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–TRADE, TRADE ADJUSTMENT, 337/IP, PRODUCTS LIABILITY

Lotus Garden Reflection Summer Palace Beijing, China“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER JANUARY 11, 2015

Dear Friends,

As you may know, the blog posts are getting longer and longer as more trade and other actions take place against China. Because of the length, I, therefore, am breaking this post into two parts. This first post covers Trade, Customs, 337/IP and Products Liability.  The second post will cover FDA, Antitrust and Securities law.

On January 21st I gave a speech at the Brooklyn Law School on US China Trade Disputes.  Attached is a copy of the PowerPoint for the speech. BROOKLYN US CHINA TRADE POWERPOINT  Set forth is a link to Phonex Television, which covered the speech, http://v.ifeng.com/news/finance/201501/0166aceb-5bc1-48d8-a2f0-109a495aa914.shtml.  Phoenix Television has an estimated audience of 300 million people, and broadcasts in the PRC, Hong Kong, US, and other countries where there are Chinese communities.  It is the largest private Chinese-language broadcaster in the world.  In addition, the China Daily also covered the speech.  See http://usa.chinadaily.com.cn/world/2015-01/23/content_19386984.htm.

On January 21st, a major antidumping and countervailing duty case was filed against Uncoated Office Paper from China.  Attached is a copy of a short form of the petition along with a Wall Street Journal Article quoting me about the new petition.  The Next Trade Fight Office Paper – WSJ OFFICE PAPER CHINA BRAZIL PETITION

Finally, on January 22nd, Commerce announced its preliminary antidumping determination in the Tires from China case.  Attached is the Commerce Department factsheet.  TIRES AD PRELIM  The antidumping rates are from 19.17 to 36.26% with separate rates companies getting 27.72%.  The China wide rate is 87.99%.

The big problem with the Preliminary Determination is that except for the mandatory respondents, all the rest of the Chinese companies were hit with critical circumstances exposing US importers to millions of dollars in retroactive liability covering imports going back 90 days prior to the preliminary determination.

The only way to get rid of retroactive liability is to fight the case at the US International Trade Commission in the final injury case.  In the Solar Cells case on behalf of three importers I fought critical circumstances at the ITC and was able to eliminate close to $100 million in retroactive liability for US importers.  But it took a fight at the ITC to win the case as we won on a 4-2 vote at the ITC.  If the Commission had gone 3-3, we would have lost the argument.

If anyone has an interest in the Uncoated Paper case or the ITC investigation in the Tires case, please feel free to contact me.

NEWSLETTER

There have been major developments in the Solar Cells, trade, trade politics and trade, trade adjustment assistance, 337/IP, and Products Liability areas.

TRADE –– SOLAR PRODUCTS AND SOLAR CELLS CASES

SOLAR PRODUCTS

On December 16, 2014, Commerce issued its final determination in the Solar Products case. The Mandatory Respondents in the China case received rates ranging from 26.71% for Trina to 78.42% for Jinko and the Separate rate companies received rates of 52%, with the rest of China receiving an antidumping rate of 165.04%.

In addition, the Countervailing duty rates ranged from 27.64 to 49.79% with the all other rate being 38.72%.

Commerce also expanded the scope in the Chinese case to include all Chinese panels and modules with third country solar cells in them. The Fact Sheet, Federal Register notice and Issues and Decision Memos are attached.  CVD Solar Products I&D Memo-12-15-14 CVD Solar Products Final Determination-12-15-14 Certain Crystalline Silicon Photovoltaic Products Final Factsheet AD Solar Products I&D Memo-12-15-14 AD Solar Products Final Determination-12-17-14

The Taiwan rates are from 11.45 to 27.55% with the rest of Taiwan receiving a 19.5% rate.

On December 8, 2014, at the US International Trade Commission hearing on the injury case in the Solar Products case, in the attached testimony, WYDEN ACTUAL SPEECH SOLAR CELLS, Senator Wyden stated:

“In my role as Chairman of the Senate Finance Committee, I work very hard to make sure that trade benefits U.S. workers and companies. And a big part of my job is helping make sure that trade laws are enforced and our trading partners play by the rules.

The solar industry is an anchor of Oregon’s manufacturing base and is a central driver of Oregon’s innovation economy. It supports high skill, high wage jobs that are critical to helping attract investment and new economic opportunities for the 21st century economy.

Yet the solar industry has been under siege by its Chinese competitors for the last five years. It isn’t that American solar can’t compete; it is because China isn’t playing by the rules.

Chinese solar producers were bankrolled by the Chinese government. So they overproduced and dumped solar panels into the U.S. market at prices that were below the cost of production.

China viewed Solar World as such a threat, and these jobs as so strategically important, they used military computer hackers to steal sensitive documents from the company, according to charges filed by the Justice Department.

In short, China cheated and Oregon workers and families suffered. Jobs were lost, capacity diminished, and opportunities were drying up.

When I visited Solar World three years ago, I sounded the alarm. I said that China was taking America’s manufacturing jobs and the trade laws needed to be enforced.

After its own thorough investigation, this Commission found unanimously just two years ago that Chinese companies were injuring our industry by inundating the U.S. market with dumped and subsidized solar products. Trade remedies were imposed. I am grateful to this Commission for its efforts in the original investigation to redress unfair solar trade.

The trade laws worked, or so it seemed. But even while the first case was going on, the Chinese producers switched to a different tactic — keep dumping and subsidizing, but source non-Chinese cells through Taiwan and elsewhere to avoid paying the duties. Dumped and subsidized imports quickly returned, this time through the Taiwan loophole. The hard fought relief that the solar industry hoped to get from the original investigation was in jeopardy, and its fragile recovery in doubt.

The domestic industry was forced to defend itself again, filing the trade case that you are reviewing today. And this time, with the loophole closed, some improvement has started. Prices are no longer in free fall and solar companies like SolarWorld are starting to rehire for jobs that had once been lost. Just last month back in Oregon, I highlighted the role of your investigations in sparking hope that the industry might finally climb back from the brink.

I am back today to ask that this Commission secure the integrity of its original findings and conclude that Chinese and Taiwanese unfair trade has resulted in material injury and threatens additional material injury to U.S. producers, including those in Oregon. A strong determination from the Commission, coupled with antidumping and countervailing duties covering the full scope of unfair trade, will ensure the growth and resurgence of the domestic industry.

U.S. innovation and efficiency started the world-wide growth of solar and will continue to fuel that growth so long as unfair trade practices are fully addressed. Let us not allow the innovation economy to be undermined by innovative cheating on trade. Trade enforcement must keep pace with the times.

This Commission plays a critical role in ensuring that the trade rules are enforced as intended, that unfair trade is checked, and that American jobs and workers can compete on a level playing field. I again thank you for all of your hard work on this matter and urge you to fairly look at the facts and circumstances in this case, and apply the nation’s trade laws accordingly, so that the American solar industry can finally obtain lasting relief that it so urgently needs.”

Petitioners’ handouts from the ITC hearing are attached.  WILEY REIN SPEECH ITC KAPLAN ITC SPEECH

SOLAR CELLS

On December 31, 2014, the Commerce Department issued its preliminary determination in the first antidumping review investigation in the Solar Cells case. The Antidumping rates fell to 1.82% for Yingli Energy (China) Company (“Yingli”), 1.82% for separate rates companies and 238.56% for all other companies.

The reason for this low rate is that the Commerce Department refused to give a separate antidumping rate to one of the largest Chinese solar producer/exporter—Wuxi Suntech. As stated in prior newsletters, the Department is cracking down and making it much harder for Chinese companies with state ownership to obtain separate dumping rates. As the Department stated in its decision in the preliminary Solar Cells review investigation:

“we have concluded that where a government entity holds a majority ownership share, either directly or indirectly, in the respondent exporter, the majority ownership holding in and of itself means that the government exercises or has the potential to exercise control over the company’s operations generally, which may include control over, for example, the selection of management, a key factor in determining whether a company has sufficient independence in its export activities to merit a separate rate. Consistent with normal business practices, we would expect any majority shareholder, including a government, to have the ability to control, and an interest in controlling, the operations of the company, including the selection of management and the profitability of the company. Accordingly, we have considered the level of government ownership where necessary. . . .

Wuxi Sunshine, an exporter and company in the Wuxi Suntech Single Entity, reported that two of its three shareholders are state-owned companies. The business licenses of these two companies support Wuxi Sunshine’s assertions that these two shareholders are state-owned companies. The government of the People’s Republic of China (“GOC”) indirectly, through these two shareholders, owned a significant percentage of Wuxi Sunshine during the POR.

