year away, maybe it’s time to make some guesses. Those guesses may or may not be well-informed by Mr. Trump’s incessant monologues. But if he is taken at his word, he is one of the most ardent opponents of free trade ever to seek high office in the U.S.

Mr. Trump rants that as President he would punish Ford Motor Co. for building a plant in Mexico by slapping a 35% tariff on Ford cars and parts imported from that plant. China and Japan are trade enemies and he would fix their wagons, too, by putting trade negotiations with them in the hands of wheeler-dealer Carl Icahn. His pugnacious hostility toward trading partners could be brushed off, but opinion polls suggest that what he says has a lot of resonance with the electorate. . . .

The tariff act they [Smoot Hawley] wrote was initially meant to benefit farmers. But after the shock of 1929, industry and labor demanded protection as well.

Both Hoover and the Republican Congress were compliant. In its final form Smoot-Hawley covered some 20,000 items. The average tariff on dutiable goods jumped to 50% from an already high 25%. U.S. trading partners responded in kind and world trade began to shut down. . . .

But on June 17, 1930, Hoover, pressured by his fellow Republicans, signed it anyway.

The rest is history, as they say. The combined effects of declining global trade and New Deal experiments with central planning meant that Americans would suffer a decade of hard times. No Republican would man the Oval Office for another 20 years.

Could such a thing happen today? Probably not, at least not in the same way. It is now widely understood and accepted that the well-being of the American people is predicated on the smooth flow of global trade and capital. Almost every product Americans buy, including homes, is a composite of parts made in many places in the U.S. and abroad.

Apparently the only prominent American who doesn’t understand that is Donald Trump. He seems to think, as did many people 85 years ago to their sorrow, that the mutually beneficial exchange of goods and services across borders is a zero-sum game, indeed a form of warfare.

Some of us have assumed that the hotel and casino tycoon’s populist demagoguery will ultimately blow itself out. But what if it doesn’t?

On November 8th, Mary Anastasia O’Grady authored another article for the Wall Street Journal, “Memo to Trump: Nafta Helps Americans”, stating:

Levying tariffs on Mexico to pay for a border wall would launch a trade war. . . .

Without the North American Free Trade Agreement (Nafta), manufacturing would be in even worse shape. But don’t tell Donald Trump that. If elected President, he promises to “make America great again” by, among other things, blowing up the 1994 trade pact. . . .

In other words, Mr. Trump plans to launch a trade war with Mexico. This is as preposterous an idea as it is dangerous. Let’s start with the painfully obvious: A tariff is not paid by the exporter but by the importer, who passes it on to the consumer. . . .

It’s hard to see how any of this could be good for Americans. According to “NAFTA Triumphant,” a report last month by the U.S. Chamber of Commerce, annual U.S. trade with Canada and Mexico is now $1.3 trillion, nearly four times greater than before the agreement. Agricultural exports to Canada and Mexico have gone up by 350%, and U.S. service exports have tripled. More than a third of U.S. merchandise exports are now bought by Nafta partners.

A trade war would hurt American manufacturing because it would fracture the highly integrated North American economy. All three Nafta partners are competitive globally because they are able to allocate capital to its highest use anywhere on the continent. . . .

A September 2010 National Bureau of Economic Research working paper found that 40% of the content of U.S. imports from Mexico is produced by U.S. workers. . .  .

Mr. Trump’s plan also fails from a security perspective. Mexican states that are engaged economically with their northern neighbors are growing faster than the rest of the country. They are also creating good jobs and raising living standards, necessary factors to stem the flow of Mexican migrants north. . . .

Mr. Trump’s trade agenda is absurd and would invite a depression. He’s either too uneducated in economics to know that or too cynical to care.

On November 12, 2015, the Wall Street Journal went after Trump again on trade, commenting on the Republican debate:

Mr. Trump called it a “terrible deal,” though it wasn’t obvious that he has any idea what’s in it. His one specific criticism was its failure to deal with Chinese currency manipulation. But it took Rand Paul to point out that China isn’t part of the deal and would be happy if the agreement collapsed so the U.S. would have less economic influence in Asia.

Mr. Trump said on these pages Tuesday that he would label China a currency manipulator on his first day as President, triggering tariffs on thousands of Chinese goods. The businessman thinks economic mercantilism is a political winner, but we doubt that starting a trade war that raises prices for Americans would turn out to be popular. Many of Mr. Trump’s supporters care more about his take-charge attitude than his policies, but GOP voters will have to decide if they want to nominate their most protectionist nominee since Hoover. . . .

On November 12, 2015 in an Editorial, the Wall Street Journal stated:

Donald Trump Is Upset

The candidate says we were unfair to him on trade. . . .

Mr. Trump: “Yes. Well, the currency manipulation they don’t discuss in the agreement, which is a disaster. If you look at the way China and India and almost everybody takes advantage of the United States—China in particular, because they’re so good. It’s the number-one abuser of this country. And if you look at the way they take advantage, it’s through currency manipulation. It’s not even discussed in the almost 6,000-page agreement. It’s not even discussed.”

So when he is asked about TPP, Mr. Trump’s first reference is to China, which isn’t in TPP, and he now says the world should have known that he knows China isn’t part of it because amid his word salad he said that the deal “was designed for China to come in, as they always do, through the back door.”  .. . .

Our editorial point was what everyone who understands East Asian security knows, which is that China would be delighted to see TPP fail. China is putting together its own Asian trade bloc, and those rules will be written to its advantage. TPP sets a standard for trade under freer Western rules. China could seek to join TPP in the future, but it would have to do so on TPP’s terms, not vice versa.

TPP would help China’s competitors by giving them greater access on better terms to the U.S. market. Production is likely to shift from China to Vietnam and other countries. In October the Financial Times quoted Sheng Laiyun, the spokesman for China’s National Bureau of Statistics, as saying that, “If the TPP agreement is finally implemented, zero tariffs will be imposed on close to 20,000 kinds of products. . . . That will create some pressure on our foreign trade.” Some back door.  ***

As for currency manipulation, we gave Mr. Trump a forum for his views in our pages on Tuesday. He doesn’t understand currencies any better than he does TPP. Currency values are largely determined by central banks and capital flows. If China made the yuan convertible and let it float, the initial result would probably be a falling yuan as capital left the country. A trade deal with a binding currency provision could also subject the U.S. Federal Reserve to sanctions as a “manipulator” every time it eased money in a recession.

All of this bears on Mr. Trump’s candidacy because he is running as a shrewd deal-maker who can get the economy moving again. Starting a global currency and trade war “on day one” would get America moving toward recession—or worse.

IMPACT ON NON MEMBER COUNTRIES

USTR Froman in late October stated the TPP has had a “magnetic effect” on outside parties realizing that the TPP stands to set the rules of the road in the coming years, stating:

TPP was designed to be an open platform that will grow over time and help raise standards across the region and around the world.  It’s becoming clear that even nonmembers are going to have to compete in a TPP world and raise their game, and that’s good for everybody.

Froman’s statement came one day after Indonesian President Joko Widodo formally expressed interest in joining the TPP because of his fear of being left adrift in the region.

Assistant Secretary of State Daniel Russel said that the TPP strategy has been to raise trade standards and China could eventually be included in:

The world would be a better place, by far, if China were willing to meet the very high standards of TPP.  The broader impact on China is going to drive a virtuous cycle of better regulatory practices, greater transparency and openness of the Internet. What TPP brings to the member countries are things that I believe all people, including Chinese people, want.

During a recent TPP conference here in Seattle, a State Department expert on the TPP negotiations stated that the objective of the TPP is not to block or contain China.  Instead, the TPP objective is to entangle China in the higher standards and rules set by the TPP.  In other words, to join the TPP, China will have to meet the very high standards and rules set by the Agreement, which could go even higher in future negotiations.

On November 18, 2015, at the first meeting between President Barack Obama and his 11 TPP counterparts since the negotiations were completed on Oct. 5, TPP leaders stated:

“While our focus is on approval and implementation of the results of negotiations with our current partners, we have also seen interest from a number of economies throughout the region.  This interest affirms that through TPP we are creating a new and compelling model for trade in one of the world’s fastest growing and most dynamic regions.”

ITC TPP INVESTIGATION

In the attached notice, ITC TPP INVESTIGATION FED REG, on November 17, 2015 at the request of the USTR, the U.S. International Trade Commission (“ITC”) launched its formal investigation to assess the TPP’s overall economic impact, as mandated by the legislation to renew Trade Promotion Authority passed earlier this year.  As the Commission states in the notice, the purpose of the investigation is to assess the likely impact of the Agreement on the U.S. economy as a whole and on specific industry sectors and the interests of U.S. consumers.

The important dates during the investigation include a public hearing on January 13, 2016 and pre‐hearing briefs and statements due on December 29, 2015.  Post-hearing briefs and statements are due January 22, 2016.  The ITC will transmit its report to Congress on May 18, 2016.

CONGRESSMAN DAVE REICHERT OF WASHINGTON BECOMES CHAIRMAN OF THE SUBCOMMITTEE ON TRADE HOUSE WAYS AND MEANS—GOOD NEWS FOR WASHINGTON STATE AND FOR FREE TRADE IN GENERAL

On November 18, 2015, in the attached an announcement, REICHERT ANNOUNCEMENT CHAIRMAN, Congressman Dave Reichert, a Republican from Washington State, made the following statement after being named as the new Chairman of the Ways and Means Subcommittee on Trade:

I am very honored to have the opportunity to lead the Trade Subcommittee and champion some of the issues that have the greatest impact on Washingtonians. Washington State is one of the most trade-dependent states in the country with 40 percent of our jobs and more than $90 billion in annual exports connected to trade. In the Eighth District alone, 77,100 jobs are supported by trade, and our growers, producers, and businesses export approximately $8.6 billion in goods and services each year.

With the release of the text of the Trans-Pacific Partnership and our ongoing negotiations with the EU, this is a critical time for trade. As a longtime advocate of expanding trade opportunities, I will continue fighting on behalf of our workers, farmers, and businesses across the country, because I firmly believe through high-standard trade agreements we see expanded opportunities for all.

Representative Reichert is the first Member of Congress from Washington State to serve as Chairman of the Ways and Means Subcommittee on Trade.

From personal knowledge, I can confirm that the selection of Representative Dave Reichert as Chairman of the Trade Subcommittee, House Ways and Mean, is important for Washington State and for Free Trade proponents and advocates everywhere.

This is a very powerful position in Washington DC in the Trade network.  Not only the TPP, but amendments to the US Antidumping and Countervailing Duty law, Trade Adjustment Assistance and the US Customs law go through his Committee.  Chairman Reichert was recently named to the Conference Committee with the US Senate on the pending Customs and Trade bill, the Trade Facilitation and Trade Enforcement Act, H.R. 644, presently in Congress.  The Conference Committee met December 7, 2015 on Capitol Hill and as indicated below, came to Agreement on the Bill on December 9, 2015 for passage in Congress by the end of the year.

The issue of Retroactive Liability for US importers and market economy treatment for China in 2016 are squarely in the jurisdiction of the Trade Subcommittee, House Ways and Means, which Congressman Reichert now chairs.

Rep. Reichert is co-chair of the Friends of TPP Caucus, member of the President’s Export Council, and founder of the Congressional Freight Caucus.  Congressman Reichert also signed the discharge petition, as described in my last newsletter, to move the Ex-Im Bank through the House of Representatives.

On November 25, 2015, in an interview on his new position and the TPP, Chairman Reichert stated that he is focused mainly on making sure that the TPP meets many of the negotiating objectives laid out in the Trade Promotion Authority:

Right now, we are all in the process of comparing TPA language to the TPP language and discussing it with our constituents and getting into more discussions as people learn more and more about what’s actually in TPP.

The Chairman also made clear that he is holding off on a full endorsement of the TPP until he and his colleagues have carried out their analysis:

I am a pro-trade guy, but I am not going to support this agreement until we have thoroughly vetted it.  This has to be a deal that protects and creates American jobs and gives us the opportunity to have this global influence.

Reichert said that persuading skeptical Republicans will be a key job to bring the TPP to the Floor, but opposition from heavyweights, such as Paul Ryan or Orrin Hatch, will make it more difficult to get TPP through both chambers of Congress.  But Chairman Reichert pointed out that the TPP chapters, which cause some Republicans to oppose the bill, could also yield some unlikely allies from the other side of the aisle:

We may lose those members that are really affected by the tobacco provisions but on the other hand on the Democrat side, we may be able to gain some support for votes that we might lose on the Republican side.  There’s a lot of work to do in trying to find a direction through this to ensure that we have the votes to pass it [TPP] when it finally comes to the floor.

CONGRESSIONAL ANNOUNCEMENT ON DEAL FOR NEW TRADE AND CUSTOMS ENFORCEMENT BILL

On December 9, 2015, in the attached announcement, AGREEMENT NEW CUSTOMS BILL, Senate Finance Chairman Orrin Hatch, House Ways and Means Chairman Kevin Brady and Senate Finance Committee Ranking Member, Ron Wyden, announced a final agreement on the Trade Facilitation and Trade Enforcement Act of 2015.

Some of the key provisions of the bills are stringent enforcement measures for evasion of antidumping and countervailing duties. As Senator Hatch stated:

“Strong enforcement is a key element in our trade arsenal and thanks to this legislation the Administration will have a number of new tools to hold America’s trading partners accountable. Even more, this measure promotes legitimate trade facilitation and works to preserve one of America’s most important economic assets: intellectual property, helping to prevent counterfeit and illicit goods from entering our nation. We’ve put together a good package, and I look forward to working with my colleagues to get this report across the finish line and signed into law this year.”

As Senator Wyden also stated:

“This enforcement package is about jobs. Too often, our laws and enforcement policies have proven too slow or too weak to stop the trade cheats before jobs are lost. The Leveling the Playing Field Act Congress passed earlier this year helped ensure that workers and businesses harmed by unfair trade have faster access to relief. This conference report, which includes the ENFORCE Act, will help ensure that this relief is effective and that trade cheats cannot evade the consequences of violating our trade laws. The bill we released today represents bipartisan trade enforcement priorities that were years in the making. It takes trade enforcement to a new level to protect workers and businesses in Oregon and around the country. Congress is now on the verge of passing the strongest package of trade enforcement policies in decades.”

Under the new finalized bill, U.S. Customs and Border Patrol will be held accountable for effectively acting to prevent evasion of anti-dumping and countervailing duties through a new process with strict deadlines and judicial review.

Attached are a copy of the bill, the conference report and summary of the bill, CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015.

If you have any questions about these developments or about the TPP, US Antidumping or other trade laws, trade adjustment assistance, customs, 337, patent, US/China antitrust or securities law in general, please feel free to contact me.

Best regards,

Bill Perry

 

US China Trade War — Stock Market Crash, Presidential Trade Politics, Trade Policy, Customs, Antitrust and Securities

New York City Skyline East River Chrysler Building NightTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 28, 2015

 

Dear Friends,

The Chinese stock market crash and world- wide effect on stock markets around the World has created a crisis with day to day developments.  The World Stock market crash stated on August 24, 2015 and went through to August 27th and 28th, when World markets recovered. This blog post follows the day to day developments during this period.

The July and early August stock market crash in China was followed by a slight devaluation of the Chinese yuan, which, in turn, created panic as many investors feared that a substantial slow-down in the Chinese market would affect economies world-wide. That in turn triggered more falls in the Chinese stock market and subsequent crashes in stock markets around the World.

The real issue now is what is the real state of the Chinese economy and how that will affect Chinese and US companies in the future.

The parallel story was the US Presidential Primary in which the main contenders as a result of the crash pounded free trade and China in particular provoking a question will the real loser in the 2016 US election be free trade? Although many US politicians may be happy that China is falling economically, the direct impact on the US stock market and other stock markets around the World indicates how the World economy is very interconnected. The more the US pounds China, the more it hurts itself.

As predicted, the Trans Pacific Partnership (“TPP”) did not conclude at the Hawaii meeting, but it continues forward. In addition, the EXIM bank has problems and there have been slight technical changes to the US antidumping and countervailing law, which were passed in the African Growth and Opportunity Act.  In addition to the China and World Stock Market Crash and Trade Policy, this blog post will cover Trade, Customs, 337, including the Suprema case, IP/patent, antitrust and securities.

I will also be in Hong Kong, Shanghai and Beijing, China from September 7 to 26, first in Hong Kong from Sept 7 to 12, Shanghai 12 to 18th and Beijing from 18th to the 26th. If anyone would like to talk to me about developments in trade and customs law, please feel free to contact me.

Best regards,

Bill Perry

CHINA STOCK MARKET CRASH

CHINA STOCK MARKET CRASH—STAGE 2 WORLD MARKETS CRASH

After my last post at the end of July on the Chinese stock market crash, on August 24, 2015, despite assurances from Secretary of Treasury Jack Lew, https://grabien.com/story.php?id=32165&from=allstories, that the fall in the Chinese stock market would not affect world markets, there was a sharp fall in stock exchanges around the World as China’s stock exchange started the day off by falling another 8.5% to put the Chinese exchanges in negative territory for 2015.

On August 24th, the New York Post yelled out, “Wall Street Really Freaked Out This Morning” and went on to state:

An enormous shudder swept through Wall Street on Monday as the Dow Jones industrial average cratered more than 1,000 points, or about 6.2 percent, in early trading — before leveling off at a decline of about 450 points, or 2.7 percent, as fears of a global economic slowdown once again spooked US investors.

The plunge was a wake-up call to Main Street and Wall Street alike. . . .

The huge Dow sell-off follows an 8.5 percent decline in Asia markets. In Europe, markets were down as much a 6 percent. . . . The global market sell-off began earlier this month when China — the world’s No. 2 economy behind the US — devalued its currency twice in a bid to jumpstart its economy.

China’s GDP, which was in the mid- to upper-single digits, had slowed to the lower-single digits. “Nobody really knows for sure, from fundamental perspective, will we go into recession, will China go into recession,” Stovall said. . . .

In fact, at the end of trading on August 24th, Dow Jones lost 588 points, a drop of 3.58%. to close at 15,871.

On August 24th, the Wall Street Journal also reported:

U.S. stocks pared most of Monday’s steep losses after a rocky morning during which the Dow Jones Industrial Average briefly plummeted more than 1,000 points. . . .

The Dow industrials plunged as much as 1,089 points shortly after the open, marking the index’s largest one-day point decline ever on an intraday basis, amid a selloff that has hammered stock markets from Beijing to London to New York. . . .

Fears that China’s economy is slowing dramatically sparked the heavy selling in stocks around the globe in recent days. Beijing’s unexpected move to devalue its currency two weeks ago raised the alarm that the world’s second largest economy may be in worse shape than many had thought. Since then, weak economic data have fueled worries that a drop-off in Chinese growth could cause a global slowdown. . . .

The Wall Street Journal also stated in the August 24th edition:

Beijing’s struggles this summer have spooked many investors into viewing China as a threat to, rather than a rescuer of, global growth. During the financial crisis of 2008 and early 2009, China, with a colossal stimulus plan, acted as a shock absorber. Lately, It Is China that Is providing the shocks.

Over the past week, it has grown clear how dependent a growth-starved world is on China, which accounts for 15% of global output but has contributed up to half of global growth in recent years.

Given this dependency one reason markets have been so unnerved is that China’s economy remains something of a black box. For starters, analysts have long wondered about the accuracy of government economic statistics. And levers pulled by Chinese policy makers can be unconventional.

This is seen in Beijing’s desire to micromanage the yuan’s value, which undercuts its ability to pursue an independent monetary policy because of spillover effects on domestic liquidity.

On the same day, the Washington Post reported:

China’s ‘Black Monday’ spreads stock market fears worldwide….

Stock market jitters spread throughout Asia and the rest of the world, and Wall Street sustained a major plunge, after Chinese stocks recorded their biggest slump in eight years during what China’s state media dubbed “Black Monday.”

The collapse in Chinese stocks was fueled by mounting concerns about an economic slowdown here, but it has fed into a wider sell-off in emerging markets. . . ..

“A lot of questions are being asked by investors,” said Chris Weston, chief markets strategist at IG in Melbourne. “This is a confidence game, and when you don’t have confidence, you press the sell button.” . . ..

“Markets are panicking,” Takako Masai, head of research at Shinsei Bank in Tokyo, told the Reuters news agency. “Things are starting to look like the Asian financial crisis in the late 1990s.

See also following article from Bloomberg on how the slide in the Chinese market has hit global markets– http://www.bloomberg.com/news/articles/2015-08-21/these-charts-show-how-hard-china-has-hit-global-markets.

What are the lessons to be learned from the Chinese stock market drop? There are lessons for China and the United States.

The lesson for China is that accurate economic and corporate data, including economic data from village, city and Provincial governments and corporate earnings of listed companies, are incredibly important. Many countries and investors question the accuracy of the Chinese government economic statistics. In fact, one Chinese has told me that based on electricity consumption numbers, the real China growth number is 4%. Other commentators have argued that the real number is a negative number.

The problem is that the 7% economic growth number is not based on hard economic data because Chinese governments at the village, city and the provincial level play with their economic data to make themselves look good.

In addition, as stated in my last newsletter, there is no market regulator in China to protect the integrity of the Chinese stock market, as there is in the US, Europe, Hong Kong and other countries. The market regulators, such as the US Securities and Exchange Commission (“SEC”), make sure that earnings and financial statements issued by listed companies, in fact, are accurate. There is no such assurance in the Chinese market.

Many experts in China have told me that I simply “do not understand the Chinese way.” If the “Chinese way” means having different sets of accounting books and providing different corporate data or economic data depending upon what the government authority wants, the problem with that Chinese way is that it deprives the Chinese government of accurate data it needs to manage its own economy. The Chinese way also encourages wild swings in the Chinese stock market as investors in China and abroad simply do not know what numbers are accurate.

The “Chinese way” of not having a governmental authority to ensure the accuracy of economic data from villages, cities and provinces and corporate data from listed companies has contributed to the sharp fall in the Chinese stock market and the loss of trillions of dollars. China is no longer a developing company. Economic decisions in China impact the rest of the World. Neither the World nor China can afford acting as if China is a developing country. As a modern advanced country, China needs to ensure the accuracy of its economic and corporate data.

For the United States, the lesson is that the World economy is very interrelated and interconnected, and what happens in China affects the US market. It is simply impossible for the US to cut or delink itself from China.

The US market cannot be isolated from China and the rest of the World. When one hits China and other foreign countries, as many politicians do, such as Donald Trump, that in turn can hurt the US. Ira Stoll who writes for the NY Sun blames the US market crash in part on Donald Trump http://www.nysun.com/national/the-trump-recession-markets-start-to-react-to/89263/. See also New York Sun Editorial on Donald Trump at http://www.nysun.com/editorials/an-economic-imbecile/89259/.

Trump reacted by stating that he was not to blame for just pointing out the problems and that the US should delink from China. See http://video.foxnews.com/v/4441195997001/trump-talks-stock-market-slide-biden-and-border-security/?intcmp=hpvid1#sp=show-clips. So that means, as described below, that the US should stop shipping its $123 billion plus in exports to China because it should delink from China. Correct?

Sometimes when you jump up and down on China, you end up hurting the United States. Always blaming China for the US economic problems may feel good and be good election politics, but it is not good economic policy. When Hank Paulson was the Secretary of Treasury under President George W. Bush, he firmly believed that the economic relationship between the US and China was the most important economic relationship in the World. US politicians should understand this important point.

For Republicans, the inconvenient truth is that President Ronald Reagan was a free trader. As President Ronald Reagan stated on June 28, 1986 in a speech from his California ranch, Protectionism becomes destructionism; it costs jobs.”

CHINA STOCK MARKET CRASH – STAGE 3 MOST WORLD MARKETS RECOVER BUT CHINESE STOCK MARKET CONTINUES TO FALL

On August 25, 2015, World markets, including the US, rebounded, but then fell again as the Chinese stock market continued a straight line fall. After surging through most of the trading day, the Dow Jones Industrial Average shed 205 points, or 1.29% to drop to 15,666.

On August 26, 2015, Wall Street recovered as the Dow Jones average went up 620 points to 16,285, but the Shanghai stock market fell again by 1.37% as well as Hong Kong.

After the Chinese government cut its interest rate the fifth time in nine months, on August 25th stocks went up around the World, but then fell back. But in China it continued to be a straight line decline. Shares in Shanghai closed 7.6% lower as the index fell below 3000 for the first time since December, following the worst one-day loss in more than eight years on Monday. China’s stock plunge has wiped out more than $1 trillion in value from equities over the past four days.

The Chinese government apparently has stopped trying to stop the market plunge because it simply costs too much money. As mentioned in prior newsletters, stock market bubbles get so big that no government can control the situation. The Chinese government now appears powerless to prevent a further slide in the country’s stock market, as the country’s main share index plunged for a fourth straight day.

As Wei Wei, an analyst at Huaxi Securities in Shanghai:

“At the moment there’s panic in the market, because we have lots of retail investors. We’ve never experienced anything like this in China’s stock market, the speed of the decline and the scale of it.”

Global markets have lost trillions of dollars in market value over the last few weeks, erasing all gains for the entire year and creating fears of an ever deepening loss.

When the Chinese market first started its drop, authorities unleashed a series of measures to stop the slide, establishing a $400 billion fund to buy stocks, ordering state-owned companies to buy shares, banning large shareholders from selling and even launching criminal investigations into short sellers.

Aside from the central bank’s action, however, the Chinese government authorities appear to be largely standing aside this time, partly because they know they cannot stem a global slide in equity markets, and partly because government intervention to buy shares was simply becoming too expensive.

As Li Jiange, vice chairman of state-owned investment company Central Huijin, stated:

“The trade volume of the market can reach 2 trillion yuan ($300 billion) a day, which means if it collapsed no one could save it. The issues of the market should be handled by the market itself.”

As another Chinese analyst stated:

“The authorities stepped in and tried to save the stock market once. And you can see it is not working. The authorities might step in but probably not in as high profile a way as they did last time. It’s not helpful for them to interfere like that.”

On August 26, 2015, CAIXIN, a well-known newspaper/magazine in China, issued an editorial stating:

Counting the Cost of Gov’t Intervention in Stock Market

Regulators should take a long look at their recent behavior because the bourses’ future depends on government doing its job the right way

Two months into the government’s unprecedented efforts to save the stock market – which had its most turbulent week starting on August 18 since state-backed investors intervened to end volatility in early July – it is time we consider what comes next.

On August 14, the China Securities Regulatory Commission announced that the China Securities Finance Corp. (CSF), which has played a central role in the government’s campaign to bail out the market, sold an unspecified amount of stocks it recently bought to Central Huijin Investment Ltd.

It would be wishful thinking to believe that this means the CSF has more money to continue buying stocks. Rather, the deal marked an end to operations that have plowed nearly 2 trillion yuan into the A share market since it took a nosedive in mid-June.

The sheer volume of the capital involved and the consequences that may follow over a long period demand that we seriously reflect on what was done and what should have been learned.

The money the CSF used to buy the shares primarily came from commercial banks. It will need to repay those loans quickly with the funds it received from Central Huijin, which raised the funds it needed for its purchase by issuing bonds. Costs aside, Central Huijin’s mandate is to hold stakes in financial institutions on behalf of the state. Supporting the stock market is not its job.

When announcing the share transfer, the securities regulator also said “the stock market goes up and down according to its own laws and the government will not intervene under normal circumstances.” Perhaps this statement is intended to signal that the government’s intervention has concluded.

The announcement also said that the CSF “will continue to play a stabilizing role in many ways should the market experience severe and abnormal fluctuations and possibly trigger systemic risk.” The emphasis here should fall on how the government defines “abnormal fluctuations” and “systemic risk.” Ambiguity on these two important questions will have grave consequences.

It is still too early for a thorough review of the costs and benefits of the government’s involvement in the stock market, but some judgments can be made. To start, the regulator should not have tried to get the stock index to go up. Also, the CSF seemed to have picked stocks randomly, pouring capital into valuable and worthless companies indiscriminately. Critics have questioned the wisdom of these actions, and some voiced concerns about insider trading.

Many other issues remain to be resolved. The first is defining the role of the CSF. The institution has become a de facto stock market stabilization fund in that it snaps up shares few others want, and the government has said this will remain its mission for years. Critics say the very existence of the fund distorts the market, not to mention that trillions of yuan are at stake. Deciding what the CSF can do with the money – now that its main job has changed – should be done according to the law. . . .

Also at risk is the sense of rationality that the government has tried for years to instill in stock investors.

Ever since the CSF stepped into the market, speculators have started gambling again, to the detriment of the market. The message some investors took away from the intervention is that the government will always ride to the rescue when the market collapses. The moral hazard this created backtracks on progress that has been made over many years on investor education. . . .

The capital market cannot grow in a healthy manner with the CSF playing the role of savior. It should end this role sooner rather than later. . . .

The regulator must learn the right lessons this time. Reflecting on what it did wrong would be a start. The future of the market depends upon it doing its job right.

For the full editorial, see http://english.caixin.com/2015-08-26/100843837.html.

Pointing to the factory and consumer price data, Mr. Yu Yongding, a prominent Chinese economist and a former adviser to the central bank, stated:

China’s economy will get worse before it gets better. Chinese companies are struggling with high debt loads and low prices. China has entered a stage of deflation.

Although the fundamentals are driving stock prices around the World, no one knows what the fundamentals are in China and that fuels the panic, when it comes to the Chinese stock market. As the Wall Street Journal reported on August 25th:

For All Its Heft, China’s Economy Is a Black Box

For sheer clout, China’s economy outweighs every country in the world save the U.S. But on transparency, it remains distinctly an emerging market, with murky politics, unreliable data and opaque decision making.

This veil dims the understanding of China’s economy and is an important reason its recent slowdown has produced so much turmoil.

Economists widely doubt that China grew at a robust 7% pace in the second quarter, as the country’s official statistics say. Citing other data, such as power generation and passenger travel, some think the rate might be as little as half that.

Similarly, when the People’s Bank of China devalued its currency two weeks ago, a step that sparked much of the recent market upheaval, officials couched the move as part of a long-term effort to align the yuan’s value more closely with market forces. Some outside analysts, noting that the PBOC isn’t independent, saw a more political motive: to boost exports and thus bolster the Communist Party’s credibility and hold on power. . . .

“With my G-7 and many G-20 counterparts there were frank, honest conversations, you were on the phone pretty frequently, often weekly,” recalls one former Treasury official who still deals extensively with China for the financial industry. “With China, you don’t know who to call. It’s hard to know where decision making occurs or who’s calling the shots.” . . . .

no major advanced country’s statistics are viewed as skeptically as China’s.

In 2007 Li Keqiang, now China’s premier, told the U.S. ambassador, according to a memo released by WikiLeaks, that GDP is “man-made” and therefore unreliable.

Mr. Li, who was then Communist Party chief of Liaoning province, said he looked at data on electricity, rail cargo and loans to get a better gauge on economic activity. Several analysts have since come up with indexes based on Mr. Li’s favorite stats.

In London, Capital Economics looks at freight activity, electricity, property development, passenger travel and sea shipments, and concludes China’s economy expanded much more slowly in the second quarter than China reported. Lombard Street Research, another London research outfit, uses another approach, including a different measure of inflation, and comes up with just a 3.7% growth rate.

Chinese statistics are “spookily stable from quarter to quarter,” says Capital Economics analyst Mark Williams. For instance, China’s unemployment rate registers 4.1% nearly every quarter. . . .

China’s leaders are heir to a tradition of secrecy. In 1971, when Mao Zedong’s anointed successor died, the public wasn’t told for nearly two months. In the current corruption crackdown, it can still be weeks or months after senior or retired leaders disappear before their detention is announced. . . .

Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University, in the August 25th Washington Post stated that the real scary part of the stock market crash was the reaction of the US Presidential candidates:

The truly scary thing about Black Monday

The global sell-off of stocks yesterday was a little worrying. The reaction from some candidates for president was a lot worrying. . . .

China’s Black Monday reveals something useful: how potential U.S. presidents are reacting to the market sell-off. . . .

One Republican candidate, Gov. Scott Walker of Wisconsin, called on President Obama on Monday to cancel his plans to meet in Washington next month with President Xi Jinping of China on what will be his first state visit to the United States. Mr. Walker accused Beijing of a range of offenses that have harmed American interests, including manipulating its economy and currency, carrying out cyberattacks and persecuting Christians.

Wait. What?

Frankly, at this point both U.S. and Chinese officials wish China could actively manipulate their economy. What’s happening this month is evidence, in fact, that market forces can easily override Chinese government manipulation. To be sure, Walker lists legitimate beefs with the People’s Republic, but I’m pretty sure canceling the state visit would not help at all on any of them. . . .

In response to Trump’s argument that the United States should delink from “China, Mr. Drezner stated:

Oh, for the love of –. Look, I’ll keep this simple. If American voters really want any market volatility to metastasize into an actual Great Depression, then by all means break ties with China and Asia. But the only reason the 2008 financial crisis wasn’t worse was precisely because that didn’t happen. . . .

The same is true for Sanders, who also seized on the market moment in a tweet from the populist left: “For the past 40 years, Wall Street and the billionaire class have rigged the rules to redistribute wealth to the richest among us.”….

and it would be foolish for any of the establishment candidates to go down this rabbit hole.” Except that’s what Scott Walker did. Oh, and then there’s Chris Christie:

“. . .17:08:24 Lots and lots of money from the Chinese and remember that when the Chinese hold this much of our debt, if the Chinese get a cough, we get the flu and that’s what’s happening now right now in my opinion in our financial markets.”

Let’s be clear: China owning lots of U.S. government debt has exactly zero to do with what’s happening right now. If anything, the gyrating Chinese stock market and depreciating yuan, combined with general developing country malaise, will trigger a massive surge of interest in U.S. government debt. So Christie is simply wrong here.

The scariest thing about Black Monday wasn’t the stock market fluctuations. Those will hopefully be temporary enough in the United States. No, the scariest thing was how one day of financial volatility was enough to make four presidential candidates — Christie, Sanders, Trump, and Walker — say really stupid things about the Chinese economy and the Sino-American relationship.

See https://www.washingtonpost.com/posteverything/wp/2015/08/25/the-truly-scary-thing-about-black-monday/?hpid=z3 for the full article.

From an international trade point of view, although China is important, the really scary part is not China, but the global drop in trade. On August 25, 2015 the Financial Times reported that “This year is worst for trade since crisis” of 2009

The volume of global trade fell 0.5 per cent in the three months to June compared to the first quarter . . . also revised down their result for the first quarter to a 1.5 per cent contraction, making the first half of 2015 the worst recorded since the 2009 collapse in global trade that followed the crisis.

“We have had a miserable first six months of 2015,” said Robert Koopman, chief economist of the World Trade Organization, which has forecast 3.3 per cent growth in the volume of global trade this year but is likely to revise down that estimate in the coming weeks.

Much of the slowdown in global trade this year has been due to a halting recovery in Europe as well as a slowing economy in China, Mr Koopman said.

In other words, instead of bashing China and trade in general, maybe the Presidential candidates should talk about boosting trade.

But one interesting point, on August 25, 2015, the New York Times had an article by Joe Nocera entitled The Man Who Got China Right. In the Article, Mr Nocera described Jim Chanos of Kynikos Associates, a $3 billion hedge fund that specializes in short-selling. Mr. Nocera goes on to state:

In the fall of 2009, Jim Chanos began to ask questions about the Chinese economy. What sparked his curiosity was the realization that commodity producers had been largely unaffected by the financial crisis; indeed, they had recorded big profits even as other sectors found themselves reeling in the aftermath of the crisis.

When he looked into why, he discovered that the critical factor was China’s voracious appetite for commodities: The Chinese, who had largely sidestepped the financial crisis themselves, were buying 40 percent of all copper exports; 50 percent of the available iron ore; and eye-popping quantities of just about everything else.

That insight soon led Chanos to make an audacious call: China was in the midst of an unsustainable credit bubble. . . .

Chanos and his crew at Kynikos don’t make big “macro” bets on economies; their style is more “micro”: looking at the fundamentals of individual companies or sectors. And so it was with China. “I’ll never forget the day in 2009 when my real estate guy was giving me a presentation and he said that China had 5.6 billion square meters of real estate under development, half residential and half commercial,”

Chanos told me the other day.

“I said, ‘You must mean 5.6 billion square feet.’ ”

The man replied that he hadn’t misspoken; it really was 5.6 billion square meters, which amounted to over 60 billion square feet.

For Chanos, that is when the light bulb went on. The fast-growing Chinese economy was being sustained not just by its export prowess, but by a property bubble propelled by mountains of debt, and encouraged by the government as part of an infrastructure spending strategy designed to keep the economy humming. (According to the McKinsey Global Institute, China’s debt load today is an unfathomable $28 trillion.)

Chanos soon went public with his thesis, giving interviews to CNBC and Charlie Rose, and making a speech at Oxford University. He told Rose that property speculation in China was rampant, and that because so much of the economy depended on construction — in most cases building properties that had no chance of generating enough income to pay down the debt — China was on “the treadmill to hell.”

He also pointed out that much of the construction was for high-end condos that cost over $100,000, yet the average Chinese household made less than $10,000 a year.

Can you guess how the financial establishment, convinced that the Chinese juggernaut was unstoppable, reacted to Chanos’s contrarian thesis? It scoffed. . . .

As it turns out, China’s economy began to slow right around the time Chanos first made his call. No matter: Most China experts remained bullish. Chanos, meanwhile, was shorting the stocks of a number of companies that depended on the Chinese market. . .

These days, with the markets in free-fall, it certainly looks like Chanos has been vindicated. . . . This loss of confidence in China and its leaders has spooked stock markets around the world.

The moral of today’s story is a simple one. Listen to the skeptics and the contrarians. You dismiss them at your peril.

For the full article, see http://www.nytimes.com/2015/08/25/opinion/joe-nocera-the-man-who-got-china-right.html?emc=edit_th_20150825&nl=todaysheadlines&nlid=19479910.

CHINA STOCK MARKET CRASH – STAGE 4—MARKETS RECOVER BUT CHINA IS NO LONGER A SURE BET

On August 27 and 28, 2015, World Markets recovered and the Chinese stock exchanges even went up on suspicion of Chinese government buying programs, but the new reality is that China is no longer a sure bet. The focus now is on the true state of China’s economy. As the New York Times stated on August 27th:

China Falters, and the Global Economy Is Forced to Adapt

With deepening economic fears about China, multinational corporations and countries are having to respond to a new reality as a once sure bet becomes uncertain.

China’s rapid growth over the last decade reshaped the world economy, creating a powerful driver of corporate strategies, financial markets and geopolitical decisions. China seemed to have a one-way trajectory, momentum that would provide a steady source of profit and capital.

But deepening economic fears about China, which culminated this week in a global market rout, are now forcing a broad rethinking of the conventional wisdom. Even as markets show signs of stabilizing, the resulting shock waves could be lasting, by exposing a new reality that China is no longer a sure bet.

Smartphone makers, automobile manufacturers and retailers wonder about the staying power of Chinese buyers, even if it is not shaking their bottom line at this point. General Motors and Ford factories have been shipping fewer cars to Chinese dealerships this summer. . . .

The trouble is, the true strength of the Chinese economy — and the policies the leadership will adopt to address any weaknesses — is becoming more difficult to discern.

China’s growth, which the government puts at 7 percent a year, is widely questioned. Large parts of the Chinese service sector, like restaurants and health care, continue to grow, supporting the broader economy. But the signs in industrial sectors, in which other countries and foreign companies have the greatest stake through trade, paint a bleaker picture. . . ..

For entire article, see http://www.nytimes.com/2015/08/27/business/international/china-falters-and-the-global-economy-is-forced-to-adapt.html?emc=edit_th_20150827&nl=todaysheadlines&nlid=19479910&_r=0.

 TRADE POLICY

WILL THE REAL LOSER IN THE 2016 US ELECTION BE FREE TRADE?

In my first July newsletter on Trade Policy, Trans Pacific Partnership (“TPP”) and Trade Promotion Authority (“TPA”), I asked whether the US Congress will follow the siren call of protectionism and take the US backwards or move forward with the Trans Pacific Partnership (“TPP”) to resume its free trade leadership? Truly a question.

As an observer of the Presidential primary right now, free trade and the trade agreements appear to be the latest punching bag, especially among the populist front runners, such as Donald Trump and Bernie Saunders. Using the euphemism of putting America first and protecting workers and US factories at all costs from import competition created by free trade agreements, many candidates apparently are simply engaged in protectionism.

Although the establishment Republicans, such as Jeb Bush, Marco Rubio and John Kasich, have all indicated that they are for Free but “Fair” Trade, Donald Trump, the front runner, is a different story.

When asked how the United States could create new jobs in the first Republican debate, Donald Trump, who presently leads the Republican primary field, stated during the first Republican debate, “Well for starters I would negotiate better trade deals. The Chinese are killing us.”  Trump further stated:

“This country is in big trouble. We don’t win anymore. We lose to China. We lose to Mexico both in trade and at the border. We lose to everybody,”

On August 24th, Trump warned that because of the Chinese stock market fall, China would bring the US down and the US should delink from China. See https://instagram.com/p/6xT08ZGhQc/

Trump has decreed that he will build a wall to stop illegal immigrants coming in from Mexico and the Mexican government will pay for it. Trump has stated that if the Mexican government does not pay for it, he will raise tariffs on Mexican products. But that would be a violation of the North American Free Trade Agreement (“NAFTA”).

Trump has also threatened that if China takes actions, such as cyber-attacks, on the US, he will raise tariffs on Chinese products, but that would be a violation of the World Trade Organization (“WTO”) Agreement and the WTO Agreement between the US and China.

In other words, it sounds like Trump Administration would create a trade war or trade wars with a number of different countries.

Although Trump and Republican Senator Sessions of Alabama have argued that the US has a free trade agreement with China, it does not. All the US has with China is PNTR, which means permanent normal trade relations with China, just like the normal trade relations the United States has with Russia, Ukraine, Syria, Iran and many other countries.

Although Trump has been bashing China and trade in general, most people thought he could not be elected, but in mid-August, Bloomberg Politics Managing Editor Mark Halperin stated on MSNBC that Trump has “reached a turning point” at which “establishment candidates” think he can win Iowa and added that “most” believe he can win the nomination, and “a significant number think he could win the White House.” As Halpern further stated, “Trump may not end up as the nominee, but right now, he’s changed the race.” The latest Fox News poll shows that Trump is in first place with 25 percent support nationally, more than double the support for Ben Carson who is in second place with 12 percent. The findings mirror recent polls in Iowa.

An August 20, 2015, Rasmussen Report telephone Poll has 57% of Republican voters stating Trump is the likely to be the Republican Presidential Nominee. See http://m.rasmussenreports.com/public_content/politics/elections/election_2016/trump_change.

On August 27, 2015, Peggy Noonan, a former speechwriter for President Ronald Reagan and a committed Republican, in an article entitled “America Is So in Play” published in the Wall Street Journal stated that she was discovering a distinct change in the electorate towards Donald Trump and the Republican party because the Hispanics and  other lower income people that she knows are for Donald Trump:

Second, Mr. Trump’s support is not limited to Republicans, not by any means. . . .

Since Mr. Trump announced I’ve worked or traveled in, among other places, Southern California, Connecticut, Georgia, Virginia, New Jersey and New York’s Long Island. In all places I just talked to people. My biggest sense is that political professionals are going to have to rethink “the base,” reimagine it when they see it in their minds. . . .

Something is going on, some tectonic plates are moving in interesting ways. My friend Cesar works the deli counter at my neighborhood grocery store. He is Dominican, an immigrant, early 50s, and listens most mornings to a local Hispanic radio station, La Mega, on 97.9 FM. Their morning show is the popular “El Vacilón de la Mañana,” and after the first GOP debate, Cesar told me, they opened the lines to call-ins, asking listeners (mostly Puerto Rican, Dominican, Mexican) for their impressions. More than half called in to say they were for Mr. Trump. Their praise, Cesar told me a few weeks ago, dumbfounded the hosts. I later spoke to one of them, who identified himself as D.J. New Era. He backed Cesar’s story. “We were very surprised,” at the Trump support, he said. Why? “It’s a Latin-based market!”

“He’s the man,” Cesar said of Mr. Trump. This week I went by and Cesar told me that after Mr. Trump threw Univision’s well-known anchor and immigration activist, Jorge Ramos, out of an Iowa news conference on Tuesday evening, the “El Vacilón” hosts again threw open the phone lines the following morning and were again surprised that the majority of callers backed not Mr. Ramos but Mr. Trump. Cesar, who I should probably note sees me, I sense, as a very nice establishment person who needs to get with the new reality, was delighted.

I said: Cesar, you’re supposed to be offended by Trump, he said Mexico is sending over criminals, he has been unfriendly, you’re an immigrant. Cesar shook his head: No, you have it wrong.

Immigrants, he said, don’t like illegal immigration, and they’re with Mr. Trump on anchor babies. “They are coming in from other countries to give birth to take advantage of the system. We are saying that! When you come to this country, you pledge loyalty to the country that opened the doors to help you.”

He added, “We don’t bloc vote anymore.” The idea of a “Latin vote” is “disparate,” which he said generally translates as nonsense, but which he means as “bull—-.”

He finished, on the subject of Jorge Ramos: “The elite have different notions from the grass-roots working people.”

Old style: Jorge Ramos speaks for Hispanic America. New style: Jorge Ramos speaks for Jorge Ramos. . . .

I will throw in here that almost wherever I’ve been this summer, I kept meeting immigrants who are or have grown conservative—more men than women, but women too. America is so in play. . . .

Both sides, the elites and the non-elites, sense that things are stuck. The people hate the elites, which is not new, and very American. The elites have no faith in the people, which, actually, is new. Everything is stasis. Then Donald Trump comes, like a rock thrown through a showroom window, and the molecules start to move.

For the entire article, see http://www.wsj.com/articles/america-is-so-in-play-1440715262.

In early August at a Bellevue, Washington Republican event, I heard Congressman Dave Reichert, a former Washington State policeman and sheriff, state that he believes the major issue in the next 2016 election will be “control versus chaos”. He argues that the average American voter is looking for someone who can control the situation in the United States as compared to the chaos we see in the US with illegal immigration, foreign policy and other domestic issues. That may be a reason for Trump’s appeal to the Republican voter.

But what about Democrats? Although Hilary Clinton may be in the lead, as many political experts know, she is wounded because of a number of issues, including e-mail problems she had while Secretary of State that have morphed into a potential FBI criminal investigation. See Reuters report at http://mobile.reuters.com/article/idUSKCN0QQ0BW20150821. But Hilary has not come out in favor of the trade agreements. Why? The labor unions, which are a significant part of the Democratic base and very anti-trade.

The next candidate behind Hilary is Senator Bernie Sanders. Many Democrats are saying that Hilary is “feeling the Bern.” Sanders, however, is very close to the labor unions and, therefore, is vehemently against the Trade Agreements, China and Free Trade in general. See the June 23rd statement by Senator Bernie Sanders in which he denounced Trade Promotion Authority and the Trans Pacific Partnership on the floor of the US Senate at http://www.c-span.org/video/?c4541798/sen-bernie-sanders-tpa-disaster-america.

Bashing international trade and China in particular and blaming trade and China for all the ills in the US economy is common in US elections and may feel good. But reality soon intrudes. In 2014, total US exports, including manufactured products, agricultural products and services to other countries were $2.35 trillion, an increase over the last few years, with exports of US manufactured goods reaching $1.64 trillion. Under NAFTA in 2014 goods exported to Mexico were $240 billion and to China were $123 billion. US exports means US jobs. See https://www.census.gov/foreign-trade/balance/c5700.html.

The reality is that the United States is exporting many products to Mexico and China, including manufactured goods, agricultural products and services. What this means is that the United States is vulnerable to retaliation if it takes trade actions against other countries. Retaliation that will shut down US exports and cost US jobs.

As described above, China right now is going through an economic slowdown. As the New York Times stated on August 18th:

When Prime Minister Li Keqiang convened the Chinese cabinet last month, the troubled economy was the main topic on the agenda. The stock market had stumbled after a yearlong boom. Money was flooding out of the country. Most ominously, China’s export machine had stalled, prompting labor strikes. . . . .

Manufacturing, the core engine of growth in the world’s second-largest economy, is just too critical. And the pressures have been mounting, with exports last month plunging 8 percent compared with 2014.

Across the country, millions of workers and thousands of companies are feeling the pain, as sales slip and incomes drop. . . .Millions of Chinese are looking for work.

See http://www.nytimes.com/2015/08/18/business/international/chinas-devaluation-of-its-currency-was-a-call-to-action.html?emc=edit_th_20150818&nl=todaysheadlines&nlid=19479910&_r=0.

China’s slower economy will affect US companies and US jobs. Qualcomm, for example, is about to layoff thousands from its global workforce, many in San Diego, California. See http://www.sandiegouniontribune.com/news/2015/aug/17/Qualcomm-broadcom-nokia-layoffs-foreign-workers/.

But as people who read this newsletter know, Qualcomm was fined almost $1 billion for violations of China’s Antimonopoly law. Qualcomm also makes more than $9 billion every year, but half of that income comes from China. As people also know from this newsletter, China is going through an economic slowdown so right now a weak China market can hurt US exports. In international trade, what goes around, comes around.

The problem with protectionism is that trade is not a one way street. As Senator Marco Rubio stated on August 10th at a Republican reception in Bellevue, Washington, US consumers represent only 5% of the World Economy. 95% of consumers are outside of the US so if a US company wants to increase sales and increase jobs, it has to export.  In an August 28, 2015 opinion piece in the Wall Street Journal, entitled “How My Presidency Would Deal With China”, Senator Rubio made one of the more thoughtful points on China, stating:

My second goal is protecting the U.S. economy. For years, China has subsidized exports, devalued its currency, restricted imports and stolen technology on a massive scale. As president, I would respond not through aggressive retaliation, which would hurt the U.S. as much as China, but by greater commitment and firmer insistence on free markets and free trade. This means immediately moving forward with the Trans-Pacific Partnership and other trade agreements.

For the full opinion piece, see http://www.wsj.com/articles/how-my-presidency-would-deal-with-china-1440717685.

Republican and Democratic Senators, such as Orin Hatch, Marco Rubio and Ron Wyden, and Republican representatives, such as Paul Ryan, Dave Reichert and Pete Sessions, and free trade Democratic representatives, such as Ron Kind, Rick Larson, Derek Kilmer and Suzan DelBene, make the same argument and, therefore, understand the trade situation.

On August 19th, I met with the New Democratic Coalition of moderate Congressional Democrats, many from Washington State, who are pro-trade and pro-growth. 40% of the jobs in Washington State are tied to trade. See the Politico article, which describes the New Democrat Coalition in detail at  http://www.politico.com/story/2015/08/new-dems-plan-assertive-new-presence-in-house-121208.html. See also http://www.newdempac.com.

All the Democratic Representatives in the New Dem Coalition that I talked with were very concerned about the anti-trade rhetoric in the Presidential Primary, not only from Donald Trump but also Bernie Sanders. One Representative surprised me by talking well of Republican Senator Marco Rubio, who is pro free trade. The Democratic Representatives in the New Democratic Coalition understand how important international trade is to the economy, the companies and jobs in their states.

All of international trade is based on reciprocity. What the United States does to one country, that country can do back. If the US raises tariffs to keep imports out or puts in place trade restrictions, that country, in turn, can retaliate, raise tariffs and keep US exports out.

Several years ago, the United States determined to stop Mexican trucks from carrying freight into the United States. In return, Mexico stopped all imports of potatoes from Washington and other US states.

Just like Donald Trump, Bernie Sanders and other present day politicians, in the 1930s, as a candidate for President, Herbert Hoover promised to help the United States dig out of the recession by raising tariff walls against imports, and Congress passed the Smoot-Hawley Tariff of 1930. Countries around the World retaliated by raising barriers to US exports. Exports, imports and trade stopped and the World was plunged into the Great Depression.

As indicated below, the World economy is at a tipping point and starting a trade war with the rest of the World could hurt the United States and its economy big time. As the recent drop in the US stock market because of the China slow down indicates, the United States is no longer the big kid on the block, the only and biggest market in the World. The US, therefore, can be a target of trade actions, which will hurt US companies, US jobs and the US economy as a whole.

TPP NEGOTIATING ROUND ENDS IN HAWAII WITH NO FINAL AGREEMENT—CANADA AND JAPAN CONTINUE TO BE STICKING POINTS

In late July, after a week of negotiations in Hawaii to close the Trans-Pacific Partnership (“TPP”), negotiators were not able to close the gaps on the TPP’s most controversial provisions, including pharmaceutical patents and rules governing dairy trade. USTR Michael Froman stated that although the negotiations had resulted in “substantial progress in certain areas, final agreement remains out of reach”.

At the conclusion, trade ministers spoke optimistically:

“In this last stage of negotiations, we are more confident than ever that TPP is within reach and will support jobs and economic growth. The progress made this week reflects our longstanding commitment to deliver an ambitious, comprehensive and high-standard TPP agreement that will support jobs and economic growth across the Asia Pacific region.”

On July 9th in a Politico Morning Money speech, which can be found here http://www.c-span.org/video/?327014-1/politico-conversation-trade-representative-paul-ryan-rwi, Paul Ryan, House Ways and Means Chairman, stated that there could be a final TPP Agreement by late Fall.

Among the major obstacles are pharmaceuticals and in particular biologic drugs. The U.S. has long held that those high-value medicines, which are used to treat diseases like cancer and rheumatoid arthritis, should be given 12 years on the market before the entry of generic alternatives. But every other TPP partner has consistently pressed for a much shorter exclusivity window, with positions varying from eight years of exclusivity to no exclusivity period whatsoever.

A major problem is Canada’s barriers to agricultural goods, including its dairy and poultry market. New Zealand wants more access to the US market, but the US has stated that it will only open its market if Canada will open its market for more US dairy imports. With Parliamentary elections on October 16th, it is very difficult for Canada to give in now. Trade ministers vowed to keep working closely together to resolve their differences but did not give any details about the timing of the next official negotiating session.

By the way, which group in Canada opposes the giving in to dairy imports from the United States? The Teamsters labor union. Recently Teamsters Canada reiterated its opposition to any changes to Canada’s controversial supply management system for its dairy industry warning Canada’s political class over giving into the United States and other countries in the TPP talks.

In other words, the Teamsters and AFL-CIO in the United States oppose the TPP, but their brother union in Canada opposes lifting restrictions on dairy imports from the US. Apparently the Union’s position is let’s drive worldwide economics back decades and put all the protectionist walls back in place.

The TPP talks are at a delicate stage where much of the technical underbrush has been cleared, but parties are still faced with making calls on politically charged sectors of their economies that could make or break the deal. As Warren Maruyama, former USTR general counsel, stated:

“A lot of the issues that they had going into Maui still appear to be wide open. They are definitely in the endgame, and this is when all the hard issues have to get resolved, and I have yet to see a major trade negotiation that was resolved in one ministerial meeting.”

Another issue is the rules of origin for automobiles and auto parts, which were at the center of bilateral talks between the U.S. and Japan. Although the two countries appear to have forged a compromise on the regional content rule issue, Mexico has taken issue with that arrangement. In addition, rice is a big problem for Japan, and sugar is a big problem for the United States.

The passage of the Trade Promotion Authority (“TPA”) bill revealed a Congress still sharply divided on trade, a factor that Maruyama said USTR Froman will have to keep in mind as they bring the deal to completion. As Maruyama stated:

“USTR has to keep a close eye on the Congress. If it does something that costs votes or gets them seriously crosswise with the Republican House or Senate leadership, TPP is in big trouble. TPA is a good proxy for TPP, and it passed Congress by a very narrow margin and with mostly Republican votes.”

But any delay to TPP threatens to move such a vote deeper into the 2016 election season, where meaningful legislative action often reaches a standstill. In talking to pro-trade Democratic Representatives on August 19th in the New Dem Coalition, they are concerned that the TPP could become an election issue if the Agreement is not concluded soon. Pursuant to the TPA bill that was signed into law, once the final agreement is approved, President Obama must publish the Agreement for 60 days before he can sign it, and then the Congress must take at a minimum 30 days before they can ratify it. If the Agreement is concluded in late Fall or after October 16th, the Canadian election, for example, then that means President Obama could not sign the agreement until the end of December, and Congress would have to deal with the Agreement at the end of January, February 2016, just as the Presidential primaries are starting up in an election year.

If the TPP isn’t ratified by the end of this year, the chances of its being ratified before Obama leaves office will be slim. Congress is highly unlikely to pass a gigantic free trade agreement like the TPP during an election year. It would almost have to happen after the November Presidential election in a December lame-duck session.

Meanwhile, on August 14th, Senator Sherrod Brown, an outspoken critics on US trade policy, stated that he will block the nomination of Marisa Lago to serve as a deputy U.S. trade representative, citing the office’s failure to fully open Trans-Pacific Partnership text for viewing by congressional staff. When USTR rejected Senator Brown’s request, he stated:

“The administration would rather sacrifice a nominee for a key post than improve transparency of the largest trade agreement ever negotiated. This deal could affect more the 40 percent of our global economy, but even seasoned policy advisers with the requisite security clearance can’t review text without being accompanied by a member of Congress.”

EXIM BANK PROBLEMS

There is a major battle in the US Congress now on the Ex-Im Bank. In a victory for free market ideology over pragmatism and simple common sense, conservative members of Congress have let the charter of the EX-IM Bank expire hurting many US companies.

More specifically, Congress let federal authorization for the Ex-Im Bank expire July 1, to the cheers of conservative lawmakers who view it as a tool for crony capitalism.   As a result, credit insurance policies are starting to run out for 3,000 small businesses that rely on them to be able to export along with a number of large companies, such as Boeing. According to National Association of Manufacturers Vice President Linda Dempsey, some U.S. companies continue to compete for overseas bids that will ultimately require Ex-Im backing, in the hopes that the agency will be renewed before the deals fall through.

What is the Ex-Im Bank? According to the Export-Import Bank itself, the EXIM Bank:

is an independent, self-sustaining agency with an 80-year record of supporting U.S. jobs by financing the export of American goods and services. . . .

By financing the export of American goods and services, EXIM Bank has supported 1.3 million private-sector, American jobs since 2009, supporting 164,000 jobs in FY 2014 alone. . . .

Small business exporters need certainty and protection to tackle new markets, expand and create jobs. In FY 2014, nearly 90 percent of EXIM Bank’s transactions—more than 3,340—directly supported American small businesses. . . .

Over the past two decades, the Bank has generated nearly $7 billion more than the cost of its operations. That’s money EXIM Bank generates for the American taxpayer, to help reduce the federal deficit.

EXIM Bank argues that it:

“is vital to countering aggressive foreign competition. With nearly 60 other export credit agencies around the world trying to win jobs for their own countries, EXIM Bank helps level the playing field for American businesses. “Made in America” is still the best brand in the world, and EXIM Bank ensures that U.S. companies never lose out on a sale because of attractive financing from foreign governments.

EXIM Bank further states:

In FY 2014, Export-Import Bank financing supported $27.5 billion worth of U.S. exports. $10.7 billion of that total represents exports from U.S. small businesses, making small business exports the top category for EXIM Bank supported exports last year.

Finally, the EXIM Bank argues that it has a long history of bipartisan support:

President Dwight D. Eisenhower, February 12, 1959: “[EXIM Bank’s] record of repaid loans and repayable loans, your infinitesimal portion of written-off loans is one that I can do nothing except to say congratulations to your Directors, the President, and to all of you.”

President John F. Kennedy, July 18, 1963: “…the Export-Import Bank has created a wholly new program of export financing which now provides U.S. business with credit facilities equal to any in the world.”

President Gerald Ford, November 18, 1974: “In order for the United States to maintain its strong position in foreign markets, it is important that the Congress pass the Export-Import Bank bill and avoid attaching unnecessary encumbrances.”

President Ronald Reagan, January 30, 1984: “Exports create and sustain jobs for millions of American workers and contribute to the growth and strength of the United States economy. The Export-Import Bank contributes in a significant way to our nation’s export sales.”

President William J. Clinton, May 6, 1993: “Export expansion obviously encourages our most advanced industries. I am committed to promoting these exports, and what’s where the EXIM Bank plays an important role.”

President George W. Bush, June 14, 2002: “I have today signed into law S. 1372, the Export-Import Bank Reauthorization Act of 2002. This legislation will ensure the continued effective operation of the Export-Import Bank, which helps advance U.S. trade policy, facilitate the sale of U.S. goods and services abroad, and create jobs here at home.”

See http://www.exim.gov/about/facts-about-ex-im-bank

The decision to let the EXIM Bank expire on July 1st forces many large and small companies to make drastic changes. Despite the rhetoric of pure free market ideology, the reality is that the real winner of this decision is China, Europe and other countries. Gary Mendell, president of trade financier Meridian Finance Group, said export credit agencies in other countries are already taking advantage of EXIM’s expiration to lure away business from U.S. companies. Mendell stated:

“They’re gleeful about it, and I don’t blame them. Those foreign competitors are going to customers in other countries and saying, ‘Hey, you don’t know if your U.S. supplier is even going to be able to ship to you and give you the payment terms they’re promising in their quote, because look what’s happening with Ex-Im Bank.’”

Some companies are not going to wait for Congress. Boeing Chairman Jim McNerney has stated that the giant plane manufacturer and defense contractor is considering moving parts of its operations to other countries, where they could take advantage of those nations’ equivalents to Ex-Im to continue selling products overseas:

“We’re actively considering now moving key pieces of our company to other countries, and we would’ve never considered that before this craziness on Ex-Im.

McNerney further stated that he might have “made the wrong decision” years ago in trying to keep production in the U.S., given the newly uncertain politics surrounding export financing in Washington. “People just playing politics — they’re not connected to the real world anymore,”

But Rep. Jim Jordan (R-Ohio), a leading conservative critic of the bank, sees even a prolonged expiration for the bank as a victory, stating:

“This is great news for families and taxpayers. Every day that goes by without the Ex-Im Bank being resurrected means it is more likely that it permanently ends. … This is the kind of example of good governance that I am excited to tell my constituents about during the August recess.”

But in Ohio, a state where manufacturing is the key economic issue, the failure to keep the EXIM bank open means a loss of companies and a loss of jobs. Although politicians love to blame China, the real problem is the United States, and politicians should look at themselves in the mirror. The failure of the United States to be competitive with other countries, including China, is not China’s fault.

AGOA PASSES WITH TECHNICAL CHANGES TO THE ANTIDUMPING AND COUNTERVAILING DUTY LAW

On June 25, 2015 the African Growth and Opportunity Act (“AGOA”) with Trade Adjustment Assistance (“TAA”) passed the House by a 286 to 138 vote and went to President Obama for signature.   The AGOA includes the attached technical changes to the US Antidumping and Countervailing duty law, BILL CHANGED LAW.  See also attached explanation of the changes to the law, trade_bills_fact_sheet.

Although most of the proposed changes to the Customs and Trade law are still at Conference Committee, Congress put certain attached technical changes to the Antidumping and Countervailing Duty law, including changes to the All Facts Available and the ITC injury standard, into AGOA, which passed both Senate and the House and has been signed into law by President Obama.

With regards to the ITC, a provision was added to clarify that even though an industry is profitable, it can still be materially injured. The ITC, however, has always been able to find an industry to be injured if profits were declining.

At Commerce, the new change waters down the requirement that Commerce corroborate the rate it uses as an All Facts Available (“AFA”) rate and the requirement that Commerce show that the AFA rate represents commercial reality when determining antidumping rates for foreign companies that do not cooperate in the antidumping or countervailing duty investigation.

Commerce has issued the attached Federal Register notice, DOC FED REG EFFECTIVE DATE TRADE LAW stating that the change in law applies to determinations after the effective date of the law, August 6, 2015, as published in the Commerce notice.  But in a remand determination, which came out recently in the Aluminum Extrusions case, Commerce indicated that it could apply the new law change to remand determinations made on or after August 6, 2015.

But to further complicate the issue today, the Court of Appeals for the Federal Circuit (“CAFC”) issued the attached order on August 11th in the Ad Hoc Shrimp case, CAFC SHRIMP TRADE BILL APPLICATION, asking for further argument on whether the new law applies to future Commerce determinations or retroactively back to entries that were made prior to August 6th.  The CAFC appears to be stating that the new law does not apply to old entries, in effect, that are on appeal to the Courts because the actual determinations on appeal were made prior to August 6th

CUSTOMS AND TRADE ENFORCEMENT BILL

All the Senators emphasized during the final Trade Promotion Authority (“TPA”) debate the importance of the Customs and Trade Enforcement bill formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), which passed the Senate on May 11, 2015 and the House. This bill will crack down on US importers that attempt to evade antidumping and countervailing duty laws by importing transshipped merchandise. This Customs and Trade Enforcement Bill is directed straight at the problem of transshipment by certain Chinese companies around US antidumping and countervailing duty orders.

Because of the differences in the Senate and House Bills, the bills have gone to Conference Committee to reconcile the differences.  But since some of the most pressing provisions went through Congress attached to AGOA, there is not the same pressure on Congress to work through the differences in the two bills.

TRADE

CHINA’S WTO CASE AGAINST US COUNTERVAILING DUTY DECISIONS RESULTS IN LOWER DUTIES IN A NUMBER OF DIFFERENT ANTIDUMPING CASES FOR CHINESE EXPORTERS

On July 22, 2015, Commerce issued the attached Federal Register notice,   ,as a result of China’s victory in the World Trade Organization (“WTO”) case against Commerce Department’s antidumping duty determinations, which did not adequately reduce antidumping rates to account for export subsidies found in the companion Countervailing duty case. This WTO case and Commerce Department notice have had the effect of reducing slightly cash deposits and assessment rates in the following antidumping cases against China: Aluminum Extrusions from the People’s Republic of China; Certain Circular Welded Carbon Quality Steel Line Pipe from the People’s Republic of China; Certain Kitchen Appliance Shelving and Racks from the People’s Republic of China; Certain Magnesia Carbon Bricks from the People’s Republic of China; Certain New Pneumatic Off-The-Road Tires from the People’s Republic of China; Certain Oil Country Tubular Goods from the People’s Republic of China; Certain Potassium Phosphate Salts from the People’s Republic of China; Certain Steel Grating from the People’s Republic of China; Certain Tow Behind Lawn Groomers and Certain Parts Thereof from the People’s Republic of China; Circular Welded Austenitic Stainless Pressure Pipe from the People’s Republic of China; Citric Acid and Certain Citrate Salts from the People’s Republic of China; Lightweight Thermal Paper from the People’s Republic of China; Narrow Woven Ribbons with Woven Selvedge from the People’s Republic of China; Prestressed Concrete Steel Wire Strand from the People’s Republic of China; Raw Flexible Magnets from the People’s Republic of China; and Sodium Nitrite from the People’s Republic of China.

TIRES AD AND CVD ORDERS

On August 10, 2015, in the attached notice, TIRES AD CVD ORDER, the Commerce Department issued antidumping and countervailing duty orders against Passenger Tires from China. The Antidumping Rates range from 14.35 to 30.74% with the Chinese separate rate companies receiving 25.84%. The PRC wide rate is 87.99%. The Countervailing duty rates range from 20 to 116% with the average rate for all other Chinese companies being 30.61%.

BOLTLESS STEEL SHELVES

On August 17, 2015, in the attached decision,factsheet-prc-boltless-steel-shelving-ad-cvd-final-081715, the Commerce Department announced its affirmative final determinations in the antidumping duty (AD) and countervailing duty (CVD) investigations of imports of boltless steel shelving units prepackaged for sale from China. The antidumping rates range from 17.55% to 112.68%, but the cash deposits in the AD case are only 1.49 to 96.62% because of the countervailing duty rates ranging from 12.40 to 80.45%, which are set off in part against the antidumping rates.

UNCOATED PAPER

On August 20, 2015, in the attached decision, factsheet-multiple-uncoated-paper-ad-prelim-082015, the Commerce Department announced its affirmative preliminary determinations in the antidumping duty (AD) investigations of imports of certain uncoated paper from Australia, Brazil, China, Indonesia, and Portugal. For China, the antidumping rates are very high from 97.48% to 193.30% with all Chinese companies but one getting the 193% rate.

MORE STEEL CASES AND STAINLESS STEEL CASES COMING

After the July 28, 2015 steel case that was filed against Cold-Rolled Steel Flat Products from China, Brazil, India, Japan, Korea, Netherlands, Russia, and the United Kingdom, on August 11, 2015, a new antidumping and countervailing duty case was filed against Hot-Rolled Steel Flat Products from Australia, Brazil, Japan, Korea, the Netherlands, Turkey, and the United Kingdom.

In briefs to the ITC, the domestic steel industry in the Cold-Rolled Steel case argue that the Commission should apply the new injury provisions in the statute and find that the domestic industry is materially injured.

There are also rumors in the market that US antidumping and countervailing duty cases will be filed against stainless steel imports from a number of countries, including China. On August 26, 2015, in the attached decision, EU STAINLESS STEEL, the EC imposed antidumping on imports of stainless steel cold-rolled flat products originating in the People’s Republic of China and Taiwan.

SOLAR CELLS

CIT AFFIRMS ITC

On August 7, 2015, in the attached Changzhou Trina Solar Energy Co., Ltd. et al v. US International Trade Commission (“ITC”),CIT AFFIRMS ITC INJURY , the Court of International Trade (“CIT”) affirmed the ITC’s injury determination in the original Solar Cells antidumping case.

SOLAR CELLS—EUROPE

On August 14, 2015, Chinese exporters of specialized glass for solar panels were hit with stiffer antidumping duties by the European Union on Friday after regulators determined that a decrease in export prices had failed to protect their domestic industry. An eight-month European Commission investigation found that dipping export prices allowed Chinese solar glass producers to “absorb” the duties imposed on their products in 2009, which demands increased duties to stop the surge of cheap imports that continue to flow into the EU. The EC then stated:

“[T]he Commission concluded that the sampled exporting producers absorbed the anti-dumping duty in force. Hence, anti-dumping measures imposed on imports of solar glass originating in the [People’s Republic of China] should be amended.”

The antidumping duties in place since 2009 ranged from 0.4 percent to 36.1 percent. Under the new regulation, those numbers go up to range from 17.5 percent to 75.4 percent, with Xinyi PV Products Anhui Holdings Ltd. hit with the highest duties.

The product subject to investigation is solar glass consisting of tempered soda lime flat glass, with an iron content of less than 300 parts per million and a solar transmittance of more than 88 percent, among other technical characteristics.

COMMERCE REVOKES ANTIDUMPING ORDER ON WOVEN ELECTRIC BLANKETS FROM CHINA

On August 18, 2015, in the attached notice,BLANKETS REVOCATION AD ORDER, the Commerce Department revoked the antidumping order on Certain Woven Electric Blankets From the People’s Republic of China because of lack of interest by the US industry.

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

On August 3, 2015, Commerce published the attached Federal Register notice, AUGUST OPPTY REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of August. The specific antidumping cases against China are: Ironing Tables,     Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow-Behind Lawn Groomers and Parts Thereof. The specific countervailing duty cases are: Laminated Woven Sacks,     Light-Walled Rectangular Pipe and Tube, Sodium Nitrite.

For those US import companies that imported Ironing Tables, Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow-Behind Lawn Groomers and Parts Thereof and the other products listed above from China during the antidumping period August 1, 2014-July 31, 2015 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. In the recent Solar Cells 2012-2013 final review determination, for example, the following Chinese companies were determined to no longer be eligible for a separate antidumping rate and to have the PRC antidumping rate of 238.95%:

(1) Shanghai Suntech; (2) Wuxi Sunshine; (3) Changzhou NESL Solartech Co., Ltd.; (4) CSG PVTech Co., Ltd.; (5) Era Solar Co., Ltd.; (6) Innovosolar; (7) Jiangsu Sunlink PV Technology Co., Ltd.; (8) Jiawei Solarchina Co., Ltd.; (9) Jinko Solar Co., Ltd.; (10) LDK Solar Hi-tech (Suzhou) Co., Ltd.; (11) Leye Photovoltaic Science Tech.; (12) Magi Solar Technology; (13) Ningbo ETDZ Holdings, Ltd.; (14) ReneSola; (15) Shanghai Machinery Complete Equipment (Group) Corp., Ltd.; (16) Shenglong PV-Tech; (17) Solarbest Energy-Tech (Zhejiang) Co., Ltd.; (18) Suzhou Shenglong PV–TECH Co., Ltd.; (19) Zhejiang Shuqimeng Photovoltaic Technology Co., Ltd.; (20) Zhejiang Xinshun Guangfu Science and Technology Co., Ltd.; (21) Zhejiang ZG-Cells Co., Ltd.; (22) Zhiheng Solar Inc.; and (23) LDK Hi-Tech (Nanchang Co., Ltd.

IMPORT ALLIANCE FOR AMERICA

This is also why the Import Alliance for America is so important for US importers, US end user companies and also Chinese companies. The real targets of antidumping and countervailing duty laws are not Chinese companies. The real targets are US companies, which import products into the United States from China.

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

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

See the Import Alliance website at http://www.importallianceforamerica.com.

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

On November 18, 2015, importers in the Alliance will be meeting Congressmen and Congressional Trade Staff in Washington DC to discuss these issues. If you are interested in this effort, please contact the Import Alliance through its website or myself directly.

For your additional information, in the attached notice, 9-14 Kilmer Save-the-Date (3), pro-trade Democratic Congressman Derek Kilmer of Tacoma, Washington will be having a reception in Seattle, Washington on September 14, 2015. Congressmen Kilmer would be interested in talking to any importers that attend the reception.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On July 30, 2015, OFAC issued an Advisory, entitled “Obfuscation of Critical Information in Financial and Trade Transactions Involving the Crimea Region of Ukraine,” to call attention to practices that have been used to circumvent or evade the Crimean sanctions. While billed as an “Advisory,” the agency’s release stands as a warning to the financial services and international trade sectors of their obligation to implement adequate controls to guard against such evasive practices and ensure compliance with their obligations under the Crimean sanctions.

On May 21, 2015, the Commerce Department filed changes to the export rules to allow unlicensed delivery of Internet technology to Crimea region of Ukraine, saying the change will allow the Crimean people to reclaim the narrative of daily life from their Russian occupants. Under a final rule, which is attached to my blog, www.uschinatradewar.com, individuals and companies may deliver source code and technology for “instant messaging, chat and email, social networking” and other programs to the region without first retaining a license from the federal government, according to Commerce’s Bureau of Industry and Security.

Commerce stated:

“Facilitating such Internet-based communication with the people located in the Crimea region of Ukraine is in the United States’ national security and foreign policy interests because it helps the people of the Crimea region of Ukraine communicate with the outside world.”

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached to my blog are copies of the PowerPoint or the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. In addition, the blog describes the various sanctions in effect against Russia.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank. The “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions can be found at www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx.

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which is attached to my blog, which President Obama signed into law on December 19, 2014. Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

“At this time, the Administration does not intend to impose sanctions under this law, but the Act gives the Administration additional authorities that could be utilized, if circumstances warranted.”

The law provides additional military and economic assistance to Ukraine. According to the White House, instead of pursuing further sanctions under the law, the administration plans to continue collaborating with its allies to respond to developments in Ukraine and adjust its sanctions based on Russia’s actions. Apparently the Administration wants its sanctions to parallel those of the EU. As President Obama stated:

“We again call on Russia to end its occupation and attempted annexation of Crimea, cease support to separatists in eastern Ukraine, and implement the obligations it signed up to under the Minsk agreements.”

Russia, however responded in defiance with President Putin blasting the sanctions and a December 20th Russian ministry statement spoke of possible retaliation.

One day after signing this bill into law, the President issued an Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (the “Crimea-related Executive Order”). President Obama described the new sanctions in a letter issued by the White House as blocking:

New investments by U.S. persons in the Crimea region of Ukraine

Importation of goods, services, or technology into the United States from the Crimea region of Ukraine

Exportation, re-exportation, sale, or supply of goods, services, or technology from the United States or by a U.S. person to the Crimea region of Ukraine

The facilitation of any such transactions.

The Crimea-related Executive Order also contains a complicated asset-blocking feature. Pursuant to this order, property and interests in property of any person may be blocked if determined by the Secretary of the Treasury, in consultation with the Secretary of State, that the person is operating in Crimea or involved in other activity in Crimea.

The EU has also issued sanctions prohibiting imports of goods originating in Crimea or Sevastopol, and providing financing or financial assistance, as well as insurance and reinsurance related to the import of such goods. In addition, the EU is blocking all foreign investment in Crimea or Sevastopol.

Thus any US, Canadian or EU party involved in commercial dealings with parties in Crimea or Sevastopol must undertake substantial due diligence to make sure that no regulations in the US or EU are being violated.

CUSTOMS

JUSTICE DEPARTMENT — IMPORTER EXECUTIVE SHOULD GO TO PRISON FOR EVADING US ANTIDUMPING LAWS

On August 21, 2015 the Justice Department requested prison time of four to five years for an executive for illegally importing magnesium from China that was later sold to the military knowing that the Chinese magnesium was covered by an antidumping order. As the US Attorney stated in its response to the Defendant’s sentencing request:

“Based on the defendant’s intentional undervaluing [of the magnesium] for his own profit, it is the position of the government that the defendant was not a minor participant in the offense.”

Prosecutors alleged that the Executive received the powder from a Chinese export dealer named Qian Chen after it was mixed with quarter-inch aluminum nuggets. Nehill then mislabeled the powder as magnesium reagent, or nonpure magnesium, which carried only a 5 percent duty, rather than the 100% plus in antidumping duties.

PRODUCTS LIABILITY

LUMBER LIQUIDATORS IS HAMMERED BY PRODUCTS LIABILITY PROBLEM CAUSED BY CHINESE IMPORTS

On August 5, 2015, it was reported that Lumber Liquidators stock continued to fall by 14 percent, despite the fact that the stock was already down 72 percent this year. The fall in the stock price was caused by a surprise quarterly loss of $23 million. Numerous executives have left the company as it faces criminal and civil investigations by several regulators as a result of the charges, as well as consumer and shareholder class action suits.

Legal costs continue to smash the company as it has already spent $9.7 million to address legal problems associated with both consumer and shareholder lawsuits and ongoing probes by the Justice Department, SEC, the Consumer Product Safety Commission and the California Air Resources Board.

PRODUCTS LIABILITY COMPLAINTS AGAINST CHINESE PRODUCTS AND COMPANIES

On August 25, 2015, Juan Pruneda and Maria Ana Pruneda filed the attached products liability complaint, for a defective metal grate that led to the death of Matias Uriel Pruneda against Honghua International Co. Ltd., Chuanyou Guanghan Honghua Co., Ltd., Sichuan Honghua Petroleum Equipment Co., Ltd., Nabors Industries, Ltd., Nabors Drilling International Ltd., and Nabors Drilling International II Ltd.

IP/PATENT AND 337 CASES

SUPREMA—CAFC AFFIRMS ITC’S AUTHORITY IN INDUCED INFRINGEMENT IN SECTION 337 CASES

On August 10, 2015 in the attached en banc decision in Suprema, Inc. v. International Trade Commission, SUPREMA CAFC, a majority of the judges in the Court of Appeal for the Federal Circuit (“CAFC”) by a 6-4 vote affirmed the ITC finding that the Commission has the authority to exclude the importation of materials that induce patent infringement even if the products are not infringing when they cross the border.

The Federal Circuit found that because Section 337 does not directly address the issue of whether the ITC can exclude articles that infringe only after importation, the ITC’s interpretation of the statute as giving it jurisdiction over such post-importation infringement should be given deference.

The case involved fingerprint scanners from Korea which at the time of importation into the United States did not infringe the patent, but when the fingerprint scanners after importation were combined with software in the United States, they did infringe the US patent.

In the original CAFC decision, the 3 judge panel held on a 2-1 basis that since the scanners did not infringe the patent at the time of importation into the United States, their importation was not a violation of section 337. The En Banc panel based on a 6-4 determination reversed the ruling of the initial 3 judge panel finding that since the statute itself does not answer the question of whether the ITC has jurisdiction over goods that infringe only after importation, deference should be given to the Commission’s reasonable interpretation of Section 337 as giving the Commission authority over goods that infringe.

As the CAFC majority stated:

We conclude that because Section 337 does not answer the question before us, the Commission’s interpretation of Section 337 is entitled to Chevron deference. We hold that the Commission’s interpretation is reasonable because it is consistent with Section 337 and Congress’ mandate to the Commission to safeguard United States commercial interests at the border. Accordingly, we return the case to the panel for further proceedings consistent with this opinion. . . .

Reading the statute unambiguously to require that infringement occur at the time of importation would have produced absurd results under the pre-1994 version of § 271(a). Such a reading would mean that Congress, when it enacted the language at issue in 1988, excluded even the ordinary case of direct infringement. . . .

For nearly 35 years, the Commission has embraced its Congressional grant as bestowing authority to investigate and take action under Section 337 based on induced infringement. At least as early as 1980, the Commission was making determinations that inducement to infringe a valid U.S. patent under 35 U.S.C. § 271(b) constituted an unfair trade act under Section 337 that could be remedied by an exclusion order. . . . The Commission has persisted in its interpretation of Section 337 to the present day. . . .

The technical interpretation adopted by the panel weakens the Commission’s overall ability to prevent unfair trade acts involving infringement of a U.S. patent. The panel’s interpretation of Section 337 would eliminate relief for a distinct unfair trade act and induced infringement.

There is no basis for curtailing the Commission’s gap-filling authority in that way. Indeed, the practical consequence would be an open invitation to foreign entities (which might for various reasons not be subject to a district court injunction) to circumvent Section 337 by importing articles in a state requiring post-importation combination or modification before direct infringement could be shown.

The Commission reasonably determined that its interpretation would further the purpose of the statute. . . .

We note that our deference to the Commission’s statutory interpretation in this case is hardly momentous. The court has consistently deferred to the Commission, recognizing the Commission’s technical expertise in deciding issues arising under Section 337, a statute Congress has entrusted the agency to administer.

The Suprema case, however, is followed by Clear Correct v. ITC, which reached the CAFC after the ITC declared that the agency has the authority to stop the importation of digital files, not just physical goods. This case is presently on appeal at the CAFC, which has specifically asked the litigants to brief the issue of the impact of the Suprema decision on “the issues in this appeal.”

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

On July 31, 2015, Kiss Nail Products, Inc. filed the attached patent complaint KISS TIANJIN PATENT CASE, against Tianjin Shuangrong Paper Products Co., Ltd. and Shuang Rong America LLC.

On August 4, 2015, Boehringer Ingelheim Pharmaceuticals Inc., Boehringer Ingelheim International Gmbh, Boehringer Ingelheim Corporation, and Boehringer Ingelheim Pharma GmbH & Co. Kg filed the attached patent complaint,  SMALL HEP PATENT CASE, against Chinese companies Hec Pharm Group, Hec Pharm Co., Ltd., Hec Pharm USA, Mylan Pharmaceuticals Inc., Mylan Inc., Mylan Laboratories Limited, Intas Pharmaceuticals Limited, Accord Healthcare, Inc., Aurobindo Pharma Limited, Aurobindo Pharma Usa, Inc., Dr. Reddy’s Laboratories, Ltd., Dr. Reddy’s Laboratories, Inc., Zydus Pharmaceuticals USA, Inc., Cadila Healthcare Ltd., MSN Laboratories Private Limited, MSN Pharmaceuticals, Inc., Prinston Pharmaceutical Inc., Solco Healthcare U.S., LLC, Huahai US Inc., Zhejiang Huahai Pharmaceutical Co., Ltd., Invagen Pharmaceuticals Inc., Sun Pharmaceutical Industries Ltd., Sun Pharma Global Fze, and Sun Pharmaceutical Industries, Inc.

On August 10, 2015, Hitek Software LLC filed the attached copyright complaint FOXCONN COPYRIGHT CASEagainst Foxconn Corp., Foxconn Interconnect Technology (USA), Inc., Foxconn Electronics, Inc. and Foxconn EMS Inc.

On August 18, 2015, Foshan Naibo Electric Product Co., Ltd., a Chinese company, and Xpower Manufacture, Inc. filed the attached patent case CHINA COMPAY SUING CHINA COMPANY, against another Chinese company, Ningbo A-One Industrial Co., Ltd.

CHINA IP AND PATENT LAW

Recently, AFD China Intellectual Property Law office in China issued the attached Newsletter, News August 2015 fr AFD, about developments in Chinese patent law.

ANTITRUST

There have been major developments in the antitrust area.

VITAMIN C CASE—COLLECTIONS PROBLEMS

As the Vitamin C case is on appeal to the Second Circuit, the Plaintiffs in the case seek to vigorously enforce their $160 million judgment against Hebei Welcome Pharmaceutical Co. Ltd. and North China Pharmaceutical Group Corp. On August 14, 2015, the Federal judge stated that he was tempted to place the Chinese companies, judgment debtors, into receivership because they are in contempt in contrast to continuing to beat up the US Chinese bank branches so as to get the companies’ assets in China and elsewhere.

Plaintiffs argue that the two Chinese defendants have frustrated all collection efforts to date and added that banks have used sleights of hand and hidden behind a recently strengthened “separate entity rule” to stymie subpoenas. Plaintiffs’ attorney said that the money appears to sit inside of China and pressed for a receivership as a potential new avenue to press for collection:

A receivership is materially better than sending subpoenas out [to banks] and having these fights.

In response to the Chinese argument that the two Chinese companies would face prosecution in China if the complied, the Federal judge was not willing to consider the argument:

“It is more a question of what people want at any particular time in China” and stated that it appeared the companies and the Chinese government were working together with “a nod and a wink” to frustrate collection.

The judge further stated “It’s almost like instant nationalization of a company for the protection of the local economy.”

Attached is a full transcript of the hearing, 2ND CIRCUIT LETTER THREE, before the Federal Judge, which was filed with the Second Circuit.

CHINA ANTI-MONOPOLY CASES

T&D JANUARY REPORT

In August T&D also sent us their attached July report, T&D Monthly Antitrust Report of July 2015, on Chinese competition law.

SECURITIES

On August 17, 2015, a class action securities case was filed against Chinese Mobile Co, NQ Mobile, Inc., with allegations of mismanagement and investor fraud. The allegations are that the company has hid information from investors, diluted the stock through overvalued equity purchases and refused good faith offers to buy the business. The suit said, in particular, the company has taken to buying out small Chinese Internet firms for tens of millions of dollars in equity to expand the business and dilute shareholders without further offerings.

“This company has a few mobile applications available on iTunes with no ratings or reviews, and only 100 to 500 downloads on Google Play. No independent analysis of similar companies would value such an entity, with such a small number of product purchases, anywhere near $54 million.”

According to the complaint, NQ parted ways with its prior auditor, Price Water House Coopers China, over access to documents detailing those transactions.

“NQ Mobile has not explained why the acquisitions were made in the first place, and there is no evidence that the costs were justified and in the best interest of NQ Mobile and its shareholders.”

FOREIGN CORRUPT PRACTICES ACT

Recently, Dorsey & Whitney LLP issued its attached August 2015 Anti-Corruption Digest, Anti-Corruption-Digest-Aug2015.

With regards to China, the August Digest states:

Mead Johnson Nutrition Co. Settles FCPA Charges with SEC

The Illinois-based maker of Enfamil and other infant formula products, Mead Johnson Nutrition Co., has settled civil charges of FCPA violations related to its China operations. Under the terms of the settlement with the SEC, which has been entered in an administrative order, Mead Johnson disgorged $7.77 million (£4.95 million) plus $1.26 million (£800,000) prejudgment interest, and paid a $3 million (£1.9 million) penalty. The company neither admitted nor denied the charges.

According to the SEC, Mead China, Mead Johnson’s Chinese subsidiary, paid $2 million (£1.3 million) in bribes to healthcare professionals employed by state-owned hospitals in exchange for the healthcare professionals’ recommendations of its products, and for contact information for new and expectant mothers. According to the administrative order, Mead Johnson violated the books and records provisions of the FCPA by inaccurately recording these bribes as “distributor allowances”. The SEC alleges that Mead China gave steep discounts to distributors and directed the distributors to pay the state employed health care professionals.

In its order, the SEC also alleges that Mead Johnson violated the internal controls provisions by failing to have an adequate internal accounting control system. The SEC did not allege that the U.S. parent or any U.S. person knew about or coordinated the bribes, and none of the conduct was alleged to have taken place in the U.S. This lack of U.S. nexus to the alleged violations may explain why the U.S. Department of Justice (DOJ) has informed Mead Johnson that it has closed its parallel investigation into the bribery activity.

The SEC noted in its order that Mead Johnson had conducted but not reported an internal investigation into these allegations in 2011. When the SEC approached Mead Johnson in 2013 regarding these allegations, Mead Johnson initially failed to report its internal investigation, which had not confirmed the illegal payments.

Plaintiffs Request $62 million Avon Settlement

A group of investors have reportedly requested that a federal judge in New York approve a $62 million (£40 million) settlement in a lawsuit. The shareholders allege that Avon along with its former CEO, Andrea Jung, and former CFO, Charles Cramb, misled them about the company’s compliance with the FCPA in China.

The Chinese subsidiary in question allegedly made $8 million (£5 million) worth of payments in cash, gifts, travel, and entertainment to various Chinese officials, according to the DOJ. Avon needed the approval of the officials in order to undertake direct sales in China. The matter is ongoing.

China

It has been reported that, since President Xi Jinping initiated his anti-corruption campaign in 2012, Chinese authorities have returned Rmb38.7 billion ($6.2 billion/£4 billion) of funds involved in corruption matters to the state.

The Central Commission for Discipline Inspection (the “CCDI”), China’s anti-corruption body, stated that the money had been returned to the state, without specifying which government entity received it. The sums recovered are said to include confiscated bribes in the form of cash, land, gifts and fines that have been levied.

According to Han Jinping, director-general of the CCDI’s case co-ordination department, “submitting illegally obtained money to the national coffers and recovering economic losses will help correct the economic incentives distorted through corruption”.