In this case, we preliminarily determine that the GOC, through its significant ownership interest in Wuxi Sunshine, is in a position to potentially control Wuxi Sunshine’s and therefore, the collapsed entities’ export activities. Moreover, we find the potential to control the collapsed entities’ export activities is further evidenced through the intertwined operations of the companies in the single entity. Because of the level of government ownership in Wuxi Sunshine, and the control or the potential to exercise control that such ownership establishes, we preliminarily conclude that Wuxi Sunshine, and thus the Wuxi Suntech Single Entity, does not satisfy the criteria demonstrating an absence of de facto government control over export activities. Consequently, we preliminarily determine that the Wuxi Suntech Single Entity is ineligible for a separate rate.”

Because of the fact that Wuxi Suntech was refused a separate rate, its new rate is the China Wide rate of 238.56% on its imports.

The Chinese separate rate companies were then given the lower antidumping rate of Yingli.

On the Countervailing duty side, Commerce issued preliminary rates ranging from 8.63 to 22.73% with 15.68% being assigned to all the other companies covered by the review.  The Federal Register notices and Decision Memos are attached.  AD Solar Panels 12-13 AR Prelim Results-12-31-14 CVD Solar Cells 12-12 AR Prelim Decision Memo-12-31-14 CVD Solar Cells Prelim Results- 12-31-14 AD Solar Cells 12-13 AR Decision Memo for Prelim Results-12-31-14

US CHINA SOLAR NEGOTIATIONS

As mentioned in my last update, on December 12th, USTR Michael Froman acknowledged that Washington and Beijing have held talks about the Solar cases for “some time”, but that no agreement had been reached. There was an opportunity for an Agreement when President Obama was in Beijing for the APEC meeting, but there was no agreement.

A major reason for this failure is because Solar World 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. Knowledgeable sources have said that the floor price is the key sticking point.

From the Chinese companies’ point of view, the Commerce Department does not give good deals in antidumping and countervailing duty cases and thus it is very hard for the Chinese government to agree on a floor price, much higher than the Chinese export price, as the basis for any agreement.

The bottom line is that the Solar Products case will go to Antidumping and Countervailing Duty order, and any deal to succeed would have to be extremely unique, such as the US Canadian Lumber Agreement. The chance of such an agreement is probably small.

In addition, the Canadian government initiated a new antidumping and countervailing duty investigation against Solar Modules and Panels from China. The Complaint and Announcement are attached.   CANADIAN SOLAR COMPLAINT CANADIAN SOLAR ANNOUNCEMENT

Chinese solar cells and panels appear to be on the same trade path as other trade cases against China, as Europe, the US, Australia, India and now Canada have brought antidumping and countervailing duty cases against solar products from China. Many countries may soon block Chinese solar cells and panels out of their market.

IMPACT OF SOLAR CASE ON US INDUSTRY

On December 24, 2014, the China Daily published an article entitled “Commerce decision said to hurt US solar makers”. In the article, the China Daily states:

“US solar manufacturers are already feeling the impact of the latest US Commerce Department decision to levy tariffs on Chinese solar exports, according to the Coalition for Affordable Solar Energy.

Commerce’s decision to impose tariffs on solar modules from China will “undercut the growth of American solar jobs and hurt our domestic solar industry,” said Jigar Shah, president of the Coalition for Affordable Solar Energy (CASE), an organization that opposes the original petition filed by Solar World that led to the Commerce decision.

Since the decision, manufacturers like Georgia-based Suniva and Michigan-based Hemlock Semiconductor have been hurt, the company said in a Dec 17 statement. Hemlock Semiconductor said last week that it would close its $1.2 billion Clarksville, Tennessee, plant due to “ongoing challenges presented by global trade disputes,” according to the statement. The facility was never operational, but the closing would affect about 50 employees.

“As difficult as this is, the continued market adversity and complex political conditions have left no economically viable options for Hemlock Semiconductor to operate the site,” said Denise Beachy, president of Hemlock Semiconductor, in the release. “It is unfortunate for both the company and the community that these conditions have forced us to take this action.”

 SENATOR BROWN PROPOSES TOUGHER ANTIDUMPING AND COUNTERVAILING DUTY LAW THAT MAY VIOLATE WTO AGREEMENT AND WILL INJURE US IMPORTERS

On December 10, 2014, Democratic Senator Sherrod Brown introduced the attached legislation, SHERROD BROWN BILL, The Leveling the Playing Field Act, to amend the US antidumping and countervailing duty laws to make them tougher. Senator Brown wants to overturn court decisions that curtail the Commerce Department’s authority in using all facts available to punish Chinese exporters and US importers and also to make it harder for China to become a market economy country. Senator Brown stated in the attached press release, SHERROD BROWN PRESS RELEASE:

“There are encouraging signs of a comeback in American manufacturing, but that progress could be lost if we don’t have strong trade laws to level the playing field. Foreign companies who don’t play by the rules are actively trying to undermine the effectiveness of our trade laws. This bill would restore strength to our trade laws and ensure that American companies can compete in a fair marketplace.”

According to the Press Release,

“The Leveling the Playing Field Act restores strength to the AD/CVD statutes. Specifically, the bill:

  • Maintains Commerce’s discretion to use adverse facts available when a mandatory respondent does not cooperate with an investigation and clarifies that the agency is not obligated to determine what a margin would be if the respondent had participated;
  • Increases the number of factors and the length of time the ITC should use to evaluate injury or the threat of injury to U.S. producers to ensure a determination is based on a comprehensive assessment of a sector’s situation;
  • Closes the “new shipper” loophole used by companies to circumvent AD/CVD duties;
  • Increases penalties for failure to provide a country of origin certificate for merchandise covered under AD/CVD orders or for falsifying the information on the certificate;
  • Clarifies that Commerce has the authority to determine whether to include voluntary respondents in an investigation;
  • Clarifies that Commerce does not have to conduct an additional investigation to prove that disregarded product values used in non-market economy investigations are subsidized or dumped if the record already shows the product values to be distorted; and
  • Clarifies existing statutory provisions used to assess whether a country’s non-market economy status should be maintained.”

FACTS AVAILABLE CHANGE

One of the changes Senator Brown proposes making to the US antidumping law is to make it easier for the Commerce Department to use all facts available to punish foreign companies and US importers, where the foreign company does not cooperate to the best of its ability in the investigation. As the bill states in Section 2(d)(1)(B) and (2):

“SUBSIDY RATES AND DUMPING MARGINS IN ADVERSE INFERENCE DETERMINATIONS:

(B) in the case of an antidumping duty proceeding, use— ‘‘(i) a dumping margin based on any individual sale of the subject merchandise calculated with respect to any exporter or producer involved in the proceeding during the investigation or review,

‘‘(ii) an individual weighted average dumping margin calculated with respect to any exporter or producer involved in the proceeding during the investigation or a review

‘‘(iii) any dumping margin alleged in a petition filed under section 732(b) that was relied on by the administering authority to initiate the antidumping duty investigation, or

‘‘(iv) any dumping margin found in another antidumping duty proceeding with respect to a class or kind of merchandise that is the same or similar to and from the same country as subject merchandise involved in the proceeding.

‘‘(2) DISCRETION TO APPLY HIGHEST RATE.—

The administering authority has the discretion under paragraph (1), in selecting from among facts otherwise available, to apply any of the countervailable subsidy rates or dumping margins specified under that paragraph, including the highest such rate or margin.

‘‘(3) NO OBLIGATION TO MAKE CERTAIN ESTIMATES OR ADDRESS CERTAIN CLAIMS.

If the administering authority uses an adverse inference under subsection (b)(1)(A) in selecting among facts 8 otherwise available, the administering authority is not required, for purposes of subsection (c) or for any other purpose— . . . .

‘‘(B) to demonstrate that the countervailable subsidy rate or dumping margin used by the administering authority reflects the commercial reality of the interested party.”

These proposed changes to the law are a direct response to a set of decisions by the Court of International Trade and the Court of Appeals for the Federal Circuit finding that the law requires Commerce when making an all facts available determination to not simply use a presumption. Pursuant to the US antidumping and countervailing duty law, 19 USC 1677e(c), when the Commerce Department uses secondary information because the Chinese company has refused to cooperate or has not provided the information on time to replace the information provided Commerce “shall to the extent practicable, corroborate that information from independent sources that are reasonably at its disposable.” The Courts have interpreted this to mean that the secondary information must be “commercially reasonable”.