HIRING RELATIVES OF FOREIGN GOVERNMENT OFFICIALS BECOMES AN FCPA ISSUE

In an August issue on his securities blog, Tom Gorman, a partner in Dorsey’s Washington DC office and formerly with the SEC Enforcement division, states:

The SEC has been investigating sovereign wealth funds and issues relating to the hiring of friends and family of foreign officials for some time. Now it has filed a settled action centered on both of those issues which contains a cautionary note for those who have not updated their compliance procedures in view of these inquiries. . . .

The Commission acknowledged the cooperation of BNY Mellon and its remedial acts which, prior to the SEC’s investigation, included initiating reforms to its anticorruption policy to address the hiring of government officials’ relatives.

To resolve the case Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order.

In addition, BNY Mellon agreed to pay disgorgement of $8.3 million, prejudgment interest and a civil money penalty of $5 million. BNY Mellon acknowledged that a penalty of over $5 million was not imposed based on its cooperation.

For the full article, see http://www.secactions.com/sec-bny-mellon-settle-fcpa-charges-tied-to-hiring-relatives-of-officials.

SECURITIES COMPLAINTS

On August 14, 2015, Daniel Finocchiaro filed the attached class action securities case, Complaint (7), against NQ Mobile, Inc., Henry Yu Lin, Omar Sharif Khan, Vincent Wenyong Shi, Xu Zhou, James Ding, Jun Zhang, Roland Wu, Chun Ding, William Tiewei Li, Xiuming Tao, Max Yao, Justin Chen, Ying Han, Zemin Xu, Matthew Mathison, and Bingshi Zhang.

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

Best regards,

Bill Perry

 

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE , TAA, 337/IP, ANTITRUST AND SECURITIES

US Capitol South Side Fountain Night Stars Washington DC TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER NOVEMBER 25, 2014

DECEMBER 12, 2014 UPDATE–SOLAR NEGOTIATIONS AND NEW SOLAR ANTIDUMPING AND COUNTERVAILING DUTY CASE IN CANADA

Dear Friends,

On January 21st, I will be speaking at the Brooklyn Law School in New York City on US China Trade Disputes. The invitation to the speech is set forth below.

I look forward to seeing any of my friends at the speech.

Best regards,

Bill Perry

Wednesday, January 21, 2015 * Subotnick Center, 250 Joraelmon Street * Brooklyn Law School

2 FREE CLE credits

Two judges from the US Court of International Trade * partners from two leading law firms handling China trade disputes * professors from four law schools * former chairman of Federal Trade Commission * former congressman focused on US-China trade * former general counsel of MasterCard

REGISTRATION PROGRAM RECEPTION
5:30 PM 6-8 PM 8 PM onward

WELCOME Professor Nicholas W. Allard

Joseph Crea Dean and Professor of Law, Brooklyn Law School

INTRODUCTION

Professor Robin Effron

Co-Director, Dennis J. Block Center for the Study of International Business Law, Brooklyn Law School

FIRST PANEL: PURE TRADE DISPUTES

MODERATOR

Geoffrey Sant, Esq.

Adjunct Professor, Fordham Law School

Special Counsel, Dorsey & Whitney LLP

PANELISTS

The Honorable Donald Pogue

Senior Judge, US Court of International Trade

Professor Bill Kovacic

Global Competition Professor, George Washington Law School

Former Chairman of Federal Trade Commission

  

Bill Perry, Esq.

Partner, Dorsey & Whitney LLP

Formerly in Office of General Counsel, US International Trade Commission; Office of Chief Counsel and Office of Antidumping Investigation, U.S. Department of Commerce

Don Bonker

Executive Director, APCO Worldwide, Inc.

Former US Congressman (D-WA); former Chairman of Subcommittee on International Economic Policy and Trade

SECOND PANEL: DISPUTES BETWEEN TRADE PARTNERS

MODERATOR

  1. Augustine Lo, Esq.

Dosey & Whitney LLP

PANELISTS

Chris Cloutier, Esq.

Partner, King & Spalding LLP

Former Acting Deputy Director of Trade Remedy Compliance, US Department of Commerce (at US Embassy in Beijing, China)

Professor Thomas Lee

Leitner Family Professor of International Law, Fordham Law School

Noah Hanfft, Esq.

President; CEO of International Institute for Conflict Prevention and Resolution

Former General Counsel of MasterCard

Professor Zhao Yun

Director of the Center for Chinese Law, University of Hong Kong

CLOSING REMARKS The Honorable Claire Kelly

Judge, US Court of International Trade

Trustee, Brooklyn Law School

RECEPTION

8 PM onward

THIS EVENT IS FREE, BUT RSVPS ARE REQUIRED

RSVP to events@cblalaw.org

About the Program The United States and China are major trading partners. Trade issues between the two nations take center stage as leaders negotiate new trade treaties and struggle to resolve disputes under existing legal frameworks. Brooklyn Law School and the Chinese Business Lawyers Association present an evening of dialogue among leading practitioners and professors who will examine current issues in trade disputes between the U.S. and China.

Sponsored by the Dennis J. Block Center for International Business Law, Chinese Business Law Association (CBLA), ABA Section of International Law, and the Trade Secrets Institute(TSI).

WE EXPECT ALL SEATS TO BE RSVP’D.  TO ATTEND, PLEASE RSVP AS SOON AS POSSIBLE TO events@cblalaw.org OR TO www.brooklaw.edu/tradedisputes

For directions, please visit: www.brooklaw.edu/directions

Thank you!

Geoffrey Sant, Director

Chinese Business Lawyers Association

This course provides two (2) CLE credits in the State of New York. Partial credit is not available. The credits are transitional and non-transitional and the category is Professional Practice.

US CHINA SOLAR NEGOTIATIONS

Several companies have asked me about a possible US-China settlement in the Solar Cells/Solar Products cases.  Today, December 12th, USTR Michael Froman acknowledged that Washington and Beijing have held talks about the Solar cases for “some time”.  During a conference call with Reporters, Froman stated that a stable environment for trade in solar products and polysilicon would have three components.  The first is to ensure that trade laws are being enforced. The second and third components are to enable the further deployment of clean technology and address issues like climate change, and “to maintain world class industries in both our countries to manufacture these important products.”

But knowledgeable people stated that talks have slowed in recent weeks, following a period of intense engagement prior to President Obama’s state visit to China in November, which ended without an agreement.  A major reason for this failure is because SolarWorld Americas, the petitioner in the U.S. trade remedy cases, stated that it could not accept the parameters that Chinese producers were willing to offer, and the U.S. government was unwilling to push the company to give ground.  In contrast to Europe, Canada, many other countries and even China, the United States does not have a public interest test in its US antidumping and countervailing duty laws and, therefore, the US government has less power to push a settlement.

The deadline for Commerce to accept a potential agreement to suspend the ongoing antidumping (AD) or countervailing duty (CVD) cases against Chinese solar panels has long passed. Thus settling the dispute will require a broader agreement, such as in 2006 U.S.-Canada Softwood Lumber Agreement, under which Canada agreed to impose export taxes and/or quotas on its exports of softwood lumber to the United States, in return for the U.S. government stopping the collection of trade remedy duties on those products.

SolarWorld has stated that it could accept a package that would do away with the various trade cases if four key conditions were met. The first three are that the agreement be enforceable by Commerce, set a floor price on imports of Chinese solar cells, and include a quantitative restriction on the volume of imports. The fourth condition is that the floor price on imports of Chinese solar cells be indexed to the market price for polysilicon.  Knowledgeable sources, however, have said that the floor price is key sticking point.

Commerce Secretary Penny Prtizker also stated that she did not expect the final Solar Products determination to have any impact on the JCCT negotiations, which will soon take place in Chicago.

The bottom line is that the Solar Products case will go to Antidumping and Countervailing Duty order and any deal would have to be extremely unique, such as the US Canadian Lumber Agreement.  The chance of such an agreement is probably small.

CANADA SOLAR CASE

An importer has contacted me about a new Solar Module and Panel Antidumping and Countervailing Duty Petition filed in Canada. On December 5, 2014, the Canadian government initiated the investigation. See the attached petition and announcement of the Canadian government.  CANADIAN SOLAR COMPLAINT CANADIAN SOLAR ANNOUNCEMENT

The Solar Trade War with China is now beginning to follow a similar pattern with other trade wars against Chinese products. An antidumping/countervailing duty case is filed in the US or the EU followed by many, many cases around the World.

In the early 1990s, a US antidumping case was brought against Garlic from China. I represented a number of US importers in the case and tried to represent the Chinese exporters/producers. In a very unusual situation, an official at the Chinese Chamber of Commerce refused to let any Chinese company respond to the US antidumping case and since the Chamber controlled export licenses, the official had the power to stop participation.

As a result, the Commerce Department levied antidumping duties of 376% against Chinese garlic, and that antidumping order is in place today, almost 20 years after the petition was filed.  But that was not the worst part of the case, the Garlic case spread to numerous other countries, including EU, India, Japan, Korea, Brazil, Mexico and other countries. Pretty soon 20 to 30 countries had trade orders against Chinese garlic blocking all exports of Chinese garlic, and Chinese garlic prices dropped like a rock. Garlic was very cheap in Beijing.

Chinese solar cells and panels appear to be on the same trade path as Europe, the US, India and now Canada have brought antidumping and countervailing duty cases against China. Many countries may soon block Chinese solar cells and panels out of their market.

If anyone has any questons about this case or the ongoing US Solar Cells and Solar Products case, please feel free to contact me.

If anyone wants specific help on the Canadian case, please let me know and I will put them in touch with Canadian trade counsel.

NOVEMBER 25, 2014 POST

There have been major developments in the trade politics, trade, trade agreements, trade adjustment assistance, 337/IP, US/Chinese antitrust, and securities areas.

This month the blog post has grown substantially because there have been so many developments in the trade and political area, especially with regards to China.

TRADE POLITICS AND TRADE AGREEMENTS WITH CHINA

THE REPUBLICAN WAVE ELECTION CHANGES THE TRADE POLITICAL LANDSCAPE IN WASHINGTON DC

No matter whether you are a Republican or a Democrat, in looking at trade issues, including the trade laws and the relationship between the US and China, one must deal with political reality in Washington DC. Elections have consequences, and the November 4th Republican wave election will have consequences for years to come.

Not only did the Republicans take the Senate, but no one expected the Republicans to take 8 seats with potentially another coming from Louisiana so Republicans at the end of January 2015 will control the Senate 53 or 54 to 47 or 46.

In the House of Representatives with 5 races still undecided Republicans gained 12 sets. They now hold 245 seats to 187. One can see how the political map has changed in the House by looking at http://www.politico.com/2014-election/results/map/house/. In the House, the United States has turned into a red Republican sea.

As it stands now, this is the largest Republican majority since 1946. If 3 of the 5 outstanding House seats go Republican, it will be the largest Republican majority since the 1930s under Herbert Hoover, before Franklin Delano Roosevelt was President. To say that this election was historic is an understatement.

As Dana Milbank, a Washington Post columnist, who is not viewed as a Republican/conservative partisan, states in his November 14th Washington Post column:

“There are five 2014 House races still to be decided before we can answer the question of historical interest:

Was this the worst election for House Democrats since 1928? Or was it merely their worst since 1946?

Either way, the results do not reflect well on the House Democratic leader, Nancy Pelosi – a conclusion that seems to have escaped Nancy Pelosi.

“I do not believe what happened the other night is a wave”, the former speaker informed Politico. . . . She preferred to describe what happened in the House elections as an “ebb tide.”

If Democrats lose three of the five undecided races, they will have ebbed all the way back to the day Herbert Hoover won the Presidency. To fail to see that as a wave, Pelosi must be far out to sea.”

The 2014 election for Democrats was not a wave. It was a tsunami, and now the political reality has changed dramatically in Washington DC. The most dramatic impact will be in the trade area because that is the one area that Senate and House Republicans can work on together with President Obama.

As indicated below, under the Trade Agreements discussion, President Obama’s problem in the Trade area is not with the Republicans, but with the Democrats. Although many Democrats want to call themselves progressive, because of substantial Union support, a number of powerful Democrats do not want progress on trade. They are opposed to Free Trade Agreements that lower barriers to imports. In fact, several Democrats want to raise barriers to imports.

Most Republicans are not opposed to the Free Trade Agreements because they firmly believe that Free Markets will result in more business and a substantial increase in economic activity for US companies and more jobs for US workers.

On November 5th the day after the election, many former US government officials were predicting that Trade Promotion Authority (“TPA”), which will lead to the Free Trade Agreements, such as the Trans Pacific Partnership (“TPP”), would be one of the first issues taken up by the new Republican majority.   TPA is the centerpiece of the administration’s trade policy, as it will set forth negotiating priorities for the next several years.

While a bipartisan TPA bill emerged earlier this year, Senate Majority Leader Harry Reid, D-Nev refused to introduce the bill on the floor. The change of the majority to the trade-friendly Republicans removes that problem.

According to former United State Trade Representative (“USTR”) Clayton Yeutter, with the Obama administration pushing for a final 12-nation Trans-Pacific Partnership as soon as possible, securing TPA will be the number one objective and will likely rise to the top of the Republican agenda. As former USTR Yeutter stated:

“The challenge will be to get fast-track done as early as possible and I believe that all the folks in congressional leadership positions understand that fully. I would look for it to be one of the very first issues on the Congressional agenda next year.”

Present USTR Michael Froman also expressed optimism, stating:

“I think ultimately this is an area where there’s a lot of bipartisan support for trade. It’s one of the areas that cuts across party lines, one area that we think we can make progress in, and we look forward to working with Congress after the election on Trade Promotion Authority and on our trade agenda more generally, in a way that has broad bipartisan support.”

In addition, the new Chairman of the Senate Finance Committee will be Republican Senator Orrin Hatch of Utah and he has a close working relationship with the present Chairman, Democratic Sen. Ron Wyden of Oregon. As indicated in past newsletters, Senator Hatch has been very open about the need to pass TPA through the Congress and he will be very active on this issue.

The chances of passing a fast-track bill in the upcoming lame-duck session of Congress are slim because the objective according to recent reports is to end the session on December 11th.  In the new Congress, however, TPA will be very important because Republicans have publicly warned the Administration not to conclude the TPP talks before TPA is concluded. As indicated below, without TPA no final deal will be concluded because countries like Japan and Canada will not put their best proposals on the table.  Japanese Prime Minister Shinzo Abe, for example, in particular, will be reluctant to strike a deal if there is a chance it could be altered legislatively at a later date.

As former USTR Yeutter stated:

“It will be exceedingly difficult to wrap up TPP without TPA. Abe and Japan don’t want to have to make tough political decisions twice.”

As a further example, in the attached e-mail, WAYS AND MEANS TRADE A PLUS on November 13, 2014, the House Ways and Means Committee released an article by Bryan Riley from The Hill stating:

Free Trade is a Winner in Recent Elections

By Bryan Riley, The Hill contributor

Riley is the Heritage Foundation’s Jay Van Andel Senior Policy Analyst in Trade Policy.

In Georgia, Iowa, Massachusetts and North Carolina, the midterm elections proved that candidates shouldn’t be afraid to talk about the benefits of trade. They also demonstrated that candidates tempted to employ protectionist scare tactics in their campaigns should think twice.

In Iowa, Republican Senate candidate Joni Ernst’s campaign argued: “Congressman [Bruce] Braley’s Anti-Free Trade Votes are bad for Iowa Farmers.”

According to Politico: Iowa Republicans, in one of the tightest Senate races in the country, are trying to capitalize on Democratic Rep. Bruce Braley’s record of voting against trade agreements to help hand their candidate, Joni Ernst, the victory. Braley, whose state is heavily dependent on farm exports, voted against free trade pacts with South Korea, Colombia and Panama in 2011, even after President Barack Obama’s administration re-negotiated several provisions to round up more Democratic support. “The South Korean trade deal was huge,” Agriculture Secretary Bill Northey told POLITICO in an interview. “Everyone knew it was a clear, clear win for agriculture and it would have been a terrible not to have it. For him to vote against that I just think is a major red flag.”

Ernst defeated Braley, 52.2 percent to 43.7 percent.

In North Carolina’s Senate race, Democratic incumbent Kay Hagan said:

“Unfair trade agreements have contributed to the loss of more than 286,000 North Carolina manufacturing jobs in the last decade — the fourth-largest decline in the nation. It is time we start protecting jobs here at home.” Her campaign spokesman added: “Kay opposed trade agreements that ship North Carolina jobs overseas because she will always put North Carolina jobs first.”

Her Republican opponent, Thom Tillis, disagreed: “As agriculture exports increase, Thom believes we must promote policies that make trade with other nations free and efficient in order to stimulate our economy and allow North Carolina farmers and ranchers to expand their businesses.”

Tillis defeated Hagan, 49.0 percent to 47.3 percent.

In Massachusetts, the Democratic Governors Association released an ad attacking Republican gubernatorial candidate Charlie Baker: “Baker won the Outsourcing Excellence Award at the ‘Oscars of Outsourcing’ for his work destroying jobs here at home.” Baker replied that outsourcing some jobs to India allowed Massachusetts insurer Harvard Pilgrim to save thousands of jobs at home. Former Massachusetts Attorney General Thomas F. Reilly (D) called the outsourcing attacks “exactly the kind of nonsense that drives people away from the political process.”

Baker defeated Democrat Martha Coakley, 48.5 percent to 46.6 percent.

In Georgia, Democratic senatorial hopeful Michelle Nunn attempted to smear her Republican opponent David Perdue for outsourcing jobs to other countries: “David Perdue, he’s not for you,” her ad proclaimed. When a reporter asked Perdue to defend his use of outsourcing, he replied: “Defend it? I’m proud of it. … It’s the lack of understanding of the free enterprise system that I’m running against here.”

Perdue beat Nunn, 53.0 percent to 45.1 percent.

After the Massachusetts and Georgia elections, Computerworld reported:

“Offshore outsourcing fails as election issue: A longtime Democratic bludgeon isn’t enough to move needle.” In contrast, candidates who embraced the benefits of trade, like Joni Ernst and Thom Tillis, emerged victorious.

Promoting free trade is good economics, too. A comparison of trade policy around the world, developed by the Heritage Foundation and The Wall Street Journal in the annual Index of Economic Freedom, shows a strong correlation between trade freedom and prosperity.

Washington Post columnist Steven Pearlstein observed that outsourcing saves U.S. businesses and consumers billions of dollars each year:

“Those savings and those extra profits aren’t put under the mattress. Most of it is spent or invested in the United States in ways that are hard to track but have surely created hundreds of thousands of jobs in other companies and other industries. Those who hold those jobs would have no reason to know that they are beneficiaries of the process of outsourcing and globalization. But in a very real sense, they are.”

Most economists agree that criticizing trade is bad policy. Last week’s election results suggest it may be bad politics, too.

But as also indicated below, that is where Trade Adjustment Assistance for Firms/Companies comes into play.  Trade Agreements are a result of Government action that will change the market, not only around the World but also in the United States. With market barriers dropping in a number of different countries, many US competitive companies will see their exports increase.  Experts predict that the TPP, for example, could increase economic activity by $1 trillion.

But this Government action will also change the US market place, and a number of US companies will face a market that has completely changed, a trade tsunami created by Government action.  Because Government action has created the trade tsunami, the Government has an obligation to help companies adapt to the new marketplace conditions.  When I say companies, I mean not just the management, but the workers in the company too.

As explained more below, the Government has a responsibility to help US companies swim in the new competitive marketplace sea that has been created by the Trade Agreements.

FORMER CONGRESSMAN DON BONKER’S CHINA DAILY ARTICLE ON THE IMPACT OF THE ELECTION ON US CHINA RELATIONS

APCO Executive Director Don Bonker, a former Democratic Congressman and an expert on the political issues in US China Trade Relations, published the following November 7th article in the China Daily on the election, which can be found at http://usa.chinadaily.com.cn/us/2014-11/07/content_18881045.htm.  Don puts the November 4th election into a historical perspective:

Election results a mixed blessing for China

By Don Bonker (China Daily USA)

Republicans exceeded early predictions scoring big time in Tuesday’s election, taking full control of the US Senate, increasing their margin in the House of Representatives along with many victories across the country.  For the next two years, the United States will have a truly divided government with the Republicans claiming a new mandate to push an alternative agenda.

While many factors were in play in the 2014 election (Obama’s poor ratings, huge amounts of campaign spending, etc), the fundamentals in recent history clearly favored the Republican Party.  The party of whoever occupies the White House in mid-term elections suffers nominal loses of Senate and House seats and predictably weakens the President’s political standing. As we are reminded by David Schanzer and Jay Sullivan in the New York Times, “This is a bipartisan phenomenon; Democratic presidents have lost an average of 31 House seats and between 4-5 Senate seats in mid-terms; Republican presidents have lost 20 and 3 seats respectively.”

How will the election results affect the US-China relationship?

Neither Republicans nor Democrats have well-defined or predictable policies toward China. In recent years, a small group in Congress has attacked China on a select number of issues but such actions are not part of either Congressional leader’s agenda.  Existing Federal laws, such a CFIUS, provide opportunities for a single Congressman to go after China, often to lend support to a company in his state.

Republicans, known to be pro-trade and pro-business, taking control of the Senate should be a healthy sign in building closer relations with China, especially since governors in their states are leading trade missions to China, seeking Chinese investments and pursuing markets for their exporting companies.

However, individual Republican Senators have sent letters to CFIUS and other Federal agencies opposing China-related investments and transactions. Many senior Republicans in Congress have expressed skepticism over China due to its government’s Communist Party control, reported human rights concerns, US support of Taiwan and Japan, China’s military build-up, economic espionage and geopolitical or national security threats that could put pressure on the Obama Administration to be more assertive with China.

Several well-positioned Republican Congressmen have caused the biggest headaches for China. The issue, or fear, is rooted in cybersecurity threats and economic espionage that has led to Congressional investigations and legislation that greatly restrict China companies, such as Huawei and ZTE, from having access to telecommunication and related technology markets in the US. The two Congressmen who were responsible for these actions are retiring at the end of this year. The question is whether their replacements will continue such policies.

A related concern is the so-called Tea Party’s growing influence that has put Republican Congressional leaders in a difficult position given the Tea Party’s enduring political base and its extreme views on major issues (education and trade). It will likely affect the China relationship in negative ways, particularly on trade (“protect American jobs”) and on cyber and economic espionage issues.

The Democrats have their own agenda which occasionally proves hostile to China. Several occupy leadership positions on committees that preside over government agencies and assert their political clout to press for higher import tariffs and related trade restrictions. This has more to do with politics than economics, particularly in the election season when labor unions pressure, if not intimidate Democratic candidates to “protect American jobs”. Such protectionist policies are now prompting China to take reciprocal actions that may be placing China and America on the path of a trade war.

Despite the encouraging bilateral discussions on the Bilateral Trade Agreement (BIT), there is no guarantee what happens once it arrives on the doorstep of the US Capitol.

Overall, the newly established Congress preparing for 2015 may be more favorable to China given the departures of some if its Capitol Hill critics, but a great deal of anxiety about China will continue – mistrust, economic and security threats and China’s economy surpassing the US’ in the foreseeable future.

In the Senate, the Republicans taking control will create a different political paradigm but with little indication on how it will play out over the next two years. The new political alignment will offer a narrow window for Congressional Republicans to provide stronger leadership and promote their own agenda and could result in more favorable actions (approval of TPP and TTIP trade pacts).

But that is in the short-term. It is unlikely the Republicans maintain the Senate majority in the 2016 elections, but the House of Representatives will comfortably stay in Republican control (given the shape of Congressional districts) for some time into the future. With a Democrat occupying the White House this will likely guarantee continued gridlock in Washington for the next decade.

The 2016 presidential election may be more favorable to Democrats for the same reasons the Republicans scored well this year. Barack Obama is not on the ballot and the Democrats will be far more unified (under Hillary Clinton) than the Republicans (the party may likely be split).

In 2016, the Republicans will have 23 Senate positions on the ballot compared to 10 for Democrats (also likely retirements/resignations). And the voter turn-out will jump back to 53 percent, which greatly favors Democrats in presidential elections. So whether political history will prevail and the Democrats re-take the Senate in 2016 or Republicans will defy the odds and remain in power is the big question going forward.

BILATERAL US CHINA TRADE AGREEMENTS

APEC AND PRESIDENT OBAMA’S TRIP TO BEIJING

Right after the mid-term elections, President Obama made a major trip to Beijing, China for the Asian Pacific Economic Cooperation (“APEC”) meeting.  As indicated below, President Obama’s Administration had set a target date for completing the Trans Pacific Partnership (“TPP”) talks at the APEC meeting. That did not happen, but there were several historic agreements that did come out of the meetings with the US and Chinese Government.

In the attached White House Statement and Fact Sheet, WHITE HSE STATE CHINA VISIT PRESS CONF CHINA US the US and Chinese governments announced that China will now grant 10 year visas to US businessmen and tourists and that there will be enhanced enforcement against counterfeit goods.

During the attached Joint Press Conference, the two Presidents announced a new Information Technology Agreement (ITA) and an agreement on Climate Change. President Obama stated that a strong, cooperative relationship with China is at the heart of the United States’ policy to Asia, and stated that the United States needs the world’s second-largest economy and the most populous nation on Earth as its partner in order to lead in addressing global challenges. As President Obama stated, “[I]t is a fact that when we work together, it’s good for the United States, it’s good for China, and it is good for the world.”

President Xi Jinping of China made several important points in response to questions, but several of the most important are:

“The strategic significance of China-U.S. relations is on the rise. . . . Both President Obama and I believe that when China and the United States work together, we can become an anchor of world stability and a propeller of world peace. China stands ready to work with the United States to firm up our confidence, exercise our wisdom, and take action to strengthen our coordination and cooperation bilaterally, regionally and globally; and to effectively manage our differences on sensitive issues so that we can make new gains in building the new model of major-country relations between China and the United States, which serves the fundamental interests of our two peoples and the people elsewhere in the world.

China and the United States have different historical and cultural traditions, social systems, and faces of development. So it’s natural that we don’t see eye to eye on every issue. But there have always been more common interests between China and the United States than the differences between us. Both sides respect each other’s core interests and major concerns and manage our differences in a constructive fashion, full dialogue and consultation so as to uphold the overall interests of stable growth of China-U.S. relations. . . .

China and the United States are different countries in the world. It’s perfectly normal for there to be different views expressed about us in the international media. And I don’t think it’s worth fussing over these different views. And I don’t see any of the regional free-trade arrangements as targeting against China. China is committed to open regionalism. And we believe the various regional cooperation initiatives and mechanisms should have positive interaction with each other, and that is the case at the moment.”

On Tuesday November 12th, President Obama’s state visit to China ended with the ITA and Climate agreements, joint pledges to continue talks on a bilateral investment treaty (BIT), a new international deal curbing export credits, and continued dialogue regarding their persisting differences over the use of agricultural biotechnology.

President Obama had planned to press China on several other issues, including alleged discriminatory enforcement of its anti-monopoly law (AML), intellectual property (IP) protections, including cyber theft of IP, and China’s slow approval process for biotechnology traits. Only biotechnology, however, was addressed in a White House fact sheet on U.S.-China economic relations, stating:

“The United States and China reached consensus to intensify science-based agricultural innovation for food security. The United States and China commit to strengthen dialogue to enable the increased use of innovative technologies in agriculture.”

At the Press Conference, President Obama stated that he did address IP, “I stressed the importance of protecting intellectual property as well as trade secrets, especially against cyber-threats.”

The other major announcement that came out of Obama’s visit to China was in the area of climate change. On that issue, the two sides reached an agreement on the targets for the cuts they will make to carbon emissions post-2020.

Last week CSPAN, the US Public Affairs station, did a 45 minute interview with Dorsey Partner, Tom Lorenzen on the US China Climate Change agreement. Until joining Dorsey in 2013, Tom was at the Justice Department from 2004 where he was the Assistant Chief in the U.S. Department of Justice’s Environment and Natural Resources Division (ENRD). During that time, he supervised the federal government’s legal defense of all Environmental Protection Agency rules, regulations and other final actions judicially reviewable under the various federal pollution control statutes. See the video at http://www.c-span.org/video/?322770-3/washington-journal-thomas-lorenzen-uschina-carbon-reduction-deal.

On November 12th, the China Daily stated with regards to the Information Technology Agreement (ITA):

“The two countries reached a breakthrough on Tuesday in Beijing to accelerate the expansion of the World Trade Organization’s Information Technology Agreement (ITA), which could help eliminate $1 trillion in tariffs on high-tech product sales globally. The deal would allow the “swift conclusion” on talks to enlarge the ITA at the WTO meeting in Geneva later this year.”

USTR Michael Froman stated in Beijing that it was good news for US companies that are keen to see global tariffs further cut on products such as medical equipment, GPS devices, video game consoles and next generation semiconductors.  The agreement now covers more than $4 trillion in annual trade.

With regards to ITA, the US government announced on November 10th that it had convinced China to eliminate tariffs on tech goods like advanced semiconductors and medical devices. The Chinese government has agreed to U.S. demands to eventually eliminate tariffs on advanced semiconductors known as MCOs, magnetic resonance imaging (MRI) machines, and high-tech testing equipment, but the deal does not include tariff elimination on flat-panel displays.

But the Agreement between China and the United States in the High Tech area will lead to additional negotiations with other countries at the WTO in Geneva, which are scheduled to resume in December. The ITA negotiations broke down in November 2013, after the U.S. and other participants rejected China’s tariff offer as insufficient. Since then, the U.S. and European Union have been trying to persuade China to come back to the table with a better offer.

The agreement between the U.S. and China does not mean the ITA talks are concluded. The two parties will now have to go back to the more than two-dozen other participants – including the European Union, Japan and South Korea – to negotiate a final ITA package. But sources in Geneva are cautiously optimistic that the deal could move forward. The expanded ITA would also eliminate import duties on a range of additional technology products including high-tech medical devices, video cameras, and an array of high-tech ICT testing instruments.  A White House fact sheet stated that the expansion of the ITA pact would eventually eliminate tariffs on roughly $1 trillion in annual global sales of information technology products and boost the annual global GDP by an estimated $190 billion.

On November 14th it was reported that sources in Geneva predicted that the ITA agreement could result in a final deal this December. Although other countries are not expected to block the deal, other countries will push for changes. EU Trade Commissioner Cecilia Malmstrom stated that she welcomed the U.S.-China understanding and that the EU “[intends] to take all necessary steps to finalize the agreement in the coming weeks.”

If the agreement is completed, it will take very little for the U.S. to implement the lowered tariffs. This is because Congress had already authorized further tariff reductions when it passed the Uruguay Round Agreements Act in 1994. This is in contrast to the TPP and the Transatlantic Trade and Investment Partnership (“TTIP”), which are two new agreements that would require congressional authorization before they went into effect.

On November 12th, President Obama and President Xi also announced an agreement to speed up talks on a comprehensive Bilateral Investment Treaty (“BIT”), which is considered to be the foundation for future United States-China trade agreements. At the Press Conference President Xi announced that “We agreed to accelerate the negotiations of the BIT, and we will make efforts to reach agreement on the core issues and the major articles of the treaty text.” The two countries also agreed to “work together to promote innovation in agriculture and food security.”

Trade pundits were reporting that the Republican victory along with the movement in Beijing will give a much-needed boost to the WTO and Obama’s ambitious trade agenda. This has led to a bullish optimistic attitude about the next two years of trade policy.

As indicated below, this victory in Beijing with the close of the APEC meeting was followed on November 13th by a break through with India on the Trade Facilitation Agreement (“TFA”), which the Indian Government had held up on food security grounds.  On November 13th U.S. and Indian trade officials announced they had reached a deal to end the impasse over the WTO trade facilitation Agreement.  Under the deal, India agreed to drop its opposition to the trade facilitation pact in exchange for a commitment from the U.S. to keep in place a so-called peace clause that would shield developing countries’ food security programs from legal challenges until the WTO agrees on a new set of rules governing those programs.

Numerous observers, including new European Union Trade Commissioner Cecilia Malmstrom, hailed the bilateral agreement as a boost for the WTO, which had been criticized as irrelevant as a forum for global trade talks in light of the trade facilitation breakdown. Commissioner Malmstrom stated, “I am particularly pleased today as the breakthrough gives new momentum to the WTO and restores trust among members and the credibility of multilateral trade negotiations.”

TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND—NO FINAL DEAL AT APEC MEETING IN BEIJING

TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

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

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

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

But then came the November 4th Republican wave election changing the Trade Politics dramatically in Washington DC.  Elections have consequences and in 2015 Republicans will take the Senate and increase their numbers in House.

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

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

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

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track.  But to date no details have been given about exactly what Smart Track will mean, and the Republican victory on November 4th probably means that Smart Track will be washed away by the Republican wave.

On July 17th, all Republican members of the House Ways and Means Committee sent the attahed letter to USTR Froman, HOUSE REPS WAYS MEANS, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Now the story continues . . . .

On October 15th in Tokyo, acting Deputy U.S. Trade Representative Wendy Cutler emerged from four days of meetings in Tokyo stating that both sides are working “as hard and creatively as possible” to resolve their bilateral issues. She went on to state:

“We were encouraged by the progress we made this week during our negotiations, but we need to underscore that the issues before us are tough. The issues range from achieving meaningful market access across all agricultural products to establishing a strong and effective dispute settlement mechanism in the auto sector.”

The difficult negotiating areas include five agricultural categories—rice, wheat and barley, beef and pork, dairy products and sugar—as well as autos and auto parts.

After ending the talks with his counterpart, Japanese negotiator Hiroshi Oe added, however, that both sides have “mountains of work to do. We are far from saying, ‘We did it.’ We still have the most difficult areas that have yet to be resolved.”

The U.S.-Japan meetings closed just a day after Mexico’s top trade official, Mexican Economy Minister Ildefonso Guajardo, speaking in Washington, D.C. made clear that the rest of the TPP countries view the US Japan negotiations as a critical step toward progress in the full negotiations,  “It is clear for anybody that knows about trade negotiations that if these two big trading partners, Japan and the U.S. do not come to an agreement, it has domino consequences on the rest of the 12 countries.”

But then came Sidney and then Beijing with no breakthrough in part because of no TPA Agreement.

Meanwhile, on October 16th, according to analysis of the document by Public Citizen, it was reported that a leaked draft of the TPP Intellectual Property Chapter obtained by WikiLeaks could lead to delayed access to pharmaceutical drugs in a dozen countries, including the U.S., and would contradict White House policies aimed at cutting Medicare and Medicaid costs. According to Public Citizen, at issue in the draft is a U.S. proposal to give an advantage to the pharmaceutical industry and “provide long automatic monopolies for biotech drugs or biologics” contradicting the pledge included in past White House budgets to shorten the same monopoly periods to reduce cost burdens on Medicare and Medicaid.

Public Citizen said it remains concerned that these provisions would give large brand-name drug firms a way to “impose rules” on Pacific Rim economies that “will raise prices on medicine purchases for consumers and governments. If the TPP is ratified with this U.S.-proposed provision included, Congress would be unable to reduce monopoly periods without risking significant penalties and investor-state arbitration.”

In Sidney the leaked IP draft resulted in a number of civil society organizations and Australian lawmakers voicing opposition to the deal citing many trouble spots.  A group of Australian politicians along with public health and copyright experts convened at Australia’s Parliament house lawn to condemn possible TPP trade-offs as talks resumed in Canberra.  Australian green party Sen. Peter Whish-Wilson stated that “the leaked documents indicate that the government is on course to hand over protections for human rights, public health, the environment and Internet freedom.”

On October 24th, in a letter six Congressmen, including Sens. Ron Wyden, D-Ore., Orrin Hatch, R-Utah, Jay Rockefeller, D-W.V., and John Thune, R-S.D., the ranking members of the Senate Finance and Commerce committees, stated that USTR Michael Froman should oppose any proposals in the TPP negotiations that would needlessly limit internet traffic, including the cross-border transfer, storage or processing of data, and protect the unfettered transfer of commercial data and digital trade.  According to the letter, eight countries, including TPP members Mexico and Vietnam, have or are considering policies to limit their Internet traffic.

As a result of all these concerns, Rep. Sander Levin, D-Mich, ranking Democratic Congressman on the House Ways and Means Committee, traveled to Sydney, Australia, to closely observe the status of the TPP talks. Levin took the unusual step of arranging meetings with trade ministers from the TPP nations during their Oct. 25-27 session in an effort to gather more information about TPP’s more contentious unsettled areas. Levin, who is from Detroit, has long been an advocate of the U.S. automotive industry, which has been blocked out of the Japanese market for decades. More broadly, Levin also called for the final TPP to bind its member countries to upholding the highest possible environmental, labor and human rights protections.

On October 27th in Sidney, Australia trade ministers for countries negotiating the TPP hailed “significant progress” in the talks during their three-day meeting in Australia, but stopped short of announcing a breakthrough.  Opening the meeting, USTR Michael Froman stressed that the outstanding TPP issues are among the most contentious in the agreement, but that negotiators have taken efforts to ensure that they are resolved as smoothly as possible.  President Obama had targeted the APEC meeting in Beijing on November 10th as a “deadline” to conclude the negotiations, but critical to the conclusion of the 12-nation TPP talks are the bilateral deliberations between the U.S. and Japan, which also continued in Australia.

After returning from Sidney, Congressman Levin expressed his concern about the current status of the TPP talks in Australia calling for more transparency in negotiations and an increased focus on its details.  Levin stated that “it is “vital to have an open door for a broad understanding and involvement on how they should be resolved, with increased transparency.”

Levin said that although a compromise he helped negotiate, referred to as the “May 10 agreement,” had significantly improved the TPP in the realms of workers’ rights, environmental protections and access to medicines, it is “vital that TPP build on them, not weaken them.” Levin noted the opportunities and challenges inherent with the diversity of economies represented within the TPP membership, pointing out Malaysia’s and Vietnam’s “very different” economies from the U.S.

On October 27th, following the negotiations in Sidney, the Ministers and Heads of Delegation for the TPP countries issued the attached statement, TPP ACTUAL JOINT STATEMENT AUSTRALIA, which provides in part:

“We consider that the shape of an ambitious, comprehensive, high standard and balanced deal is crystallizing. We will continue to focus our efforts, and those of our negotiating teams, to consult widely at home and work intensely with each other to resolve outstanding issues in order to provide significant economic and strategic benefits for each of us. We now pass the baton back to Chief Negotiators to carry out instructions we have given.”

On October 30, 2014, despite a push from numerous business groups, it was reported that it would be very difficult to pass TPA in the lame duck session, which is the time between the election on November 4th and the inauguration of the new Congress in January 2015.

On October 31st, USTR Mike Froman made clear that the 12 nations negotiating the TPP deal did not expect a final deal at the Asia-Pacific Economic Cooperation (“APEC”) conference in Beijing. As Froman stated:

“No, we do not expect to have a final agreement on TPP at APEC. All the TPP leaders will be present, so it will be a good opportunity to have conversations with each other about TPP, about whatever outstanding issues are left … and to give more political impetus to getting it done.”

Froman said that negotiators are still at work on the deal:

“We are making very good progress in closing out issues, narrowing the differences on remaining issues but we still have a ways to go and we are going to continue to work. We think the substance of the negotiation ought to drive the timetable. We’re not going to live by an arbitrary deadline but we are all focused on getting it done as soon as possible.”

On November 6th, after the election, business Leaders announced that they were increasing pressure to take up the TPA during the lame duck, but Mike Dolan, Teamsters’ legislative representative, said that fast track “won’t go anywhere during Lame Duck.” A broad coalition of labor, consumer groups sent over half a million petition signatures to Congress opposing TPA for the pending TPP.

In response to a question about the chance for a vote in the remaining weeks of the current Congress, Senate Finance Committee ranking Republican Orrin Hatch (R-Utah) stated, “Whether that happens during the lame duck is ultimately up to Democratic leadership.” Senator Hatch also stated that he believes there would be strong support to pass trade promotion authority in the “lame duck” session of Congress if Senate Democratic leaders decide to allow a vote. Senator Hatch, the new Chairman of the Senate Finance Committee, introduced the TPA bill along with former Senate Finance Chairman Max Baucus, now the U.S. ambassador to China, and House Ways and Means Chairman Dave Camp, R-Mich.

On November 10th in Beijing President Barack Obama and the leaders of the other 11 countries negotiating the TPP stated that a final agreement is now “coming into focus,” but declined to set a firm deadline for the completion of the talks. The 12 leaders, meeting on the sidelines of the APEC summit in Beijing, issued a joint statement commending the progress made by their negotiating teams over the past several weeks and kept up the pressure to finalize the TPP in the near future. The leaders stated:

“With the end coming into focus, we have instructed our ministers and negotiators to make concluding this agreement a top priority so that our businesses, workers, farmers and consumers can start to reap the real and substantial benefits of the TPP agreement as soon as possible.”

On November 11th, John Ivison, a Canadian reporter, issued an opinion piece in the National Post of Canada stating that any “‘significant progress’ made on the Trans-Pacific Partnership trade deal is pure bureaucratic BS.” See http://fullcomment.nationalpost.com/2014/11/11/john-ivison-any-significant-progress-made-on-the-trans-pacific-partnership-trade-deal-is-pure-bureaucratic-bs/.

As Ivison stated:

Trade sources suggest two major problems with negotiations that run contrary to the sunny optimism of the official statement.

One is that the Americans have approached the talks on a bilateral basis, preferring to hammer out deals country by country. “This is a typical U.S. approach, trying to run it like a hub-and-spoke negotiation,” said Mr. Clark.

Without knowing the outcome of talks between the two largest TPP participants — the U.S. and Japan — no one else has tabled a serious offer.

“Things are no closer than they were six months ago. No country will make an offer setting the starting point for ‘level of ambition’ without knowing the ambition levels of the U.S. and Japan.  You only give further from your first offer,” said one person with knowledge of the negotiations.

The second impediment to real progress is lack of Trade Promotion Authority — fast-track — on the part of President Barack Obama. No one wants to strike a deal that then becomes a bargaining chip in the internecine politics between the president and Congress.

There have been some suggestions that the newly empowered Republicans in the Senate might offer fast-track authority, in return for the president giving the Keystone XL pipeline the green light. But for now, President Obama cannot sign off on a deal using his executive authority.

Canada’s intransigence on supply management of poultry and dairy is likely to become a problem at some point.

In Beijing, TPP trade ministers highlighted the four areas where issues remain unresolved in the proposed deal: intellectual property, state-owned enterprises, the environment and investment. The ministers called intellectual property “one of the most complex and challenging areas of the agreement.”

On November 13th, over 200 business groups sent a letter to leaders of both the House and Senate, urging them to pass a new fast-track trade bill during the lame-duck legislative session this year. Specifically, the Trade Benefits America Coalition sent the letter urging passage of bipartisan Trade Promotion Authority (TPA) legislation to House Speaker John Boehner, R-Ohio, Senate Majority Leader Harry Reid, D-Nev., House Majority Leader Nancy Pelosi, D-Calif., and Senate Minority Leader Mitch McConnell, R-Ky., on behalf of more than 200 U.S. associations and companies including the American Farm Bureau, National Foreign Trade Council and National Association of Manufacturers.  The letter concluded, “With 95 percent of potential customers outside the United States and more than one in five American jobs supported by trade, we need to seize on opportunities — such as ongoing and future U.S. trade agreements — to expand U.S. commerce with other countries.”

On November 15th President Obama vowed to continue pushing toward a swift TPP deal, which he said has the potential to yield a “historic” trade deal. At the G20 meeting Obama stated:

“It is our chance to put in place new, high standards for trade in the 21st century that uphold our values. It’s about a future where instead of being dependent on a single market, countries integrate their economies so they’re innovating and growing together. That’s what TPP does. That’s why it would be a historic achievement.”

On November 18th, Prime Minister Abe in Japan called a snap election on December 14th to seek a mandate for his economic decisions, but this too will complicate the TPP negotiations.

On November 18th Deputy USTR Robert Holleyman stated that the U.S. is seeking provisions in the TPP requiring civil and criminal responses to the theft of trade secrets. As Holleyman stated:

“Many in this room have certainly paid attention to the damage that’s being caused by the theft of valuable trade secrets in foreign marketplaces. And in the TPP agreement, we’re seeking both civil and criminal responses to this problem, including to the issue around the growing problem of cyber-theft of trade secrets.”

TTP FOR CHINA??

But what about China? Could it eventually join the TPP?

On October 15th, the Peterson Institute for International Economic (”IIE”) released a study touting the benefits of a theoretical free trade agreement between China and the United States, including increased income and export gains, while also acknowledging that such an agreement could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span.

There are clear signs that China is interested in joining TPP. Citing an unnamed high-ranking U.S. official, Bergsten of IIE said “not a week goes by” that the administration does not receive an inquiry from China about TPP. But China has not officially sought entry into the initiative because it believes it would be denied at this stage in the negotiations. U.S. officials have made clear they want to close the deal with the current 12 participants.

The study predicts that a comprehensive agreement between China and the U.S. would create income gains for the U.S. of up to $130 billion while creating $330 billion in income gains for China. Under the agreement, the U.S. is projected to achieve export gains of $373 billion, and China — $472 billion. Similarly, U.S. exports to China would increase 108 percent and Chinese exports to the U.S. would increase 40 percent, according to the study.

But the study also finds that if a bilateral agreement is reached, the U.S. would suffer “adjustment costs” in the magnitude of 50,000 to 100,000 U.S. workers losing their jobs each year over a 10-year period. In other words, the deal could cost the U.S. economy up to a million job losses over a decade.

That is where Trade Adjustment Assistance for Companies comes into play. The Peterson study contends that because the economic benefits equate to roughly $1.25 million in national income gains per job lost, the U.S. should consider policy alternatives to offset job loss rather than simply abandon an FTA with China. Such alternatives could include a bolstered trade adjustment assistance program, lengthy phase-ins of the liberalization of sensitive sectors, and larger wage-loss insurance and training and relocation programs.

Over the past year, China has undergone a radical shift in its stance on TPP because Beijing realizes it stands to suffer financial losses if it is not a member of the agreement, according to the authors of the study. The study claims that if TPP is concluded, China would lose $82 billion in gross domestic product and $108 billion in export revenue due to diverted trade flows.

CHINA AUSTRALIA FTA

To add more fuel to the fire, on November 17th, Australia and China signed a free trade agreement to allow greater Australian agricultural exports and greater investment in China and increased Chinese exports to Australia. According to the Australian Prime Minister, the Agreement is predicted to add billions to the Australian economy create jobs and drive higher living standards.

Prime Minister Tony Abbott stated:

“It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment. Australian households and businesses will also reap the benefits of cheaper goods and components from China, such as vehicles, household goods, electronics and clothing, placing downward pressure on the cost of living and the cost of doing business.”

When the deal takes effect, more than 85 percent of Australian goods exports will be tariff free and that number will climb to 95 percent. Those goods were previously saddled with tariffs of up to 40 percent. US companies that attempt to export products to China can face very high tariffs, some in the 40 to 60 plus percent range.

China, meanwhile, will face less scrutiny in its investments in Australia per the deal. The Chinese government told Australia it estimates it will spend $1.3 trillion over the next decade in investments in Australia.

TTIP FTA WITH EUROPE

Meanwhile the TTIP FTA with Europe moves forward on November 16th with President Obama and prominent EU leaders ordering their respective negotiating teams to continue negotiations. A Joint Statement provides:

“We remain committed, as we were when we launched these negotiations in June 2013, to build upon the strong foundation of our six decades of economic partnership to promote stronger, sustainable and balanced growth, to support the creation of more jobs on both sides of the Atlantic and to increase our international competitiveness.”

But former USTR Clayton Yeutter predicted that despite the problems, the negotiations would likely finish up after Obama leaves office in early 2017. As Yeutter stated:

“There were a lot of miscalculations as to how long TTIP was going to take. This is not a negotiation that’s going to conclude anytime soon. In my view there is no practical chance of doing it during the Obama presidency.”

On November 18th the new EU Trade Commissioner Cecilia Malmstrom responded to criticisms that the TTIP will only serve the interests of large multinational Corporations by stating that the Agreement must benefit consumers:

“Trade agreements can lower prices, widen choice and create high-quality jobs. TTIP must do exactly that.”

Malmstrom also called for the negotiations to be more transparent, stating that the agreement needed input from “the whole range of civil society groups: trade unions, business associations, environmental organizations and, of course, consumers.”

INDIA BILATERAL DEAL WITH THE US MOVES TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI FORWARD

Many World Trade Organization (“WTO”) and US officials have warned that India’s decision to block the implementation of the Trade Facilitation Agreement (“TFA”) negotiated in Bali has had a “freezing effect” on the WTO’s work in a number of different areas. But after substantial pressure from the APEC countries, India and the US announced a breakthrough in the negotiations over the Agreement.

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India as a result of food security initiatives.

On September 30th, in his first meeting with President Obama, although indicating that a solution should come soon, Indian Prime Minister Modi reaffirmed his government’s position linking the WTO Trade Facilitation Agreement with support for the deal to act on food security issues.

On October 16, WTO Director-General Roberto Azevêdo reported to the Trade Negotiations Committee:

As a result we missed the deadline for the adoption of the protocol of amendment on the Trade Facilitation Agreement, which was the first deadline that Ministers set us in Bali. I said at the time that I feared there would be serious consequences. . . . as I feared, this situation has had a major impact on several areas of our negotiations. It appears to me that there is now a growing distrust which is having a paralyzing effect on our work across the board. . . .

it is my feeling that a continuation of the current paralysis would serve only to degrade the institution — particularly the negotiating function. . . . This could be the most serious situation that this organization has ever faced. I have warned of potentially dangerous situations before, and urged Members to take the necessary steps to avoid them. I am not warning you today about a potentially dangerous situation — I am saying that we are in it right now.

At the Trade Negotiations Committee meeting, Deputy USTR and U.S. ambassador to the WTO Michael Punke slammed India and the other opponents of the TFA protocol for perpetuating an “unnecessary and counterproductive crisis.” Those members’ inability to concede their position on food security has “significantly undermined” the entire Bali package and may doom any prospects for a “fully multilateral agreement.”

Although some of the trade pundits were suggesting that India be dropped off the back of the bus and the TFA move forward without India, others indicated that the real role of the TFA was symbolic—a way to get the WTO negotiating function going again.

On October 31st, Director-General Roberto Azevêdo reported to heads of delegations that there had been progress, and on November 10th, Azevedo asked APEC members, who were meeting in Beijing, to help push the TFA Agreement through. On that same day trade ministers for the 21 APEC countries, including China, vowed to throw their full weight behind resolving the current stalemate in the World Trade Organization surrounding the implementation of a trade facilitation agreement and the expansion of a tariff-cutting pact. In the attached statement released in Beijing, APEC ANNOUNCEMENT BALI TPP, the APEC Ministers stated:

2014 APEC Ministerial Meeting

  1. We, the Asia-Pacific Economic Cooperation (APEC) Ministers, met on 7-8 November 2014, in Beijing, China. The meeting was co-chaired by H.E. Wang Yi, Minister of Foreign Affairs of the People’s Republic of China, and H.E. Gao Hucheng, Minister of Commerce of the People’s Republic of China. . . .
  1. We welcome the participation in the meeting of the Director General of the WTO . . . .
  1. We reaffirm our confidence in the value of the multilateral trading system and stand firmly to strengthen the rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system as embodied in the WTO.
  1. We highly commend the Bali Package achieved at the 9th Ministerial Conference (MC9) in Bali, Indonesia. We express our grave concern regarding the impasse in the implementation of the Trade Facilitation Agreement (TFA) which has resulted in stalemate and uncertainties over other Bali decisions. These developments have affected the credibility of the WTO negotiating function. In finding solutions to the implementation of the Bali decisions, APEC will exert creative leadership and energy together with all WTO members in unlocking this impasse, putting all Bali decisions back on track, and proceeding with the formulation of Post-Bali Work Program, as a key stepping stone to concluding the Doha Round.
  1. Bearing in mind that open markets are vital for economic growth, job creation and sustainable development, we reaffirm our commitment and recommend that our Leaders extend a standstill until the end of 2018, and roll back protectionist and trade-distorting measures. We remain committed to exercising maximum restraint in implementing measures that may be consistent with WTO provisions but have a significant protectionist effect and to promptly rectifying such measures, where implemented. In this context, we support the work of the WTO and other international organizations in monitoring protectionism.

Emphasis added.

Significantly, India is not a member of APEC, and the ministers’ statement made clear that they would exhaust all resources in order to convince New Delhi to change its stance and enable the WTO to carry on with its more substantive work.

On November 12th, in Beijing President Obama expressed optimism saying that he was “actually confident that there’s an opportunity for us to resolve them fairly soon.”

On November 13th, the US and India announced that they had reached an agreement to move the TFA forward. Under the bilateral deal, India agreed to drop its opposition to the TFA to streamline international customs procedures while the U.S. agreed to leave a so-called peace clause shielding India’s food stockpiling measures from legal challenges in place until the WTO crafts a permanent solution on that issue.

On November 14th Azevedo predicted that the implementation of a deal streamlining global customs procedures would earn quick approval from the WTO members within two weeks following the Indian government’s move to drop its opposition to the pact.

On November 16, the G-20 leaders in Australia welcomed “the breakthrough” between the U.S. and India that would allow for the “full and prompt” implementation of the TFA. The leaders also pledged to implement other agreements in Bali and swiftly define “a WTO work program on the remaining issues of the Doha Development Agenda to get negotiations back on track,” which it said would “be important to restore trust and confidence in the multilateral trading system.”

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL—RESPONSE TO OPPOSING ARGUMENTS

As stated in my last newsletter and in my October blog post, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which is presently funded at $16 million nationwide. With only a relatively small part of that low budget, the Northwest Trade Adjustment Assistance Center (“NWTAAC”) has been able to save 80 percent of the companies that participated in the program since 1984.

In my last newsletter and my blog, I also argued that President Reagan himself indirectly approved of the TAA for Firms/Companies (“TAAF”) program because it does not interfere with the market in any ways and yet has been able to save a number of US companies. In fact, the TAA programs could be funded by the over $1 billion collected every year by the US government in antidumping and countervailing duties.

But there are two programs. The first program is the $500 million to $1 billion program of TAA for workers and then there is the $16 million TAAF program for companies. Congress should consider reworking the two programs to accomplish the objective of saving the jobs and the companies that are hurt by trade liberalization. There needs to be more coordination between the two programs.

One way to adjust the programs is put the TAAF for Companies program first and give it more funding so it can help larger companies, such as Steel and Tire Companies, where more jobs are located. TAAF for Companies could be used to create a program where the best of technologies and advisory services could be brought to bear to help US companies challenged by globalization and trade liberalization. The Worker program then comes afterwards, after the jobs have been lost. Data that is needed for the Worker program can be supplied as part of the Company program.

But several questions have been raised that need to be answered.

  1. Isn’t TAAF for Companies crony capitalism?

Many opponents might argue that TAAF for Companies is simply crony capitalism. Under the TAAF program, however, very little money actually goes to the companies. Most of the money goes to business consultants that can help the company change its business model or change its marketing strategy.

In fact, as it stands now, the Program only provides $75,000 in matching funds, which means the Company itself must put in the matching $75,000. Although relatively small, the Federal money has been critical in helping US companies develop a strategy to deal with the new import competition in the market place and adjust to market conditions.

The TAAF program also cannot provide hard assets to the company, just business strategy advice and help on soft projects, such as help designing a marketing website, developing software for the company in its production process or designing a dam for an Idaho sheep farm. This is not corporate welfare because the company has to put much of its own assets in both money and labor into the assistance.

WTO also does not consider this a subsidy. No money or assets go to the company. The amount is low and does not harm international trade.

Although the TAAF program could be strengthened so that it could provide TAA for larger companies, such as Steel and Tire companies, the matching funds provision and the limitation on providing only soft projects and consulting is important so that the program cannot be targeted as simply another government subsidy.

TAAF for companies is not another Solyndra program.

  1. Isn’t TAA for Firms/Companies picking winners and losers in the market?

Any company that has been injured by imports/is being impacted by trade competition can apply to enter the program. At its core, the TAAF for companies program provides advice to the company on how to swim in the newly competitive marketplace from business experts, who know how to turn a company around.

In addition, the initial write up of the application is done by experts at TAA Centers around the country, who work with the companies at the local level on a one to one basis to develop a plan to fit the specific needs of the company. Because the program is implemented at the local level by neutral officials, there is no picking winners and losers. Although the final adjustment plan must be approved at Commerce, by that time the politics has been bled out of the situation and the question is can the company meet the criteria in the statute.

  1. Why shouldn’t TAA money go to workers and not companies?

TAA for firms/companies is not TAA for management. The company includes both the management and the workers. If you talk to workers, which have been hit by trade competition, they would rather have their job then just take assistance from the Federal Government.

Although Unions have pushed unfair trade cases, in fact, many of these unfair trade cases do not work. They do not protect the companies, and more importantly the workers from import competition. It is impossible to bring antidumping and countervailing duty cases against every country in the World.

I have met workers at a company that has been saved by the TAA for Firms/Companies program, which helped the company adjust its business plan to compete in the new trade impacted market. The worker in question had been at the factory for over 30 years and was very grateful that the program had saved his job.

In fact, the split between workers and management may be one of the problems that should be addressed by TAA. Often with the small companies, however, the employees and management have been together for years and look upon each other as one in the same. They are all in the company boat together.

Also TAA for Firms/Companies is not an entitlement, a net flow out of the US government. The TAAF program keeps the company alive and keeps the taxes from the company and the company’s management and workers flowing to the US and State Treasuries, which is money going into the US and State treasuries. That is real bank for the buck.

  1. Why can’t Private Investment/Equity funds pick up the slack and thus there is no need for TAA for Firms/Companies?

Private investment companies are often targeting short term profits so if the company cannot achieve short term profits, the company is closed and the assets are sold. Mitt Romney’s company, Bain Capital LLC, invested substantial money into GS Industries, the parent company of Georgetown Steel.  Although Bain made money, it did so by cutting more than 1,750 jobs, closing a division that had been around for 100 years and eventually Georgetown Steel sank into bankruptcy.

TAAF for companies is working long term to save the company and the jobs that go with that company. This is the only long term assistance program in the US government. So the short term profitability of the company is not the issue. The issue is can the company be turned around so that it can become profitable and very profitable in the long term.

Private Equity Firms and TAAF have very different objectives.

  1. What makes TAA for Firms/Companies different from other Economic Assistance to US companies?

TAAF for companies is a trade program, not just a Government assistance program. Trade problems for companies often happen because Government action has changed the US market, be it a free trade agreement, such as the TPP, or a change in government regulations, which has exposed the US companies to import competition.

Since the Government has created the problem in the short term by its own action, it has a responsibility to help US companies and workers that have been impacted by this Government action.

Under the Constitution Congress controls trade, not the President. TAAF is a program that was started to allow Congress and the Administration to negotiate international trade deals, which help the US economy as a whole, but have the effect of creating winners and losers in the US market.

To help building public support for these Free Trade Agreements, TAA has been provided to companies and workers to help them adjust to increased import competition. Although over time, the TAAF for companies program has declined in funding, with the new trade agreements, such as the TPP and the TTIP, the program needs to be built up again to help companies that have been hurt by changes in the US trade laws, which encourage US exports, but also imports from other countries. As stated at the top of this newsletter, trade is a two way street.

In addition, the TAAF program is the only long term assistance program in the US, and it monitors the companies to make sure they implement the plans that they have agreed to.

  1. The TAAF Program Is Too Small To Be Effective

The $16 million TAAF program may be small, but it is very effective.  Since 1984, NWTAAC has been able to save 80% of the companies in the program.

The 2013 NWTAAC report from Commerce points out that all the companies that entered the program since 2011 are still alive today.

In fact, TAAF should be expanded so it can help larger companies, such as Steel and Tire companies, deal with increased competition in the US market as trade agreements reduce barriers to imports.

  1. Why help old line US industries and companies that technology and changing trade patterns have left behind and should die a natural death?

This is the basic creative destructionism argument from famous Harvard economist, Joseph Schumpeter, and it is true if companies do not change with changing market conditions, they will die a natural death.

But TAAF for companies gives companies the opportunity to change and adapt to the changing market conditions. Many TAAF employees that have been working at the Centers for years firmly believe that any company that enters the program can be helped. It may be a new marketing strategy or a change in company equipment, or improvements in their business strategy.  The staff has seen too many success stories to not believe in the power of the program.

In Seattle we had a company making ceramic flowerpots that was being injured by imports of flower pots from Mexico. The company came into the program and as a result started producing ceramic molds for titanium parts for Boeing.  Changing the business plan is one of the best strategies to keep the company alive and the jobs that go with that company.

TAA REAUTHORIZATION NEEDED BY DECEMBER 31ST

On November 20th, in the attached announcements CONGRESS E-MAIL Reauthorize Trade Adjustment Assistance Before It Expires on December 31 REAUTHORIZATION SEAL, House and Senate Democrats urged Congress to reauthorize TAA before it expires December 31st. Although the emphasis is on the TAA for Workers program, the Reauthorization would also apply to TAA for firms/companies. As it stands now, as of January 1, 2015, TAA will no longer be able to provide trade adjustment assistance to new companies that want to enter the program. If TAA for Companies is not reauthorized by June 1, 2015, all the TAAC centers around the country will close their doors and the program will cease to exist.

As indicated below, funding TAA is the essence of compassionate conservatism.

CONGRESSIONAL E-MAIL NOTICES

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

From: The Honorable Adam Smith Sent By: Mina.Garcia@mail.house.gov Bill: H.R. 4163 Date: 11/20/2014

November 20, 2014

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

Dear Colleague,

We write to draw to your attention to five stories that illustrate the importance of reauthorizing the Trade Adjustment Assistance (TAA) program. TAA provides financial support and re-employment training for workers whose jobs are lost due to trade. It also provides assistance to U.S. companies that have been injured by imports so they can continue to remain competitive and not resort to mass lay-offs or closures.  Funding for service workers expired at the end of 2013. Funding for the remainder of the program – which supports manufacturing workers, farmers, ranchers, fishermen, and firms – will expire on December 31 unless we act to renew it.

In 2013, 100,000 workers qualified for TAA and the results prove the program’s success.  More than 75% of workers who completed the program found jobs within six months, and of those, 90% were still employed a year later.  More than 75% of workers who completed training in 2013 received a degree or industry-recognized credential.   Here are five TAA success stories:

  •  A 74 year-old Seattle die forging firm experienced trade impact and entered the Trade Adjustment Assistance for Firms program (TAAF) in the mid 2000’s. With the assistance of the Northwest Trade Adjustment Assistance Center (NWTAAC), the firm implemented a strategy of adopting certain innovations to develop capabilities in advance of competitors worldwide. NWTAAC assisted the firm in three ways that relied heavily on outside expertise: implementation of a data management system; commercialization of a new alloy; and a revision of the Firm’s website. Two years after completing TAAF, the Firm has increased employment by 11% and sales by 141%.
  •  Rodney Cox worked for 13 years on machinery, most recently at a local hospital in rural Oregon.  He was laid off in September 2010 and could not find another job.  With only a GED, he realized he would need more education to make the wage he had earned as a millwright.  Working with a TAA case manager, he opted to attend a community college that offered an Associate’s degree in Biomedics.  His TAA benefits allowed him to live, temporarily, near the training facility 177 miles away from his home (and family).  Rodney earned his degree and accepted a position as a Bio-Medical Equipment Technician.  He is earning a wage higher than what he earned when he was a millwright.  Of TAA, Rodney said, “Things couldn’t have worked out better for me.  My case managers helped me every step of the way.  I was hired two days after I moved back home with my family.”
  •  Kim Franklin is a single mother with two children.  She worked for a manufacturing company.  When she was laid off, she could not find a similar job.  She realized she needed to consider a new career and to get new skills. Through TAA, she completed Medical Assistance training.  She is now employed as a medical assistant at a health clinic in her community.
  •  Juan Bustamante worked as a machine operator in California for over 11 years making aluminum rims for cars.  When the nearby car facility moved operations out of the country, Juan – and 300 of his colleagues – lost their jobs.  Through TAA, Juan was able to obtain remedial education in English, Math, and Speech at the Los Angeles Valley College Job Training Center.  After completing the coursework, Juan qualified for the Transportation Metro Bus Operator Bridge Training Program.  After completing that program, he received a position with LA Metro and has full benefits.
  •  Judith Fischer worked for a publishing firm in New York and lost her job.  Through TAA, she explored career options and decided to pursue occupational therapy, concentrating on the psychological effects of diminished quality of life issues.  She earned an Associate’s Degree and received a job as a Community Rehabilitation Instructor and Case Manager, working with the developmentally disabled.  Judith plans to pursue a Master of Science in Social Work.  Of her new career, Judith said that it is “rewarding in every way, especially being able to connect with these children and I feel all the love they have to give.”

These examples demonstrate that TAA helps workers find new jobs and firms stay in business when they face new competition from abroad. We urge you to extend the program before it expires on December 31.

/s/                                                                             /s/ SANDER LEVIN                                                         ADAM  SMITH Member of Congress                                                   Member of Congress

/s/                                                                             /s/ CHARLES B. RANGEL                                               DEREK KILMER Member of Congress                                                   Member of Congress

/s/ RON KIND Member of Congress

 United States Congress

SECOND CONGRESSIONAL NOTICE

FOR IMMEDIATE RELEASE

Thursday, November 20, 2014

Contact: Rep. Smith- Ben Halle, (202) 570-2771

            Rep. Levin- Caroline Behringer, (202) 226-1007

            Rep. Kilmer- Jason Phelps  (202)-225-3459

            Rep. Rangel- Hannah Kim, (202)-225-4365

House Dems Urge Congress to Reauthorize TAA Before it Expires December 31st

Washington, D.C.- Today, Senator Sherrod Brown introduced a Senate companion bill to the Trade Adjustment Assistance (TAA) Act of 2014, introduced by Representatives Adam Smith (D-WA), Sander Levin (D-MI), Derek Kilmer (D-WA), and Charles B. Rangel (D-MI). These bills would renew TAA, which is set to expire on December 31, 2014. Reps. Smith, Levin, Rangel, and Kilmer released the following statement calling for the immediate passage of the TAA:

“It is critical that Congress pass Trade Adjustment Assistance legislation before it expires at the end of the year. Both the House and Senate TAA bills provide critical work training, income support, and health care to help dislocated American workers transition and learn new skills for new careers in competitive industries.  This vital assistance helps American workers and businesses adapt and compete in a rapidly evolving world economy.”

Background: Congress created the TAA program in 1962 in response to the loss of jobs among hard-working Americans as a result of increasing global competition, as well as to promote American competitiveness.  TAA benefits have several components: training assistance, income support while in training, and job search and relocation assistance.  The program assists workers dislocated by the elimination of tariffs and other barriers to trade.  Additional programs assist farmers, fishermen, and firms with the development and implementation of business plans to enable them to regain a competitive foothold. Click here for the full text of the Trade Adjustment Assistance (TAA) Act of 2014.

TAA by the numbers:

  • 2,192,910:  The number of workers served by TAA since it was created in 1974
  • 104,158:  The number of workers eligible to apply for TAA in 2013
  • 50:  The number of states with workers eligible for TAA benefits in 2013
  • 75%: The percentage of TAA workers who got a job within six months of finishing the program
  • 90%: The percentage of those TAA workers who remained employed at the end of the year

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

THE MAGNESIUM CASE — WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US PRODUCERS

As stated in numerous past newsletters, market economy for China is important for US end user production companies. The importance of market economy for the United States is illustrated by the Magnesium from China antidumping case. Recently a large Western company came to me because they were thinking of exporting Chinese magnesium to the United States to help the US magnesium die casting industry. But after discussions, at least in the short term, the company gave up because there is no longer a viable magnesium die casting industry in the United States. The Antidumping Order on Magnesium from China has killed the downstream industry.

In antidumping cases Commerce does not use actual prices and costs in China to determine whether a company is dumping. Dumping is defined as selling at prices in the United States below prices in the home market or below the fully allocated cost of production.

As mentioned before, however, in contrast to Japan, Korea, India, Iran and almost every other country in the World, China is not considered a market economy country in antidumping cases. Commerce, therefore, refuses to look at actual prices and costs in China to determine whether a Chinese company is dumping. Instead Commerce constructs a cost for the Chinese company by taking consumption factors from the Chinese producer for all inputs used to produce the product in question, including raw materials, energy, and labor, and then goes to a Third Surrogate Country to get Surrogate Values often from Import Statistics in the surrogate country to value those consumption factors.

In the past Commerce looked for surrogate values in only one country, India, but recently Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and those countries and import values can change from annual review investigation to annual review investigation.

Thus, it is impossible for the Chinese company to know whether it is dumping because it cannot know which surrogate value that Commerce will pick to value the consumption factors and thus the US importer cannot know whether the Chinese company is dumping.

In the Magnesium from China antidumping case, one of the key inputs is electricity. Electricity from hydro power in China, where many of the Chinese companies are located, can be as low as 3 cents a kilowatt hour. The average electricity cost in the US is 6 cents a kilowatt hour. What price did Commerce use as a surrogate value for electricity in the recent Magnesium review investigation? 7 cents a kilowatt hour.

This is very important because as of February 2014, there were 121 Antidumping and Countervailing Duty orders. 75 of those orders are for raw material products, such as metals, chemicals and steel, which go into downstream US production.

The Commerce Department has broad discretion to determine surrogate countries and values and their choices can change from annual review investigation to annual review investigation, exposing US importers to millions of dollars in retroactive liability based on a process, which is inherently arbitrary, because Commerce does not look at actual prices and costs in China.

Not only is there a problem with retroactive liability for US importers, US end user companies are often blocked from using the competitive Chinese raw material input, which, in turn, exposes the US downstream producers, such as foundries, automobile and chemical producers, to competition from Chinese companies and foreign companies that do have access to the lower cost raw materials. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

One example of the devastating impact of the US Antidumping Law is the impact of the US Magnesium from China antidumping case on the US Magnesium Die Casters. As the North American Die Casting Association stated in June 2010:

North American Die Casting Association

June 7, 2010 ·

NADCA Supports Magnesium Die Casters with a Filing to Help Lift Tariffs

May 27, 2010 by NADCA in NADCA News Wheeling, IL

NADCA recently filed a response to the International Trade Commission (ITC) in hopes to help lift ITC’s tariffs on imported magnesium alloy. Since many die casters have been harmed by the excessive prices being charged by the sole magnesium alloy producer in the U.S., NADCA has filed this response in regards to the Sunset Review of this particular ITC tariff. . . .

NADCA is concerned about magnesium die casters having access to alloy magnesium in the U.S. at globally competitive prices. The antidumping duty orders effectively bar Russian and Chinese alloy magnesium from the U.S. market. Prices for alloy magnesium are higher in the U.S. than elsewhere due to the antidumping duty orders currently in place in the U.S. but not in other major consumer markets.

The lack of effective competition in the U.S. market ― there is only one significant U.S. producer of alloy magnesium, US Magnesium LLC ― has harmed die casters since the imposition of the antidumping duty orders in 2005. NADCA estimates that as many as 1,675 direct jobs and 8,000 supporting jobs have been lost in the die casting industry due to the imposition of these orders.

US Magnesium has not made significant efforts to maintain or increase its sales of alloy magnesium in the U.S. since the imposition of the antidumping duty orders. For example, US Magnesium has not joined in efforts initiated by magnesium end-users to develop new uses of magnesium.

Thus an antidumping order to protect more than 450 production jobs in Utah has resulted in the loss of 9,657 jobs in the downstream market.

What did the ITC do in the face of this argument?

Left the antidumping order against magnesium from China in place for another five years.

Now in 2014, what has been the effect of the ITC’s decision to leave the Antidumping Order on Chinese Magnesium in place—more closed companies and more lost jobs. In 2004-2005 43 US companies sold magnesium die castings in the US market.   According to NADCA, less than 12 US companies now produce magnesium die castings in the United States.

NADCA estimates that 31 US companies have ceased pouring magnesium in the United States because of the antidumping order against magnesium from China.  US companies, such as Lunt in Illinois, simply went out of business because of the Magnesium from China Antidumping order. In 2010, when NADCA did the survey, it estimated a job loss of 1,675 direct jobs. Now the jobs loss has swelled to over 2,000 and closer to 10,000 supporting jobs.

12 companies have survived because they fall into two categories. The major market for magnesium die casting is auto parts. The first set of companies use the magnesium die castings that they produce ( i.e. Honda).

The second set of US companies are those strong in other metals, such as aluminum, and have shifted from producing magnesium die castings to aluminum die castings.

Where did the magnesium jobs and companies go? Many companies and projects simply moved to Mexico or Canada.

Many OEM magnesium auto parts manufacturers moved all their production to Mexico. Five Tier 1 steering wheel manufacturers, for example, have magnesium die casting and wheel assembly plants in Mexico, including TRW, AutoLiv, Takata, Key Safety Systems and Neaton.

The other impact of the antidumping order on Magnesium from China has been to push North American car companies away from magnesium auto parts, necessary for light weight cars, especially powertrain, mainly because of the supply uncertainty.   Lack of access to 80% of the world’s production of magnesium in China and not having globally priced metal inputs is a huge risk to car companies. Magnesium powertrain die casters, such as Spartan, have simply switched to aluminum further reducing magnesium die casting capacity and expertise in the US.

This further diminishes US auto makers acceptance of magnesium auto parts.  This US situation greatly contrasts with Europe where magnesium powertrain components are more than 50% of the magnesium auto applications. EU OEMs are much more advanced at building lighter cars now than their US peers.

Now NADCA has given up because it is “simply too difficult to fight city hall”. My potential client also told me that it was just not worth it to fight the Magnesium antidumping order because the downstream market for the product had simply died in the United States.

The Antidumping law in truth is a jobs destroyer, not a jobs creator.

THE WOODEN BEDROOM FURNITURE ANTIDUMPING CASE—NO HELP TO THE DOMESTIC INDUSTRY BUT 100S OF MILLIONS OF DOLLARS IN RETROATIVE LIABILITY FOR US IMPORTERS AND BANKRUPTCIES

On November 18, 2014, in Mark David, a Division of: Baker, Knapp & Tubbs, Inc. et al v. United States, CIT MAOJI, the Court of International Trade (“CIT”) affirmed a Commerce Department decision of a 216% rate for Maoji, a major Chinese exporter, in the Wooden Bedroom Furniture case creating probably 10s of millions of dollars in retroactive liability for US importers.

In that decision, Judge Tsoucalis stated:

“Maoji does not dispute that they failed to participate fully in the review, and that they therefor can be subjected to an AFA rate. The issue before the court is instead whether Commerce’s application of the 216.01% PRC-wide AFA rate to Maoji was reasonable. Plaintiff argues that the 216.01% PRC-wide AFA rate was neither reliable nor relevant. . . . According to Plaintiff, Commerce applied an “outdated” and “unsupported” margin that did not reflect Maoji’s commercial reality. . . .

Plaintiff does not appear to dispute Commerce’s finding that Maoji failed to rebut the presumption of government control in the Final Results. During the review Maoji notified Commerce that it was not practicable for it to provide a response to the Section D questionnaire or the supplemental Section A questionnaire. . . . Commerce determined that Maoji was a part of the PRC-wide entity. . . . Because Maoji failed to respond to Commerce’s questionnaires regarding its separate rate eligibility during the review, Commerce reasonably concluded that Maoji failed to demonstrate its absence of government control. . . .

Unlike Orient in Lifestyle I, here, Maoji failed to qualify for separate rate status. As a result it received the PRC-wide AFA rate. Because Maoji was part of the PRC-wide entity, Commerce was not required to calculate a separate AFA rate relevant to Maoji’s commercial reality. . . . Commerce was only required to corroborate the rate to the PRC-wide entity. . . . Therefore, Plaintiff’s reliance on Lifestyle I is misplaced. Lifestyle I does not call into question the PRC-wide rate as applied to the PRC-wide entity, rather it only discredits its application to Orient, which successfully established the absence of both de jure and de facto government control.”

Several years ago, an importer asked me to meet with Maoji in Shanghai and talk to them about the Wooden Bedroom Furniture case. From talking to the importer, I knew that Maoji was exporting a lot of furniture from different Chinese manufacturers and asked the Manager from Maoji, what would happen if Commerce picked Maoji as a mandatory respondent in the review investigation and it had to report factors of production/consumption factors from all Maoji’s suppliers? Instead of replying, the Manager got mad and started yelling at me, “Who told you we would have to supply production information for all our suppliers?” End of conversation.

In this case, apparently Maoji could not supply its response to Section D of the questionnaire because it was not practicable. Section D of the questionnaire requires the exporters to report consumption factors for its wooden bedroom furniture suppliers/producers. Too many producers apparently did not want to cooperate with Maoji and supply their production information.

But now all the importers that imported from Maoji are exposed to retroactive liability of 216% on imports. Based on my past experience, this means that importers will owe millions and possibly 10s of millions of dollars on these imports.

A month ago while in Beijing during a meeting with the Chamber of Light Industrial Products, a Chinese Chamber official told me that he regarded the Wooden Bedroom Furniture case as a victory for Chinese companies. My response was that this same case has created retroactive liability of close to, if not more than, $1 billion for US importers. Last year, exports of furniture from Vietnam went by exports of furniture from China. So if the Wooden Bedroom Furniture case was a victory, I would hate to see a loss. In fact, this case has been a disaster.

But this case along with the comments of the Chamber official indicate that Chinese companies simply do not understand the impact of these cases on US importers and in some cases, simply do not care. I have met with company owners in High Point, North Carolina, who have seen their entire $50 million dollar blow up because they had the temerity to import Chinese wooden bedroom furniture from China under an antidumping order.

The irony of the Wooden Bedroom Furniture case is illustrated by the December 2010 ITC determination in the Wooden Bedroom Furniture from China Sunset Review investigation, where ITC Commissioner Pearson stated the antidumping order has not helped the US industry:

this investigation . . . raises some troubling questions. . . . This industry would have faced difficulties during the period of review under any circumstances, given the depth of the recession and its extensive effects on the housing market. But even before the recession began, the industry was not apparently gaining much benefit from the imposition of the order. The domestic industry’s market share continued to decline after the order, as did production, capacity utilization, and employment. In the long run the domestic industry might have been expected to struggle to retain any benefits from this order as importers and retailers sought supply in other, lower-cost markets outside China. But the record here suggests that the domestic industry gained little even before those adjustments began to be made. . . .

I am mindful that the law does not require that an antidumping order or countervailing duty order be shown to benefit the domestic industry in order to reach an affirmative finding in a five-year review. . . .In this particular investigation, additional costs and distortions have been added by the use of the administrative review and settlement process, with little evidence that these distortions have yielded any benefits to the industry overall, the U.S. consumer, or the U.S. taxpayer.

So if the antidumping order does not benefit the US industry, why doesn’t the US industry simply lift the order? Two reasons, first the US industry and the lawyers representing the industry have made money from private settlements with Chinese companies and US importers. Second, although the AD order may not have helped the US industry directly, it has had the effect of eliminating a number of the US industry’s direct competitors, which are US importers forcing them into bankruptcy because they imported furniture under an antidumping order against China.

IMPORT ALLIANCE FOR AMERICA

This is why the Import Alliance for America is so important for US importers, US end user companies and also Chinese companies. As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the antidumping and countervailing duty laws against China for the benefit of US companies.

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

Recently, the Import Alliance established its own website. See http://www.importallianceforamerica.com.

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

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

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for the Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226. The PowerPoint we used to describe the Import Alliance, the specific provisions in the US China WTO Agreement and the Trade War in general is attached FINAL BEIJING IMPORT ALLIANCE POWERPOINT.

TRADE

SOLAR CASES—POSSIBLE SCOPE EXPANSION TO INCLUDE PANELS PRODUCED IN CHINA AND TAIWAN FROM THIRD COUNTRY SOLAR CELLS AND SEPARATE RATES PROBLEM

SOLAR PRODUCTS

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%. On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

Posted on my October blog post are the Commerce Department’s Factsheet, Federal Register notice, Issues and Decision memo from the Antidumping Preliminary Determination along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, which will help importers understand what products are covered by this case. Also attached to the October blog post is the ITC scheduling notice for its final injury investigation in the Solar Products case. The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce, which is posted on my blog, expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department. Although some preliminary discussions have been held, no Agreement has been released for comment as required by the Antidumping and Countervailing Duty law.

Meanwhile, the case moves on and expands. In an October 3, 2014 memo, which is posted in my October post, on its own motion Commerce has proposed to expand the scope of the Solar Panels case to cover all panels produced in Taiwan and China from third country solar cells.

On October 16, 2014, on behalf of two importers that import solar panels with third country solar cells in it, we filed a brief to argue that a change this late in the Solar Products investigation expanding the products subject to investigation violates due process because of the lack of notice to US importers and Chinese exporter and producers. The problem with changing the scope this late in the antidumping and countervailing investigation is that Commerce Department’s record is now closed and those Chinese companies that exported solar panels with third country solar cells in them along with the US companies that import those products have no opportunity to prove that the Chinese companies are separate and independent from the Chinese government. The Chinese companies, therefore, will automatically get an antidumping rate of 167%.

Moreover, the entire antidumping and countervailing duty proceedings at Commerce as well as the injury investigation at the US International Trade Commission (“ITC”) are based on the premise that the products covered by this investigation are solely those solar panels that have solar cells wholly or partially produced in the subject countries, Taiwan or China. If Commerce accepts the proposal, that will no longer be the case. The Solar Products cases will cover Chinese and Taiwan solar panels with third country solar cells in them when there is no specific determination at the Commerce Department that those Chinese and Taiwan solar panels with third country solar cells, in fact, were dumped or that the Chinese companies producing those panels received subsidies and no determination at the ITC that the solar panels with third country solar cells in them caused injury to the US industry.

One reason that Commerce may have decided to expand the scope is because the AD and CVD orders will be difficult to administer and enforce. It will be difficult for Customs officials at the border to determine where the components of a solar cell in a particular panel from China or Taiwan originated. But that is a problem with the scope in Solar World’s initial petition that it filed in this case. Substantially changing the game at this stage in the proceedings raises enormous due process questions in this proceeding.

We now await the Commerce Department’s final determination on December 16th.

SOLAR CELLS—THE SEPARATE RATES ISSUE

On November 20, 2014, in the attached Jiangsu Jiansheng Photovoltaic Technology Co., Ltd. v. United States decision, CIT JIANGSU SEPARATE RATES, the Court of International Trade (“CIT”) granted the Commerce Department’s request to take another look at the separate rates issue regarding certain “state-owned” Chinese companies. In doing so the Court stated that even though there was a possibility of government influence that was not enough to deny a Chinese company separate rates. As indicated below, this decision seems to be at odds with the Diamond Sawblades case and the Tetrafluoroethane case.  As the Court stated:

“Specifically, SolarWorld argues that Commerce gave insufficient weight to evidence that Chinese laws permit the government to intervene in Chinese companies’ operations in a variety of ways. But by definition, the laws of an NME country will generally permit the government of such country to intervene in the operations of its companies. Thus to require NME companies to prove complete legal autonomy would introduce an internal inconsistency into the analysis. Instead, as Commerce explained in this case, the agency determines whether the legal possibility exists to permit the company in question to operate as an autonomous market participant, notwithstanding any residual authority for potential governmental intervention, and if so, whether that company should be exempted from the NME system-wide analysis because it in fact managed its production, pricing, and profits as an autonomous market participant. Here, Commerce first determined that, as a matter of de jure possibility, the respondents in question could have acted as sufficiently autonomous market participants to deserve separate rates; then, having made this threshold determination, Commerce determined that the evidence in the record reasonably supported the conclusion that these respondents in fact did act sufficiently autonomously in terms of managing production and profit and setting prices during the POI.

Commerce requests and is granted permission to reconsider the record evidence regarding whether certain respondents were sufficiently autonomous from the Chinese government in the conduct of their export activities as to qualify for rates separate from the PRC-wide entity. In doing so, Commerce need not require proof of complete freedom from any mere legal possibility of government control. . . .

Commerce has determined that the weight of the evidence suggests the contrary conclusion, and SolarWorld has not pointed to any specific nonspeculative evidence to cast doubt upon this determination. Accordingly, because Commerce has considered and relied upon sufficient evidence to reasonably support the agency’s conclusion that the respondents in question were sufficiently autonomous from government control over their export activities to qualify for a separate rate, and because SolarWorld presents no specific evidence to impugn these reasonable determinations Commerce’s findings with regard to these separate-rate recipients are supported by substantial evidence.. . . ,

SolarWorld also argues that Commerce’s decision to grant separate-rate status to these respondents was arbitrary because, in the past, Commerce has denied such status to respondents who submitted ownership evidence that was later contradicted at verification. But the issue presented here is not analogous to the prior decisions on which SolarWorld relies because the respondents in those cases had submitted ownership information that was contradicted at verification, whereas here there was no similar impeachment of any of the evidence submitted by the challenged separate-rate recipients . . . .

Essentially, SolarWorld believes that the potential for governmental control through such managers or board directors categorically precludes a finding that such companies in fact acted autonomously in conducting their own export activities. The core of SolarWorld’s argument is that these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI.

Fundamentally, SolarWorld’s arguments regarding the de facto autonomy of the challenged separate-rate recipients suffer from the same analytical defect as its arguments regarding de jure autonomy – namely that, in an NME country, there will usually be state involvement and authority to intervene in these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI. . . .

But this fact alone does not necessarily lead to the conclusion that all NME producers and exporters should be categorically treated as in fact setting their prices according to some centralized strategy. Here, each of the challenged separate-rate recipients submitted evidence that “(1) [t]heir [export prices] are not set by, and are not subject to, the approval of a governmental agency; (2) they have authority to negotiate and sign contracts and other agreements; (3) they have autonomy from the government in making decisions regarding the selection of management; and (4) they retain the proceeds of their export sales and make independent decisions regarding the disposition of profits or financing of losses.” Moreover, “[a]ll of the separate rate respondents at issue reported that neither SASAC nor the government was involved in the activities of the board of directors.”

Footnotes omitted, emphasis added.

TETRAFLUORETHANE CASE—COMMERCE FINDS VERY HIGH ANTIDUMPING MARGINS, BUT ITC SAYS NO INJURY AND DISMISSES THE ENTIRE CASE

On October 15, 2014 in the attached fact sheetfactsheet-prc-1112-Tetrafluoroethane-ad-cvd-final-101514, Commerce found dumping and countervailable subsidization of Imports of 1,1,1,2-Tetrafluoroethane from the People’s Republic of China with antidumping rates for all of China of 280%, in part, by refusing to give Chinese state-owned companies their own antidumping rates. Such a high antidumping rate meant that all 1,1,1,2-tetrafluoroethane from China would be excluded from the US market.

On November 12, 2014, however, the US International Trade Commission based on a 4-2 vote in the attached fact sheet, ITC NO INJURY VOTE TETRFLUORETHANE, determined that the US industry was not injured by reason of imports of 1,1,1,2-Tetrafluorethane from China. The case, therefore, is dismissed and no antidumping and countervailing duty orders will be issued.

CAFC SAWBLADES CASE—NO SEPARATE ANTIDUMPING RATES FOR CHINESE STATE OWNED COMPANIES

On October 24th, in the attached one-sentence opinion, DIAMOND SAWBLADES CAFC DECISION, the Court of Appeals for the Federal Circuit (“CAFC”) in Advanced Technology & Materials Co. v. United States affirmed a decision by the CIT that found Chinese diamond saw blade companies had not done enough to show their independence from China’s government to deserve their own anti-dumping order rates, overturning 20 years of past cases by the Commerce Department. The CAFC affirmed the Commerce Department’s determination to provide Advanced Technology a 164.1 percent margin as the China-wide rate, not the 2.82 percent rate that had been assigned to them separately.

As stated in the September newsletter, in response to the CIT decisions in the Diamond Sawblades case, which are attached to my September blog post, Commerce is making it more difficult for Chinese state owned companies that are under the supervision of the PRC’s State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) to get their own separate antidumping rate. Commerce continued that position in the 1,1,1, 2 Tetrafluoroethane from China case, but ITC threw out the case for no injury.

TIRES FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE

Although Senator Kay Hagan sent a letter to Commerce regarding the Tires case, she lost her reelection fight in North Carolina to Republican Tom Tillis apparently, in part, because of her position on trade issue. But there will still be substantial political heat on the Commerce Department over the Tires case.

On November 22, 2014, Commerce announced its preliminary determination in the Tires countervailing duty investigation.  Attached are the Federal Register notice and Commerce Department factsheet  factsheet-prd-passenger-vehicle-light-truck-tires-cvd-prelim-112414 Tires PRC CVD Prelim FR as signed (3). The CVD rates ranged from moderate to very high, with the average rate being moderate.  GITI Tire (Fujian) Co., Ltd. and certain cross-owned companies received 17.69%; Cooper Kunshan Tire Co., Ltd and certain cross-owned companies 12.50%; Shandong Yongsheng Rubber Group Co., Ltd. 81.29% and all other Chinese exporters receiving a rate of 15.69%.

Commerce has found critical circumstances applying countervailing duties to imports 90 days prior to the preliminary determination to cover imports as early as late August.  As it stands now, imports since late August will now be covered by the Countervailing Duty case exposing importers to millions of dollars in retroactive liability.

ALUMINUM EXTRUSIONS

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On the other hand Senator Mitch McConnell sent a May 8th letter about circumvention of the aluminum extrusions antidumping order followed by a letter from Senator Orrin Hatch. Senator Mitch McConnell in January will be the Senate Majority leader as the ranking Republican in the Senate, and Senator Orrin Hatch will be the new Chairman of the Senate Finance Committee. So both Senators will have enormous influence in the new Congress.

On September 4, 2014, Assistant Secretary for Enforcement and Compliance Paul Piquado in a letter posted on my October blog post assured the lawmakers that the agency is “committed to the robust enforcement of the trade remedy laws” to help provide U.S. firms and workers the opportunity to “compete on a level playing field.”