Those requirements, in turn, came from the antidumping and countervailing duty law and also from the WTO Antidumping Agreement, which the United States has signed, and states in Annex II, Best Information Available paragraph 7:

“If the authorities have to base their findings, including those with respect to normal value, on information from a secondary source, including the information supplied in the initiation of the investigation [the Petition], they should do so with special circumspection. In such cases, the authorities should, where practicable, check the information from other independent sources at their disposal, such as published price lists, official import statistics, and customs returns, and from the information obtained from other interested parties during the investigation.”

In fact, on December 18, 2014 in the attached United States – Countervailing Duty Measures on Certain Products from China decision, KEY FINDINGS wto2014_3483a FINDINGS AND CONCLUSIONS COMPLETE WTO REPORT, the WTO Appellate Body found the United States in violation of the WTO Agreement with regards to US countervailing duty cases against China on the very issues that Senator Brown wants to change the language of the law. Specifically, one of the WTO’s key findings is:

“Use of facts available: . . .

 The Appellate Body recalled that Article12.7 requires that an investigating authority [Commerce Department] must use those facts available that reasonably replace the missing “necessary” information that an interested party failed to provide. The Appellate Body also reiterated that ascertaining reasonable replacements for the missing information involves a process of reasoning and evaluation on the part of the investigating authority, although the evaluation that is required, and the form it may take, depend on the particular circumstances of a given case, including the nature, quality and amount of the evidence on the record and the particular determinations to be made. With respect to China’s claim of error under Article 11 of the DSU, the Appellate Body found that the Panel failed to address each of the 42 instances of the USDOC’s use of “adverse” facts available challenged by China.”

As the WTO further stated in its determination:

“. . . . Accordingly, the Appellate Body has explained that “there has to be a connection between the ‘necessary information’ that is missing and the particular ‘facts available’ on which a determination under Article 12.7 is based.” Therefore, “an investigating authority must use those ‘facts available’ that ‘reasonably replace the information that an interested party failed to provide’, with a view to arriving at an accurate determination.” The Appellate Body has further explained that “the facts available” refers to those facts that are in the possession of the investigating authority and on its written record. As determinations made under Article 12.7 are to be made on the basis of “the facts available”, “they cannot be made on the basis of non-factual assumptions or speculation.” Furthermore, in reasoning and evaluating which facts available can reasonably replace the missing information, “all substantiated facts on the record must be taken into account” by an investigating authority.”

In addition, in a long series of cases beginning in 1934 with a decision by the Court of Customs and Patent Appeals, the forerunner of the Court of Appeals for the Federal Circuit, C. J. Tower & Sons v. United States, 71 F. 2d 438 (C.C. P. A. 1934), Courts have held that US antidumping and countervailing duty laws are remedial, not penal statutes, and, therefore, respondents are not entitled to full due process of law. As the Court of Customs and Patent Appeals stated:

“[W]e cannot escape the conviction that the expressed purpose of Congress, in the Antidumping Act of 1921, was to impose not a penalty, but an amount of duty sufficient to equalize competitive conditions between the exporter and American industries affected . . . . It follows that the Antidumping Act of 1921 is not repugnant to the provisions of said Amendment V [to the U.S. Constitution], as denying to the importer due process of law . . . .”

C.J. Tower & Sons v. United States, 21 C.C.P.A. 417, 427–28, 71 F.2d 438, 445–46 (1934).

Federal Courts have found that the antidumping and countervailing duty laws are not penal statutes but remedial statutes. If the US antidumping and countervailing duty laws were truly penal statutes, US importers and Chinese exporters would be entitled to full due process of law under the US Administrative Procedure Act, including the right to a full trial proceeding, the right to cross examine witnesses and a decision by a neutral Administrative Law Judge. Chinese Companies and US importers, however, have no such right and that is why decisions are made by the US Commerce Department, which can take a prosecutorial approach to these cases.

In other words, in the face of WTO determinations and similar decisions of the Court of International Trade and the Court of Appeals for the Federal Circuit, Senator Brown’s amendments are to eliminate the requirement that any AFA determination reflect commercial reality and be a “reasonable” replacement for the missing information….”

The WTO Appellate Body went on to state:

“We also note that the instances challenged by China, and with respect to which it requests that we complete the legal analysis, include several instances wherein the USDOC [Commerce Department] relied on “adverse” facts available in support of its public body, benefit, specificity and export restraints determinations. The Panel found, however, with respect to China’s claim under Article 1.1(a)(1) of the SCM Agreement, that “in the 12 countervailing duty investigations challenged by China the United States acted inconsistently with Article 1.1(a)(1) of the SCM Agreement when the USDOC found that SOEs [State Owned Enterprises] public bodies based solely on the grounds that these enterprises were (majority) owned, or otherwise controlled, by the Government of China.” The Panel also found that the USDOC acted inconsistently with the obligations of the United States under Article 2.1(c) of the SCM Agreement in making its specificity determinations in the context of these investigations. The United States does not challenge these findings on appeal.

Nor does the United States challenge the Panel’s finding that “the USDOC’s initiation of two countervailing duty investigations [–i.e. Magnesia Bricks and Seamless Pipe–] in respect of certain export restraints is inconsistent with Article 11.3 of the SCM Agreement.” These findings therefore stand. Furthermore, we have found above that the USDOC acted inconsistently with the obligations of the United States under Article 14(d) and Article 1.1(b) of the SCM Agreement in making its benefit determinations in the context of the investigations in OCTG, Line Pipe, Pressure Pipe, and Solar Panels . . . . . .”

In its conclusion, the WTO determines:

“with respect to the Panel’s findings, in paragraphs 7.325 and 8.1.vii of the Panel Report, in respect of the [Commerce Department’s] USDOC’s use of “adverse” facts available in the Pressure Pipe, Line Pipe, Citric Acid, Lawn Groomers, OCTG, Wire Strand, Magnesia Bricks, Seamless Pipe, Print Graphics, Drill Pipe, Aluminum Extrusions, Steel Cylinders, and Solar Panels countervailing duty investigations, reverses the Panel’s finding that China had not established that the USDOC acted inconsistently with the obligations of the United States under Article 12.7 of the SCM Agreement by not relying on facts available on the record; and finds that it is unable to complete the legal analysis in this regard.”

In light of the many arguments by US trade officials arguing that China is violating the WTO agreement, the question must be asked: which country is violating the WTO Agreement now?

More importantly, one should understand that even when Commerce has been reversed by the Courts after Commerce has applied all facts available; this does not mean that the Chinese or any foreign company can begin shipping to the United States at a low rate again. The All Facts Available (“AFA”) rate that Commerce determines is always bad and has the effect of often shutting the foreign company out of the US market for years. The real impact of the AFA rate is not on the foreign exporter. It is on the US importer, the US company, which imports products into the US, and can be exposed to retroactive liability for antidumping rates as high as 100, 200, 300 or even more than 600% and millions, if not 10s of millions, of dollars in retroactive antidumping and/or countervailing duties.

The innocent party in these cases is the US importer, which is often an independent actor with no relationship to the Chinese exporter. The importer often has no control over whether or if the foreign/Chinese company responds to the antidumping or countervailing duty investigation or how the Chinese company responds. The reality is that once the US importer imports under an antidumping and/or countervailing duty order, the US importer is exposed to millions, if not 10s of millions, of dollars in retroactive liability and bankruptcy. As one importer told me, importing under an antidumping order is like importing cancer.

MARKET ECONOMY CHANGE

In addition, Senator Brown’s bill proposes to amend the US Antidumping and Countervailing Duty Law to provide an additional condition before China can be considered a market economy country. That provision specifically provides:

 SEC. 8. CLARIFICATION OF FACTORS FOR DETERMINING WHETHER A COUNTRY IS A NONMARKET ECONOMY COUNTRY.

Section 771(18)(B) of the Tariff Act of 1930 (19 U.S.C. 1677(18)(B)) is amended. . . (3) by inserting after clause (v) the following:

‘‘(vi) the extent to which the government of the foreign country enforces and administers its laws, legal and administrative procedures, and other policies in an open and transparent manner that affords all parties, whether foreign or domestic, due process and equal and non-discriminatory treatment under those laws, procedures, and policies . . . .

But the most discriminatory law may be the US nonmarket economy antidumping law, which refuses to treat China as any other country in the World, including Iran. Pursuant to US antidumping law, since China is a nonmarket economy country, Commerce refuses to use actual prices and costs in China to determine whether a Chinese company is dumping.   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.  Since Commerce refuses to use actual costs and prices to determine whether the company is dumping, Commerce constructs a cost for the Chinese company using consumption factor information from China and “surrogate” values from import statistics in 5 to 10 different surrogate countries. Because of the surrogate values from surrogate countries, it is impossible for the Chinese company, never mind the US importer, to know whether the Chinese company is dumping.

The United States, however, 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:

 “Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

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

But where did the 15 years come from? It came from a demand by the United States in the US-China WTO Accession Agreement, so in accordance with a Treaty signed by the United States, on or after December 11, 2016 Commerce may no longer use a non-market economy methodology that is not based on a strict comparison with domestic prices or costs in China.

But the United States’ apparent position is that since the 15 years is in a Treaty, which was demanded by the United States, and not the US Antidumping and Countervailing Duty law, the United States does not have to follow the demand, which it made.

So what happens when the United States does not enforce and administer its “laws, legal and administrative procedures, and other policies in an open and transparent manner that affords all parties, whether foreign or domestic, due process and equal and non-discriminatory treatment under those laws, procedures, and policies”? What happens when the United States itself violates the WTO agreement?

 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. 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.

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 WEB BEIJING IMPORT ALLIANCE POWERPOINT.

TRADE POLITICS AND TRADE AGREEMENTS

ONE ISSUE MOVING IN CONGRESS NEXT YEAR—TRADE

As stated in the last post, the November 4th Election and the Republican wave will have a dramatic impact on trade policy in Washington DC in 2015. On December 17, 2014, the last House of Representatives Race was decided in Arizona, and the Republican candidate won. In the new 2015 Congress, Republicans control the House 247 Republicans to 118 Democrats, which is the largest Republican majority in 87 years. In the Senate, with the defeat of the incumbent Democratic Senator Mary Landrieu in Louisiana by the Republican candidate, the Republicans control the Senate 54 to 46. In the Senate, however, Republicans will need Democratic votes to get over a 60 vote barrier created by the Filibuster Rule and also more Democratic votes if they want to overturn a Presidential veto.

On December 3rd in a speech to the Business Round Table in New York, President Obama agreed to work with Congressional leaders, including Republican leaders, to pass Trade Promotion Authority and the trade agreements. President Obama also stated that he needs to gain support from labor unions and environmental groups, which have been opposed to the trade agreements.

As President Obama stated, “I’m going to be talking to McConnell … and Boehner, Reid and Pelosi, and making a strong case on the merits as to why this has to get done.” The President further stated, “We have to be able to talk directly to the public about why trade is good for America, good for American businesses and good for American workers, and we have to dispel some of the myths.”

But the President first has to deal with his own Democratic party,

“Part of the argument that I’m making to Democrats is, don’t fight the last war. If you want to … locate in a low-wage country, with low labor standards and low environmental standards, there hasn’t been that much preventing you from doing so.”

“Ironically, if we are able to get Trans-Pacific Partnership done, then we’re actually forcing some countries to boost their labor standards, boost their environmental standards, boost transparency, reduce corruption, increase intellectual property protection. Those who oppose these trade deals, ironically, are accepting a status quo that is more damaging to American workers.”

Sen. Orrin Hatch, R-Utah, who is the new Chairman of the Senate Finance Committee, welcomed the Presidents statement, saying, “If past experience has taught us anything, it’s that we need presidential leadership to get TPA over the finish line. The president’s influence, particularly among members of his own party, will be a vital component to congressional efforts.”

US CHINA TRADE AGREEMENTS

 INTERNATIONAL TECHNOLOGY AGREEMENT (“ITA”) FALLS APART IN GENEVA

After President Obama’s “successful” APEC trip to Beijing in November, the hopes for an International Technology Agreement (“ITA”) were high, but the hopes disappeared when the Agreement came back to Geneva

With regards to ITA, in Beijing at the APEC meeting, 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 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 did not include tariff elimination on flat-panel displays.

But the WTO talks feel apart on December 12th because China and South Korea failed to reach agreement over liquid crystal display screens after eight days of negotiations. China wanted all countries to accept the same terms that it negotiated bilaterally last month with the U.S., which did not include LCD screens, while South Korea wanted them in.

The core group negotiating the updated ITA includes the EU, U.S., Japan, China, South Korea, Australia, Switzerland, Norway, New Zealand, Singapore, Taipei, Malaysia, Thailand, the Philippines, Hong Kong, Costa Rica, Israel, Croatia, Turkey, Bahrain, Montenegro, Iceland, El Salvador, Guatemala, Colombia, Dominican Republic and Albania. A fact sheet circulated by the White House noted 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 December 12th the USTR issued the attached statement by US WTO Ambassador Michael Punke, USTR STATE ITA FAILURE, which states in part:

“The United States is grateful for all the hard work done this week to bring us this close to an ITA expansion agreement. We are gratified that the U.S.-China breakthrough last month allowed us all to get back to the table and that so much of the US-China breakthrough agreement has been embraced by our plurilateral process. Indeed that bilateral breakthrough is the pillar upon which a potential plurilateral deal rests. We appreciate this was widely recognized by participants. . . .

Through the consultations over the last few weeks, it became clear that certain Members had important interests that were not fully captured by the bilateral agreement. And those members came a long way toward accepting 99% of that agreement, but asked that small adjustments be made in order to be able to accept the deal. . . .

Like everyone in the room, we are disappointed not to be celebrating a deal this week. We missed a big opportunity. All of us will need to go back to our capitals and reflect hard on next steps.”

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

 TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

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.  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 blog posts, 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 Trade Politics dramatically in Washington DC. Elections have consequences and in 2015 Republicans have taken the Senate and increased their numbers in House.

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted on my blog in the January 2014 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 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.

On November 4th, the Republican Wave Election took place.

Now the story continues . . . .

As indicated above, on December 3, 2014 at a Business Roundtable Meeting in New York City President Obama vowed to continue working with Congressional leaders on the TPA and the TPP deals.

Although there was substantial optimism about the President’s ability to work with the Republican Congress on trade policy, on December 5th Congressman Sander Levin, the top Democrat on the House Ways and Means Committee, continued to express skepticism over the Trans-Pacific Partnership. Congressman Levin told reporters that his many questions on the TPP regarding issues, such as agricultural market access, labor rights and currency manipulation rules, remain unanswered. He called on the Obama administration to give Congress a more prominent role in closing the deal. As Congressman Levin stated,

“I want there to be set up some structure so that there is regular consultation with the committees of jurisdiction as the negotiations ensue so that there is … full discussion of what is in the documents, and of what is being proposed by the administration, and what are the positions of other countries, and what are the likely bottom lines of this administration.”

Although the USTR has been continually briefing Congress on the TPP, Levin claimed that policy amounts to “considerable consultation” without “meaningful involvement” from the legislative branch. Levin stated that the administration’s positions on key areas remain shrouded in mystery. “At this point, can I tell you what is the administration’s position on tobacco? The answer is no. Can I tell you where they are on agriculture? No.”

Levin further stated:

“If you put the focus on TPA when you have so many outstanding issues, essentially what it does is force or stimulate members to say ‘yes’ or ‘no’ to TPP before so many of the outstanding issues have been resolved. So essentially I think it makes it more difficult, not less difficult, to get an effective TPP.”

On December 5, 2014, four Democratic Congressmen sent the attached letter, ACTUAL LETTER DEMS LABOR, to the Obama Administration stating that the Administration should use the TPP negotiation to push for labor reforms regarding the use of child and forced labor, specifically in Vietnam, Mexico, Peru and Malaysia. The four Congressmen/women stated:

December 4, 2014

In May, we wrote to you with 149 of our colleagues calling on you not to pursue the same approach to labor rights in free trade agreements that has failed in past pacts. In response, you noted that our free trade partners have made efforts to improve their labor conditions and that the proposed Trans-Pacific Partnership (TPP) “allows the United States to take a leading role in shaping global trade policy by raising standards, allowing us to make progress toward a global trading system that reflects our core values.”

However, a recent report by the Labor Department’s Bureau of international Labor Affairs (ILAB) disputes that assertion, and we have no indication that U.S. negotiators are taking a new approach to ensure labor rights are protected.