CARBON AND ALLOY STEEL WIRE ROD FROM CHINA FINAL ANTIDUMPING DETERMINATION

On September 2, 2014, in a factual statement, which is posted on my September blog post, the Department of Commerce (Commerce) announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of carbon and certain alloy steel wire rod from the People’s Republic of China (China).  Since the Chinese companies failed to respond to the Commerce Department’s questionnaire, they received a preliminary dumping margin of 110.25 percent with the separate rate steel companies receiving a preliminary dumping rate of 106.19 percent.

Because no Chinese companies participated in the initial investigation, on November 13, 2014, in the attached fact sheet, factsheet-prc-carbon-certain-alloy-steel-wire-rod-ad-cvd-final-111314, Commerce announced its final determination finding dumping and Countervailable Subsidization of Imports of Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China. Commerce handed out 110.25 percent “adverse facts available” anti-dumping duty rates, countervailable subsidies ranging from 178.46 percent for Hebei Iron & Steel to 193.31 percent for Benxi Steel. All other Chinese producers not named were assessed a CVD rate of 185.89.

The agency found critical circumstances that warranted remedial, retroactive duties to be paid by US importers for imports of carbon steel wire rod three months prior to the Commerce Department’s preliminary determination from all Chinese companies in the CVD investigation and all but three Chinese exporters in the AD investigation.

ITC AFFIRMATIVE FINAL INJURY DETERMINATION MONOSODIUM GLUTAMATE FROM CHINA

On November 17, 2014, in the attached Federal Register notice, ITC MONOSODIUM Glutamate, the ITC determined that the US industry was materially injured by reason of imports of monosodium glutamate from China and Indonesia and antidumping and countervailing duty orders will be issued in that case.

COMMERCE DEPARTMENT AFFIRMATIVE PRELIMINARY ANTIDUMPING DETERMINATION—DOMESTIC DRY SEA CONTAINERS FROM CHINA

On November 20, 2014, in the attached fact sheet, factsheet-prc-53ft-domestic-dry-containers-ad-prelim-112014, Commerce announced its affirmative preliminary antidumping determination in the 53-foot domestic dry containers (domestic dry containers) from China case finding dumping margins ranging from 24.27% to 153.24%.

NOVEMBER ANTIDUMPING ADMINISTRATIVE. REVIEWS

On November 3, 2014, Commerce published in the Federal Register the attached notice, NOV REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Certain Cut-to-Length Carbon Steel Plate, Certain Hot-Rolled Carbon Steel Flat Products, Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Diamond Sawblades and Parts Thereof, Fresh Garlic, Lightweight Thermal Paper, Paper Clips, Polyethylene Terephthalate Film, Sheet and Strip, Pure Magnesium in Granular Form, Refined Brown Aluminum Oxide, Seamless Carbon and Alloy Steel Standard Line, and Pressure Pipe, Seamless Refined Copper Pipe and Tube.

The specific countervailing duty cases are:

Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Lightweight Thermal Paper, Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe.

For those US import companies that imported Carbon Steel Plate, Coated Paper, Diamond Sawblades, Garlic and the other products listed above from China during the antidumping period November 1, 2013-October 31, 2014 or during the countervailing duty review period of 2013 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. Recently in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

On October 30, 2014, in the attached notice, OCT REVEW INVESTIGATIONS, based on requests in September, Commerce initiated several review investigations against a substantial number of Chinese companies in the Lined Paper Products, Kitchen Appliance Shelving and Racks, Certain New Pneumatic Off-The-Road Tires, Freshwaters Crawfish Tailmeat, and Narrow Woven Ribbons with Woven Selvedge cases.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST MELAMINE FROM CHINA

On November 12, 2014, Cornerstone Chemical Company filed a new antidumping and countervailing duty petition against Melamine from China and Trinidad and Tobago.  The petition alleges antidumping rates of 263.76 to 374.14 on imports of Chinese melamine.

Melamine is “a fine, white crystalline powder that is used primarily to manufacture amino resins, the major end uses of which include surface coatings, laminates, molding compounds, paper treatment, adhesives, and textile-treatment applications in the automotive, appliance, dinnerware, furniture, fabric, and wood paneling industries.

Attached are  a short version of the petition along with an Extract which includes a list of the Chinese companies and US Import Companies that are the targets of this case,  Petition on Melamine from PRC & Trinidad and Tobago ExtractPage1. The targeted Chinese companies are listed below.

Allied Chemicals Inc. China, Anhui Garments Shoes & Caps Industrial Group Co. China, Anhui Jinhe Industrial Co., Ltd., Anhui Sunson Chemical Group Co., Ltd., ChemChina, China Haohua (Group) Corp., Chengdu Yulong Chemical Co., Ltd., CNPC Urumqi Petrochemical General Factory, CNSG Anhui Hong Sifang Co., Ltd., Dalian Rion Chen Intl. Trade Co. Ltd. China, Dezhou Defeng Chemical Co., Ltd., Far-Reaching Chemical Co., Ltd. China, Forwarder Chinese, Fujian Sangang (Group), Full Shine Group Co., Ltd. China, Future Foam Asia Inc. China, Hebei Jinglong Fengli Chemical Co., Ltd., Hefei Tianfeng Import & Export Co Ltd China, Henan Jinshan Chemical Group Co., Ltd., Henan Yuhua Fine Chemical Co., Ltd., Henan Zhongyuan Dahua Group Co., Ltd., Holitech Technology Co., Ltd. China, Hubei Huaqiang Chemical Group Co., Ltd., JianFeng Chemicals, Jiangsu Heyou Group Co., Ltd., Jiangsu Sanmu Group Corporation, Kaiwei Investment Group, Kingboard (Panyu Nansha) Petrochemical Co., Ltd., M And A Chemicals Corp China, Nanjing Deju Trading Co Ltd China, Nanjing Jinxing Petrochemical Enterprise, Nantong Zixin Industrial Co., Ltd., OCI Trading (Shanghai) Co., Ltd. China, Panjin Zhongrun Chemical Co., Ltd., Puyang San’an Chemical Co., Ltd., Qingdao Shida Chemical Co., Ltd. China, Shandong Jinmei Mingshui Chemical Co., Ltd., Shandong Liaherd Chemical Industry Co. Ltd., Shandong Luxi Chemical Co., Ltd., Shandong Sanhe Chemical Co., Ltd., Shandong Shuntian Chemical Group Co. China, Shandong Xintai Liaherd Chemical Co., Ltd., Shandong Yixing Melamine Co., Ltd., Shanxi Fenghe Melamine Co., Ltd., Shanxi Tianze Coal Chemical Group Co., Ltd., Sichuan Chemical Works Group Ltd., Sichuan Golden-Elephant Sincerity Chemical Co., Ltd., Sichuan Meifeng Group Co., Ltd., Sichuan Jade Elephant Melamine Scientific and Technological Co., Ltd., Sinopec Jinling Petrochemical Co., Ltd., Well Hope Enterprises Limited, Xinji Jiuyuan Chemical Co. Ltd. China, Zhejiang Fuyang Yongxing Chemical Co., Ltd., Zhejiang Medicines & Health Product Imp. & Exp. Co. Ltd. China, Zhongyuan Dahua Group Company Ltd China, Zhucheng Liangfeng Chemical Co., Ltd.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached are a copy of the powerpoint for the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE

There is a great deal of confusion and uncertainty surrounding business with Russian companies. As sanctions continue to expand against Russia, any company interested in doing business with Russia must constantly check the regulations and hire legal counsel. Every single transaction with Russian entities is a potential target of the sanctions, and, therefore, any US company interested in doing business with Russia must be extremely vigilant. The US regulations mirror regulations in Canada and the EU, but there are differences.

There are two groups of US regulations. The most powerful regulations are administered by Treasury—Office of Foreign Assets Control (“OFAC”). A second group of regulations have been issued by the Commerce Department’s Bureau of Industry and Security (BIS) blocking exports of certain energy-sector technologies.

With regards to the sanctions administered by OFAC, US Presidential Executive Orders 13660, 13661, and 13662 define how U.S. Government will identify targets of sanctions (e.g., financial services, energy, metals and mining, engineering, and defense sectors and government agencies and officials). The specific OFAC regulations regarding Ukraine are set forth in 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting transactions with specific persons and entities. The regulations have been posted on my blog, but they do change as the sanctions evolve.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). A US person must also block the property or interest in property of SDNs that they hold or that is located in the United States. The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank.

On July 29, 2014, OFAC issued a new “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions. See: www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx. U.S. persons are prohibited from engaging in certain transactions with persons and entities on the SSI List, but are not required to “freeze” or “block” property or interests in property of such persons and entities as if they were SDNs.

Thus companies or persons on the SSI list may become named SDNs in the future. SSI and SDN Lists are not static but evolving. Lists will likely expand and have expanded based on Russian behavior in Ukraine. Everything could change overnight. Do not rely on a dated list. Keep checking. www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx

On September 11, 2014, the US and the European Union announced new restrictions on Russian access to capital market. The new sanctions target Russian financial, energy and defense companies and make it more difficult to make loans to the five Russian state-owned banks, by tightening debt financing restrictions by reducing the maturity period of the new debt issued by those institutions from 90 days to 30 days. The companies targeted in the new round of OFAC sanctions include OAO Gazprom, Roseneft, Lukoil OAO, pipeline operator, Transneft, and Rostec, a Russian institution dealing in industrial technology products, along with the nation’s largest financial institution, Sberbank of Russia.

OFAC also added another set of Commerce export restrictions on certain oil development technologies by broadening the scope of the items that are banned and adding Gazprom, Lukoil and three other energy firms to the list of specifically banned export destinations.

On November 11, 2014, the White House indicated that the latest fighting between the Ukraine, which has been triggered by Russian aid to the separatists, is likely to trigger another round of sanctions. Deputy National Security Adviser Ben Rhodes stated, “What Russia will find is, if they continue to do that, it’s a recipe for isolation from a broad swath of the international community.”

Putin’s isolation was indicated by his presence at the G20 talks in Australia, where he was given a very “frosty” reception, which, in part, led to a decision to leave the talks early.

CUSTOMS

We have observed many instances where Customs is cracking down on imports of Chinese solar panels with third country solar cells in them. Customs forces the company to provide extensive documentation to prove that the third country solar cells are actually in the Chines solar panels. Many importers are not able to comply and face antidumping rates as high as 250% on imports.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

SUPREMA CASE—INDUCED PATENT INFRINGEMENT 337 CASES

On October 15th, the ITC filed the attached brief, ITC COMMISSION BRIEF, at the Court of Appeals for the Federal Circuit (“CAFC”) in the En Banc appeal in the Suprema Inc. V. US International Trade Commission case. In the prior panel decision, the CAFC held that the ITC could not use induced patent infringement to issue an exclusion order because at the time of the infringement, the imported products did not directly infringe the patents in question. The imported products infringed the patent only after arriving in the United States and being combined with other products in the United States. The ITC asked the entire CAFC to review the panel determination, and the CAFC agreed to an en banc proceeding before all the CAFC judges.

In the brief the ITC argues that the case will have “significant implications for patent holders that rely on inducement liability for protection of their inventions, especially those that hold claims to inventive methods and those that operate industries in the United States.”

The Commission went on to state in the brief:

“Appellants contend that when Congress prohibited the importation of “articles that—infringe” a patent under section 337, Congress meant to excuse the importation of articles intended to induce patent infringement. There is absolutely no support in the language of the statute or the legislative history of section 337 for Appellants’ construction. The importation of “articles that—infringe” via inducement under § 271(b) of the Patent Act is no less prohibited by section 337 than the importation of “articles that—infringe” directly under § 271(a).

The legislative history of the Tariff Act makes clear that it was intended to prevent “every type and form of unfair practice” in the importation of goods. . . . From the beginning, courts understood inducement of patent infringement to be an unfair practice within the scope of the Act. . . .

The only way the Court could adopt Appellants’ interpretation of section 337 would be to ignore the Patent Act, the language of section 337, the intent of Congress, and decades of established practice. This the Court should not do.

To prove the importation of “articles that—infringe” via inducement under section 337 requires proof of three essential elements: (1) importation of an article that is the means of infringement; (2) an intent that the imported article be used to infringe a patent, or willful blindness to infringement; and (3) an act of direct infringement involving the article. . . . The record on review contains substantial evidence of each element. . . .”

The US Government through the Justice Department filed the attched Amicus Brief, US GOVERNMENT SUPREMA BRIEF, which states in part:

Congress charged the International Trade Commission (“Commission” or “ITC”) with the responsibility to exclude from the United States “articles that . . . infringe a valid and enforceable United States patent.” 19 U.S.C. § 1337(a)(1)(B)(i). The Commission reasonably interprets that statutory command to prohibit the importation not merely of fully assembled patented inventions, but of all articles for which infringement liability may be imposed under the Patent Act. No one disputes that, in an ordinary civil action for infringement in district court, a person who imports articles in an intentional scheme to induce infringement of a patent within the United States “shall be liable as an infringer.” 35 U.S.C. § 271(b). The Commission sensibly construes Section 337 in pari materia with that undisputed interpretation of the Patent Act, treating the articles imported in such an infringing scheme as “articles that . . . infringe.”

The Commission acted well within its discretion in adopting that construction of the Tariff Act. The Commission has no choice but to exercise interpretative judgment in applying Section 337(a)(1)(B)(i). As appellants recognize . . ., nothing in the Tariff Act defines the phrase “articles that . . . infringe.” Nor do the patent laws speak in terms of infringing “articles.” Under the Patent Act, persons infringe, not things.  The article by itself cannot literally “infringe” under Section 271 any more than a tract of land can trespass. Thus, in enacting Section 337(a)(1)(B)(i), Congress necessarily expected and intended that the Commission would interpret “articles that . . . infringe” in a manner that appropriately translates the domestic in personam liability provisions of the Patent Act into the in rem framework of exclusion proceedings under the Tariff Act.

The Commission’s construction of Section 337 reasonably resolves that conceptual dilemma by construing the phrase “articles that . . . infringe” to encompass any article whose importation would support infringement liability under the Patent Act, including articles imported for the purpose of inducing patent infringement. That interpretation is consistent with the plain language of both Section 337 and Section 271(b) and with the underlying policies and purposes of the trade laws.

And it has the significant benefit of preventing importers from evading the prohibitions of the Tariff Act through “the most common and least sophisticated form of circumvention, importation of the article in a disassembled state.”

There is little doubt, moreover, that the Commission’s interpretation best effectuates Congress’s intent in 1988 when it enacted Section 337(a)(1)(B)(i). . . . In an uncodified portion of the 1988 legislation, Congress expressly found that Section 337 “has not provided United States owners of intellectual property rights with adequate protection against foreign companies violating such rights,” and declared that the purpose of the 1988 legislation was “to make [Section 337] a more effective remedy for the protection of United States intellectual property rights.”. . . .

That statutory declaration of purpose is impossible to reconcile with the panel’s view that Congress intended to render the Commission “powerless to remedy acts of induced infringement.” . . . By the time of the 1988 amendments, the Commission had for many years construed Section 337 to prohibit, as an unfair trade practice, the active inducement of patent infringement in the United States. It is difficult to imagine why a Congress seeking to enhance the protection of intellectual property rights in Commission proceedings would simultaneously have acted to strip the Commission of its power to redress such infringement.

And it is even more doubtful that Congress would have done so silently and obliquely, without any explanation or even acknowledgment in the legislative history. Congress does not, as the Supreme Court has observed, “hide elephants in mouseholes.” . . . .

In sum, the Commission construes Section 337 to provide remedies against the same forms of infringement at the border that district courts are empowered to redress through in personam infringement actions within the United States. Because that interpretation is reasonable and consistent with “the language, policies and legislative history” of the Tariff Act, it is entitled to deference. . . .

In addition, the atthached briefs were filed by ITC Trial Lawyers Association and Nokia in support of the ITC, ITC TLA Suprema BRIEF Nokia Suprema BRIEF.

SECTION 337 COMPLAINTS

NEW 337 COMPLAINT AGAINST FOOTWARE PRODUCTS FROM CHINA

On October 14th, Converse Inc. filed a new 337 IP case against footwear products/sneakers from China for infringement of Converse’s registered and common law trademarks. Relevant parts of the petition are posted on my October blog post along with the ITC notice. The respondent companies are set forth below:

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Footwear Products . The proposed respondents are: Skechers U.S.A., Inc., Manhattan Beach, CA; Wal-Mart Stores, Inc., Bentonville, AR; A-List, Inc., d/b/a Kitson, Los Angeles, CA; Aldo Group, Canada; Brian Lichtenberg, LLC, Los Angeles, CA; Cmerit USA, Inc., d/b/a Gotta Flurt, Chino, CA; Dioniso SRL, Italy; Edamame Kids, Inc., Canada; Esquire Footwear, LLC, New York, NY; FILA U.S.A., Inc., Sparks, MD; Fortune Dynamic, Inc., City of Industry, CA; Gina Group, LLC, New York, NY; H & M Hennes & Mauritz LP, New York, NY; Highline United LLC d/b/a Ash Footwear USA, New York, NY; Hitch Enterprises Pty Ltd d/b/a Skeanie Unit 3, Australia; Iconix Brand Group, Inc., d/b/a Ed Hardy, New York, NY; Kmart Corporation, Hoffman Estates, IL; Mamiye Imports LLC d/b/a Lilly of New York, Brooklyn, NY; Nowhere Co., Ltd. d/b/a Bape, Japan; OPPO Original Corp., City of Industry, CA; Orange Clubwear, Inc., d/b/a Demonia Deviant, Westminster, CA; Ositos Shoes, Inc., d/b/a Collection’O, South El Monte,CA; PW Shoes Inc., Maspeth, NY; Ralph Lauren Corporation, New York, NY; Shenzhen Foreversun Industrial Co., Ltd (a/k/a Shenzhen Foreversun Shoes Co., Ltd), China; Shoe Shox., Seattle, Washington; Tory Burch LLC, New York, NY; Zulily, Inc., Seattle, Washington; Fujian Xinya I & E Trading Co., Ltd., China; Zhejiang Ouhai International Trade Co., Ltd., China; and Wenzhou Cereals Oils & Foodstuffs Foreign Trade Co., Ltd., China.

On November 12, 2014, the ITC in the attached notice instituted the 337 case against Footwear from China, ITC INSTITUTION CONVERSE CASE. Chinese companies must respond to the complaint in about 30 days. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

On the same day that Converse filed the section 337 case, it also filed a trademark complaint for damages in the Federal District Court in Brooklyn, which is attached to my October blog post.

NEW 337 CASE AGAINST SEMICONDUCTOR CHIPS FROM TAIWAN AND HONG KONG

On November 21, 2014, Samsung Electronics Co., Ltd. and Samsung Austin Semiconductor,LLC filed a section 337 case against Graphics Processing Chips, Systems on a Chip. The respondent companies are listed below:

NVIDIA Corporation, Santa Clara, California; Biostar Microtech International Corp.. Taiwan; Biostar Microtech (U.S.A.) Corp., City of Industry, California; Elitegroup Computer Systems Co. Ltd., Taiwan; Elitegroup Computer Systems, Inc., Newark, California; EVGA Corp., Brea, California; Fuhu, Inc., El Segundo, California; Jaton Corp., Fremont, California; Mad Catz, Inc., San Diego, California; OUYA, Inc., Santa Monica, California; Sparkle Computer Co., Ltd., Taiwan; Toradex, Inc., Seattle, Washington; Wikipad, Inc., Westlake Village, California; ZOTAC International (MCO) Ltd., Hong Kong; ZOTAC USA, Inc., Chino, California.

PATENT AND IP CASES IN GENERAL

INTERDIGITAL WINS JURY CASE AGAINST ZTE

On October 28, 2014, in the attached jury form, ZTE Verdict, a Delaware federal jury determined that smartphones made by Chinese company, ZTE, infringed three patents of InterDigital Communications. The Jurors also determined that ZTE failed to prove the patents obvious. This jury verdict came after a series of setbacks for InterDigital, which lost a series of cases, including a 337 case at the ITC.

InterDigital creates revenue by licensing thousands of patents it develops to various high tech companies and filing cases against companies, such as ZTE and Nokia, that refuse to pay licensing fees.

MADE IN THE USA—FTC AND CALIFORNIA FALSE ADVERTISING PROBLEM

Recently cases involving the Made in US requirement have increased because of stricter requirements by the State of California. FTC guidelines state that an unqualified “Made in USA” label can go on any goods that are “all or virtually all” made domestically in the United States, but the words “virtually all” are open to interpretation based on the specific facts of the case.

But California has stricter guidelines than the FTC requiring the entire product to be made in the US. If even one small part of a product is foreign, California state law says calling the product “Made in the USA” amounts to false advertising. This law has provoked a number of consumer/class action lawsuits filed in California against US manufacturers and retailers.

The California law was passed in 1961 to shield domestic producers from competitors who might get a pricing edge by using large amounts of cheap imported parts to manufacture goods labeled “Made in USA.” The problem is that it has become increasingly difficult to avoid using at least some imported content in a US product.

COURT REFUSES TO DISMISS JEANS CASE AGAINST NORDTROM AND MADE IN USA JEANS

On October 27th, in the attached David Paz v. AG Adriano Goldschmeid Inc. et al, JEANS COURT ORDER, a California Federal Judge refused to dismiss a case for falsely marketing jeans as Made in USA, which they actually contain foreign parts. The Judge stated:

“Although the laws set out different standards for the use of “Made in U.S.A.” labels, it would not be impossible for Defendants to comply with both laws. Outside California, Defendants could use the “Made in U.S.A.” labels, but inside California, they could not. This may be burdensome for Defendants, but it is not impossible for them to do so.” . . .

LAND’S END

On October 29th in the Elaine Oxina v. Lands’ End Inc. case, Elaine Oxina  filed a new Made in USA class action case against clothing retailer Lands’ End Inc. accusing the company of labeling foreign-made apparel as produced in the U.S., a tactic that a California consumer alleges has allowed the business to sell items at a higher price. The complaint alleges:

“Consumers generally believe that ‘Made in USA’ products are of higher quality than their foreign-manufactured counterparts. Due to Defendants’ scheme to defraud the market, members of the general public were fraudulently induced to purchase Defendant’s products at inflated prices.”

The complaint says that Oxina purchased a necktie from Lands’ End’s online store under the assumption that the product was produced domestically. The necktie “was described using the ‘Made in U.S.A.’ country of origin designation, when the product actually was made and/or contained component parts made outside of the United States.”

The complaint also states that an inspection of a fabric tag attached to the necktie revealed that the item “is wholly made” in China. The complaint asserts claims against Lands’ End for false advertising and violations of California’s business code, adding that the alleged damages are in excess of $5 million.

Many retailers are now facing class actions over California’s tough “Made in the USA” labeling law. Retailers are allegedly selling apparel marketed as being American-made, but including foreign-made fabrics, zippers, buttons, rivets and other components.

The lawsuits also illustrate why California differs from the Federal Trade Commission, which also oversees product labeling but has a more relaxed position that is followed by other states. Unlike California, which says every component must be domestic, the FTC allows for some flexibility, saying a “Made in the USA” label can be used if “all or virtually all” of a specific product is made domestically. Getting every component of a piece of clothing from the U.S. has become increasingly difficult as business supply chains have become global.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE AND TAIWAN COMPANIES

On October 22, 2014, in the attached complaint, CHINA COY SUES US COY PATENT INFRINGE, a Chinese company sued Dongguan Prestige Sporting Products Co., Ltd. V. Merits Co. Ltd., a Chinese company, and Merits Health Product Inc., a Florida corporation, for patent infringement of a folding seat rack.

On October 30, 2014, in the attached compliant, CHINA TRADEMARK CASE, Samsung Techwin America, Inc. filed a grey market trademark case against Xtreme Micro LLC and Zhangzhou Peiyu Jinhe Trading Co., Ltd.

On November 5, 2014, Robert Bosch filed the attached patent case, NINGBO WINDSHIELD WIPER CASE, for wiper blades against Ningbo Xinhai Aiduo Automobile Wiper Blade Manufactory Co., Ltd.

On November 7, 2014, Aztrazeneca Pharmaceuticals LP and Astrazeneca UK Ltd. filed the attached pharmaceutical patent case, TAIWAN PHARMA COMPLAINT, against a Taiwan company, Pharmadax USA, Inc., Pharmadax Inc., and Pharmadax Guangzhou Inc.

On November 10, 2013 Dura-Lite Heat Transfer Products Ltd., a Canadian corp., Glacier Radiator Manufacturing Ltd., and Philip Lesage filed the attached patent case, ZHEJIANG MACHINERY, against Zhejiang Yinlun Machinery Co., Ltd. and Yinlun USA, Inc.

On November 14, 2014, the attached complaint, CHANGZHOU KAIDI, was filed by Linak A/S and Linak U.S., Inc. v. Changzhou Kaidi Electrical Co. and Kaidi LLC for patent infringement of innovative electric linear actuator systems for use in many product sectors, including hospital and healthcare equipment.

On November 17, 2014, Tenax SPA filed the attached trademark case, WUHAN TRADEMARK against Wuhan Keda Marble Protective Materials Co., Ltd. for imports of adhesive resins.

PRODUCTS LIABILITY

On October 17, 2014, Joan Kazkevicius filed the attached products liability case, CHINA PRESSURE COOKER CASE, regarding pressure cookers against HSN, Inc., HSNI LLC, W.P. Appliances, Inc., Wolfgang Puck Worldwide, Inc., W.P. Productions, Inc., Zhanjiang Hallsmart Electrical Appliances Co., Ltd., and Guangdong Chuang Sheng Stainless Steel Products Co., Ltd.

FOOD AND FDA RESTRICTIONS

US LIFTS RESTRICTIONS ON CHICKEN AND CITRUS IMPORTS

Despite objections from public consumer groups, on November 5th, the U.S. Department of Agriculture’s Food Safety and Inspection Service stated that it had certified four Chinese poultry product producers to export processed chicken products to the U.S. The USDA accepted the certification of the facilities to export chicken products as long as they are heat-treated or cooked and made from birds originally slaughtered in the U.S. or another approved country such as Canada. The facilities still must be certified for this purpose by Chinese authorities.

The irony is that the Chinese government continues to block US chicken using its antidumping law.

Despite objections from US citrus growers, the U.S. Department of Agriculture (USDA) has proposed to open the continental United States to imports of citrus fruits from China. US citrus companies argue that the Chinese imports could introduce devastating pests to U.S. orchards and invite heavy economic competition from subsidized Chinese farmers.

SEAFOOD

On November 12th, the FDA announced that it may decrease port-of-entry inspections of farm-raised seafood from China and increasingly entrust Chinese authorities with verifying that the country’s aquaculture exports are free of illegal animal drug residues.

CHINESE RESTRICTIONS ON US FOOD PRODUCTS

On Aug. 22, 2014, Agriculture Secretary Tom Vilsack announced that California citrus farmers will be able to resume exports to China this season. A series of scientific exchanges between the USDA’s Animal and Plant Health Inspection Service (APHIS) and China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) resulted in an agreement for California citrus to again be exported to China. APHIS and USDA’s Foreign Agricultural Service worked closely with the U.S. citrus industry to ensure the successful outcome.

In April 2013, California-origin citrus was suspended from entering the Chinese market due to interceptions of brown rot (Phytophthora syringae), a soil fungus that affects stored fruit. Over the next year, USDA worked with China to address China’s plant health concerns and reopen the market for California citrus exports.

In a statement following the USDA announcement, Western Growers Association Executive Vice President Matt McInerney said China was the third-largest market for California citrus exports before the ban. The USDA release said California citrus exports have a total annual value of $30 million.

On September 15th, it was announced that USDA and USTR officials were in Beijing to discuss the implementation of the Trade Facilitation Agreement (TFA) and in particular a meeting of the sanitary and phytosanitary (SPS) working group of the U.S.-China Joint Commission on Commerce Trade (JCCT), where the agenda will likely touch upon issues like China’s ban on U.S. beef and its regulatory process for approving biotechnology traits. China closed its beef market to U.S. exports due to a 2003 outbreak of bovine spongiform encelopathy (BSE) – or “mad cow” disease — and has since set a number of preconditions for opening it, including a U.S. livestock traceability system.

CHINA LIFTS RESTRICTIONS ON WASHINGTON APPLES

On October 31, 2014, in the attached statement from Washington State, CHINA LIFTS WASHINGTON APPLE SUSPENSION, Agriculture Secretary Tom Vilsack announced that China is lifting its suspension of red and golden delicious apple imports from Washington State. The Chinese market for Washington apples was valued at $6.5 million in calendar year 2011.

In 2012, China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) suspended access for Washington red and golden delicious apples due to the repeated interception of three apple pests AQSIQ considers significant: speck rot, bull’s-eye rot, and Sphaeropsis rot. To lift this suspension, USDA’s Animal and Plant Health Inspection Service (APHIS) worked with the U.S. apple industry to develop additional safeguarding measures that address China’s concerns about these pests. Some of these new measures include cold storage of apples and visual inspection of apples prior to shipping to ensure there is no evidence of disease.

CHINESE INVESTMENT AND PRODUCTION IN UNITED STATES

See the very powerful video about Chinese investment in the US creating 70 to 80,000 US Production Jobs. The investment is in the billions and includes textiles.

http://money.cnn.com/video/news/economy/2014/10/23/we-the-economy-made-by-china-in-america.cnnmoney/index.html?iid=HP_River

ANTITRUST—SOLAR AND MAGNESITE

There have been major developments in the antitrust area both in the United States and in China.

SOLAR ANTITRUST CASE DISMISSED

On November 3, 2014, a Federal Judge in Michigan, in the attached opinion, ACTUAL ORDER DISMISS CHINESE SOLAR ANTITRUST CASE, dismissed a $950 million antitrust lawsuit accusing several Chinese solar panel producers of participating in a price-fixing scheme by finding that the US company have failed to establish standing. The US Judge ruled that the Chinese companies did not have the power to set up barriers to entry into the solar panels market and therefore could not eventually charge supracompetitive prices to recoup losses from selling solar panels at below cost in order to gain market share. As the Judge stated: “The court finds that plaintiff has failed to allege a dangerous probability of recoupment and, therefore, has failed [to] allege antitrust standing.”

On November 17th, in the attached complaint, RECONSIDERATION SOLAR CHINA PRICE FIX, Energy Conversion Devices Inc. urged a Michigan federal judge on Friday to reconsider his decision. ECD accused the Chinese companies of orchestrating a complex price-fixing scheme to sell inferior solar panels in the U.S. at artificially low prices by dumping their products in the US and thereby achieve market domination. The Judge’s original dismissal opinion had found that below-cost pricing alone is not enough to prove antitrust injury.

NEW MAGNESIUM ANTITRUST COMPLAINT

In response to the Court order dismissing the Magnesium Antitrust case, with options to amend the complaint, which is attached to my last blog post, on November 3, 2014, Animal Science Products, Inc., Resco Products, Inc., and S&S Refractories filed the attached new antitrust complaint, NEW MAGNESIUM COMPLAINT. The complaint, which will be attached to my blog, is against Chinese magnesium companies, Xiyang Fireproof Material, Co., Ltd., Sinosteel Corp., Sinosteel Trading Co., Liaoning Jiayimetals & Minerals Co., Ltd., Liaoning Foreign Trade General Corp., Liaoning Jinding Mangnesite Group., Dalian Golden Sun Import & Export Corp., Haicheng Houying Corp., Ltd., and Haicheng Huayu Group Import & Export Co., Ltd, Haicheng Pailou Magnesite Ore Co., Ltd. and Yingkou Huachen (Group) Co., Ltd.

AUTO NEWS — CONFESSIONS OF A PRICE FIXER

On November 16, 2014 Auto News published an interesting article “Confessions of a Price Fixer”. See http://www.autonews.com/article/20141116/OEM10/311179961/confessions-of-a-price-fixer

The article described how a Japanese executive used to the comfortable expat life, was one of dozens of white collar criminals arrested and jailed for what has become the largest price fixing antitrust case brought by the US Justice Department. The article goes on to state that the Japanese executive’s guilty plea and prison time came with a special offer from the Japanese company for which he fixed the prices. You get to keep your job after you leave prison and the company “will support me for the rest of my life.”

Today, the Japanese executive has spent his time in prison, but is now back at work at the company. But that situation is not unusual, the unwritten rule in Japanese culture is that the Japanese executive gets rewarded for not spilling the beans and cooperating with the Government’s investigation.

In America, the case has already made history with record fines more than $2.4 billion. 31 auto parts suppliers, mostly Japanese, have pled guilty to prices for parts from wire harnesses to wiper switches. Forty-six individuals, almost exclusively Japanese, have been charged. No one has challenged the charges in court; 26 individuals agreed to prison instead. Another 20 have yet to enter pleas or are otherwise ignoring their indictments.

But most the executives are still employed by their companies, even though the executives were indicted by the U.S. government on felony charges, which carry a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.

The corporate leniency has become a major international issue as U.S. Assistant Attorney General William Baer warned that his antitrust division would consider probation and corporate monitors for companies harboring sensitively placed executives who have not answered the charges against them.  As one Justice Department official stated, “A U.S. company would never keep employing those individuals. In the United States, the first thing they would want to do is fire everybody. But that’s not the instinct at Japanese companies.”

The Japanese company did play tough pressuring the Japanese executive to plead guilty because a company can expect lower fines if it cooperates promptly.

In exchange, the company would take care of his family while he was in jail and find a position for him after he was freed.

Price fixing in Japan is an administrative crime and there is no real enforcement in the criminal area, but Japanese companies and executives have become very afraid. Now the Japanese companies are facing private triple damage actions brought by angry consumers.

CHINA ANTI-MONOPOLY CASES

Although this issue was raised by President Obama at the meetings with the Chinese government officials in Beijing, nothing of substance was reported

T&D MICROSOFT ARTICLE

In the October 2014 report on Chinese antitrust law by the Chinese T&D Law Firm, T&D Monthly Antitrust Report of September 2014, Chinese antitrust lawyer John Ren had this to say about the allegation that the Chinese Anti-Monopoly law discriminates against foreign companies:

NDRC Responded to the Query about Unfair Anti-Monopoly Practices: All People Are Equal before Law

October 30, 2014

The Anti-Monopoly Law has been effective since 2008 and was reinforced with respect to law enforcement in 2013, and then several significant anti-monopoly actions caused great sensations this year. Throughout this period, all circles have increasingly focused on ruling markets by law, breaking down monopoly privilege, and ensuring fair competition among market players. In the meantime, law enforcement with regard to anti-monopoly has drawn great attention.

Recently, several foreign-funded enterprises and foreign brands have been under investigation, and some wonder “whether China’s anti-monopoly undertaking only focuses on foreign-funded companies and is thus unfair”. Concerning this situation, Li Pumin, Secretary General of NDRC (National Development and Reform Commission), stressed in today’s “NDRC with regard to Acceleration of Building Rule of Law Authorities” press conference that all people are equal before the law, and anyone violating Chinese law shall be punished, whether they are foreign-funded or domestic companies.

He pointed out that China’s anti-monopoly law enforcement was not just targeting foreign-funded enterprises; NDRC, in line with the Anti-Monopoly Law, enforced the law with regard to those enterprises and actions restraining fair competition, which involved not only domestic enterprises but also foreign-funded enterprises.

”The Anti-Monopoly system has been rigorously designed. A vast number of large enterprises are involved, various market players are concerned about the system, and NDRC has been promoting the system, as well. In the past few years, NDRC kept summing up and exploring, and has enacted regulations on anti-price monopolies and procedure of administrative execution regarding anti-price monopoly” said Li Kang, the Chief in Laws and Regulations Department of NDRC, in regard to the work that NDRC has done in improving anti-monopoly law enforcement.

Li Kang pointed out that anti-monopoly law enforcement shall be quantified, standardized, and elaborated upon, aiming at ensuring fair, just and open anti-price monopoly enforcement. He stated further that NDRC will expand the anti-monopoly law in both substantive and procedural aspects to raise its enforceability, and in the meantime will confine and normalize NDRC’s law enforcement activities. . . .

SECURITIES

CHINESE COMPANY PUDA COAL DEFAULTS IN SECURITIES CASE

On November 18, 2014, in In re: Puda Coal Inc., a Federal District Court entered the attached default judgment, DEFAULT JUDGMENT PUDA COAL. against Chinese company Puda Coal Securities Inc., which had been sued by an investor class, for selling its sole asset to a private equity firm without telling investors for months and lying about in its IPO plans.

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

DORSEY ANTICORRUPTION DIGEST 0CTOBER 2014

The attached Dorsey’s October 2014 Anticorruption Digest, Anti_Corruption_Digest_Oct2014, had this to say about China:

“National Development and Reform Commission

According to reports, Liu Tienan, former deputy of the National Development and Reform Commission, confessed in court to taking bribes from various companies, including a Toyota Motor Corporation joint venture. The court said that: “The oral representation made by the defendants Liu Tienan on the allegations is: I have taken the initiative to confess to these facts of the allegations.”

He and his son, Liu Decheng, were reportedly charged with taking $5.8 million in bribes. Reports indicated that Mr. Decheng collected most of the bribe money. The allegations indicate that between 2002 and 2011, Mr. Tienan took bribes to facilitate project approvals and filings for a number of companies such as Nanshan Group, Ningbo Zhongjin Petrochemical Co Ltd, Guangzhou Automobile Group, Guangzhou Toyota Motor Co Ltd and Zhejiang Hengyi Group. Mr. Tienan also reportedly aided in the approval procedures for several projects from Guangzhou Automobile Group, which in return hired his son as a special Beijing representative for one of the Group’s subsidiaries.

Mr. Tienan could face life imprisonment. However, reports indicated that he is more likely to receive a lesser sentence as a result of his confession.

Reports indicate that Mr. Tienan was fired from the National Development and Reform Commission after Caijing magazine’s deputy editor Luo Changping accused him of corruption, loan fraud and counterfeiting his degree.

Pharmaceutical sector

Last month, GSK was fined $489 million in China for corruption there. Further to the Changsha Intermediate People’s Court in Hunan province’s verdict, GSK’s Chief Executive, Sir Andrew Witty, reportedly said that: “Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people. GSK fully accepts the fact and evidence of the investigation, and the verdict of the Chinese judicial authorities. Furthermore, GSK sincerely apologizes to the Chinese patients, doctors and hospitals and to the Chinese government and the Chinese people. GSK deeply regrets the damage caused.”

In the wake of the Chinese case, other major drugmakers have also been under increased review. It has been reported that Sanofi, the French drugmaker, informed US authorities that it was investigating allegations of employees paying bribes to healthcare professionals in the Middle East and East Africa to persuade them to prescribe its drugs.”

APEC RESOLUTION

At the end of the APEC meeting in Beijing, the APEC members issued the following resolutions about foreign corrupt practices:

“Anti-Corruption

  1. We resolve to strengthen pragmatic anti-corruption cooperation, especially in key areas such as denying safe haven, extraditing or repatriating corrupt officials, enhancing asset recovery efforts, and protecting market order and integrity.
  1. We endorse the Beijing Declaration on Fighting Corruption (Annex H), the APEC Principles on the Prevention of Bribery and Enforcement of Anti-bribery Laws, and the APEC General Elements of Effective Corporate Compliance Programs.
  1. We welcome the establishment of the APEC Network of Anti-Corruption and Law Enforcement Agencies (ACT-NET) with the finalization of its Terms of Reference. We expect to deepen international cooperation, information and intelligence exchange and experience sharing among anticorruption and law enforcement practitioners from APEC member economies through the ACT-NET and other platforms.
  1. We appreciate the efforts of the Anti-Corruption and Transparency Working Group in collaborating with other APEC fora to improve transparency in this region.”

JUSTICE DEPARTMENT SPEECH ON FCPA

On November 19, 2014 Assistant Attorney General Leslie R. Caldwell in the attached speech, DOJ FCPA STATEMENT, spoke about the Foreign Corrupt Practices Act:

“At the Criminal Division, we are stepping up our efforts in the battle against corruption, at home and abroad. . . .

More relevant to this audience, we are also deeply committed to fighting corruption abroad. Now, more than ever, we are bringing to justice individuals and corporations who use foreign bribery as a way to gain a business advantage. In part, we are doing this using the tools and methods that have made our past enforcement efforts so successful – FCPA prosecutions and penalties. . . .

And now we also are prosecuting the bribe takers, using our money laundering and other laws. And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities. . . .

We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.

Another big change – one that has been building for years but now has really developed momentum – is that we increasingly find ourselves shoulder-to-shoulder with law enforcement and regulatory authorities in other countries. Every day, more countries join in the battle against transnational bribery. And this includes not just our long-time partners, but countries in all corners of the globe.

Together with our foreign law enforcement and regulatory partners we are taking a truly global approach to rooting out international corruption. And make no mistake, this international approach has dramatically advanced our efforts to uncover, punish and deter foreign corruption. . . .

Since 2009, we have convicted more than 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against more than 50 companies with penalties and forfeiture of approximately $3 billion. Twenty-five of the cases involving individuals have come since 2013 alone. And those are just the cases that are now public. . . .

Fighting corruption is not a choice we have made. It is, increasingly, a global imperative. Given the critical nature of this mission, we are bringing more resources to bear than ever before – and we will continue doing so. We have achieved significant successes using our traditional FCPA enforcement tools. We are building on those successes and continuing to evolve our enforcement efforts. Especially with the power of so many countries now standing by our side, we are determined to use every lawful means available to hold the perpetrators of corruption to account. . . .”

SECURITIES COMPLAINTS

In the attached complaint on October 28, 2014, Dragon State International Inc. filed a class action securities case against Keyuan Petrochemicals, Inc., Chenfeng Tao, and Aichun Li.  KEYUAN PETROCHEMICAL

In the attached complaint, PINGYUAN FISHING, on November 24, 2014, Tyler Warriner fled  a class action securities case against Pingtan Marine Enterprise Ltd., Xinrong Zhou, Roy Yu, Jin Shi, and Xuesong Song.

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

Best regards,

Bill Perry

US CHINA TRADE WAR-DEVELOPMENTS IN TRADE, TRADE ADJUSTMENT ASSISTANCE, CUSTOMS, IP/337, ANTITRUST AND SECURITIES

Jinshang Park from Forbidden City Yellow Roofs Gugong Palace Bei“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER OCTOBER 16, 2014

Dear Friends,

There have been major developments in the trade, trade adjustment assistance, Trade Agreements, Customs, 337/IP, US/Chinese antitrust, and securities areas.

TRADE PROTECTIONISM INCLUDING UNFAIR TRADE CASES DO NOT WORK

The problem with trade protectionism, including “unfair” antidumping and countervailing duty cases, is they do not work. Antidumping and countervailing duty cases do not accomplish their objective of protecting the US industry from “unfair” imports.

Note the quotes around unfair, because in the context of China, since the United States refuses to use actual prices and costs in China to determine whether Chinese companies are dumping, the US government simply does not know whether the Chinese companies are dumping.  Instead for the last 30 years Commerce has used Alice in Wonderland surrogate values from surrogate countries that have no relationship with economic reality in China to construct the “cost” of production in China.

With regard to accomplishing its objective of protecting the domestic industry, however, as stated in my January newsletter, on June 28, 1986 in his attached speech from his Santa Barbara ranch, BETTER COPY REAGAN IT SPEECH, President Ronald Reagan realized the simple point that trade restrictions, including unfair trade cases, do not work. As President Reagan stated:

“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.

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

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

Emphasis added.

President Reagan understood the inherent dangers of trade protectionism. As Winston Churchill stated, those who do not learn from history are doomed to repeat it.

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL

While in Washington DC two weeks ago to discuss the Trade Adjustment Assistance for Firms program, I was told by senior aides in a position to know that Unions no longer favor trade adjustment assistance (“TAA”) and instead oppose the new trade agreements, including the Trans Pacific Partnership and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership. As the senior aide also mentioned to me, in all likelihood, TPP and TTIP will go through eventually, but the Trade Adjustment Assistance Programs may die.

As readers of this newsletter know, I am on the Board of Directors of the Northwest Trade Adjustment Assistance (“NWTAAC”). We provide trade adjustment assistance to companies that have been injured by imports.

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

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

With regards to trade adjustment assistance, however, there are two programs. The major trade adjustment assistance is the $1 billion program for employees/workers that have been injured by imports and the smaller $16 million TAAF program.   TAAF happened as an adjunct to TAA for Workers.

Congress started the TAA adjustment assistance programs in 1962 as part of the Trade Expansion Act and as a means of securing support for the Kennedy Round of multilateral trade negotiations. Trade Adjustment Assistance essentially was a tradeoff. If Unions and Workers would support trade liberalization, including free trade agreements, workers would be compensated because of the disruption caused by increased imports.

Many free market Republican types attack the TAA for workers as simply another entitlement that does not need to be paid and can be covered by other programs. In the early 1980s, President Reagan himself put in requirements to set up standards so that Trade Adjustment Assistance for Workers would not simply be an open ended entitlement.

But my belief is that President Reagan indirectly approved the Trade Adjustment Assistance Program for Firms/Companies. Why? Jim Munn.