ILAB’s annual List of Goods Produced by Child Labor or Forced Labor report sheds light on some of the worst forms of labor abuses worldwide, and highlights the countries that produce goods using child and forced labor. Vietnam, Mexico, Peru, and Malaysia, one-third of the nations included in the TPP, were all cited for labor abuses in the report.

We are following up with you because we believe it is important that you take action to ensure that real, meaningfully enforceable labor protections are in the TPP, and we request a briefing for Members of Congress to better understand what specific new measures are being developed and what new assurances are being put in place during TPP negotiations.

The report has particularly troubling findings on several TPP member nations. Only four countries globally are cited for forced and child labor in their apparel sector, including Vietnam.

Over the course of the last year of TPP negotiations, electronics products from Malaysia were added to the list of goods produced through forced labor. Malaysia is one of only seven countries in which the Labor Department found worsening child or forced labor conditions in 2014. In addition, the report identified child labor violations in eleven sectors in Mexico- the fifth broadest usage of child labor cited in the report. By comparison, China uses child labor in six sectors.

Free trade agreements with nations that violate international child labor and forced labor standards not only undermine our moral authority, but they also capitalize on the lack of oversight and regulation in developing nations. Here in this country, we have fought hard to protect our workers, yet, our free trade policy undermines those protections by sending American jobs to countries that do not play by the rules. . . .

We have a responsibility to ensure that under no circumstances is it acceptable for children to work in sweatshops to produce the goods we consume. We can and must do better.

It is critically important that we make stronger efforts to end these worker abuses, with the Administration’s ongoing push for trade promotion authority, these ongoing issues must first be addressed.

Reps. Rosa DeLauro, D-Conn., George Miller, D-Calif., Loretta Sanchez, D-Calif., and Mark Pocan, D-Wis.

It should be noted as reported in past blog posts, the United States too uses “forced labor” prison labor to produce products. In fact, the Justice Department’s Business Development Group, Federal Bureau of Prisons, is presently soliciting manufacturing business from various companies. The Federal Bureau of Prisons is presently producing wood flooring and other products in the United States. I have been told that Canada recently stopped exports of wood flooring products from the United States, which were produced with prison labor.

In response to the Congressional letter, President Obama stated that his effort to revive TPA — which has not been in effect since 2007 — will require outreach to labor unions, which have traditionally been skeptical of trade liberalization.

On December 8th, labor unions, environmentalists and other opponents of the Trans-Pacific Partnership on Monday descended on Washington, D.C., to protest the latest round of negotiations, reiterating their claims that the pact will ravage the American workforce and place business interests above those of consumers.

On December 11, 2014 incoming House Ways and Means Trade Subcommittee Chairman Republican Pat Tiberi of Ohio, stated that while Republicans have been pleased with President Barack Obama’s bipartisan approach to a growing slate of trade policy issues next year, the White House will need to step up its engagement to ensure optimal results. In response to President Obama’s Business Roundtable speech, Tiberi stated:

“We are hopeful, but one speech does not provide enough leadership to get all this done. The trade representative is a very good one and we look forward to working with him. But at the end of the day, it’s got to be the President and he is going to have to show leadership and I think he may on this one.”

Tiberi, who has been in the House for 14-years and has served on Ways and Means since 2007, stated that he will do all he can to make sure the president’s bipartisan sentiments trickle down to the members on his panel and throughout the committee, stating:

“I am a big believer in trying to work with the other side. Having the President provide leadership on trade — and it appears as though he may — is pretty exciting with a Republican Senate and a Republican House in what is clearly the best opportunity since the President became President to do something on trade.”

Tiberi further stated:

“I think giving authority to persons within the administration to negotiate in the best interests of the United States is the best way to actually get a trade agreement, because there are a lot of complex issues that go into these negotiations both from our perspective and our potential trading partners’ perspective as well.”

Tiberi also stated that while lawmakers should always urge the administration to be more forthright about its negotiating efforts, the criticisms of trade agreements as job killers are largely misplaced, as those arguments ignore the jobs created by opening export markets and creating new investment opportunities. As Tiberi stated, “If the shoe were on the other foot and I were the U.S. trade representative, I wouldn’t necessarily be offended because I think we could always do a better job on the issue of transparency.”

On December 14th, Prime Minister Abe won reelection in Japan with a landslide, which will give Japan more flexibility in the TTP negotiations.

On January 5, 2015, after the new Congress was sworn in, US Senator Bernie Sanders, an independent that is on the Democratic side, attacked the Obama administration for an “incomprehensible” lack of transparency surrounding the ongoing Trans-Pacific Partnership negotiations and called for the release of the full version of the current TPP text.

In a letter to U.S. Trade Representative Michael Froman, Sanders said it was “troubling” and “unacceptable” that he and other lawmakers have only been able to get a thorough look at the TPP deal through unofficial leaks of various chapters. The Senator further stated:

“It is incomprehensible to me that the leaders of major corporate interests who stand to gain enormous financial benefits from this agreement are actively involved in the writing of the TPP while, at the same time, the elected officials of this country, representing the American people, have little or no knowledge as to what is in it. In my view, this is simply unacceptable.”

Sanders emphasized that Congressional review of the TPP deal text is mandatory because any trade agreement will not be open for amendments if the Administration reaches a deal to renew the president’s expired Trade Promotion Authority this year.

The Senator gave the USTR a deadline of Jan. 16 to provide him with a copy of the full composite text, without redactions, and requested that staff and experts of his choosing also be allowed access to the documents to take notes and “analyze the relevant statutory and economic implications” of the deal.

The USTR has repeatedly stressed that it will publish the TPP text “well before” it is signed to invite further comment from stakeholders. The agency also says it has a longstanding policy of giving members of Congress access to confidential documents on request, but some lawmakers have complained of procedural problems in getting access to the dcouments.

Sanders added that if his request is not fulfilled, he would like a full legal justification for USTR’s refusal and also vowed to file a bill that would mandate the publication of trade negotiating texts at the request of any member of Congress.

The Vermont independent sharply criticized Froman’s office for placing the interests of large multinational corporations over those of U.S. citizens and for gradually chipping away at the legislative branch’s oversight of international trade, stating:

“The Constitution of the United States gives Congress ‘the authority to regulate commerce with foreign nations. That is not my language. That is the Constitution of the United States of America.”

On January 6, 2015, after meeting in Washington D.C., US and Mexican government officials agreed to continue their efforts to finalize the ongoing TPP negotiations as soon as possible. In a Joint Statement the two countries said:

“We have made significant progress over the past year in setting the stage to finalize a high-standard and comprehensive agreement. With the end coming into focus, the United States, Mexico and the other 10 TPP countries are strongly committed to moving the negotiations forward to conclusion as soon as possible. The substantial new opportunities for U.S. and Mexican exporters that the TPP will offer will be enhanced by our work together in the HLED.”

A senior White Official also stated:

“We’re working closely together to conclude the historic Trans-Pacific Partnership trade agreement early this year. The leaders are most likely to focus on the dynamics of the various countries as we’re coming to the end of the negotiations of TPP. We think that there’s a chance to get this done in the relatively near future.”

On January 7, 2015, the AFL-CIO labor union called on the Obama administration to push for far-reaching improvements to Mexico’s labor and human rights regime and raised the possibility of dropping Mexico from the 12-nation Trans-Pacific Partnership talks if those reforms are not swiftly implemented.

AFL-CIO President Richard Trumka stated in a letter to President Obama:

“Mexico must eliminate the corrupt system of labor boards and allow workers to choose their representatives in a democratic manner free from intimidation. As a party to the ongoing Trans-Pacific Partnership negotiations, U.S. negotiators must demand that Mexico implement changes prior to entering into any trade agreement, as current laws are not in compliance with any credible labor chapter. . . .

The U.S. and Mexican government must work cooperatively to ensure that goods made with forced and child labor are not exported into the U.S. market. The Mexican government must vigorously enforce its labor laws in the agricultural sector and step up its efforts to combat child labor — not by criminalizing child workers and their families, but by providing educational opportunities and incentives.”

On January 7, 2015, Republican leaders started moving in both chambers of the U.S. Congress to build the case for renewing TPA indicating that a bill will be introduced in the early part of the year.

Senate Majority Leader Mitch McConnell, R-Ky., stated that talks to reinstate Trade Promotion Authority have been underway for some time and reiterated his belief that trade remains a critical area in which the Republican majority in Congress and President Barack Obama can find common ground, stating:

“We’re in active discussion on … trade promotion authority. It’s an enormous grant of power, obviously, from a Republican Congress to a Democratic president, but that’s how much we believe in trade as an important part of America’s economy.”

But neither McConnell nor Senate Finance Committee Chairman Orrin Hatch, R-Utah, could offer a specific
timetable for the legislation to be introduced, indicating that lawmakers are still ironing out the final details of the bill.

As McConnell further stated, “We think this is an area where we can make progress, and you can look for us to act on TPA,” I can’t give you the exact timing right now, or if I could, I probably wouldn’t yet.”

All of the political gamesmanship between Obama and Congress appears to have disappeared.  A spokesman for House Speaker John Boehner, R-Ohio, on Tuesday issued a statement urging the president to highlight the need for fresh TPA legislation in speech to Michigan auto workers.

Boehner spokesman Cory Fritz stated,

“The president can begin this year with yet another campaign-style event to try and take credit for an economy that Americans know could be doing a lot better, or he can stand up to those in his own political party and begin building a coalition to help boost American exports and job creation,” .

McConnell said he was happy that the president had become a “born-again free trader,” but stressed that Obama would have to weather resistance from traditional Democratic trade opponents if he is to be taken seriously in the quest to reinstate TPA.

“The big challenge for the president is going to be to get his own members to give him the authority to negotiate this deal and to send it up to us. He’s going to have to stand up to the AFL-CIO, he’s going to have to stand up to the political left and his party and help us do something important for the American people in the middle, the moderate center.”

TPP FOR CHINA??

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. The opening chapter as well as an IIE powerpoint are attached.  IIE FREE TRADE AGREEMENT CHINA US CHINA FTA FIRST CHAPTER

On December 3, 2014, former U.S. Trade Representative Carla Hills in comments to the National Foreign Trade Council called for a free trade arrangement between the U.S. and China as a way of easing economic tensions and promoting better trade flows for international supply chains. Hills listed three possible options: bringing China into the Trans-Pacific Partnership (TPP) agreement; negotiating a separate free trade agreement with China; or completing a series of agreements, such as a bilateral investment treaty or through an expanded Information Technology Agreement, which would liberalize U.S-China trade on a sector basis.

Hills, who sits on the Board of the Peterson Institute for International Economics (IIE), pointed to the Study. The Report stated that trade could increase exponentially on both side, but could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span.

As stated in my prior post, 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.

On December 10th, in a speech to the Export Council, President Obama invited China to follow TPP Rules, though not as a formal member, stating:

“And we hope that … China actually joins us, in not necessarily formally being a member of TPP, but in adopting some of the best practices that ensure fairness in operations.”

President Obama further stated, “They [China] will take whatever they can get. They will exploit every advantage that they have until they meet some resistance.”

Echoing a statement by Chinese President Xi Jinping at the APEC meeting, however, Obama also stated China has a “great interest in the relationship with the United States and [recognizes] the interdependence that has evolved between our two economies.” Everything the U.S. is trying to do in TPP has a “direct application” to China, which could be a reference to establishing new disciplines on state-owned enterprises and intellectual property protection.

Overall, Obama said the “key” to the U.S. trade relationship with China is to “continue to simply press them on those areas where trade is imbalanced, whether it’s on their currency practices, whether it’s on IP protection, whether it’s on their state-owned enterprises.” He said the bilateral investment treaty in which China has “shown an interest in negotiating could end up being a significant piece of business.”

The president also touted the breakthrough in the negotiations to expand the Information Technology Agreement (ITA) that the U.S. reached with China during the president’s trip to Asia last month. “And I think that it’s indicative of [China’s] interest in trying to get this right.”

CHINA AUSTRALIA FTA

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.

INDIA US BILATERAL DEAL MOVES TRADE FACILITATION AGREEMENT FORWARD

 On November 27, 2014, the Trade Facilitation Agreement, which had been blocked by India, was back on track after a vote at the WTO. The TFA simplifies and harmonizes customs procedures and mandates customs reforms such as introducing transparency, risk based management by customs administrations, a “single window” for all government agencies dealing with imported merchandise, automation, electronic payment of duties and the separation of the payment of duties from the release of cargo, among other things. These improvements are intended to facilitate trade across borders, thereby reducing the costs for international traders and ultimately consumers.

On December 11th, the WTO reported that Hong Kong was the first country to ratify the Trade Facilitation Agreement, which will streamline global customs rules.  Irene Young , Hong Kong’s representative stated that “A multilateral TFA, which can significantly enhance trade flows, is very important to Hong Kong, China, and I believe it is no less so for other economies. Ultimately, the agreement will benefit all of us, but that is only possible when it actually comes into effect.”

In response, WTO Director-General Roberto Azevedo stated:

“I hope that other members will gain inspiration from this and will soon be able to follow Hong Kong, China’s lead.”

The TFA needs to be ratified by two-thirds of the WTO’s members to come into effect.

TRADE ADJUSTMENT ASSITANCE PROGRAM—REAUTHORIZATION

As stated in my last blog posts, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which is presently funded at $16 million nationwide.

At the end of 2014, because of the efforts of Senator Sherrod Brown and Congressmen Adam Smith, Derek Kilmer and Sander Levin in the House, the TAA for Firms/Companies program was reauthorized in the Cromnibus Bill, which went through the Senate and the House and was signed into law by President Obama. Although Senator Brown advocated that the assistance for US companies in the TAA for Firms program be increased to $50 million, in fact, the program was cut from 16 million to $12.5M. As Senator Brown stated in the attached press release, BROWN PUSHES FOR REAUTHORIZATION.

“Fund TAA at the previous level of $575 million and Trade Adjustment Assistance for Firms at $50 million to provide financial assistance and expertise to import-affected manufacturers to help them become more competitive.”

In talking to one TAAC in the Midwest, the problem is that the money is so low that there are companies lined up to get assistance, but the money is committed as soon as it is authorized, so many companies will not get this vital assistance.

To summarize, on December 8th, a number of Democratic Congressmen, including ranking Ways and Means member, Sander Levin, and Congressmen Adam Smith and Derek Kilmer from Washington wrote in the attached letter, HOUSE CONGRESSIONAL LETTER, to Speaker Boehner and Minority Leader Nancy Pelosi asking that that the program be reauthorized:

“December 8, 2014

Dear Speaker Boehner and Leader Pelosi, . . .

We write to call your attention to the fast-approaching expiration of the Trade Adjustment Assistance (TAA) program and urge you to bring legislation to the floor that would enable this effective program to continue assisting both firms and workers beyond December 31, 2014.

Since its inception, TAA has helped both workers and businesses cope with job losses resulting from increased global competition. According to the U.S. Department of Labor (DOL), approximately two million workers nationwide have relied on TAA for Workers (T AAW) since 1975 to make ends meet and receive training necessary to find a new job in high-skill, growing industries. In addition, according to the Economic Development Agency’s 4th annual report, 882 trade-impacted firms have received assistance through TAA for Firms (TAAF) in 2013. These firms employed over 76,000 workers at the time of their entry into TAAF and at least one firm was located in 48 of the 50 states throughout the country.

TAAW not only helps hard-working Americans whose jobs have been adversely impacted by trade, but it allows those workers to reenter the workforce and contribute to our economy with better skills and training. The program provides training assistance and income support enabling dislocated workers to retrain for employment in competitive industries. The success of this program is proven by the fact that 75 percent of TAA workers secured a job 6 months after leaving the program and 90 percent of those workers remained employed a year thereafter.

TAAF is another critical component of this program that effectively assists U.S. companies impacted by imports remain competitive. TAAF offers a matching fund for outside expertise to help companies adjust their business models allowing them to regain their competitive advantage in the marketplace. The program makes it possible for companies to avoid layoffs, or, where layoffs have occurred, to rehire workers as the companies regain their competitive footholds. In the most recent report by the Department of Commerce on T AAF, it is reported that all the U.S. companies that were beneficiaries in 2011 were still in business in 2013.

TAA is a critical part of our nation’s competitiveness strategy in the face of a rapidly evolving world economy and its reauthorization enjoys bipartisan support. Congressional leadership and action to reauthorize TAA is needed to stop the termination of an effective program that helps American workers and firms compete, innovate, strengthen, and diversify America’s economy. We must do all we can to save jobs by helping firms readjust and workers regain their edge and competitiveness in the global marketplace.”

TAA for firms will become even more important with the passage of any free trade agreement, including the TPP.