As stated in the attached 2002 obituary, JIM MUNN, Jim Munn was a famous criminal lawyer in Seattle and an early supporter and personal friend of Ronald Reagan. When I started to get involved in the Northwest Trade Adjustment Assistance Center, I was told that the Center was in place because President Reagan himself asked Jim Munn to look into the program.

Both President Reagan and Jim Munn were firmly opposed to government interference in the marketplace. What did Jim Munn discover when he looked into the Trade Adjustment Assistance Program for Companies? It works. Jim Munn decided to head up NWTAAC for the next 22 years.

In the Workers program, TAA is provided at the state and local levels but overseen by the US Department of Labor. The reemployment services provided include counseling, resume-writing, job-search and referral assistance, travel costs for job searches, relocation allowance, training, income support while the worker is in training and a health coverage tax credit. Although the actual amount paid can be much less, the training itself is up to $22,500 per person, almost the amount given to each company. The rationale is that if an employee loses a job in trade impacted industry, the jobs in the industry are fewer and, therefore, the worker will need to be trained to do something else.

One question, however, is why the Unions do not want the TAA and simply want to oppose the trade agreements? One reason could be that TAA is after the workers have lost their jobs and the training may be for jobs that do not exist.

In contrast to TAA for workers, TAAF is provided by 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.

Total cost to the US Taxpayer for this nationwide program is $16 million dollars—truthfully peanuts in the Federal budget. 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.

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

Moreover, in contrast to other economic assistance programs, TAA for Firms is a long term assistance program, which monitors the companies and makes sure that the company succeeds in completing its trade adjustment assistance program that it has agreed to do. TAAF is focused on helping small and medium size enterprises as the support provided to the companies is only $75,000, which must be matched by the companies.

Although at first glance, free market advocates would not support this program, TAA for Firms works. We have published a cost/benefit analysis, which shows that nearly 80 percent of the firms it has assisted since 1984 are still in business. That is eight out of ten companies saved.

In the recent annual Commerce report on TAAF, which is posted on my blog, it is reported that all US companies that joined the program in 2011 were alive in 2013. If the company can be saved then most of the jobs at that company can be saved. In fact, the attached chart, shows that after entering the program, jobs have increased at the companies. TAAF Change in Employment 2009-13

One reason that TAAF may succeed so well is that small and medium enterprise often have a knowledge gap. Although the companies may hire consultants, many enterprises do not undertake the projects that change the essential economic circumstances of the business, such as lean manufacturing, quality system certification, new product development, or strategic marketing overhaul.

Most managers are not looking for solutions until there is a problem. For a small and medium enterprise, trade impact is one of those problems that require a solution. That solution will in nearly all cases entail outside expertise.

In a sense, TAAF is “retraining the company” so it never has to lose jobs, rather than waiting for the layoffs and retraining the individuals. This works because when companies lose out to trade, it’s like a tsunami hits them. Everything changes. Things the company thought they knew about their product, how to make it, and how to sell it, are no longer true. What they need is the knowledge and innovation to succeed in these new circumstances. That knowledge and innovation comes from the Center Staff and outside expertise – consultants and contractors. For each company, the Staff of the Trade Adjustment Assistance Center analyzes the needs of the firm, prepares a recovery strategy, facilitates the hiring of the outside consultant and then monitors the projects until completion. If the companies get to the right place in terms of product and market, they no longer have to lose out to imports. Instead they grow.

Trade Adjustment Assistance for Firms (TAAF) specifically targets these circumstances. TAAF is based on the recognition that trade impact leads to a knowledge gap in individual firms that is cured by innovation implemented through outside expertise.

TAAF offers qualified trade impacted firms a matching fund for outside expertise. It is a substantial fund, available over a long term, and highly flexible to meet the unique requirements of diverse firms. The cost of outside expertise would normally come as an exceptional operating expense, in other words, it would come from profit. But for a trade impacted small and medium enterprise that may be losing sales under severe price competition, profit is often in short supply.

TAAF offers access to the critical resource, outside expertise, at a time when the firm needs it the most and would be least prepared to acquire it. The exceptional results of the TAAF program all derive from this connection: trade disruption equals knowledge gap; knowledge gap overcome by innovation; innovation implemented through outside expertise, outside expertise enabled by TAAF. To learn more about the TAAF program, please see the website of NWTAAC, http://www.nwtaac.org.

TAA for workers/employees looks for the businesses that are laying off people and gets those people into a service stream. The idea is that imports increased, some people lost jobs, so retrain those people or get them into some other job situation.

In the alternative, TAAF looks for those businesses that are beginning to lose out in a trade impacted market and then works with those businesses to make them stronger so that they do not have to lay off people anymore, and, as happens in most cases, actually add jobs in time.

In talking with Republicans, although thinking that TAA for workers is simply another entitlement, when the TAAF program is described, they are much more interested.

But that brings us to the present problem. We have two TAA programs that are completely separate. One is the $1 billion program to retrain workers with applications made to the Department of Labor, and the other program is the TAAF program with applications made to Commerce Department. There is little interaction between the two programs and little is done by Commerce and Labor to facilitate such communication.

In the TAA for Workers program, because the companies have the data needed to approve the application, the Labor Department tells the companies that they need to provide data in a relatively short time to the Labor Department under threat of subpoena. Similar data is provided to the Commerce Department in the TAAF program, but the company is given weeks to submit the data.

To move the Trade Agreements forward, TAA for workers and TAA for firms need to be reworked and readjusted to make sure that the programs accomplish the objective of saving the jobs and the companies that are hurt by trade liberalization. There needs to be more coordination between the two programs.

One way to adjust the programs is put the TAA for Companies program first and give it more funding so it can help larger companies, such as Steel Companies, where more jobs are located. TAA for Companies could be used to create a program where the best of technologies and advisory services could be brought to bear to help US companies challenged by globalization and trade liberalization. The Worker program then comes afterwards, after the jobs have been lost. Data that is needed for the Worker program can be supplied as part of the Company program.

One interesting point is that when the Korean government examined the US Trade Adjustment Assistance programs, that government decided not to have a workers program, only a company program, to save the jobs before they are lost.

Legislators may ask where should the money to fund these programs come from? Every year the US government collects more than $1 billion in antidumping and countervailing duties. Although the WTO has determined that the antidumping and countervailing duties cannot be given to Petitioning companies that have filed for antidumping and countervailing duties, those duties could be used to help all companies and workers hurt by imports. The WTO allows countries to provide money to companies to adjust to import competition.

Congress needs to create a 21st Trade Adjustment Assistance Program so that support for the new trade agreements can be generated in the broad population. As indicated below, the TPP alone is predicted to increase economic activity by $1 trillion. With such a huge benefit, trade agreements will eventually go through and the question now is how can the US government help workers and companies adjust to the new competitive marketplace?

WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US IMPORTERS, US END USER PRODUCERS AND CHINESE COMPANIES

As stated in numerous past newsletters, market economy for China is important in antidumping cases because the Commerce Department has substantial discretion to pick surrogate values. As mentioned many times before, in contrast to Japan, Korea, Indonesia, India, Iran and almost every other country in the World, because China is not considered a market economy country in antidumping cases Commerce refuses to look at actual prices and costs in China to determine dumping. Instead Commerce takes consumption factors from the Chinese producer for all inputs used to produce the product in question, including raw materials, energy, and labor, and then goes to a Third Country to get values often from Import Statistics in third surrogate countries to value those consumption factors.  Commerce then constructs a “cost” for the Chinese company, which often has no relationship to the actual reality in China.

In the past Commerce looked for surrogate values in only one country, India, but now Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and uses import values in those countries to consctruct the cost.  Those import values and the surrogate country itself can change from annual review investigation to annual review investigation.

Thus, it is impossible for the Chinese company to know whether it is dumping because it cannot know which surrogate country and which surrogate value that Commerce will pick to value the consumption factors.  Since it is impossible for the Chinese company to know whether it is dumping, the US importer cannot know whether the Chinese company is dumping.

This is very important because as of February 2014, there were 121 Antidumping and Countervailing Duty orders. 75 of those orders are for raw material products, such as metals, chemicals and steel, which go into downstream US production.

This point was recently reinforced by a Court of Appeals for the Federal Circuit (“CAFC”) decision in the Garlic from China antidumping case. On September 10, 2014, in the attached Qingdao Sea-Line Trade Co., Ltd. v. United States, in affirming the Commerce Department’s determination in the Garlic case, CAFC OPINION GARLIC WHY MARKET ECONOMY SO IMPORTANT FROM CHINA, the CAFC stated:

“In an administrative review of a non-market economy, Commerce is required to calculate surrogate values for the subject merchandise using the “best available information.” 19 U.S.C. § 1677b(c)(1). Commerce has broad discretion to determine what constitutes the best available information, as this term is not defined by statute. Commerce generally selects, to the extent practicable, surrogate values that are publicly available, are product specific, reflect a broad market average, and are contemporaneous . . .

We also hold that Commerce may change its conclusions from one review to the next based on new information and arguments, as long as it does not act arbitrarily and it articulates a reasonable basis for the change. Indeed, the Trade Court has recognized that each administrative review is a separate exercise of Commerce’s authority that allows for different conclusions based on different facts in the record.”

Emphasis added.

Thus, the Commerce Department has broad discretion to determine surrogate countries and values and their choices can change from annual review investigation to annual review investigation, exposing US importers to millions of dollars in retroactive liability based on a process, which is inherently arbitrary, because Commerce does not look at actual prices and costs in China. Not only is there a problem with retroactive liability for US importers, US end user companies are often blocked from using the competitive Chinese raw material input, which, in turn, exposes the US downstream producers, such as foundries, automobile and chemical producers, to competition from Chinese companies and foreign companies that do have access to the lower cost raw materials.

Just like a toothpaste tube, when you squeeze to help one producer, you often hurt the downstream US producer. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

IMPORT ALLIANCE FOR AMERICA

This is why the Import Alliance for America is so important to US importers, US end user companies and also Chinese companies. As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of US China Trade War and the antidumping and countervailing duty laws against China for the benefit of US companies.

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

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

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

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for the Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226. The PowerPoint we used to describe the Import Alliance, the specific provisions in the US China WTO Agreement and the Trade War is attached.FINAL BEIJING IMPORT ALLIANCE POWERPOINT

TRADE

SOLAR CASES—POSSIBLE SETTLEMENT??—CORRECTION

POSSIBLE SCOPE EXPANSION TO INCLUDE PANELS PRODUCED IN CHINA AND TAIWAN FROM THIRD COUNTRY SOLAR CELLS

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%.

On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

Posted on my blog are the Commerce Department’s Factsheet, Federal Register notice, Issues and Decision memo from the Antidumping Preliminary Determination along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, which will help importers understand what products are covered by this case. Also attached is the ITC scheduling notice for its final injury investigation in the Solar Products case. The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce, which is posted on my blog, expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department.

On the possibility of a suspension agreement in the New Solar Products case or a comprehensive agreement settling all the cases, however, there are indications of ongoing negotiations between the US and Chinese governments.  After being corrected, I checked the law again and the Commerce Department does not need consent from Solar World to go forward with a Suspension Agreement.  But they do need to consult with Solar World. There is no indication that Solar World has been consulted. Commerce is also required to issue a Federal Register notice requesting comments on an Agreement, but nothing so far.

Very recently, however, there have been indications that negotiations are ongoing between the US and Chinese governments in the Solar cases. The talks are confidential and Commerce has refused to even say whether it received a proposal from China for a suspension agreement.

But sources have reported that the two sides have had several meetings since August, when China said it was interested in negotiating a settlement in a public filing. This source said the frequency of these meetings provides at least some indication that there may be movement to finally resolve the solar trade cases.

But there is little time left to conclude an Agreement so the Solar Products case in all probability will go to final determination. Antidumping and countervailing duty orders will probably be issued and could be in place for 5 to 30 years. Chinese companies and US importers will simply then try and get around the situation by setting up production in third countries.

As a result of the Solar cases and the corresponding Polysilicon antidumping and countervailing duty case brought by the Chinese government against the United States, Washington State officials have told me that REC Silicon, which has the largest polysilicon production facility here in Moses Lake, Washington, is about to set up a joint venture in China to produce polysilicon in that country.

Meanwhile, the case moves on and expands.

In the attached October 3, 2014 memo, DOC MEMO, on its own motion Commerce has proposed to expand the scope of the Solar Products case to cover all panels produced in Taiwan and China from third country solar cells. As Commerce states in the October 3, 2014 memo, which will be posted on my blog:

“Interested parties have submitted comments on the scopes of the above-referenced antidumping duty (AD) and countervailing duty (CVD) investigations, including certain concerns about the scope’s administrability and enforcement. In response, the Department is considering the possibility of the scope clarification described below and is providing interested parties with an opportunity to submit comments. Currently, the scopes of the AD and CVD investigations of certain crystalline silicon photovoltaic products from the People’s Republic of China (PRC) and the scope of the AD investigation of certain crystalline silicon photovoltaic products from Taiwan contain the following language:

“For purposes of this investigation, subject merchandise includes modules, laminates and/or panels assembled in the subject country consisting of crystalline silicon photovoltaic cells that are completed or partially manufactured within a customs territory other than that subject country, using ingots that are manufactured in the subject country, wafers that are manufactured in the subject country, or cells where the manufacturing process begins in the subject country and is completed in a non-subject country.”

Specifically, we are considering a scope clarification that would make the following points:

For the PRC investigations, subject merchandise includes all modules, laminates and/or panels assembled in the PRC that contain crystalline silicon photovoltaic cells produced in a customs territory other than the PRC.

For the Taiwan investigation, subject merchandise includes all modules, laminates and/or panels assembled in Taiwan consisting of crystalline silicon photovoltaic cells produced in Taiwan or a customs territory other than Taiwan. In addition, subject merchandise will include modules, laminates, and panels assembled in a third- country, other than the PRC, consisting of crystalline silicon photovoltaic cells produced in Taiwan.”

Today October 16, 2014, on behalf of two importers that import solar panels with third country solar cells in it, we filed a brief to argue that a change this late in the Solar Products investigation expanding the products subject to investigation violates due process because of the lack of notice to US importers and Chinese exporter and producers.  The problem with changing the scope this late in the antidumping and countervailing investigation is that Commerce Department’s record is now closed and those Chinese companies that export solar panels with third country solar cells in them along with the US companies that import those products have no opportunity to prove that the Chinese companies are separate and independent from the Chinese goverment.  The Chinese companies, therefore, will automatically get an antidumping rate of 167%.

Moveover, the entire antidumping and countervailing duty proceeding at Commerce as well as the injury investigation at the US International Trade Commission (“ITC”) are based on the presmise that the products covered by this investigation are solely those solar panels that have solar cells wholly or partially produced in the subject countries, Taiwan or China.  If Commerce accepts the proposal, that will no longer the case.  The Solar Products cases will cover solar panels with third country solar cells in them when there is no specific determination at the Commerce Department that those solar panels with third country solar cells, in fact, were dumped or that the Chinese  companies producing those panels received subsidies and no determination at the ITC that the solar panels with third country solar cells in them caused injury to the US industy.

One reason that Commerce may have decided to expand the scope is because the AD and CVD orders will be difficult to administer and enforce. It will be difficult for Customs officials at the border to determine where the components of a solar cell in a particular panel from China or Taiwan originated.  But that is a problem with the scope in Solar World’s initial petition that it filed in this case.  Substantially changing the game at this stage in the proceedings raises enormous due process questions in this proceeding.

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

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

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

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

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

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

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

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

On July 17th, all Republican members of the House Ways and Means Committee sent a letter to USTR Froman, which is posted on my blog, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Recently, former USTR Ron Kirk in an opinion piece urged the negotiators to conclude an agreement without approval of the TPA. In discussing the situation with senior Republican aides in the US Congress, it was made clear that without TPA no TPP can be concluded. When asked about the Kirk statement, the response of one Republican aide recently was “I hope we are over that point.”

Now the story continues . . . .

On September 5th, it was reported that a coalition of unions and advocacy groups called on U.S. Trade Representative Michael Froman to make sure that public health programs are immune to challenges from powerful pharmaceutical firms under U.S. trade deals. The AFL-CIO, Center on Budget and Policy Priorities, AARP and other groups in a letter to Froman, said that if an investor-state dispute settlement mechanism — or ISDS — is included in the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, it must contain a shield for Medicare, Medicaid and other government health initiatives. The groups fear that pharmaceutical companies could use the ISDS system to challenge regulations that state legislatures, Congress or administrative agencies use to manage drug costs in public programs.

On September 8th, it was reported that pork producers in seven countries put pressure on negotiators meeting in Vietnam for a session of Trans-Pacific Partnership negotiations to resist a Japanese government proposal that would exempt certain sensitive food products from tariff cuts in the deal. Organizations representing hog farmers in the U.S., Canada, Australia, Mexico and Chile circulated an open letter to negotiators reiterating that full tariff elimination is a core principle of the TPP and that Japan’s “unacceptable” proposal to carve out pork and other food products from tariff cuts would undermine the credibility of the deal now and in the future stating:

“A broad exemption for Japan will encourage other TPP countries to withhold market access concessions, backtrack on current offers, lower the ambition on rules language and possibly unravel the entire agreement. Additionally, it would set a dangerous precedent for the expansion of the TPP when other nations are likely to demand a Japan-type deal.

“We call on each of our governments to redouble their efforts to move Japan away from this untenable position. If Japan is unwilling to open its markets fully to our products, it should exit the negotiations so that the other nations can expeditiously conclude the negotiations.”

On September 10th, it was reported that the latest session of the TPP talks in Hanoi had wrapped up with officials reporting progress on the agreement’s chapters covering intellectual property, state-owned enterprises and labor as the TPP negotiators work to deliver a substantial outcome in time for a closely watched November 10-11 APEC summit in Beijing. Assistant USTR Barbara Weisel stated:

“We have committed to a focused work plan, which will allow us to boost momentum and make continued progress. All countries involved want to reach a conclusion to unlock the enormous opportunity TPP represents.”

Canadian and Vietnamese government officials issued similar statements.

Scheduling is significant as the 12 TPP nations are quickly approaching the November 10-11 summit of the Asia-Pacific Economic Cooperation in Beijing, which President Barack Obama and others have indicated as a deadline for the partners to conclude the talks or at the very least announce a significant breakthrough on the major differences.

On September 29th, House Democratic Whip Steny Hoyer (Md.) stated that he did not expect Congress to hold debate in the upcoming post-election lame-duck session on whether to give the White House the authority to expedite international trade pacts. At an appearance at the National Press Club, Hoyer stated that he did not see enough support to bring trade promotion authority, or TPA, to the House floor.

Although some House Republicans had expressed interest in trying to move TPA during the lame duck session, when the political fallout from opponents would be less, Hoyer stated:

“I don’t think right now there is the consensus, in either party, to bring that forward. I doubt seriously, as I said, that we’re going consider trade legislation.”

On September 25, 2014, it was reported that top Japanese and US trade officials had closed a two day meeting in Washington DC without resolving any key differences regarding agriculture or automobiles in the TPP Talks. A meeting between U.S. Trade Representative Michael Froman and Japanese TPP czar Akira Amari resulted only in a brief statement from the U.S. side saying that the nations’ key differences still remain.

The USTR stated, that “While there were constructive working level discussions over the weekend, we were unable to make further progress on the key outstanding issues.” The failure of Froman and Amari to bridge the considerable gaps on food and automotive trade remains a significant barrier to the likelihood of a significant outcome in the broader 12-nation TPP talks in time for an Asia-Pacific summit in November 10-11 in Beijing, China.

On October 1, 2104, the House of Representatives Ways and Means Committee circulated the attached e-mail, WAYS AND MEANS WASH POST, with an editorial from the Washington Post on the Trans Pacific Partnership and the need to reinvigorate the process. The House Ways and Means e-mail states:

“Momentum for the Trans-Pacific Partnership Needs to be Revived

By The Editorial Board

The Trans-Pacific Partnership is a proposed free-trade agreement that will knit the United States and 11 nations of South America, North America and Asia more closely together, while providing a geopolitical counterweight to a rising China. The pact would be especially valuable because Japan is willing to join, which would require a long-overdue opening and restructuring of its protected but lackluster economy. Indeed, without Japan, the world’s third-largest economy, the TPP loses much of its strategic significance.

So it was disappointing to learn that a Sept. 24 meeting between American and Japanese trade negotiators in Washington broke up after only an hour over the same old issue, Japanese resistance to U.S. farm exports that has plagued the two nations’ dealings for decades. The Japanese departed without touching a sandwich buffet that had been laid out in anticipation of an extended working session, according to the Wall Street Journal.

This is only the latest troubling development for the centerpiece of what was once meant to be President Obama’s foreign policy “pivot” to Asia.  As 2014 began, Japanese Prime Minister Shinzo Abe was promising to join the U.S.-led free-trade agreement as a spur to his own structural economic reforms. A bipartisan, bicameral group of senior U.S. lawmakers had agreed on a plan for “fast track” legislative authority to expedite a congressional vote on the TPP, once the 12 would-be members hammered out a final deal. Bucking resistance from trade skeptics in his own party, Mr. Obama had offered a friendly reference to that proposal in his State of the Union address on Jan. 28.

But Mr. Obama’s call was received coolly by Senate Majority Leader Harry Reid (D-Nev.) and by key Democratic constituencies such as organized labor. Foreign crises in the Middle East and Ukraine occupied the White House and Congress. Two champions of the bipartisan trade promotion measure, Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.), retired or planned to retire from Congress.

For all of Mr. Abe’s talk of bold steps and confronting special interests in Japan, his negotiators have not yet backed up the prime minister’s talk with concrete proposals, even though the prime minister has said repeatedly that opening agricultural markets is in Japan’s interest. The upshot is that momentum behind the TPP seems to be flagging and the administration’s goal of a tentative agreement by the end of 2014 is looking less feasible.

Vice President Biden tried to patch things up with Mr. Abe in a meeting on Friday, which produced a boilerplate pledge to seek an agreement. It will take more than that to revive the momentum for the TPP and close a deal. Back home, Mr. Abe needs to keep the pressure on special interests. Congress could reciprocate by moving ahead promptly with fast-track authority during the post-election lame-duck period — which will take political courage on its part, too.”

On October 2, 2014, it was reported that the Australian Government has agreed to host a meeting of the TPP trade ministers at the end of October to deal with the outstanding issues regarding intellectual property, agricultural market access, state-owned enterprises and other areas as negotiators race to close major parts of the pact by year’s end. The three day meeting will start in Sydney being Oct. 25, with the hope that the 12 TPP partners can seal the “basic elements of the agreement” before the end of the year.

But the differences with Japan and the lack of Trade Promotion Authority are two big issues that need to be addressed by the US Government. Without these two issues being resolved the chance of any big breakthroughs is small. These two problems would appear to prevent a final deal at the November APEC meeting, which has been an objective of the Obama Administration.

TTIP—FREE TRADE AGREEEMENT WITH EU

Meanwhile, trade negotiators for the US and the European Union announced on Friday, October 3rd that the seventh round of Transatlantic Trade and Investment Partnership had wrapped up with reports of steady progress on chapters covering trade in services as well as regulations covering automobiles, chemicals and food safety. Assistant U.S. Trade Representative Dan Mullaney, the lead U.S. TTIP negotiator, stated:

“As this painstaking work of building a foundation for an agreement is completed, we will need to make a high-level push to achieve the comprehensive and ambitious results that we are now working to support. That will require a shared commitment at the highest levels on both sides of the Atlantic to move forward quickly.”

INDIA STILL KILLS WTO TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India as a result of food security initiatives.

On September 22, 2014, Director General Roberto Azevedo of the WTO warned that a deadlock on the multilateral body’s implementation of a modest trade-facilitation agreement could impose a “freezing effect” on the WTO’s work in other areas. The Director General stated:

“Many areas of our work may suffer a freezing effect, including the areas of greatest interest to developing countries, such as agriculture. All negotiations mandated in Bali, such as the one to find a permanent solution for the issue of public stockholding for food security purposes, may never even happen if members fail to implement each and every part of the Bali Package, including the trade facilitation agreement.”

Azevedo restated what he has said in the past that India and the developing countries’ concerns on food security have been addressed in the Bali package, which extended a “safe harbor” period prohibiting challenges against the controversial programs while committing to hold talks to find a permanent fix.

Azevedo stated:

“Failing to agree on new rules for twenty years is a very disturbing record. Considerably graver than that is not being able to implement what has been finally agreed only a few months earlier. The question that WTO members are trying to answer is not whether members can ensure their food security but rather under which commonly agreed disciplines they can implement policies to achieve this goal without further distorting trade or aggravating the food insecurity of third countries.”

On September 30th, however, in his first meeting with President Obama, Indian Prime Minister Narendra Modi on Tuesday reaffirmed his government’s position in the ongoing fight to implement a World Trade Organization trade facilitation pact, linking his support for the deal to action on food security issues. Modi made clear that India is not backing down from the push to shield its food security programs from legal challenges, which led the WTO to miss the July 31 deadline to implement the Trade Facilitation Agreement.

After the meeting with President Obama, Modi tweeted that “We had an open discussion on WTO issue. We support trade facilitation, but a solution that takes care of our food security must be found.” Speaking to reporters through a translator alongside Obama, Modi also said he believed it would be possible to resolve the impasse “soon.”

On September 29th, the WTO cited little progress following a Sept (PCTF) meeting, nearly two months after the advance the trade facilitation plan over concerns related to India’s food safety demands.

On October 1st, at the WTO’s 2014 public forum, United Nations Secretary General Ban Ki-moon urged the World Trade Organization to overcome its internal fights and reach a deal on new global trade rules, including the Trade Facilitation Agreement, warning that the rise of regional trade pacts could undermine the WTO and leave developing nations way behind. Secretary General Ban said that the WTO’s mission to eliminate trade barriers is a key driver of the UN’s own initiatives to promote global development. He called for a renewed commitment to the long-stalled Doha round of trade negotiations. Ban said:

“Trade can — and should — benefit everyone. That is why the international community needs to avoid protectionism. We need an open, fair, rules-based and development-oriented international trading regime in the spirit of the Doha Development Round.”

WTO Director-General Roberto Azevedo also spoke at the forum:

“Trade has become a matter of headlines and high politics once again.  Now, more than ever, our work here has the potential to touch the lives of almost everyone on this planet.”

TIRES FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE

Led by Senator Kay Hagan of North Carolina, 31 Democratic US Senators wrote the attached letter, 31 DEMOCRATIC SENATORS BACK TIRES CASE, to Secretary Penny Pritzker of the Commerce Department in support of the Tires case from China. The 31 Senators stated:

“We are writing in strong support of the Department’s decision to initiate antidumping and countervailing duty investigations of passenger vehicle and light truck tires from China.

As you well know, China has targeted the passenger vehicle and light truck tire sector for development and there are several hundred tire manufacturing facilities now operating in that country. In 2009, the United Steelworkers (USW) filed a Section 421 petition seeking relief from a flood of similar tires from China that were injuring our producers and their workers. That petition was successful and the relief that was provided helped to restore market conditions. Employment stabilized and companies producing here invested billions of dollars in new plant and equipment.

Unfortunately, shortly after relief expired, imports of these tires from China once again skyrocketed. Since the Section 421 relief ended in 2012, imports from China have roughly doubled. In response, on June 3, 2014, the United Steelworkers (USW) filed petitions with the Department alleging dumping and subsidies. The Steelworkers’ petitions identified dumping margins as high as 87.99 percent and provided sufficient information for the Department to initiate an investigation on 39 separate subsidies available to tire producers in China.

Our laws need to be fairly and faithfully enforced to ensure that workers – our constituents – can be confident that, when they work hard and play by the rules, their government will stand by their side to fight foreign predatory trade practices. Thousands of workers across the country are employed in this sector, making the best tires available.

America’s laws against unfair trade are a critical underpinning of our economic policies and economic prosperity. Given the chance, American workers can out-compete anyone. But, in the face of China’s continual targeting of our manufacturing base, we need to make sure that we act quickly and enforce our laws. That is what we are asking and urge you and your Department carefully analyze the facts and act to restore fair conditions for trade.”

Senator Kay Hagan of North Carolina is in a tough reelection fight, which led to her effort to support her constituent, the Union and the Goodyear plant in Fayetteville, North Carolina.

TOUGHER TRADE LAWS??

On Wednesday October 1, 2014, in the attached press release, BROWN, Democratic U.S. Senator Sherrod Brown of Ohio announced at Byer Steel Group, a US rebar producer, in Cincinnati new legislation that would help level the playing field for American manufacturers by strengthening the ability of the U.S. to crack down on unfair foreign competition resulting from violations of trade law. Senator Brown stated:

“As American manufacturing continues its steady comeback, it is critical that we fully enforce our trade laws to ensure that American companies – like Byer Steel – can compete on a level playing field. That’s why the Leveling the Playing Field Act is so important. We must fight back against foreign companies’ efforts to weaken our trade laws and exploit loopholes. And that’s exactly what the Leveling the Playing Field Act does. I look forward to working with my colleagues in a bipartisan fashion to get this bill passed.”

ALUMINUM EXTRUSIONS

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

As a follow up to the May 8th letter by Senator Mitch McConnell reported in my last newsletter, on August 14th, Senator Orrin Hatch sent the attached letter, HATCH LETTER ALUMINUM, to Paul Piquado, Assistant Secretary for Enforcement & Compliance, at the Commerce Department, expressing his concerns of circumvention of the antidumping and countervailing duty orders on Aluminum Extrusions. In the letter, Senator Hatch stated:

“Futura Industries and its 327 employees based in Clearfield, Utah is among the U.S. companies affected by the Chinese products found to be dumped and subsidized. I understand that the Department is currently conducting two scope inquiries related to imports of 5000-series alloy aluminum extrusions in place of the 6000-series alloy aluminum extrusions to which the orders apply. I urge you to apply all applicable laws and regulations in making the Department’s scope rulings.”

On August 19th, Congressman Sessions sent a similar attached letter, SESSIONS LTR, to Assistant Secretary Paul Piquado on behalf of his constituent Texas Western Extrusions Corporation and its 700 employees expressing deep concern by recent reports of unfair trade practices from China in exporting the 5000-series alloy aluminum extrusions that once again are “threatening Texas jobs.

On September 8, 2014, it was reported that numerous members of Congress have urged the U.S. Department of Commerce to rule that the so-called “5000 series” of extrusions currently being shipped into the U.S. should be covered by the aluminum extrusions antidumping and countervailing orders.

On September 4, 2014, Assistant Secretary for Enforcement and Compliance Paul Piquado in the attached letter, ALUMINUN COMMERCE RESPONSE, to the lawmakers assured them that the agency is “committed to the robust enforcement of the trade remedy laws” to help provide U.S. firms and workers the opportunity to “compete on a level playing field.” The Assistant Secretary also stated that his office is aiming to reach a decision in its probes by Oct. 8.

STEEL WIRE ROD FROM CHINA PRELIMINARY ANTIDUMPING DETERMINATION

On September 2, 2014, in the attached factual statement,  factsheet-prc-carbon-alloy-steel-wire-rod-ad-prelim-090214, the Department of Commerce (Commerce) announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of carbon and certain alloy steel wire rod from the People’s Republic of China (China).  Since the Chinese companies failed to respond to the Commerce Department’s questionnaire, they received a preliminary dumping margin of 110.25 percent with the separate rate steel companies receiving a preliminary dumping rate of 106.19 percent.

CAFC AFFIRMS THE IMPORTANCE OF SEPARATE RATES FOR CHINESE EXPORTERS AS OPPOSED TO PRODUCERS

On September 10, 2014, in the attached Michaels Stores, Inc. v. United States case, CAFC MICHAELS CHINESE EXPORTERS NEED TO GET THEIR OWN RATE, the Court of Appeals for the Federal Circuit (“CAFC”) restated the importance of Chinese exporters, including trading companies, getting their own antidumping rates and that the importer, in fact, confirm that the Chinese exporter has a separate rate. In the case, Michaels, a US importer, assumed that the since the Chinese producer had an antidumping rate, that rate applied to the Chinese exporter. Not true. As the CAFC stated:

“Indeed, it has been Commerce’s policy since 1991 to apply a country-wide rate to all exporters doing business in the PRC unless the exporter (not the manufacturer) establishes de jure and de facto independence from state control in an administrative review proceeding. . . . This court has endorsed this presumption on multiple occasions. . . .

Michaels has not demonstrated that Commerce’s interpretations of the regulation in practice are plainly erroneous or inconsistent with the regulation. Because a noncombination rate for the exporter was established as the PRC-wide rate of 114.90%, Michaels could not rely on its producer rates as a substitute. Were we to conclude otherwise, Michaels could circumvent its antidumping obligations by buying pencils from a state-controlled exporter at a discounted price and then use the antidumping rate associated with its non-state controlled manufacturer.”

OCTOBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On October 1, 2014, Commerce published in the Federal Register the attached notice, OCT REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Barium Carbonate, Barium Chloride, Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers. No countervailing duty cases were listed

For those US import companies that imported Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers and the other products listed above from China during the antidumping period October 1, 2013-September 30, 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed 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 in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

DUELING US AND CHINA WTO APPEALS

As mentioned in the prior post, on July 14, 2014, in a decision and summary, which is posted on my blog, the WTO upheld China’s claims that certain US countervailing duty cases against China were inconsistent with the WTO Agreement. On August 22nd, China filed a notice of appeal at the WTO with regards to the remaining cases, followed by the US notice of appeal on August 27th.

Both appeals are taking issue with the initial WTO panel’s finding on the uses of all facts available (“AFA”) in countervailing duty cases against China. Commerce based its AFA determinations on the failure of the Chinese government to provide adequate information to Commerce to make a determination on certain programs of the Chinese government.

In the initial panel ruling, while the US won on China’s challenge to AFA findings, the US lost on several other issues, including the Commerce Department’s use of out of China benchmarks to measure the subsidies and the Commerce Department determination that every state-owned company, in fact, is part of the Chinese government, even if it does not function as a governmental entity. In the initial panel decision, the WTO panel determined that Commerce’s decision to automatically find that state owned enterprises (SOEs) to be part of the government and “public” bodies, which therefore constituted “government involvement” in the market, was a violation of the Countervailing Duty Agreement. The US did not appeal this decision by the WTO initial panel and, therefore, is final and a loss for the US government.

The US alleges that Chinese government made procedural errors in appealing the cases to the WTO, including the failure to specify which AFA determinations were being appealed. The initial panel ruling rejected the US argument stating, “While we have some sympathy for the United States’ position, namely that more detail could have been provided in the panel request regarding what in particular about the manner in which the United States resorted to and used facts available is allegedly inconsistent with Article 12.7 of the SCM Agreement, we are not convinced that Article 6.2 of the DSU requires this,”

During the panel proceedings, China had argued that because Commerce cannot automatically assume that State Owned Enterprises/Companies are public bodies for the purposes of Article 1.1(a)(1), it should also not automatically assume that market conditions are distorted just because a State-Owned Company is involved in the marketplace. The initial panel decision, however, did not directly address this issue raised by the Chinese government and is now being appealed by China. The initial panel stated:

“In our view, some determinations are based on the market share of government-owned/controlled firms in domestic production alone, others on adverse facts available, others on the market share of the government plus the existence of low level of imports and/or export restraints.”

China is also asking on appeal that the WTO overturn the panel’s finding affirming the Commerce Department’s methodology for determining whether a subsidy is specific to an enterprise or group of enterprises within a certain region.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST BOLTLESS STEEL SHELVING FROM CHINA

On August 26, 2014, Edsall Manufacturing filed a new AD and CVD case against Boltless Steel Shelving from China. The alleged Antidumping rates are 33 to 267%.

The ITC notice and the relevant pages of the petition are attached.  STEEL SHELVING SHORT PETITION ITC PRELIMINARY NOTICE

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached are copies of the powerpoint for the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters.  US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE

There is a great deal of confusion and uncertainty surrounding business with Russian companies. As sanctions continue to expand against Russia, any company interested in doing business with Russia must constantly check the regulations and hire legal counsel. Every single transaction with Russian entities is a potential target of the sanctions, and, therefore, any US company interested in doing business with Russia must be extremely vigilant. The US regulations mirror regulations in Canada and the EU, but there are differences.

There are two groups of US regulations. The most powerful regulations are administered by Treasury—Office of Foreign Assets Control (“OFAC”). A second group of regulations have been issued by the Commerce Department’s Bureau of Industry and Security (BIS) blocking exports of certain energy-sector technologies.

With regards to the sanctions administered by OFAC, US Presidential Executive Orders 13660, 13661, and 13662 define how U.S. Government will identify targets of sanctions (e.g., financial services, energy, metals and mining, engineering, and defense sectors and government agencies and officials).

The specific OFAC regulations regarding Ukraine are set forth in 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting transactions with specific persons and entities. Attached are the Ukraine regulations, UKRAINE RELATED SANCTIONS REGULATIONS, but they do change as the sanctions evolve.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). A US person must also block the property or interest in property of SDNs that they hold or that is located in the United States. The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also:   www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank.

When such SDN property is blocked, it must be reported to OFAC within 10 days, and cannot be dealt in by U.S. persons without prior authorization from OFAC.  Civil penalties are up to $250,000 or 2x transaction value, per violation (strict liability regime); criminal fine up to $1 million, and/or up to 20 years in prison.

On July 29, 2014, OFAC issued a new “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions. See www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx. U.S. persons are prohibited from engaging in certain transactions with persons and entities on the SSI List, but are not required to “freeze” or “block” property or interests in property of such persons and entities as if they were SDNs.

Specifically U.S. persons are prohibited from:

“transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for these persons … their property, or their interests in property. All other transactions with these persons or involving any property in which one or more of these persons has an interest are permitted, provided such transactions do not otherwise involve property or interests in property of a person blocked pursuant to Executive Orders 13660, 13661, or 13662, or any other sanctions programs implemented by the Office of Foreign Assets Control [i.e., an SDN]”

General OFAC policy restrictive measures apply automatically to any entity owned 50% or more by SDN, even if the entity is not specifically named as SDN.

Even if company is not on SDN/SSI list, a US company wishing to do a transaction with a Russian company needs to determine in writing whether the company is 50% or more owned by any SDN or controlled by an SDN. As OFAC has stated in its announcement:

“U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest”

Thus companies or persons on the SSI list may become named SDNs in the future. SSI and SDN Lists are not static but evolving. Lists will likely expand and have expanded based on Russian behavior in Ukraine. Everything could change overnight. Do not rely on a dated list. Keep checking.

www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx

The regulations are extremely complicated and nothing is straight forward. Thus, each transaction with a Russian company must be examined closely in detail and will be very fact specific. The devil in these regs is definitely in the details.

The US and EU sanctions also are affecting the Russian economy as indicated by the fact that VTB, Russia’s second-largest bank, sold 214 billion rubles ($5.4 billion) worth of preferred shares to Russia’s finance ministry because the sanctions have made it more difficult for the Bank to borrow overseas.

Meanwhile on August 6, 2014, the Commerce Department’s Bureau of Industry and Security (BIS) issued new sanctions blocking exports of certain energy-sector technologies. Commerce will now require an export license for items used in deepwater, Arctic offshore, or shale projects to produce oil or gas in Russia. Items subject to a license denial under the rule include drilling rigs, horizontal drilling parts, drilling and completion equipment, and subsea processing equipment. Commerce issued no savings clause, which means if the items are on a freighter on the way to Russia, they have to be called back.

On September 11, 2014, the US and the European Union announced new restrictions on Russian access to capital market. The new sanctions target Russian financial, energy and defense companies and make it more difficult to make loans to the five Russian state-owned banks, by tightening debt financing restrictions by reducing the maturity period of the new debt issued by those institutions from 90 days to 30 days. The companies targeted in the new round of OFAC sanctions include OAO Gazprom, Roseneft, Lukoil OAO, pipeline operator, Transneft, and Rostec, a Russian institution dealing in industrial technology products, along with the nation’s largest financial institution, Sberbank of Russia.

OFAC also added another set of Commerce export restrictions on certain oil development technologies by broadening the scope of the items that are banned and adding Gazprom, Lukoil and three other energy firms to the list of specifically banned export destinations.

Treasury stated:

“Today’s step … will impede Russia’s ability to develop so-called frontier or unconventional oil resources, areas in which Russian firms are heavily dependent on U.S. and western technology. While these sanctions do not target or interfere with the current supply of energy from Russia or prevent Russian companies from selling oil and gas to any country, they make it difficult for Russia to develop long-term, technically challenging future projects.”

These new sanctions come close to cutting off entire sectors of the Russian economy.  In practice, U.S. financial institutions will likely treat any transaction with a listed bank as a rejection. The new measures materially restrict access to American and European debt markets for the targeted financial institutions and defense firms.  The U.S. actions now bar affected Russian institutions from the American debt markets for loans over 30 days, meaning that while they will still be able to conduct day-in, day-out business with overnight loans, it will be significantly harder to finance medium- and long-term activity.

The sanctions have already had an impact on oil projects. On September 19, 2014 ExxonMobil announced that it is stopping work on an offshore oil well in the Arctic Ocean it is jointly developing with Russian oil giant OAO Rosneft in order to comply with the escalating sanctions.

In addition to the OFAC and Commerce sanctions against Russia, on July 18, 2014 a massive arbitration award was issued by arbitral tribunal in The Hague under Permanent Court of Arbitration. The Court unanimously held that the Russian Federation breached its international obligations under the Energy Charter Treaty by destroying Yukos Oil Company and Yukos shareholders and awarded the shareholders $50 billion.

There is now a legal search for Russian Federation assets to pay off the award. Yukos lawyers will be able to enforce the arbitration award in any of the 150 countries bound by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

CUSTOMS

TREK LEATHER—WHEN ARE OWNERS LIABLE FOR DUTIES OWED BY COMPANIES AS IMPORTERS OF RECORD

On September 16, 2014, in the attached United States v. Trek Leather, Inc. case, CAFC TREK LEATHER DECISION, the Court of Appeals for the Federal Circuit (“CAFC”) in an “en banc” decision made by all the judges in the CAFC held that the President of an importing company may be held personally liable for submitting false information to U.S. Customs and Border Protection.

In the decision, the entire CAFC reversed the earlier panel’s determination that only the importer of record could be liable for penalties, not the owner of the company.  Prior to the decision, importers assumed that the owner could be personally liable only if Customs and Border Protection (“CBP”) pierced the corporate veil of the import company.  In this case, however, the CAFC found the owner, Shadadpuri, himself liable for gross negligence for submitting documentation to CBP that understated the value of more than 70 imports of men’s suits in 2004, even though only the company, and not its president, was listed as the importer of record.

As the CAFC stated:

“Recognizing that a defendant is a “person,” of course, is only the first step in determining liability for a violation of either of the subparagraphs. What is critical is the defendant’s conduct. The two subparagraphs of section 1592(a)(1) proscribe certain acts and omissions. . . .

What Mr. Shadadpuri did comes within the commonsense, flexible understanding of the “introduce” language of section 1592(a)(1)(A). He “imported men’s suits through one or more of his companies.” . . . .While suits invoiced to one company were in transit, he “caused the shipments of the imported merchandise to be transferred” to Trek by “direct[ing]” the customs broker to make the transfer. . . . Himself and through his aides, he sent manufacturers’ invoices to the customs broker for the broker’s use in completing the entry filings to secure release of the merchandise from CBP custody into United States commerce. . . . By this activity, he did everything short of the final step of preparing the CBP Form 7501s and submitting them and other required papers to make formal entry. He thereby “introduced” the suits into United States commerce.

Applying the statute to Mr. Shadadpuri does not require any piercing of the corporate veil.  Rather, we hold that Mr. Shadadpuri’s own acts come within the language of subparagraph (A).  It is longstanding agency law that an agent who actually commits a tort is generally liable for the tort along with the principal, even though the agent was acting for the principal. . . . That rule applies, in particular, when a corporate officer is acting for the corporation. . . .

We see no basis for reading section 1592(a)(1)(A) to depart from the core principle, reflected in that background law, that a person who personally commits a wrongful act is not relieved of liability because the person was acting for another. . . . That is as far as we go or need to go in this case. We do not hold Mr. Shadadpuri liable because of his prominent officer or owner status in a corporation that committed a subparagraph (A) violation.  We hold him liable because he personally committed a violation of subparagraph (A).”

ACTIVATED CARBON—THE IMPORTANCE OF DEADLINES WHEN APPEALING FROM CUSTOMS LIQUIDATIONS

On September 8, 2014, the Court of International Trade in the attached Carbon Activated Corp. v. United States case, CARBON ACTIVATED CORP PROTEST FAILS, dismissed the appeal finding that the Court did not have jurisdiction because of missed deadlines. As the Court stated:

“Here, subsection (a) would have been available to Plaintiff because the correct avenue for challenges to liquidations is first to lodge a protest with Customs within 180 days of the liquidation and then to challenge any denial of that protest in this court. . . . Plaintiff filed a protest but it did so three years after the alleged erroneous liquidation. It is established that “a remedy is not inadequate simply because [a party] failed to invoke it within the time frame it prescribes.” . . .Accordingly, Plaintiff had an adequate remedy for its alleged erroneous liquidation, but it lost that remedy because its protest was untimely, not because the remedy was inadequate.