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On December 11, 2014, in the attached letter to Assistant Secretary Paul Piquado at the Commerce Department, MCCONELL ALUMINUM EXTRUSIONS, Senate Majority leader, Mitch McConnell pressed Commerce on circumvention of the US antidumping order on Aluminum Extrusions from China stating:

“I write on behalf of my constituents at Kentucky’s Cardinal Aluminum. Cardinal, an aluminum extruder, employs over 500 people in Louisville and plays a vital economic role in the Commonwealth. My constituents have informed me that unfair trade practices from China are once again threatening Kentucky jobs.

In 2012. I introduced legislation with my Senate colleagues that-once enacted into law- allowed the Department of Commerce (DOC) to impose countervailing duties on certain imports from communist and nonmarket countries. This law and DOC’s subsequent implementation of countervailing duties and anti-dumping measures on a number of U.S. imports subsidized by foreign governments helped protect over a thousand Kentucky jobs.

Unfortunately, my constituents have informed me that they believe certain exporters are engaged in aluminum alloy dumping activities in the U.S. market. My constituents have conveyed to me that these and related injurious trade practices abroad have already led to a reduction in more than 75 jobs and threaten additional Kentucky jobs if no action is taken.

I am told that your department plans to review the scope of countervailing duties and anti-dumping duties that are intended to prevent these abuses of international trade practices. In addition to their concerns surrounding potential dumping activities, my constituents have expressed to me their concerns regarding the metrics involved in this review process.

As your department proceeds with its review and other related investigations to curb unfair trade practices, I ask that you give full and fair consideration to the concerns of my constituents. I have enclosed their correspondence for your convenience.

Thank you for your time and attention to this matter. I look forward to receiving your response.

Sincerely,

Mitch McConnell”

United States Senator

JANUARY ANTIDUMPING ADMINISTRATIVE. REVIEWS

On January 2, 2015, Commerce published the attached Federal Register notice, JANUARY REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of January. The specific antidumping cases against China are: Crepe Paper Products,   Ferrovanadium, Folding Gift Boxes, Potassium Permanganate, and Wooden Bedroom Furniture.

The specific countervailing duty cases are Oil Country Tubular Goods and Circular Welded Carbon Quality Steel Line Pipe.

For those US import companies that imported Potassium Permanganate, Wooden Bedroom Furniture, OCTG and the other products listed above from China during the antidumping period January 1, 2014-December 31, 2014 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. Recently in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

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 US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE for 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 will be 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, reexportation, 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.

On December 22, 2014, Russian oil giant Rosneft NK OAO on Monday dropped its bid to buy Morgan Stanley’s oil-trading and storage business, citing an “objective impossibility” of gaining regulatory clearance amid tense international relations in the wake of ongoing sanctions against Moscow.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

In the attached petition, PRINT CARTRIDGES 337 PETITION, on December 23, 2014, Seiko Epson filed a new 337 patent case against Certain Ink Cartridges and Components Thereof against the following Chinese companies and US importers:

Zhuhai Nano Digital Technology Co., Ltd.; Nano Business & Technology, Inc.; Zhuhai National Resources & Jingjie Imaging Products Co., Ltd.; Huebon Co., Ltd.; Chancen Co.; Ltd.; Zhuhai Rich Imaging Technology Co., Ltd.; Shanghai Orink Infotech International Co., Ltd.; Orink Infotech International Co.; Ltd., Zinyaw LLC; Yotat Group Co., Ltd.; Yotat (Zhuhai) Technology Co., Ltd.; Ourway Image C0., Ltd.; Kingway Image Co., Ltd.; Zhuhai Chinamate Technology, Co., Ltd.; InkPro2day, LLC; Dongguan 0cBestjet Printer Consumables Co., Ltd.; OcBestjet Printer Consumables (HK) Co., Ltd.; Aomya Printer Consumables (Zhuhai) Co., Ltd.; and Zhuhai Richeng Development Co., Ltd.

PATENT AND IP CASES IN GENERAL

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

On November 25, 2014, the attached new patent infringement complaint was filed by Invue Security Products, Inc. v. Hangzhou Langhong Technology Co., Ltd. and Langhong Technology USA Inc.  HANGZHOU PATENT

On December 5, 2014, the attached new patent infringement complaint was filed by Ultratech, Inc. dba Ultratech Cambridge Nanotech versus Esnure Nanotech (Beijing) Inc., Ensure Nanotech LLC d/b/a Ensure Scientific Group LLC and Dongjun Wang. CHINA NANOTECH PATENT CASE

On December 5, 2014, the attached new patent infringement complaint was filed Harvatech Corp. vs. Cree Inc., Cree Hong Kong Ltd., and CREE Shanghai Opto Development Ltd. CREE HONG KONG

On December 10, 2014, the attached new patent complaint was filed by Optical Tech IP LLC v. Huawei Technologies USA Inc. HUAWEI

On December 16, 2014, the attached new patent infringement complaint was filed by Hitachi Maxwell Ltd. vs. Top Victory Electronics (Taiwan Co. Ltd.), TPV International USA Inc., Envision Peripherals Inc., Top Victory Electronics (Fujian) Co., Ltd., TPV Electronics (Fujian) Co. Ltd., TPV Technology Ltd., and TPV Display Technology (Xiamen) Co., Ltd. XIAMEN FUJIAN PATENT CASE TVS

On December 18, 2014, the attached new patent complaints were filed Dynamic Hosting Company LLC versus Huawei Technologies USA Inc. and ZTE (USA) Inc. HUAWEI DYNAMIC HOSTING ZTE DYNAMIC HOSTING

On December 31, 2014, the attached new patent complaint was filed by Adaptive Data LLC versus Huawei Technologies USA Inc., Huawei Device USA Inc. and Huawei Technologies Co., Ltd. HUAWEI3

PRODUCTS LIABILITY

On December 10, 2014, the attached products liability complaint was filed by Diana Alvarez Gonzales et al v. Shandong Linglong Tyre Co., Ltd., Horizon Tire, Inc., Horizon Tire Corp., Bridgestone Americas Tire Operations LLC., and GCR Tire. SHANDONG TYRE COMPANY

On December 26, 2014, Tower Insurance Company filed the attached products liability complaint against Jarden Corp., Sunbeam Products, Inc. and Foshan Shunde Toppin Electrical Technology Co., Ltd. CHINESE HEATER PRODUCTS LIABILITY COMPLAINT

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, Senator Mitch McConnell wrote the attached letter to Commerce, AD Aluminum Extrusions 5000 SERIES Controlled Correspondence Inbound-5-8-14, complaining about the circumvention of the antidumping order against aluminum extrusions from China. In the letter Senator McConnell stated:

“I write on behalf of constituents at Kentucky’s Cardinal Aluminum. Cardinal, an aluminum extruder, employs over 500 people in Louisville and plays a vital economic role in the community. My constituents have informed me that unfair trade practices from China are once again threatening Kentucky jobs. . . .

Unfortunately, my constituents have informed me that Chinese exporters are now circumventing existing U.S. import duties using 5000-series aluminum alloy not covered under previous DOC antidumping measures. . . .I ask that you give full and fair consideration of their request to include 5000-series aluminum alloy with similar products covered by existing DOC anti-dumping measures . . . .”

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

On August 1, 2014, Commerce published in the attached Federal Register notice, REVIEW REQUEST NOTICE AUGUST, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of August. The specific antidumping cases against China are:

Floor-Standing, Metal-Top Ironing Tables and Parts Thereof, Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, Tow-Behind Lawn Groomers and Parts Thereof, and Woven Electric Blankets.

The specific countervailing duty cases are:

Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Sodium Nitrite, and Tow-Behind Lawn Groomers and Parts Thereof.

For those US import companies that imported Ironing Tables, Laminated Woven Sacks, Retail Carrier Bags, Steel Nails, Sulfanilic Acid, Lawn Groomers, and Electric Blankets and the other products listed above from China during the antidumping period August 1, 2013-July 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.

CHINA WTO CASE

As mentioned in the prior post,on July 14, 2014, in a decision and summary, which is posted in my last blog post, 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 the attached notice of appeal at the WTO with regards to the remaining cases, CHINA APPEALS WTO DETERMINATION.