It is a tenet of customs law that the importer has a duty to monitor liquidation of entries. . . . Plaintiff concedes this point. . . Therefore Plaintiff’s claim that it “was first made aware [in June 2012] that these three entries had been erroneously liquidated as entered in April and May of 2008” is insufficient to extend the statute of limitations. . . . Plaintiff has the duty to monitor the liquidation of its entries, and a statutory remedy is in place to challenge any erroneous liquidations for a diligent importer who complies with this duty. Plaintiff’s failure to pursue that remedy in a timely manner does not fall under the rubric of “manifestly inadequate” and therefore Plaintiff cannot invoke subsection (i) jurisdiction in this case.”

FALSE CLAIMS ACT

In the attached false claims act case, PIPES FCA CASE, on September 4, 2014, in United States of America: Civil Action ex rel. Customs Fraud Investigations v. Vitaulic Company, a Federal District Court dismissed a false claims act case ruling there wasn’t enough evidence supporting allegations the pipe fittings manufacturer knowingly filed false documents to evade U.S. customs duties.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

SANCTIONS AGAINST UPI SEMICONDUCTOR

On September 25, 2014, the CAFC in the attached UPI Semiconductor Corp. v. United States, UPI SEMICONDUCTORS CAFC DECISION, affirmed a decision of the US International Trade Commission to impose penalties on UPI for violation of a consent order in a 337 patent case. The CAFC stated:

“Before the court are the appeal of respondent intervenor UPI Semiconductor Corp. (“UPI”) and the companion appeal of complainant-intervenors Richtek Technology Corp. and Richtek USA, Inc. (together “Richtek”) from rulings of the International Trade Commission in an action to enforce a Consent Order, Certain DC-DC Controllers and Products Containing Same, Inv. No. 337-TA-698 (75 Fed. Reg. 446). We affirm the Commission’s ruling that UPI violated the Consent Order as to the imports known as “formerly accused products,” and affirm the modified penalty for that violation. We reverse the ruling of no violation as to the “post-Consent Order” products. The case is remanded for further proceedings in accordance with our rulings herein.”

MADE IN THE USA—FTC AND FALSE ADVERTISING PROBLEM

On October 1, 2014, the Wall Street Journal reported that the Made in US requirement has escalated because of stricter requirements by the State of California. FTC guidelines state that an unqualified “Made in USA” label can go on any goods that are “all or virtually all” made domestically in the United States, but the words “virtually all” are open to interpretation based on the specific facts of the case.

But California has stricter guidelines than the FTC requiring the entire product to be made in the US. If even one small part of a product is foreign, California state law says calling the product “Made in the USA” amounts to false advertising. This law has provoked a number of consumer/class action lawsuits filed in California against US manufacturers.

As one example, a maker of helium tanks designed to be used at children’s parties was sued because it started packing imported balloons with the equipment. In another case, a California company was sued because it produces Maglite flashlights that use imported small rubber rings and light bulbs from abroad.

The California law was passed in 1961 to shield domestic producers from competitors who might get a pricing edge by using large amounts of cheap imported parts to manufacture goods labeled “Made in USA.” The problem is that it has become increasingly difficult to avoid using at least some imported content in a US product.

SECTION 337 COMPLAINTS

NEW 337 COMPLAINT AGAINST FOOTWARE PRODUCTS FROM CHINA

Today, October 14th, Converse Inc. filed a new 337 IP case against footware products/sneakers from China for infringement of Converse’s registered and common law trademarks.  Relevant parts of the petition are attached.  LONG 337 FOOTWEAR PETITION The ITC notice of the petition is set forth below.

Docket No: 3034

Document Type: 337 Complaint

Filed By: V. James Adduci, II

Firm/Org: Adduci, Mastriani and Schaumberg

Behalf Of: Converse Inc.

Date Received: October 14, 2014

Commodity: Footwear Products

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Footwear Products . The proposed respondents are: Skechers U.S.A., Inc., Manhattan Beach, CA; Wal-Mart Stores, Inc., Bentonville, AR; A-List, Inc., d/b/a Kitson, Los Angeles, CA; Aldo Group, Canada; Brian Lichtenberg, LLC, Los Angeles, CA; Cmerit USA, Inc., d/b/a Gotta Flurt, Chino, CA; Dioniso SRL, Italy; Edamame Kids, Inc., Canada; Esquire Footwear, LLC, New York, NY; FILA U.S.A., Inc., Sparks, MD; Fortune Dynamic, Inc., City of Industry, CA; Gina Group, LLC, New York, NY; H & M Hennes & Mauritz LP, New York, NY; Highline United LLC d/b/a Ash Footwear USA, New York, NY; Hitch Enterprises Pty Ltd d/b/a Skeanie Unit 3, Australia; Iconix Brand Group, Inc., d/b/a Ed Hardy, New York, NY; Kmart Corporation, Hoffman Estates, IL; Mamiye Imports LLC d/b/a Lilly of New York, Brooklyn, NY; Nowhere Co., Ltd. d/b/a Bape, Japan; OPPO Original Corp., City of Industry, CA; Orange Clubwear, Inc., d/b/a Demonia Deviant, Westminster, CA; Ositos Shoes, Inc., d/b/a Collection’O, South El Monte,CA; PW Shoes Inc., Maspeth, NY; Ralph Lauren Corporation, New York, NY; Shenzhen Foreversun Industrial Co., Ltd (a/k/a Shenzhen Foreversun Shoes Co., Ltd), China; Shoe Shox., Seattle, Washington; Tory Burch LLC, New York, NY; Zulily, Inc., Seattle, Washington; Fujian Xinya I & E Trading Co., Ltd., China; Zhejiang Ouhai International Trade Co., Ltd., China; and Wenzhou Cereals Oils & Foodstuffs Foreign Trade Co., Ltd., China.

Status: Pending Institution

On the same day that Converse filed the section 337 case, it also filed the attached trademark complaint for damages in the Federal District Court in Brooklyn.  CONVERSE FOOTWEAR FED CT COMPLAINT

PERSONAL TRANSPORTERS FROM CHINA

On September 9, 2014, Segway filed a major 337 patent case against imports of personal transporters from a number of Chinese companies in Beijing and Shenzhen. The ITC notice is below and the relevant parts of the Petition are attached, SHORT PERSONAL TRANSPORTERS 337 Complaint. Segway is requesting a general exclusion order to exclude all personal transporters from China and other countries and also cease and desist orders to stop importers from selling infringing personal transporters in their inventory.

The proposed respondents are: PowerUnion (Beijing) Tech Co. Ltd., Beijing; UPTECH Robotics Technology Co., Ltd., Beijing; Beijing Universal Pioneering Robotics Co., Ltd., Beijing; Beijing Universal Pioneering Technology Co., Ltd., Beijing; Ninebot Inc.,(in China) Beijing; Ninebot Inc., Newark, DE; Shenzhen INMOTION Technologies Co., Ltd., Guangdong; Robstep Robot Co., Ltd., Guangdong; FreeGo High-Tech Corporation Limited, Shenzhen; Freego USA, LLC, Sibley, IA; Tech in the City, Honolulu, HI; and Roboscooters.com, Laurel Hill, NC.

Chinese companies must respond to the complaint in about 60 days, 30 days for Institution and 30 days from service of complaint. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

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

Dorsey & Whitney has substantial expertise in the patent and 337 areas. Recently, we were able to win a major 337 case for a Japanese company in the Point-to Point Network Communication Devices 337 case.

PATENT AND IP CASES IN GENERAL

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE AND TAIWAN COMPANIES

On September 23, 2014, BASF Corp. filed a patent infringement case against SNF Holding Company, Flopam Inc., Chemtall Inc., SNF SAS, SNF (China) Flocculant Co., Ltd. BASF

On October 6, 2014, Hewlett-Packard Co. filed a patent case against Ninestar Image Tech Ltd., Ninestar Technology, Co., Ltd. and Apex Microelectronics Co., Ltd. for infringement of HP’s patents on printer cartridges. Ninestar is located in Shenzhen and has been the target of a section 337 patent case involving similar technology. NINESTAR NEW PATENT CASE

On September 2, 2014, Cephalon, Inc. filed a patent infringement case for drugs against Nang Kuang Pharmaceutical Co., Ltd. in Taiwan and Canda NK-1, LLC. TAIWAN GENERIC DRUGS

Complaints are attached above.

CHINESE PATENT CASES

In the attached report in English and Chinese, ACTUAL ABA COMMENTS CHINESE AND ENGLISH, the American Bar Association (“ABA”) ABA antitrust, intellectual property and international law sections raised concerns on judicial interpretations from China’s highest court regarding certain patent infringement trial issues, concerns about some proposed claims rules and also other patent issues.

One concern is that under the drafted requirement, when there are two or more claims in a patent, a patent holder would be required to specify the infringed claim in the complaint, according to the comments. But if the owner doesn’t point out which claim is infringed, the court would presume all of the independent claims were alleged to be infringed. The ABA sections, however, said that such a requirement might “deter meritorious claims” particularly because the infringement details might be controlled by the alleged infringer.

Finally, the ABA sections are also concerned about the Chinese draft that appeared to impose compulsory licensing obligations when having an accused infringer stop practicing the relevant patents would either harm the public interest or cause a “serious interest imbalance between the parties.”

Recently US companies have argued that China has made it more difficult for US owners of pharmaceutical patents to provide supplemental information to fend of certain legal challenges. U.S. companies are now reporting an increasing number of cases where they are being barred from providing such additional information if their drug patents are challenged for a different reason.

During the December 2013 JCCT meeting, the U.S. government complained to the Chinese government it was holding up or invalidating pharmaceutical patents by charging that the application contained insufficient information to meet the requirements of Article 26.3 of Chinese patent law, without allowing brand-name companies to supplement information after the initial filing.  According to Commerce, at the JCCT, the Chinese government pledged that patent applicants could supplement their initial data submissions, and it has made progress toward implementing that commitment.  Recently, however, it appears that the Chinese government may be back sliding on that commitment.

PRODUCTS LIABILITY/FDA

CHINA RESTRICTIONS ON US FOOD PRODUCTS

On Aug. 22, 2014 – Agriculture Secretary Tom Vilsack announced that California citrus farmers will be able to resume exports to China this season. A series of scientific exchanges between the USDA’s Animal and Plant Health Inspection Service (APHIS) and China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) resulted in an agreement for California citrus to again be exported to China. APHIS and USDA’s Foreign Agricultural Service worked closely with the U.S. citrus industry to ensure the successful outcome.

In April 2013, California-origin citrus was suspended from entering the Chinese market due to interceptions of brown rot (Phytophthora syringae), a soil fungus that affects stored fruit. Over the next year, USDA worked with China to address China’s plant health concerns and reopen the market for California citrus exports.

In a statement following the USDA announcement, Western Growers Association Executive Vice President Matt McInerney said China was the third-largest market for California citrus exports before the ban. The USDA release said California citrus exports have a total annual value of $30 million.

On September 15th, it was announced that USDA and USTR officials were in Beijing to discuss the implementation of the Trade Facilitation Agreement (TFA) and in particular a meeting of the sanitary and phytosanitary (SPS) working group of the U.S.-China Joint Commission on Commerce Trade (JCCT), where the agenda will likely touch upon issues like China’s ban on U.S. beef and its regulatory process for approving biotechnology traits. China closed its beef market to U.S. exports due to a 2003 outbreak of bovine spongiform encelopathy (BSE) – or “mad cow” disease — and has since set a number of preconditions for opening it, including a U.S. livestock traceability system.

Early in September, nineteen 19 Senators urged USTR Michael Froman to act on the Chinese government’s rejection of U.S. shipments of dried distillers grains that contained traces of an unapproved biotech trait. In the attached letter, SENATE LETTER DISTILLER GRAINS, the 19 Senators stated:

“We write you to convey our strong concerns over recent action taken by the Chinese government to reject U.S. export shipments of dried distillers grains (DDGs) that contain traces of a U.S. approved trait, which has been under regulatory consideration by the Chinese government. We urge you to work with China to restore the flow of trade as quickly as possible and to develop a more consistent set of rules governing the trade of new crop technologies between the two countries.

As you know, China is the top destination for U.S. exports of DDGs, totaling four million tons valued at $1.6 billion in 2013. Every link in the DDGs supply chain-including ethanol producers, corn farmers, and shippers-have already incurred significant economic damages due to these actions by the Chinese government.

The trade disruption in DDGs is yet another example of the regulatory challenges industry has faced with China since it began blocking U.S. corn shipments in November 2013. We encourage you to work closely with China to promote a science-driven review process for agricultural biotechnology that issues determinations without undue delay, consistent with WTO member country obligations.

As biotech products are a key component of U.S. agricultural trade with China, including exports of DOGs, achieving greater cooperation between the two countries on trade issues involving new crop technologies is essential to maintaining our position as the leading agricultural exporter worldwide.

We look forward to continuing to work with you to strengthen our trade relationship with China in agriculture.”

CHINESE INVESTMENT OPPORTUNITIES

US INVESTMENT IN CHINA

Dorsey recently published the attached short brochure,  DORSEY CHINA INVESTMENT BROCHURE, on issues that foreign companies and individuals face when investing in China.

As stated in the brochure,

“Despite the global financial crisis, foreign direct investment into China continues to grow. With China recently overtaking Japan as the world’s 2nd largest economy, foreign investment into China looks set to continue its rise. Nonetheless, foreign investors need to be aware of a number of crucial factors.”

The brochure then goes into details about the following area: Restrictions on Foreign Ownership, Business Vehicles, Approval & Registration, Capital Requirements, Shareholder & Director Nationality, Management Structure, Directors’ Liability, Parent Company Liability, Work/Residency Permits, Thin Capitalization Rules, Competition, Restrictions in the Financial Services Sector, Governing Law of Documents.

ANTITRUST– VITAMIN C, MAGNESITE AND AU OPTRONICS

There have been major developments in the antitrust area both in the United States and more importantly in China.

TAIWAN LCDS CASE

On September 5, 2014, the US Department of Justice and the Federal Trade Commission filed the attached brief, AU OPTRONICS BRIEF, in the 7th Circuit Court of Appeals in the Motorola Mobility LLC v. AU Optronics case, the Taiwan LCDs case. In that case, the Seventh Circuit vacated its March 2014 decision that Motorola’s case did not show direct effect on US Commerce sufficient to satisfy the Foreign Trade Improvements Act (“FTAIA”).

In the case Motorola sought damages for antitrust overcharges based on allegedly price fixed LCD panels that were manufactured and purchased overseas, but later incorporated into goods sold in the United States. In their brief, the DOJ and the FTC argued that the 7th Circuit should hold that an overseas conspiracy to fix prices on the component of a finished product that is sold in the US can yield liability under the FTAIA. The DOJ and the FTC argue in their brief:

“The FTAIA makes clear that the Sherman Act does not apply to conduct that adversely affects only foreign markets, but it also ensures that purchasers in the United States remain fully protected by the federal antitrust laws. This Court should not erode this protection.

Conduct involving import commerce is excluded from FTAIA’s coverage, and the Sherman Act thus applies fully to such conduct. This import-commerce exclusion is not limited to circumstances in which the defendants are importers or specifically “target” U.S. import commerce. A price-fixing conspiracy can involve import commerce even if the price-fixed product is physically imported by a third party or if the defendants did not focus on U.S. imports. A narrower interpretation of the exclusion would undermine the FTAIA’s purpose to protect purchasers in the United States.

The LCD price-fixing conspiracy involved import commerce because defendants fixed the price of LCD panels sold for delivery to the United States. Yet, this does not, by itself, entitle Motorola to recover damages for overcharges on all its panel purchases. But it does allow the government to bring criminal and civil enforcement actions. Unlike civil damage claims, in which courts should differentiate among claims based on the underlying transactions, government enforcement actions seek to prosecute or enjoin violations of law, not to obtain damages compensating for particular injuries.

The price-fixing conspiracy also affected import and domestic commerce in cellphones by raising their price. This effect is not only substantial and reasonably foreseeable, but also direct. The natural and probable consequence of increasing the price of a significant component like LCD panels is to increase the price of cellphones that incorporate those panels. A contrary holding risks constraining the government’s ability to prosecute offshore component price fixing that threatens massive harm to U.S. commerce and consumers.

While the government may prosecute conduct that has the requisite effect under Section 6a(1), Section 6a(2) requires that the effect “give rise to [plaintiff’s] claim,” and thus limits what injuries are redressable by damages claims. The injury to Motorola’s foreign affiliates is not caused by the inflated prices of cellphones sold in import or domestic commerce, and therefore the affiliates’ claims do not arise from that effect on U.S. commerce. The first purchasers of cellphones in affected U.S. commerce, however, did suffer an injury arising out of the price fixing’s U.S. effect.

The Illinois Brick doctrine would ordinarily bar these purchasers from recovering damages under federal law because they did not purchase directly from the conspirators, but that doctrine should be construed to permit damages claims by the first purchaser in affected U.S. commerce when Section 6a(2) bars the direct purchasers’ claims. That construction would permit vigorous private enforcement of the antitrust laws—the reason full recovery is ordinarily concentrated in direct purchasers—without implicating the doctrine’s concerns about multiple recovery and apportionment. Absent that construction, it is possible that no private plaintiff could recover damages under the federal antitrust laws.

In any case, government enforcement is critical to combating foreign price-fixing cartels that threaten significant harm in the United States. Therefore, this Court should hold that a conspiracy to fix the price of a component can directly affect import commerce in finished products incorporating that component and that the conspiracy in this case did directly affect that commerce. That holding would ensure the government is able to enforce the federal antitrust laws regardless of any limitations on private damages claims resulting from Section 6a(2).”

Emphasis added, footnotes omitted.

BILL BAER DOJ SPEECHES

On September 10, 2014, Bill Baer, the Assistant Attorney General Antitrust Division U.S. Department of Justice, gave the attached speech, BAER SPEECH ON ANTITRUST PROSECUTION, at the Georgetown Antitrust Enforcement Symposium entitled “Prosecuting Antitrust Crimes” in which he addressed the importance of enforcement of the antitrust laws against cartels and the importance of the leniency system. With regards to the prosecution of antitrust cases, Assistant Attorney General Bill Baer stated:

“Those who conspire to subvert the free market system and injure U.S. consumers are prosecuted vigorously and penalized appropriately. Our record demonstrates that corporations that commit these crimes face serious consequences, including significant criminal fines and, in appropriate cases, tough probation terms. Individual wrongdoers risk lengthy sentences. Courts have imposed criminal fines on corporations totaling as much as $1.4 billion in a single year; the average jail term for individuals now stands at 25 months, double what it was in 2004. Those penalties tell only part of the story. Perpetrators also must confront private and state civil suits seeking treble damages and risk other collateral consequences for their crimes.

Often our prosecutions end with plea agreements. So long as price fixers are held accountable for their crimes, this is an efficient and appropriate way to resolve criminal price-fixing allegations. When the defendant exercises its right to put us to our proof, however, we have the obligation to proceed to trial to ensure justice is done. Our recent record demonstrates the division’s willingness and ability to prosecute successfully antitrust criminal violations. . . . And just this summer, the Ninth Circuit affirmed the corporate convictions of AU Optronics and its American subsidiary, and the individual convictions of two of its executives for fixing prices in the LCD industry. . . .

We also increasingly benefit from working closely with competition enforcers from many agencies around the world.

Our successful efforts to detect and prosecute cartels also reflect the broad consensus in the United States that schemes to deny consumers the benefits of competition have no place in the free market and merit significant punishment. This is not a partisan issue. This Administration and its predecessors have made cartel enforcement a top priority.”

On September 12, 2014 Assistant Attorney General Bill Baer spoke at Fordam Law School on “International Antitrust Enforcement: Progress Made; Work To Be Done”. In the attached speech, BAER SPEECH INTERNATIONAL CARTEL. the Assistant Secretary spoke of the importance of not letting industrial policy and protectionism trump competition concerns in the enforcement of antitrust laws and indirectly criticized China’s enforcement of its Anti-Monopoly Law:

“The U.S. and EU share the core belief that antitrust enforcement must protect and promote competition and consumer welfare. We base our respective enforcement decisions on the competitive effects and consumer benefits of the transaction or conduct being reviewed. We agree that non-competition factors, such as the pursuit of industrial or domestic policy goals, play no role in sound competition enforcement.

The U.S. and EU also agree that antitrust agencies are most effective when they follow decision-making processes that are fair, independent and transparent. Our shared commitment to process pays off. It increases the likelihood that our agencies will be positioned to obtain and consider all relevant facts and issues prior to making a decision. This, in turn, enhances the legitimacy and credibility of our enforcement decisions, and increases the parties’ and public’s confidence in the agency’s ultimate determination. . . .

Worldwide, the total criminal and regulatory fines, penalties and disgorgement obtained to date by law enforcement authorities is over $4 billion.

The international competition community increasingly embraces that view. Progress is being made towards convergence on due process and transparency. However, more work needs to be done. We must continue to seek broad international consensus on the principle that enforcement decisions be based solely on the competitive effects and consumer benefits of the transaction or conduct being reviewed. We must ensure that enforcement decisions are not used to promote domestic or industrial policy goals, protect state-owned or domestic companies from foreign competitors, or create leverage in international trade negotiations.

That is a straightforward and sensible proposition. We are living in a globalized economy where the number of companies operating in multiple jurisdictions continues to rise and there is a greater likelihood that anticompetitive transactions or conduct in one jurisdiction will harm competition and consumers in other parts of the world.

This is an easy proposition to state as a shared value. But it is challenging to implement, especially for enforcers in jurisdictions that are early in the process of moving from a planned economy to a free market system; are shifting their focus from promoting producer welfare to consumer welfare; or have state-owned and domestic corporations with considerable influence over enforcement authorities. Nonetheless, antitrust enforcers in such jurisdictions need to overcome these challenges and commit to making enforcement decisions based solely on competitive effects and consumer benefits. Otherwise, they risk losing the trust and confidence of businesses that are looking to enter or expand in their markets, but may be reluctant to do so out of fear that the playing field is not level. . . . .

Fourth, antitrust enforcement involving intellectual property rights should not be used to implement domestic or industrial policies. Such an approach undermines the integrity and credibility of an agency’s decisions. Enforcers need to be particularly careful about imposing price controls or prohibiting so-called excessive pricing. Pricing freedom in bilateral licensing negotiations is critical for intellectual property owners. I share the concern FTC Chairwoman Ramirez expressed earlier this week with antitrust regimes that appear to be advancing industrial policy goals by “imposing liability solely based on the royalty terms that a patent owner demands for a license . . . .” U.S. antitrust law does not bar “excessive pricing” in and of itself; generally speaking, lawful monopolists may set any price they choose.

This rule applies to holders of intellectual property rights as well. In addition, regardless of the underlying theory of antitrust liability, I am concerned about antitrust regimes that appear to force adoption of a specific royalty that is not necessary to remedy the actual harm to competition. Using antitrust enforcement to reduce the price firms pay to license technology owned and developed by others is short-sighted. Any short-term gains derived from imposing what are effectively price controls will diminish incentives of existing and potential licensors to compete and innovate over the long term, depriving jurisdictions of the benefits of an innovation-based economy.

Now, you may be asking why U.S. antitrust enforcers should care about what other enforcers do within their jurisdictions. There are many reasons. Here are a few.

First, U.S. enforcers can best cooperate with their foreign counterparts on investigations when there is agreement on core analytics and procedural principles. This, in turn, allows U.S. enforcers to more effectively and efficiently address anticompetitive transactions and conduct.

Second, we are continuing to move toward an interconnected global economy. This means that U.S. companies and consumers will increasingly be subject to or affected by the enforcement approach taken by antitrust agencies in other jurisdictions.

Third, convergence on substantive and procedural principles will help U.S. and non-U.S. companies comply with competition laws in a more cost-effective manner, as well as provide them the predictability that they need when trying to run their businesses in multiple jurisdictions.”

Emphasis added.

NEW ANTITRUST COMPLAINTS

On September 11, 2014, elQ Energy Inc., filed an antitrust case against a number of Japanese, and US for price fixing of antalum capacitors, aluminum electrolytic capacitors and film capacitors. JAPAN PRICE FIXING ALUMINUM CAPACITERS

On August 29, 30204, National Trucking Financial Reclamation filed a class action antitrust case against US and Taiwan companied, including Jui Li Enterprise Company, Ltd., TYG Products, L.P., Gordon Auto Body Parts Co., Ltd., Auto Parts Industrial, Ltd., and Cornerstone Auto Parts, LLC., for price fixing of aftermarket automotive sheet metal parts. TAIWAN SHEET METAL ANTITRUST COMPLAINT

CHINA ANTI-MONOPOLY CASES

The rise in Chinese anti-monopoly case has created intense concern from the US government and US and foreign companies. In September 2014, the US China Business Council published the major report/survey from US Companies, US CHINA BUSINESS COUNCIL REPORT CHINA AML, about the impact of the Chinese anti-monopoly law on US business in China. The Executive Summary of the report states as follows:

“Executive Summary

  • China’s increased level of competition enforcement activity and the high-profile reporting of its competition investigations have prompted growing attention and concern from US companies. Eighty-six percent of companies responding to the US-China Business Council’s (USCBC’s) 2014 member company survey indicated they are at least somewhat concerned about China’s evolving competition regime—although more so about the potential impact than actual experience so far.
  • China’s competition regime framework is relatively new. The Antimonopoly Law (AML) came into force in 2008 after Chinese authorities spent more than a decade drafting the law and consulting with foreign competition authorities from the United States, the European Union, and other jurisdictions. The AML draws from elements of both the US and EU competition laws, though it is more closely tied to the EU model and contains some elements unique to China.
  • The rise in competition-related investigations has corresponded to the buildup in personnel at regulatory agencies following the AML’s implementation.
  • USCBC monitoring of publicly announced cases indicates that both foreign and domestic companies have been targets of AML-related investigations, but that foreign companies appear to have faced increasing scrutiny in recent months.
  • The perception that foreign companies are being disproportionately targeted is also fueled by China’s domestic media reporting, which has played up foreign-related investigations versus those of domestic companies.
  • Targeted or not, foreign companies have well-founded concerns about how investigations are conducted and decided. Company concerns include:

 o Fair treatment and nondiscrimination

o Lack of due process and regulatory transparency

o Lengthy time periods for merger reviews

o Role of non-competitive factors in competition enforcement

o Determination of remedies and fines

o Broad definition of monopoly agreements

Bigger questions remain unanswered about the objectives of China’s competition regime, such as: Will China use the AML to protect domestic industry rather than promote fair competition? Is the government using the AML to force lower prices, rather than let the “market play the decisive role” as enshrined in the new economic reform program? The answers are not fully determined yet, but in at least some cases so far there are reasons for concern.”

In early September 2014 the US Chamber of Commerce released the attached report, AM CHAM ACTUAL REPORT ON AML, which is highly critical of the Chinese government’s enforcement of its Anti-Monopoly Law. The report states:

Antitrust enforcement

This year, the area that has garnered the most attention from foreign companies is enforcement of China’s antitrust law, known as the Antimonopoly Law (AML). In recent months, the press and the public have paid considerable attention to this issue. While both foreign and domestic companies have been targets of investigations, foreign companies appear to have faced increasing scrutiny in recent months. Eighty-six percent of companies are at least somewhat concerned about these issues, with over half specifically citing enforcement as the issue, rather than the legal framework for the law (Fig. 34, 35).

Even though most American companies report that they have not been targeted with antitrust investigations, almost 30 percent of USCBC member companies are concerned they will be subjected to one. Among the most significant concerns for foreign companies are challenges with due process, lack of transparency, and fair treatment in investigations (Fig. 36, 37).

As US antitrust cases have been on the rise in the United States, they are sharply rising against Chinese and foreign companies, including US companies, in China. The recent surge in antitrust cases reaches US and foreign companies like Qualcomm, Interdigital, Microsoft, Chrysler and Mercedes-Benz.

On July 24, 2014, it was reported that the National Development and Reform Commission (“NDRC”), one of China’s three National Antitrust Agencies, announced that it had determined that US chipmaker Qualcomm is a monopoly and was suspected of overcharging and abusing its market position in wireless communication standards. The allegations could lead to record fines of more than $1 billion.

As the Chinese consumer market surges upward, Western companies are seeing their profits fall downward after this wave of antitrust cases. The China media has reported that the prices of many foreign items, including a Starbucks latte to a Jaguar sedan, are higher in China than in many other places in the world.

Chinese consumers, who now travel the World, are complaining. According to the media, although some of the prices differences are explainable by factors, such transportation, real-estate costs, higher Chinese import taxes and fragmented supply chains in which multiple distributors each add a markup, at least some multinationals allegedly have adopted sales practices in China that would not be tolerated by antitrust regulators in Europe or the US. Automobile companies do not always give their Chinese customers a choice in their purchase of spare parts, causing high prices.

What concerns the US government, however, is procedures, the heavy-handed way that investigations are being pursued, and the highly charged media coverage that makes for a very bad atmosphere for Western companies.

Foreign companies have learned two early lessons from the antitrust probes. First, the law provides little protection. The message that the National Development and Reform Commission, Chinese agency that sets pricing rules, delivers in private to multinationals at the outset of a price-fixing investigation is not to bring in their foreign lawyers. The second lesson, apparently, is resistance is futile.

In almost every antitrust case launched so far, foreign companies have settled without a fight. Voluntary price cuts of up to 20% are the norm, accompanied by board-level expressions of remorse and promises to do better. Chrysler described its abrupt decision to slash car-part prices as a “proactive response” to the price fixing probe as it got under way.

These price-fixing investigations have been accompanied by heated nationalistic rhetoric in the state media with anti-foreign overtones. Pushing down multinationals goes over well with large sections of the Chinese public that view the foreign companies as arrogant. The China Youth Daily recently stated that multinationals “pollute the environment, lie to consumers, act arrogantly when facing their wrongdoings, and ignore China’s law and protests from Chinese consumers.”

For many years that China’s Anti-Monopoly Law has been in place, enforcement has been lax, but the National Development and Reform Commission (“NDRC”) and the State Administration for Industry and Commerce (“SAIC”), the two agencies charged with enforcing the AML’s antitrust provisions, have rapidly increased enforcement over the last year, with probes into Qualcomm Inc., Microsoft, and now international automakers. The action has come at the same time as the government has voiced a broader intention to promote the creation of Chinese players in many key industries, contributing to the impression that the latest antitrust probes may have a protectionist bent.

While technically, agency decisions can be appealed to China’s administrative courts, the courts tend to defer to the agencies in all but the most blatant violations of the law. That means that as a practical matter companies don’t have the same ability to force the agencies to defend themselves in court the way firms do in the U.S. and Europe.

In response to these reports on September 21, 2014, Treasury Secretary Jack Lew sent a letter to Chinese Vice Premier Wang Yang raising serious concerns about China’s enforcement of its anti-monopoly law (AML). Sources reported that this is a sign that mounting U.S. business complaints regarding the law have reached a high political level. In commenting on the letter, Secretary Lew stated:

“But let me say that this issue of the anti-monopoly law is one that we’ve raised at the [Strategic & Economic Dialogue (S&ED)], and we made very clear that if the anti-monopoly law is used to essentially work disproportionately against U.S. and other foreign firms and it [is] used as a barrier to doing business, or an extra cost to doing business, that that was something that was very much inconsistent with the close economic relationship we’re together working to build.”

“We’ve been very clear in many forms that the anti-monopoly law is something that we see as part of this set of issues, and I certainly hope that they understand how important that issue is to us.”

Subsequently Bill Baer’s speech quoted above appeared to reinforce the statement by Secretary Lew, especially his quote that antitrust enforcement decisions must not be used to “promote domestic or industrial policy goals, protect state-owned or domestic companies from foreign competitors, or create leverage in international trade negotiations.”

The problem with the statement is that it is easy for the US Government to say. When US antidumping laws based on Alice in Wonderland surrogate values that have no relationship to actual prices and costs in China are used to block billions of dollars in Chinese imports, the Chinese government, as any government would do, is looking for leverage to force the US government to negotiate on this issue.

Chinese government officials have told me that the US government and the Commerce Department simply refuse to discuss whether China will be given market economy status in US antidumping cases as provided in the US China WTO Accession Agreement.

The US throws rocks and the Chinese government will throw rocks back.

On September 2, 2014, Foreign Ministry Spokesman Qin Gang commented on the concerns regarding China’s Anti-Monopoly Law:

The US Chamber of Commerce said that China is targeting foreign companies in its anti-monopoly investigations with opaque laws and regulations, contributing to deteriorating investment environment for foreign companies. What is China’s comment on this?

I have learned that the US Chamber of Commerce published such a report. I want to stress that China is not the only country carrying out anti-monopoly. Other countries also do it. Monopoly is opposed so as to protect consumers’ interests and create a more transparent, equal and just playing field. While carrying out anti-monopoly investigations and implementing relevant measures, relevant departments of China are strictly following the law in a transparent and impartial way.

China will, as always, encourage foreign companies and enterprises to take part in the competition in China’s market and carry out various forms of cooperation. We are willing to create a sound investment environment for them. Meanwhile, they are also required to abide by Chinese laws and regulations.

On September 8, 2014, it was reported that the US Chamber of Commerce was arguing that China’s discriminatory uses of its Anti-Monopoly was a violation of its WTO commitments. But WTO experts, including US experts, responded that the WTO’s texts and existing jurisprudence create enough uncertainty that U.S. trade authorities will likely hold off on bringing a case. Antitrust is not under the WTO and is not directly addressed in any WTO agreements.

There have been efforts to put competition rules under the WTO, but there is currently no WTO agreement in place setting obligations on WTO members with regards to the objective of their antitrust statutes. This would force the USTR to try to cherry-pick from other WTO texts. The WTO, however, has been very reluctant to expand WTO law beyond a specific agreement.

In reality, the US Chamber of Commerce argument may be an attempt to elevate the issue in the Strategic & Economic Dialogue meetings between the US and China.

AUTOMOBILES — CHRYSLER AND MICROSOFT

On September 11, 2014, the NDRC, one of the three Chinese enforcement agencies of its Anti-Monopoly law announced penalties of a combined $46 million for foreign carmakers for price-fixing. The foreign carmakers include Volkswagen AG and the China sales unit of Fiat’s Chrysler. Chrysler’s China sales unit will be fined 32 million yuan/$5 million US for operating a price monopoly.

On September 28, 2014, in a meeting with China’s State Administration for Industry and Commerce (SAIC) Microsoft Corp chief executive Satya Nadella promised to cooperate fully with Chinese authorities in their antitrust investigation into his company.

It was also reported that Director General Xu Kunlin of the NDRC, nicknamed Mr. Confession, was one the officials behind the increased tough enforcement of China’s Anti-Monopoly Law.

SEMICONDUCTORS AND MEDICAL DEVICES??

In early September, there were reports that MOFCOM had conducted antitrust unit visits to medical device and semiconductor firms in Shanghai.

ARTICLES BY CHINESE ANTITRUST LAWYER MICHAEL GU

In mid-September Michael Gu and Shuitian Yu of the Anjie Law Firm issued the attached article, GU NDRC Publishes Full Decisions in Zhejiang Car Insurance Case_AnJie_Michael Gu_20140911, “Better Late Than Never: NDRC Publishes Full Decisions on Zhejiang Car Insurance Cartel Case – Analysis of NDRC’s Antitrust Law Enforcement Approach”

TD MICROSOFT ARTICLE

In the attached August 2014 report on Chinese antitrust law by the Chinese T&D Law Firm, TD Antitrust Report, Chinese antitrust lawyer John Ren had this to say about the Microsoft case:

“On August 4, 2014, the SAIC warned Microsoft not to interfere with an ongoing anti-monopoly probe as they began inquiries into the company’s corporate Vice President Mary Snapp.

Investigators from the SAIC warned that the company must firmly abide by Chinese law, and shall not interfere with the investigation “in any way”.

SAIC confirmed that it launched a probe into Microsoft China Co., Ltd, and three of its branches in Shanghai, Guangzhou and Chengdu as Microsoft is suspected of monopoly practices.

SAIC also said Microsoft had not been fully transparent with its sales data on the software it distributes in China, including information on sales of its media player and web browser software. . . .

SAIC Investigating Accenture in Microsoft Probe

August 6, 2014

According to the report, SAIC’s probe into Microsoft expanded to Accenture on August 6 as Microsoft is under investigation.

The SAIC said in a statement that it is investigating Accenture’s office in Dalian City, Liaoning Province, for being the financial service outsourcer of Microsoft China Co., which is suspected of monopoly practices. The SAIC did not reveal results of the investigation and the probe is still underway

Microsoft’s Browsers and Players are Involved in SAIC’s Anti-Monopoly Investigation

August 27, 2014

With regard to the progress of the anti-monopoly investigation on Microsoft, Mr. Zhang Mao, the Minister of the SAIC, revealed at a press conference held by the State Council Information Office that Microsoft is suspected of inadequate disclosure of information in relation to Windows and Office and suspected problems regarding the launch and sale of Players and Browsers. Currently, the investigation on Microsoft is progressing, and the SAIC will publicize the interim results at every stage in a timely manner. Compared to its previous statements, SAIC talked about Microsoft’s potential problems on the launch and sales of Players and Browsers for the first time.

It is said that in June, 2013, some entities complained to SAIC that Microsoft’s incomplete disclosure of information on its Windows and Office Suite has caused problems with compatibility, tying, and file validation, raising suspicions that the company violated the Chinese AML. SAIC therefore investigated Microsoft, accordingly. In June of this year, SAIC initiated the investigation against Microsoft and already publicized the progress of its investigation three times. Minister Zhang also mentioned that Microsoft’s senior management has expressed that they will respect Chinese law and cooperate with the Chinese anti-monopoly authority in the investigation.”

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

In a fascinating six part series on the origins of the Foreign Corrupt Practice Act, Tom Gorman, a partner in our Washington DC office and a former member of the SEC Enforcement Division, describes the origins of the FCPA and why this law came into being, including the reasons for prohibiting the bribery of foreign officials. The first part and the conclusion are published in this e-mail. The entire article is attached, TOM GORMAN ENTIRE ARTICLE ORIGINS OF FCPA.  As Tom Gorman states:

PART ONE THE ORIGINS OF THE FCPA: LESSONS FOR EFFECTIVE COMPLIANCE AND ENFORCEMENT

“They trusted us” — Judge Stanley Sporkin explaining why 450 corporations self- reported in the 1970s Volunteer Program without a promise of immunity.

This is the first part of an occasional series. The entire paper will be published by Securities Regulation Law Journal early next year.

Introduction

Can one man make a difference? Stanley Sporkin is proof that the answer is “yes.” In the early 1970s he sat fixated by the Watergate Congressional hearings. As the testimony droned on about the burglary and cover-up, the Director of the Securities and Exchange Commission’s (“SEC” or “Commission”) Enforcement Division sat mystified. Witnesses spoke of corporate political contributions and payments. “How does a public company book an illegal contribution” the Director wondered. “Public companies are stewards of the shareholder’s money – they have an obligation to tell them how it is used” he thought. He decided to find out.

The question spawned a series of “illicit” or foreign payments cases by the Commission resulting in the Volunteer Program. Under the Program, crafted by Director Sporkin and Corporation Finance Director Alan Levinson, about 450 U.S. corporations self-reported illicit payments which had been concealed with false accounting entries. There was no promise of immunity but the Director had a reputation for doing the right thing, being fair. Ultimately the cases and Program culminated with the passage of the Foreign Corrupt Practices Act (“FCPA”), signed into law by President Jimmy Carter in 1977.

Today a statute born of scandal and years of debate continues to be debated. Business groups and others express concern about the expansive application of the FCPA by enforcement officials and the spiraling costs to resolve investigations. Enforcement officials continue to call for self-reporting, cooperation and more effective compliance. While the debate continues, both sides might do well to revisit the roots of the FCPA. The success of the early investigations and the Volunteer Program is not attributable to overlapping enforcement actions, endless investigations, draconian fines and monitors. Rather, it was a focus on effective corporate governance – ensuring that executives acted as the stewards of shareholder funds. Director Sporkin called this “doing the right thing.” A return to that focus may well end the debate and yield more effective compliance and enforcement.

The beginning

The Watergate Congressional hearings transfixed the country. A scandal was born from a burglary at the Watergate Hotel in Washington, D.C. by the Committee to Reelect the President, known as CREP. The hearings were punctuated by a series of articles in The Washington Post based on conversations with a source known only as “deep throat.” Later the two reporters would become famous. President Richard Nixon would resign in disgrace. His senior aides would be sentenced to prison. See generally, Carl Bernstein & Bob Woodward, All the President’s Men (1974).

 A little-noticed segment of the hearings involved corporate contributions to politicians and political campaigns. Most observers probably missed the slivers of testimony about illegal corporate conduct since they were all but drowned in the seemingly endless testimony about the burglary, cover-up and speculation regarding the involvement of the White House.

One man did not. Then SEC Enforcement Director and later Federal Judge Stanley Sporkin was fixated. He listened carefully to the comments about corporate political contributions. The Director wondered how the firms could make such payments without telling their shareholders: “You know, I sometimes use the expression, ‘only in America could something like this happen.’ There I was sitting at my desk . . . and at night while these Watergate hearings were going on I would go home and they’d be replayed and I would hear these heads of these companies testify. This fellow Dorsey from Gulf Oil . . . and it was interesting that somebody would call Gulf Oil and they would say we need $50,000 for the campaign.

Now everybody, I knew that corporations couldn’t give money to political campaigns . . . what occurred to me was, how do you book a bribe . . . ” A Fire Side Chat with the Father of the FCPA and the FCPA Professor, Dorsey & Whitney LLP Spring Anti-corruption conference, March 23, 2014, available at www.SECHistorical.org. at 3 (“Transcript”).

What, if any information did the outside auditors have was another key question, according to the Director. Stanley Sporkin, “The Worldwide Banning of Schmiergeld: A Look at the Foreign Corrupt Practices Act on its Twentieth Birthday,” 18 Nw. J. Int. L. & Bus. 269, 271 (1998) (“Sporkin”). Not only was he fascinated by the testimony but “something bothered him [Director Sporkin]. It was the thought of all that money moving around in businessmen’s briefcases. That money belonged to corporations. Corporations belong to investors. The SEC protects investors. So Sporkin investigated.” Mike Feensilber, He Terrorizes Wall Street, The Atlanta Constitution, Section C at 19, col. 1 (March 21, 1976) . . .

An informal inquiry was initiated. As Judge Sporkin recounts: “To satisfy my curiosity [about how the payments were recorded in the books and records] I asked one of my staff members to commence an informal inquiry to determine how the transactions were booked.” Sporkin at 571. This “was not one of these elaborate investigations where you have 5 people. I called in a guy named Bob Ryan and I said, Bob, go to Gulf Oil.” Transcript at 3. A day later the answer came back: “[W]hat happened was that Gulf Oil had set up two corporations; one called the ANEX, one called the ANEY, capitalized . . . with the $5 million each; took the money back to New York, put it into [Gulf Chairman] Dorsey’s safe at the head of Gulf Oil and there he [Dorsey] had a slush fund, a corporate fund of $10 million.” Id. at 4. The payments were not reflected in the books and records of the company – the shareholders were not told how their money was being used.

It was apparent that corporate officials “knew they were doing something that was wrong because the reason they set [it] up this was . . . is because they didn’t want to expense the money so they capitalized it. And why did they want to expense the money . . . [Director Sporkin explained is] Because they were afraid, not of the SEC, but of the IRS. So it . . . right from the beginning . . . it showed me that there was something afoul here,” Director Sporkin later recounted. Id. at 4. Indeed, it was clear that senior corporate officials had painstakingly designed a methodology to secrete what they knew were wrongful transactions. Sporkin at 271. . . .

See the attached article for parts 2-5.

PART 6

Conclusion: The FCPA Today

The FCPA was unique in the world at passage. It was born of controversy and scandal. The Watergate hearings which transfixed Director Sporkin and the rest of the country spawned unprecedented and far ranging issues and questions. The hearings ushered in a new era of moral questioning.

In the turmoil of that environment Director Sporkin focused on corporate governance, viewing corporate boards and officers as stewards of investor funds. That principled view propelled the SEC investigations, enforcement actions and the Volunteer Program, all of which culminated after two years of Congressional hearings and debate in the Foreign Corrupt Practices Act.

The statute was intended to implement the principles that gave rise to its birth. It was tailored and focused:

Bribery prohibited: The anti-bribery provisions prohibit issuers and other covered persons from corruptly attempting, or actually obtaining or retaining, business through payments made to foreign officials;

Accurate books and records: The books and records provisions were designed to ensure that issuers – those using money obtained from the public – keep records in reasonable detail such that they reflect the substance of the transactions;

Auditors get the truth: Making misstatements to auditors examining the books and records of issuers was barred; and

Effective internal controls: Companies were required to have internal control provisions as an assurance that transactions with shareholder funds are properly authorized and recorded.

The impetus for the passage of the FCPA was not a novel crusade but the basic premise of the federal securities laws: Corporate managers are the stewards of money entrusted to them by the public; the shareholders are entitled to know how their money is being used.

The settlements in the early enforcement actions and the Volunteer Program were designed to implement these principles. The FCPA was written to strengthen these core values.

Today the statute continues to be surrounded by controversy. While the FCPA is no longer unique in the world, U.S. enforcement officials are without a doubt the world leaders in enforcement of the anti-corruption legislation. A seemingly endless string of criminal and civil FCPA cases continues to be brought by the Department of Justice (“DOJ”) and the SEC. The sums paid to resolve those cases are ever spiraling. What was a record-setting settlement just a few years ago is, today, not large enough to even make the list of the ten largest amounts paid to settle an FCPA case. The reach of the once focused statute seems to continually expand such that virtually any contact or connection to the United States is deemed sufficient to justify applying the Act.

For business organizations the potential of an FCPA investigation, let alone liability, is daunting. Compliance systems are being crafted and installed which often incorporate each of the latest offerings in the FCPA market place at significant expense. If there is an investigation, the potential cost of the settlement is only one component of the seemingly unknowable but surely costly morass facing the organization. Typically business organizations must deal with the demands of two regulators in this country and perhaps those of other jurisdictions. The internal investigations that are usually conducted to resolve questions about what happened are often far reaching, disruptive, continue for years and may well cost more than the settlements with the regulators. Since most companies cannot bear the strain of litigating an FCPA case, enforcement officials become the final arbitrator on the meaning and application of the statutes – arguing legal issues may well mean a loss of cooperation credit with a corresponding increase in penalties.Enforcement officials today continue to call for self-reporting as the SEC did at the outset of the Volunteer Program.

Today, however, while many companies do self-report since they may have little choice, there can be an understandable reluctance in view of the potential consequences. Indeed, self-reporting might be viewed as effectively writing a series of blank checks to law firms, accountants, other specialists and ultimately the government with little control over the amounts or when the cash drain will conclude.This is not to say that companies that have violated the FCPA should not be held accountable. They should.

At the same time it is important to recall the purpose of the statutes: To halt foreign bribery and to ensure for public companies that corporate officials are accountable as faithful stewards of shareholder money.While business organizations may express concern about enforcement, accountability begins with the company, not the government. That means installing effective compliance systems using appropriate methods, not just adopting something off the shelf or purchasing the latest offering in the FCPA compliance market place. It means programs that are effective and grounded in basic principles, not just ones that furnish good talking points with enforcement officials if there is a difficulty.

The key to effective programs is to base them on the principles of stewardship which should be the bedrock of the company culture. Accountability for the funds of the shareholders begins with effective internal controls, a key focus when the statute was passed which remains critical today. As Judge Sporkin recently commented: “The problem I see in compliance is that they are not really putting in the kinds of effort and resources that’s necessary here. And I really think that you’ve got to get your compliance department, your internal audit department working together; in too many instances you find that they’re working separately.” Transcript at 18.

The focus is also critical. These systems are not just a defense to show regulators if something goes wrong. Rather, the systems should reflect the culture of the organization. As SEC Commissioner John Evans stated as the events which led to the passage of the FCPA were unfolding:

“I am somewhat concerned that the issue of illegal and questionable corporate payments is being considered by some in a context that is too narrow, legalistic, and short-sighted. In view of the objectives of the securities laws, such as investor protection and fair and honest markets, compliance with the spirit of the law may be more meaningful and prudent than quibbling about meeting the bare minimum legal requirements. I would submit that many companies and their profession accounting and legal advisers would serve their own and the public interest by being less concerned with just avoiding possible enforcement action by the SEC or litigation with private parties and more concerned with providing disclosure consistent with the present social climate. Such a course of conduct should promote the company’s public image, its shareholder relations, its customer relations, and its business prospects . . ..” Evans at 14-15.

Accountability is also critical on the part of enforcement officials. Every case does not demand a draconian result with a large fine, huge disgorgement payments, multiple actions or a monitor. Every case need not be investigated for years at spiraling costs which may bring diminishing returns. The statutes need not be interpreted as an ever expanding rubber band with near infinite elasticity. Rather, enforcement officials would do well to revisit the remedies obtained in the early enforcement cases and those employed with great success in the Volunteer Program. And, they would do well to recall the reason 450 major corporations self-reported without a promise of immunity or an offer of cooperation credit: As Judge Sporkin said, “They trusted us.”

SECURITIES COMPLAINTS

In addition to the securities complaints filed against Chinese companies, the SEC and Chinese individuals are filing securities complaints against US companies, some of which are operated by Chinese individuals, to set up fraudulent EB5 immigration plans. EB5 allows foreign individuals to invest in certain properties in the United States that have been designated as underdeveloped and obtain a green card for a $500,000 investment in the project. The EB5 projects, however, are complicated and investors have to beware and make sure that the project they invest in is a legitimate EB5 project.

On September 3, 2014, the Securities and Exchange Commission filed the attached securities complaint, FAKE EB5 CENTER, against Justin Moongyu Lee and his partner Thomas Kent and the American Immigrant Investment Fund, Biofuel Venture, Nexland Investment Group and Nexsun Ethanol. In the complaint, the SEC states:

This case involves a scheme perpetrated by two immigration attorneys,

Defendant Justin Moongyu Lee (“J. Lee”) and his law partner Defendant Thomas Edward Kent (“Kent”), as well as J. Lee’s spouse, Defendant Rebecca Taewon Lee (“R. Lee”). J. Lee, Kent and R. Lee defrauded Chinese and Korean investors by claiming that their monies would be invested in a program that met the requirements of the United States Government EB-5 visa program, which is administered by the United States Citizenship and Immigration Service (“USCIS”), and provides immigrant investors conditional permanent residency status for a two-year period, followed by permanent residency if the required program conditions are met.

Specifically, the Defendants represented that the offered investment was EB-5 eligible, and money raised would be used to build and operate an ethanol production plant in Kansas.

On September 10, 2014, Liu Aifang and a number of Chinese individuals filed the attached class action securities complaint, ANOTHER SECURITIES COMPLAINT, against Velocity VIII Limited Partnership, Velocity 240.10b-5), Regional Center LLC, REO Group Properties, LLC, Yin Nan Wang, a.k.a Michael Wang, Yunyan Guan, a.k.a, Christine Guan, Ben Pang, REO Property 9roup’, LLC, Frank Zeng and other unnamed individuals for setting up a fraudulent EB5 project in the United States.

On September 12, 2014, Ranjit Singh filed the attached class action securities complaint against 21 Vianet Group., Inc., a company headquartered in China.  CAYMAN CORP

On September 17, 2014, Wayne Sun filed a class action securities case against 21 Vianet Group., Inc., a company headquartered in China, and several Chinese individuals. SECURITIES COMPLAINT

On September 22, 2014 the SEC filed a securities case against Zhunrize, Inc., a US company, and Jeff Pan for a fraudulent plan to raise money from investors China and Korea. PAN CHINESE INVESTORS

On September 26, 2014, David Helfenbein filed a class action securities case against Altair Nanotechnologies, a company with operations in China, Alexander Lee, Richard Lee, Guohua Sun, James Zhan, Stephen B. Huang, Paula Conroy and Karen Wagne. NANOTECHNOLOGIES

On September 29, 2014, the SEC filed a securities case against China Valves Technology, Siping Fang, Jianbo Wang, Renrui Tang for filing false and misleading documents with the SEC. SECCHINAVALVES

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE, TAX, CUSTOMS, PATENTS/337, ANTITRUST AND SECURITIES

Benjamin Franklin Statue Old Post Office Building Washington DC“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR BLOG UPDATE—SEPTEMBER 11, 2014

SEPTEMBER UPDATE

Dear Friends,

There have been major developments in early September in the Trade and Chinese antitrust areas of interest.

SPEECH IN VANCOUVER CANADA ON US SANCTIONS AGAINST RUSSIA—RUSSIAN TRADE LESSON

On September 3, 2014, I spoke on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached are copies of the powerpoint for the speech US SANCTIONS RUSSIA and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. RUSSIAN TRADE PRACTICEThe sanctions will be described more in my September newsletter.

But my speech started with a quote from the last paragraph of the September 3, 2014 Wall Street Journal editorial about the Russian crisis, entitled “Deterring a European War”, which states:

“The temptation of democracies is to believe that autocrats treasure peace and stability as much as we do. Europeans in particular want to believe that their postwar institutions and economic integration have ended their violent history. But autocrats often prosper from disorder, and they need foreign enemies to feed domestic nationalism. This describes Russia under Mr. Putin, who is Europe’s new Bonaparte. His goal is to break NATO, and he’ll succeed unless the alliance’s leaders respond forcefully to the threat.”

This powerful paragraph reflects the very serious military situation between Russia and the EC and the US. But let’s probe a little more deeply.

What is the difference between Russia and China and our relationship with the two countries—Trade. When I was a young attorney at the ITC, a former Chairman Catherine Bedell, who was the first woman to be elected to the US Congress from Washington State, came to speak to the ITC staff. Former Chairman Bedell emphasized in her speech that our work at the ITC was not just simple trade work. It was the work of promoting peace.

President Reagan understood this. More trade means more peace and less chance of a shooting war.

The United States has 796,000 US jobs dependent upon exports to China, and China has millions of jobs dependent on exports to the US.

But what about Russia? The answer is much less trade coming from Russia. In 2013, the United States imported approximately $27 billion from Russia as compared to $464 billion from China. Of the Russian imports, $19 billion was for oil, and the rest for raw materials, including iron and steel products, chemicals, metals, fertilizer and fish. With China, electronics leads the way.

Much of what Russia exports is oil, raw materials and steel products. Many steel products and urea, fertilizer, are blocked by US Antidumping Orders or a Steel Agreement. There is less trade and with less trade it is much easier to have a shooting war.

In 1986 when I was working at the Commerce Department, one of Russia’s most important exports, Urea, fertilizer, was attacked with an antidumping case, which resulted in an antidumping order on July 14, 1987. The case was so long ago that it was not against Russia. It was against the entire Soviet Union.

When the Soviet Union broke up, the Commerce Department issued antidumping orders against Urea from all the member countries in the Soviet Union. Most of the orders against the other member states in the Soviet Union have been lifted, but not the orders against Russia or Ukraine. Urea from both countries are still covered by antidumping orders from the original 1986 case. In early November 2011, the US International Trade Commission (“ITC”) extended the antidumping orders for another five years. So we have had antidumping orders on Urea from Russia and Ukraine for almost 3o years.

One company, Eurochem, has been able to get through the antidumping order because in contrast to China Russia is considered a market economy country, but every other Russian company is blocked. Why is Russia considered a market economy country and not China? Because of 911, President Bush wanted Russian military bases to attack Afghanistan. President Putin of Russia, being a tough negotiator, said make Russia a market economy under the US antidumping and countervailing duty law. Secretary Evans of Commerce flew into Moscow and said it looks like a market economy to me. As CBS news stated about the announcement:

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

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

But even with the change in the US antidumping law, Russian imports remain relatively low, and the United States has less influence. Because of the importance of the present situation with Russia and the interest of US exporters and US importers, my blog and newsletter will include a new section on trade with Russia and the US sanctions in place against trade with Russia. More will come out in the next newsletter and blog post.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST BOLTLESS STEEL SHELVING FROM CHINA

On August 26, 2014, Edsall Manufacturing filed a new AD and CVD case against Boltless Steel Shelving from China. The alleged Antidumping rates are 33 to 267%.

The ITC will hold its preliminary conference on September 16, 2014. Attached are the ITC notice and the relevant pages of the petition.  ITC PRELIMINARY NOTICE STEEL SHELVING SHORT PETITION

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On September 2, 2014, Commerce published in the Federal Register the attached notice, SEPT REVIEWS ,regarding antidumping and countervailing duty cases for which reviews can be requested in the month of September. The specific antidumping cases against China are: Freshwater Crawfish Tailmeat, Foundry Coke, Kitchen Appliance Shelving and Racks, Lined Paper Products,   Magnesia Carbon Bricks, Narrow Woven Ribbons with Woven Selvedge, New Pneumatic Off-The-Road Tires, Raw Flexible Magnets, and Steel Concrete Reinforcing Bars.

The specific countervailing duty cases are:

Kitchen Appliance Shelving and Racks, Magnesia Carbon Bricks, Narrow Woven Ribbons with Woven Selvedge, New Pneumatic Off-The-Road Tires, and Raw Flexible Magnets.

For those US import companies that imported Freshwater Crawfish Tailmeat, Foundry Coke, Kitchen Appliance Shelving and Racks, Lined Paper Products,   Magnesia Carbon Bricks, Narrow Woven Ribbons with Woven Selvedge, New Pneumatic Off-The-Road Tires, Raw Flexible Magnets, and Steel Concrete Reinforcing Bars and the other products listed above from China during the antidumping period September 1, 2013-August 31, 2014 or during the countervailing duty review period of 2013 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

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

NEW MAJOR 337 PATENT CASE AGAINST PERSONAL TRANSPORTERS FROM CHINA

On September 9, 2014, Segway filed a major 337 patent case against imports of personal transporters from a number of Chinese companies in Beijing and Shenzhen. The ITC notice is below and the relevant parts of the Petition are attached. SHORT PERSONAL TRANSPORTERS 337 Complaint Segway is requesting a general exclusion order to exclude all personal transporters from China and other countries and also cease and desist orders to stop importers from selling infringing personal transporters in their inventory.

Chinese companies must respond to the complaint in about 60 days, 30 days for Institution and 30 days from service of complaint. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

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

Dorsey & Whitney has substantial expertise in the patent and 337 areas. Recently, we were able to win a major 337 case for a Japanese company in the Point-to Point Network Communication Devices 337 case.

Docket No: 3032

Document Type: 337 Complaint

Filed By: David F. Nickel

Firm/Org: Foster & Murphy

Behalf Of: Segway Inc. and DEKA Products Limited Partnership

Date Received: September 9, 2014

Commodity: Personal Transporters

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Personal Transporters, Components Thereof, and Manuals Therefor . The proposed respondents are: PowerUnion (Beijing) Tech Co. Ltd., Beijing; UPTECH Robotics Technology Co., Ltd., Beijing; Beijing Universal Pioneering Robotics Co., Ltd., Beijing; Beijing Universal Pioneering Technology Co., Ltd., Beijing; Ninebot Inc.,(in China) Beijing; Ninebot Inc., Newark, DE; Shenzhen INMOTION Technologies Co., Ltd., Guangdong; Robstep Robot Co., Ltd., Guangdong; FreeGo High-Tech Corporation Limited, Shenzhen; Freego USA, LLC, Sibley, IA; Tech in the City, Honolulu, HI; and Roboscooters.com, Laurel Hill, NC.

Status: Pending Institution

RISE IN CHINESE ANTI-MONOPOLY CASES CREATES INTENSE CONCERN FROM US AND FOREIGN COMPANIES

In September 2014, the US China Business Council and the US Chamber of Commerce published the attached major reports/survey from US Companies about the impact of the Chinese anti-monopoly law on US business in China.  US CHINA BUSINESS COUNCIL REPORT CHINA AML The Executive Summary of the US China Business Council report states as follows:

Executive Summary

  • China’s increased level of competition enforcement activity and the high-profile reporting of its competition investigations have prompted growing attention and concern from US companies. Eighty-six percent of companies responding to the US-China Business Council’s (USCBC’s) 2014 member company survey indicated they are at least somewhat concerned about China’s evolving competition regime—although more so about the potential impact than actual experience so far.
  • China’s competition regime framework is relatively new. The Antimonopoly Law (AML) came into force in 2008 after Chinese authorities spent more than a decade drafting the law and consulting with foreign competition authorities from the United States, the European Union, and other jurisdictions. The AML draws from elements of both the US and EU competition laws, though it is more closely tied to the EU model and contains some elements unique to China.
  • The rise in competition-related investigations has corresponded to the buildup in personnel at regulatory agencies following the AML’s implementation.
  • USCBC monitoring of publicly announced cases indicates that both foreign and domestic companies have been targets of AML-related investigations, but that foreign companies appear to have faced increasing scrutiny in recent months.
  • The perception that foreign companies are being disproportionately targeted is also fueled by China’s domestic media reporting, which has played up foreign-related investigations versus those of domestic companies.
  • Targeted or not, foreign companies have well-founded concerns about how investigations are conducted and decided. Company concerns include:

o Fair treatment and nondiscrimination

o Lack of due process and regulatory transparency

o Lengthy time periods for merger reviews

o Role of non-competitive factors in competition enforcement

o Determination of remedies and fines

o Broad definition of monopoly agreements

  • Bigger questions remain unanswered about the objectives of China’s competition regime, such as: Will China use the AML to protect domestic industry rather than promote fair competition? Is the government using the AML to force lower prices, rather than let the “market play the decisive role” as enshrined in the new economic reform program? The answers are not fully determined yet, but in at least some cases so far there are reasons for concern.

The report by the US China Business Council was followed by the attached even stronger report by the US Chamber of Commerce in China entitled, Competing Interests in China’s Competition Law Enforcement: China’s Anti-Monopoly Law Application and the Role of Industrial Policy, AM CHAM ACTUAL REPORT ON AML. My September newsletter and blog post will have more about the rise of the Chinese anti-monopoly law. What goes around, does indeed come around.

AUGUST NEWSLETTER

Dear Friends,

There have been major developments in the trade, Solar Cells, Tax, Trade Agreements, 337/IP, US/Chinese antitrust, and securities areas in August 2014.

I have been late in sending out this blog post because the Trade War keeps expanding into many different areas, especially antitrust. The United States has brought a shotgun to the Trade War with its antidumping and countervailing duty laws against Chinese companies, and the Chinese government has brought a bazooka to the Trade War with the enforcement of its Antimonopoly Law/Antitrust laws against US and other foreign companies. What goes around, does indeed come around.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

BEIJING ORGANIZATIONAL MEETING

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

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

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

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

As indicated above, at the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226 along with the powerpoint FINAL WEB BEIJING IMPORT ALLIANCE POWERPOINT we used to describe the Import Alliance, the specific provision in the US China WTO Agreement and the Trade War in general.

TRADE

TAX IMPLICATIONS OF US ANTIDUMPING AND COUNTERVAILING DUTY CASES

Recently, it has come to my attention that a major problem for importers that import under antidumping and countervailing duty orders is the US tax laws. As indicated in past blog posts, the US Congress is screaming because US importers are not paying all the antidumping and countervailing duties that are retroactively assessed.

As mentioned previously, the United States is the only country in the World that has retroactive liability for US importers in antidumping and countervailing duty cases. When an antidumping or countervailing duty order is issued, the rates in the orders are not the actual dumping or countervailing duties owed by US importers to the US government. The published rates are merely the cash deposit rates to be posted by US importers, when they import under an antidumping or countervailing duty order. The actual duties are determined during annual review investigations that often start up one year after the antidumping or countervailing duty order are issued.

Review investigations start up in the anniversary month in which the specific order is issued and will take a year and a half. So at a minimum, after the importer imports the product into the United States under an antidumping or countervailing duty order, it will take two and a half years, one year for the review investigation to start up and then a year and a half for Commerce to conduct the review investigation for the importer to learn how much it actually owes the US government. If the Commerce Department’s final determination is appealed to the Courts, it can take 5 to 10 years before the US importer knows how much it actually owes the US government.

If the antidumping or countervailing duty rate goes up in the annual review investigation, the US importer is retroactively liable for the difference plus interest. In numerous cases, such as Ironing Tables, Wooden Bedroom Furniture, Mushrooms and other China cases, rates can go from 0% or 16% to 157, 216 and 300%, creating millions of dollars in retroactive liability for US importers and often bankruptcy.

Congress then screams that US importers do not pay the duties that are due, but according to David Musser, a tax accountant, at Nicholas Cauley that I have been talking to, if a US importer sets up an internal fund to pay off any potential antidumping or countervailing duties, that fund is taxable because it is not considered a deductible expense. So the US government has set up a system where it is impossible for the importer to protect itself from increased antidumping or countervailing duties.

As David Musser states:

“ANTIDUMPING TARIFFS – ACCOUNTING TREATMENT vs. TAX DEDUCTION

Antidumping duties that attach to certain imports create accounting issues that may be in conflict with income tax deduction rules. The rule for deducting an expense for income tax purposes is that it must pass the all events test and economic performance occurs. This means that the liability for the antidumping fees must be fixed and determinable and paid (economic performance) for it to be tax deductible. This can create a large timing difference for deductibility since the Commerce Department may not determine the fees owed until a minimum of two and half years after the import was made. So if you accrue an amount for estimated antidumping fees, the amount is not fixed and determinable at that point and is not deductible. If you pay a deposit for the fees, you have satisfied economic performance, but the amount is still not fixed and determinable.

This appears to be in conflict with matching rules where specific expenses are matched in the same year to related income items, especially if you are passing the cost of the antidumping fees to your customers. Depending on how you invoice, there may be a potential to reduce the effect of the tax timing difference. This would require the antidumping fees/deposits to be separately stated on the sales invoice and accounted for as deferred antidumping fees on your balance sheet. This does not completely eliminate the timing difference associated with the fees, but it may be better than waiting two and a half years or more to get the deduction.”

In a May, 5, 1995 letter ruling 538001, the Internal Revenue Service (“IRS”) stated:

“In the present case, the deposits were determined on the basis of transactions that occurred in a prior year. The deposits are specifically characterized as such by the relevant provisions of the applicable statutes and regulations. There is no necessary correlation between the circumstances in the year that provided the basis for the deposits and the circumstances that exist in the year the deposits are required. . . .

An importer’s ability to influence the ultimate disposition of a deposit required by an antidumping duty order is consistent with the characterization of the amount as a deposit. If an importer sells merchandise that is subject to the deposit requirement at fair value, the importer can ensure the recovery of the deposit. Generally, an asserted liability is not affected by the subsequent actions (other than administrative or judicial review) of the obligor. . . .

CONCLUSION

In the circumstances described, the Taxpayer’s deduction for antidumping duties is not allowable for the taxable year in which the antidumping duty order was issued. Antidumping duties are determined on the basis of the weighted-average dumping margins on all U.S. sales during the period covered by an administrative review of an antidumping duty order or, in the absence of a request for administrative review, on the basis of deposits required by an antidumping duty order. In either case, occurrence of all events necessary to allow a reasonable basis for determination of the amount of a liability for antidumping duties had not taken place before the end of the taxable year for which the Taxpayer claimed a deduction for antidumping duties.”

The 1995 tax ruling, however, is completely wrong as it applies to antidumping cases against China.  The writer of the ruling assumed “an importer can sell merchandise that is subject to the deposit requirement at fair value”. As readers of this blog know, since antidumping duties in Chinese cases are not based on actual market prices and costs in China, it is impossible for the Chinese exporter to know whether it is dumping, never mind the US importer.  With regards to China, Commerce constructs a cost using consumption factors from Chinese producers multiplied by surrogate values from import statistics from 10 potential surrogate countries, ranging from Thailand, Indonesia, Philippines, to Columbia or Bulgaria and those countries can change in subsequent review investigations.

Because of the fact that actual price and costs in China are not used to determine Chinese antidumping rates, it is impossible for the Chinese company or the US importer to know whether it is dumping. Thus, the US importer that is trying to protect itself from bankruptcy is in a damned if you do, damned if you don’t situation.

SEPARATE ANTIDUMPING RATES—NO LONGER A PRO FORMA EXERCISE– MUCH TOUGHER FOR STATE OWNED COMPANIES

With December 11, 2016 and the requirement in the US China WTO Agreement that China is a market economy country coming up, one would expect Commerce to relax the requirements regarding separate rates for state owned companies. Instead, Commerce is making it more difficult for Chinese state owned companies that are under the supervision of the PRC’s State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) to get their own separate antidumping rate.

Based on recent attached decisions in the Court of International Trade in the Diamond Sawblades case, specifically two opinions in the Advanced Technology & Materials Co., Ltd. v. United States, ADVANCED TECHNOLOGY TWO CIT CIT ADVANCED TECHNOLOGY 11-12211-122, where the Court, in effect, forced Commerce to deny a separate rate to Advanced Technology because part of the ownership was by SASAC, Commerce has made it more difficult for Chinese companies under the control of or owned in part by the State-Owned Assets Commission to get separate dumping margins/separate rates.

Recently, in the preliminary determination in 1,1,1, 2 Tetrafluoroethane from China case, Commerce overturned decades of past decisions giving Sinochem a separate antidumping rate, and determined that many Chinese companies, including numerous Sinochem companies, were not entitled to a separate dumping rate. In the May 22, 2014 preliminary determination, in the Issues and Decision memo, AD Tetrafluoroethane Prelim Decision Memo-5-21-14, the Commerce Department stated:

The Department has not granted a separate rate to the following additional Separate Rate Applicants: SC Ningbo International Ltd (“SC Ningbo International”), Sinochem Environmental Protection Chemicals (Taichang) Co., Ltd. (“SC Taicang”), Sinochem Ningbo Ltd. (“SC Ningbo”), Zhejiang Quhua Fluor-Chemistry Co., Ltd. (“Quhua-Fluor”), Zhejiang Quzhou Lianzhou Refrigerants Co., Ltd. (“Lianzhou”) and Aerospace for the following reasons:

“The Department preliminary determines that SC Taicang, SC Ningbo Ltd. and SC Ningbo International have not demonstrated an absence of de facto government control.Specifically, each of these companies is under the control of Sinochem Group, a 100%-owned SASAC [State-owned Assets Supervision and Administration Commission of the State Council]entity.Evidence shows that members of Sinochem Group’s board of directors and management actively participate in the day-to-day operations of SC Taicang, SC Ningbo Ltd. and SC Ningbo International as members of the board of directors. Furthermore, while the boards of these companies claim they are not involved in the day-to-day activities, each board oversees every aspect of the company, including the hiring and firing of the managers and determining their remuneration.

Accordingly, based on this evidence, we find that these companies have not demonstrated an absence of de facto government control.

Similarly, the Department preliminarily determines that neither Quhua nor Lianzhou demonstrated an absence of de facto government control. Specifically, both of these companies are under the control of Juhua Group, a 100%-owned SASAC entity, and evidence shows that members of Juhua Group’s board of directors and management actively participate in the day-to-day operations of Quhua and Lianzhou as executive directors. Further, the Juhua Group holds monthly price discussions and sets price guidance for sales of the merchandise under consideration. Accordingly, based on this evidence, we find that these companies have not demonstrated an absence of de facto government control.

Similarly, the Department preliminary determines that Aerospace did not demonstrate an absence of de facto government control. Specifically, Aerospace’s controlling Board members are also on the Board of its largest single owner China Aerospace Science & Industry Corp. (“CASIC”), a 100%-owned SASAC entity, and evidence shows that members of CASIC’s board of directors actively participate in the day-to-day operations of Aerospace.  Aerospace’s Board elects the company’s general manager and the Board will appoint or dismiss other senior managers based upon the general manager’s recommendation. Although the ownership from SASAC is less than a majority, record evidence leads us to conclude that the other shareholders have no formal authority to appoint board members or directors. Accordingly, based on this evidence, we find that Aerospace has not demonstrated an absence of de facto government control.”

SOLAR CASES—POSSIBLE SETTLEMENT??

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice are posted on my blog in my last post. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%.

As stated in the attached Commerce Department memo, ADCVD Solar Products Ex Parte Phone Call with Senator Patty Murray (WA)-7-23-14, on July 23rd, Senator Patty Murray spoke to Commerce expressing her concern of the impact of the Commerce Department determination on REC Silicon, a polysilicon producer in Washington.

On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States. More specifically, on July 25, 2014, DOC announced preliminary AD duties ranging from 27.59 to 44.18 percent for Chinese companies, and 27.59 to 44.18 percent for Taiwanese companies. With the set off for countervailing duties, however, the antidumping rates are offset resulting in a lower overall cash deposit rate.

Attached are the Commerce Department’s Factsheet, Solar Products AD Prelim Fact Sheet 072514 (1), Federal Register notice, FR Notice AD Solar Products Affirmative Prelim Determination Postponement of Final Determination-7-31-14, Issues and Decision memo from the Antidumping Preliminary Determination, AD Solar Products Decision Memo for Prelim Determination-7-24-14, along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, COMMERCE INSTRUCTIONS TO CUSTOMS COMMERCE CVD INSTRUCTIONS CHINA CUSTOMS, which will help importers understand what products are covered by this case.

Attached also is the ITC scheduling notice for its final injury investigation in the Solar Products case. FR Notice ITC Solar Products Scheduling of Final Phase of CVD AD Inv -8-25-14 The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department.

Once and if any agreement is negotiated, Commerce will disclose the terms of the Agreement and seek public comment. Pursuant to the Statute, the Petitioner must approve the Agreement, which will make it much more difficult to negotiate an Agreement acceptable to Solar World. But miracles can happen.

If the Chinese government were to submit a proposed settlement agreement to Commerce, that might start negotiations. But the underlying antidumping and countervailing duty cases on Solar Products are moving quickly with verifications of the Chinese companies already underway and a final Commerce Department determination due in December and an ITC final injury determination in January 2015. There is little time left for negotiations or posturing.

Meanwhile, it has been reported that Chinese solar companies are moving to set up production facilities in third countries, such as India. In addition, Solar companies in third countries, such as REC Group in Norway and a German company with production facilities in Singapore and Malaysia, are reporting increased sales.

Also there have been reports that REC Silicon, a US polysilicon producer, is now moving forward with a joint venture in China, rather than increasing its investment in Washington State.

TAIWAN SOLAR PRODUCTS

On August 21, 2014, in the attached Federal Register notice, FR Notice AD Solar Products from Taiwan- Notice of Amended Prelim Determination-8-22-14, because of a “ministerial” error in its calculation, the Commerce Department reduced significantly the preliminary antidumping rate of the Taiwan respondent, Motech Industries Inc., from 44.18 percent to 20.86 percent. Apparently Commerce made a mistake in its calculations by adding a warranty expense to the normal/foreign value of Motech’s products without first converting that expense from New Taiwan dollars to U.S. dollars. This decision has also caused the all other rate for other Taiwan companies to fall to 24.23%.

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

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

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

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

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

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

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

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

On July 16, 2014, the American Iron and Steel Institute, which represents all the US steel manufacturers, stated that any future legislation that grants the president Trade Promotion Authority (TPA) or implements a free trade agreement must contain provisions on trade enforcement, including changes to the U.S. trade remedy law, the enactment of the ENFORCE Act, to put more pressure on US Customs to address transshipment and other issues, and language to address currency manipulation. The US Steel Industry and the United Steel Workers (“USW”) are also requesting Congress to lower the injury standards in antidumping and countervailing duty cases to make it easier for the ITC to go affirmative in antidumping and countervailing duty cases.

On July 17th, all Republican members of the House Ways and Means Committee sent a letter to USTR Froman, which is posted on my last July blog post, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Now the story continues . . . .

On July 30th in the attached letter, JAPAN TPP HOUSE REPS tpp_market_access_letter.pdfHpR)_R)wR)_, close to 100 Congressmen/women wrote to the USTR to express their concern regarding the agricultural negotiations with regard to Japan and Canada. They stated:

We write to express our deep concern over Japan’s current market access ·offer within the ongoing Trans-Pacific Partnership (TPP) negotiations. When Japan joined these negotiations, it agreed that the elimination of tariffs is a key feature of the agreement, as announced by TPP leaders on November 12, 2011. Unfortunately, Japan’s current position falls far short of acceptability.

Specifically, Japan is seeking to exempt numerous tariff lines from complete elimination with the United States. If accepted, this unprecedented and objectionable offer would significantly limit access for U.S. farmers and ranchers to the Japanese market, and most likely, to other TPP countries as well.

Furthermore, caving to Japan’s demands would set a damaging precedent, compromising the U.S. negotiating position with future TPP members. This result runs the significant risk that the EU will be encouraged to make unacceptably weak offers in the Transatlantic Trade and Investment Partnership negotiations, undermining Congressional support. In that same vein, we are also troubled by Canada’s lack of ambition, which is threatening a robust outcome for U.S. farmers.

The Trans-Pacific Partnership was envisioned as a high-standard, 21st century trade agreement that would be a model for all future U.S. free trade agreements. To realize this goal, we urge you to hold Japan and Canada to the same high standards as other TPP partners. Otherwise, Congressional support for a final TPP agreement will be jeopardized.

Indeed, we urge you to pursue the TPP negotiations without any country, including Japan, Canada, or others, that proves unwilling to open its market in accordance with these high standards. We owe our farmers and ranchers the best deal possible.

On August 14, 2014 the North American steel, automotive and textile industries called on USTR to include currency manipulation in future trade deals, including the TPP.

USTR Froman in prior statements has acknowledged the importance of dealing with rampant currency manipulation in countries such as China but has stopped short of indicating whether or not the rules would make their way into the TPP. He has also been careful to note that Treasury takes the lead on all issues relating to currency.

On August 19, 2014, the Electronic Frontier called on Sen. Ron Wyden, head of the powerful Senate Finance Committee, to create more transparent rules overseeing the negotiation and passage of free trade agreements, warning against overly restrictive protections for copyrights. The Electronic Frontier launched a petition calling on Wyden to introduce and pass legislation that would grant unprecedented access to trade negotiating texts and meetings for lawmakers and other observers, along with negotiating objectives that would balance the rights of both users and private industry.

On August 27, 2014, it was reported that TPP negotiators will meet for 10 days in Hanoi, Vietnam to discuss various issues, including food safety, intellectual property, investment, technical barriers to trade, environmental rules and state-owned enterprises. But because of the political situation, experts doubt that a serious breakthrough will occur and that the decisions necessary to close the deal still need to be made at the highest levels of government. The hope, however, is that the Hanoi session will allow the negotiators to narrow the gaps on the way to an agreement.

But the differences with Japan and the lack of Trade Promotion Authority are two big issues that need to be addressed by the US Government. Without these two issues being resolved, the chance of any big breakthroughs in Hanoi are small. These two problems would appear to prevent a final deal at the November APEC meeting, which has been an objective of the Obama Administration.

INDIA WANTS TO JOIN THE TPP???

On August 12, 2014, Indian government officials stated that the TPP presents a substantial opportunity for India to bring its own trade regime up to global standards. Commerce Secretary Rajeev Kher told a Confederation of Indian Industry conference in New Delhi that while India is not a member of the TPP talks, the finalization of the 12-nation pact may serve as the catalyst for India to take a more active role in the global trading system and diversify its economy.

In summarizing the event the Confederation stated “Kher observed that there are several countries in the world that are not part of the TPP and India could enhance its trade relations with these countries. The TPP also gives India an opportunity to pay greater attention to strengthening its services sector so as to diversify it away from information technology as well as to bring about trade facilitation measures to boost trade.”

External Affairs Secretary Sujata Mehta also speaking at the event said that whatever rules become enshrined in the TPP agreement may well become the “gold standard” for global trade regulation moving forward and that developing countries will be affected by the pact even if they are not parties to it.

According to CII, “Mehta felt that India needed to work on a successful response, especially on non-tariff issues so as not to be shut out of the global markets. . . . She was of the view that India needs to achieve a balance between our economic goals and strategic interests.”

In light of India’s decision to kill the trade facilitation agreement negotiated in Bali at the World Trade Organization meeting, as described below, however, it is very doubtful that many countries in the TPP would welcome India into the Group. China would be a much better candidate because it is less ideological and more willing to make the necessary compromises to be included in the Agreement.

INDIA KILLS WTO TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India, which wishes to limit the pact because of food security initiatives.

WTO Director-General Roberto Azevedo said on July 31st that a late-night informal session of the WTO’s Trade Negotiating Committee in Geneva failed in a last-ditch attempt to find common ground with the holdout countries. Azevedo stated that “I am very sorry to report that despite these efforts I do not have the necessary elements that would lead me to conclude that a breakthrough is possible. We got closer — significantly closer — but not quite there. At this late hour, with the deadline just a matter of moments away, I don’t have anything in my hands that makes me believe that we can successfully reach consensus.”

Because of outstanding differences that Azevedo termed “unbridgeable,” the WTO members will not be able to implement the deal, a move that required a consensus among members. The modest Trade Agreement was regarded as a sign that the WTO could be a forum to create new broad trade rules, in spite of the collapse of the Doha round of trade talks.

Azevedo went on to plead with the negotiators, “So please, take this time to reflect—and let’s be ready to discuss the way forward on these issues when you return. The future of the multilateral trading system is in your hands.”

But opposition from developing countries, chiefly India, has grown louder in recent weeks. While India’s specific demands have not been made public, the country has said that it will not agree to implement the facilitation deal without first securing a permanent solution on food security, a key priority for developing nations.

Top US trade officials criticized India for trying to alter the strict deadlines for each agreement laid out in Bali. India, however, has repeatedly refused to compromise, rejecting calls at the G-20 summit of trade ministers and the WTO’s General Council to follow through on the deal it made in Bali.

In response on August 1, 2014, House of Representatives Chairman Congressman Dave Camp of Ways and Means Committee along with Trade Subcommittee Chairman Devin Nunes made the following attached statement, HOUSE INDIA TRADE FACILITATION DEAL KILLED:

Rep. Camp: “India’s actions last night to bring down implementation of the Trade Facilitation Agreement are completely unacceptable and put into doubt its credibility as a responsible trading partner. As we determine next steps, I am committed to the WTO as an institution, and I hope that we can salvage the Trade Facilitation Agreement, either with or without India.”

Rep. Nunes: “It’s one thing for a country to be a tough negotiator. It is entirely another to agree to a deal with your trading partners, and then just simply walk away months later, insisting instead on one-sided changes. That’s what India has done here by going back on its word, running the risk of eliminating any sense of good will toward it.”

And India now wants to join the TPP??? As they say in New York, “Ferget about it.”

On August 6, 2014, EU trade commissioner Karel De Gucht stated that the European Union would have been willing to support “any solution” that would respect the substance of the deal.

The Bali package was the first unanimous trade agreement since the WTO’s inception and included a so-called cease-fire on challenges to India’s food subsidy programs while the countries worked to find a permanent solution by 2017. But India backed off on the deal insisting food security move to the front hoping to push more members to join them.

The ramifications from India’s decision could mean a near-fatal blow to the WTO’s already failing effort to craft comprehensive new global rules to govern international commerce. Experts said that the shrinking of the WTO as a negotiating platform would likely lead to a shift toward smaller, binational, talks among willing countries members and regional free trade agreements, such as the TPP.

WTO Director-General Roberto Azevedo made clear that the members’ inaction would have far-reaching implications for the multilateral negotiating system.

“My sense, in the light of the things I hear from you, is that this is not just another delay which can simply be ignored or accommodated into a new timetable — this will have consequences. And it seems to me, from what I hear in my conversations with you, that the consequences are likely to be significant.”

With the first of those trade agreements now facing an uncertain future after this week’s missed deadline, many trade experts are pessimistic that the multilateral system can ever be workable again. As one trade lawyer stated “If agreements agreed to by all governments of the world become subject to hostage-taking by a country who desires a change in the package, then you have no sense in negotiating because it’s not going to be worth anything.”

Meanwhile on August 19, 2014, Members of the Asia-Pacific Economic Cooperation, including China, vowed to do everything in their power to improve the flow of goods across their borders even as the WTO Agreement falls apart. The APEC Committee on Trade and Investment restated their commitment to trade facilitation, indicating that they will take matters into their own hands if no progress can be made on the multilateral stage.

CHAOTIC TRADE SITUATION WITH COLLAPSE OF WTO TALKS

The collapse in Trade Facilitation Agreement has led many experts to question the future of the WTO Multilateral system. In an article published on August 18th, Terry Stewart, a well-known trade lawyer in Washington DC, stated:

“The World Trade Organization has existed for almost 19 years, replacing the former General Agreement on Tariffs and Trade in 1995. . . . Last December, trade ministers from the WTO eeked out a last-minute compromise to permit an agreement on trade facilitation to be reached and to agree to commitments on a range of other topics at the 9th Ministerial in Bali, Indonesia. . . . The trade facilitation agreement (“TFA”) had long been viewed as a win win for all members. Some estimates of the benefits to the world economy were as high as $1 trillion and the creation of some 21 million jobs (most in the developing world). . . .

The WTO membership operates on momentum. When there is optimism based on success or progress, the membership appears capable of searching for solutions and the organization can achieve significant forward movement. . . .

Where there are missed deadlines or spoiled expectations, WTO members go into lockdown positions, where officials in Geneva are basically just going through the motions, and the organization’s negotiating function effectively shuts down for extended periods. . . .

But never before have WTO members (or GATT contracting parties before them) ever failed to move a new agreement approved by ministers through the steps of a legal scrub and adoption of appropriate documents to permit the agreement to be opened for ratification by members. Yet that is exactly what happened last month as India (with some support from a few other countries) refused to permit adoption of a simple protocol of amendment to add the trade facilitation agreement to the WTO agreements and to open the agreement for ratification by the membership.

The failure was not just another missed deadline. The failure sends the WTO once again to the precipice of irrelevance for trade negotiations. . . ..

The path out of the crisis India has created is not clear. While India has downplayed the importance of the missed date and the significance of changing the balance of the Bali package, the dilemma for others is more obvious. If a WTO member can hold the membership hostage on an agreed upon direction in the hopes of altering a previously agreed balance, negotiations at the WTO become meaningless and subject to repeated hostage-taking.”

As former US Trade Representative Susan Schwab recently stated, the stalling of multilateral efforts to craft cohesive global trade and investment rules has pushed nations both large and small to pursue more limited agreements that can squarely address their most immediate concerns in a given region, but the proliferation of these efforts has substantially complicated the operations of businesses across several sectors. Schwab stated, “Even the largest multinational firms, stepping back and looking at what is going on, their heads are spinning trying to figure out how this affects all of their business plans . . . You’ve got the progress in the trade system stalling and all of the regional [deals] in various states of suspended animation.”

Schwab echoed the near-unanimous sentiment of several experts in saying that India’s move poses a substantial threat to ever reviving a serious effort to rewrite international trade rules for the first time in two decades. According to Schwab, “What the Indians did is a travesty, and it’s a disaster for India’s economy, the rest of the world and the multilateral trading system . . . . The implications for the trading system and the global economy and businesses are really bad news. Not only do you have a stalling of these mega-regional negotiations, but now you’ve got a stalling of what had been a glimmer of hope in the multilateral system.”

OCTG

As stated in prior newsletters and above, US Steel Corp along with the Steel Union (USW) have brought follow up cases against Steel Oil Country Tubular Goods (“OCTG”), Steel Pipes used in oil wells from a number of different countries. US Steel and the Steel Union first attacked China and were able to drive them out of the US market with 47% dumping rate, not based on actual prices and costs in China. Instead, Commerce used values from Indian import statistics to throw the Chinese out of the US market.

But Chinese imports were replaced by imports from Korea, Taiwan, India and many other countries. So USW and US Steel filed antidumping and countervailing duty cases against those countries. In the preliminary antidumping determination, Commerce calculated very low antidumping rates, such as 0s for Korea, 0 to 2.65 for Taiwan, 0 for one producer in India, 2.92% for Saudi Arabia and 8.9% for Philippines.

The USW and US Steel through the Congress put immense political pressure on Commerce to change its preliminary determination, especially with regards to Korea. On July 11, 2014, Commerce issued its final determination, which is posted in my last post on this blog, pushing Korea’s AD rate to 9.89 to 15.75%, Taiwan 0 to2.52%, Saudi Arabia 2.69%, Philippines 9.88%, Ukraine 6.73% and an India CVD rate from 5 to 19%.   The point, however, is that these are not shut out rates and in contrast to China, all of these countries will continue to export OCTG steel products to the United States in substantial quantities.

As indicated in the factsheet that can be found at http://www.usitc.gov/press_room/news_release/2014/er0822mm1c.htm, on August 22, 2014, based on a threat of material injury determination, the U.S. International Trade Commission (“ITC”) made affirmative injury determinations with respect to OCTG imports from India, Korea, Taiwan, Turkey, Ukraine and Vietnam, but negative determinations with respect to imports from Philippines and Thailand.

ALUMINUM EXTRUSIONS

WHIRLPOOL SUES

In the attached complaint, WHIRLPOOL COMPLAINT, on August 26, 2014, Whirlpool Corporation filed suit in the US Court of International Trade against the Commerce Department to stop the Department from including door handles for kitchen appliances within the scope of the antidumping and countervailing duty order on aluminum extrusions from China.

Whirlpool is arguing that the handles are outside the scope of the orders because they are “finished goods.” Certain finished goods that don’t require additional assembly are excluded from the order.

In the Complaint, Whirlpool specifically states:

Appliance handles with end caps consist of alloy 6 series aluminum extrusions and nonaluminum components that are permanently assembled together, are fully complete and finished, and are ready for use as appliance door handles at the time of import. Thus, these appliance handles with end caps are ready to be attached to the kitchen appliance doors in their as-imported condition. No further processing or finishing of these handles is necessary prior to fulfilling their intended use….

Appliance handles with end caps consist of alloy 6 series aluminum extrusions and non-aluminum components that are permanently assembled together, are fully complete and finished, and are ready for use as appliance door handles at the time of import. Thus, these appliance handles with end caps are ready to be attached to the kitchen appliance doors in their as-imported condition. No further processing or finishing of these handles is necessary prior to fulfilling their intended use.

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On May 8, 2014,