CUSTOMS

SENATE HEARING ON COLLECTIONS OF UNPAID ANTIDUMPING DUTIES IN HONEY, MUSHROOMS, GARLIC AND CRAWFISH FROM IMPORTERS AND INSURANCE CUSTOMS BOND COMPANIES

On July 16, 2014, at a Senate Appropriations subcommittee hearing in Washington DC, US Customs and Commerce Department officials discussed enforcement proceedings against evasion of US Antidumping and Countervailing Duty laws and several U.S. food producers and their Congressional supporters discussed a longstanding fight to push Customs and Border Protection (CBP) to bring lawsuits against insurance companies to collect hundreds of millions of dollars in unpaid antidumping duties on imports of honey, mushrooms, garlic and crawfish from China.

In the attached testimony, Testimony – ICE Trade Enforcement, Lev Kubiak, Assistant Director of US Immigration and Customs Enforcement (“ICE”) testified about the ongoing Customs enforcement investigations by Homeland Security:

“Currently, HSI is involved in more than 80 investigations relating to open Commerce AD/CVD orders covering commodities such as honey, saccharin, citric acid, tow-behind lawn groomers, shrimp, steel, and wooden bedroom furniture.”

According to a January 2nd letter from Senators Wyden and Thune to Homeland Security, there are an estimated $107 million in uncollected duties on honey, $132 million on garlic, $309 million on crawfish and $102 million on mushrooms — a total of roughly $650 million from 2000 to 2007.  Apparently, these dumping duties are from large unpaid bills by importers, who have gone out of business, and bond companies that are contesting the payments.

In the attached statement, APPROPRIATIONS HONEY, the President of the Louisiana Beekeepers Association testified about the problems US honey producers are facing because of inability of Customs to recover bonds issued in new shipper review investigations:

“Customs estimates it is holding over 600 million dollars in thousands of New Shipper Bonds as security against unpaid dumping duties on imports of honey, fresh garlic, crawfish tail meat, and preserved mushrooms from China – 150 million dollars of which secure honey imports.

Shockingly, the major insurance companies that issued these bonds all failed to determine whether the sham companies that acted as the U.S. importers were creditworthy, or to require that they deposit any collateral to cover the insurers in case they had to pay under the bonds. When Customs eventually assessed substantial duties on these imports, the importers had disappeared. And the insurance companies – which had collected tens of millions of dollars in premiums for issuing the bonds – uniformly refused Customs’ demands that they pay as promised.

This duty-evasion scheme devastated the domestic producers of these four agricultural products in two ways. First, the scheme allowed the importers to enter and sell in this country huge volumes of these goods over an eight-year period at steeply dumped prices – as if the government orders imposing substantial dumping duties on these products did not exist. As a result, the domestic producers continued to suffer the very economic injury the dumping duties were supposed to prevent.

Second, all of these imports are subject to a provision of US trade law, which requires Customs to distribute dumping duties collected on imports that arrived through 2007 to the injured domestic producers. Thus, some of the injury inflicted by these imports on the honey, garlic, crawfish and mushroom producers could have been partly offset by Customs’ distribution of duties collected under the New Shipper Bonds. But the insurance companies’ refusal to pay as promised under these bonds has prevented this.

Unfortunately, Customs must bear substantial responsibility for this debacle. Although the insurance companies first started refusing to pay under these bonds in 2001, Customs by 2009 had failed to file a single collections lawsuit against them. In fact, the agency filed its first New Shipper Bond collections lawsuit only after being sued to do so by the four domestic industries.

Customs currently is attempting to recover $80 million from the insurance companies through 30 collections lawsuits. Rather than pay Customs as promised, the insurance companies are dragging out those lawsuits by raising many frivolous defenses.

One insurance company – Hartford Fire – has raised many of the same frivolous defenses in 350 lawsuits it has filed against Customs in its effort to avoid paying an estimated two to three hundred million dollars under its New Shipper Bonds. Indeed, Hartford Fire’s lawsuits now account for 20 percent of all cases before the Court of International Trade.

Despite Customs’ recent actions to recover under the bonds, the agency’s extended delay in suing the issuing insurance companies will likely block it from recovering under many bonds. This is because a bond collections lawsuit must be started within six years of the date the issuing insurance company becomes liable for the duties. Indeed, in the first collection lawsuit, the court ruled that Customs was time-barred from recovering three million dollars in duties secured by three of the nine bonds at issue.”

In the attached statement, CRAWFISH, the representative of the US Crawfish industry testified along the same lines:

“The problem is that a huge proportion of antidumping duties that should have been collected on imports from China that entered the United States prior to October 1, 2007, have not been collected, despite the fact that they are secured by bonds issued by large, U.S.-based insurance companies. That date is important because U.S. law requires a portion of the duties collected prior to October 1, 2007, to be paid to domestic producers who have been injured in their business by the dumping.

People who are unfamiliar with this area of the law are often surprised that there would still be unpaid duties on goods that came into U.S. ports in 2007 or earlier. They don’t realize that part of this is just because antidumping duties are assessed retrospectively – so delays of a couple or three years are not shocking. However, we’re still trying, right now in 2014, to get Customs to collect duties on entries from 2000, 2001, and so on. . . .

People might say they’d rather have Louisiana crawfish than Chinese crawfish, and they might actually mean it. But everyone has a price. With such a huge price difference, if you’re a U.S. processor, you’re going to be hard pressed to replace that old truck or upgrade your freezer or pay down your debt. You’re just trying to survive another day. The CDSOA was set up to use the antidumping duties to correct that problem, but it only works when Customs actually collects what’s owed. Even worse, the people importing the Chinese product – which, oftentimes, were just shell corporations with no real assets in the United States – started noticing that they didn’t really have to pay the duties, so they weren’t afraid of dumping. Massive volumes of imports kept pouring in, at very low prices. The hole just got deeper and deeper.

The responsible Congressional committees have been trying to fix this problem since at least July 15, 2002, the date of H.R. Report 107-575, in which the Appropriations Committee said: “The Committee is very concerned with the status of tariffs and duties assessed on crawfish . . . The U.S. Customs Service is therefore directed to begin, using funds currently available, vigorous and active enforcement of the tariff. Additionally, the U.S. Customs Service shall, not later than April 30, 2003, issue to the Committee and make publicly available a comprehensive report detailing their efforts to enforce and collect this duty.” That was in 2002 – twelve years ago. . . .

We’re also hoping to learn something about what happened with duty collections last year (FY2013) and what is happening this year (FY2014). More specifically:

• Last summer, Customs released its report on “Preliminary Amounts Available to Disburse” under the CDSOA for FY2013, reflecting collections made from October 1, 2012, through April 30, 2013. For crawfish, this “preliminary amount” turned out also to be the final amount, to the penny. In other words, during the last five months of FY2013, Customs did not collect a single penny of additional duties out of the vast backlog owed on entries made prior to October 1, 2007.

• This year, the “preliminary amount” for crawfish is only $2,687,300.70, reflecting collections through April 30, 2014. Yet we know for certain that Customs collected $6.1 million from Great American Insurance and Washington International Insurance, in February of this year, in crawfish antidumping duties on imports entered during 2000-01. We have copies of the checks from the sureties. Customs is on record, at the court, as saying that the checks had been received and were being processed in late February. It is unclear why this $6.1 million has apparently not been included in the “preliminary amount” for FY2014.

• Customs has also stated, in a letter to Congressman Boustany dated April 11, 2014, that it had fully collected “more than $14 million” in crawfish antidumping duties on April 7, 2014, one day before the six-year statute of limitations would have expired. From other information in the letter, we know that the money was owed by Hartford, a surety, on entries that came into the United States well before 2007. Although this money was allegedly collected prior to the April 30, 2014, cut-off date for the report on “preliminary amounts,” it has obviously been left out. We do not know why. . . .

Much remains to be done. Our best information right now is that there is still more than $600 million in bond money to be collected on imports of crawfish tail meat, honey, garlic, and mushrooms from China that entered the United States between May 1998 and August 2006. This debt is secured by over 8,000 bonds. Yet, so far, Customs has filed lawsuits to collect on only about one-tenth of those bonds, representing roughly 12 percent of their face value.”

PATENT/IP AND 337 CASES

337 CASES

There has been major developments at the US International Trade Commission (“ITC”) in 337 cases.

SUPREMA—EN BANC CAFC PROCEEDING ON 337 AND INDUCED INFRINGEMENT

As mentioned in prior posts, in the Suprema v. ITC case, on February 21, 2014, in the attached petition, Suprema – ITC Petition for Rehearing, the ITC asked for a rehearing en banc of the original panel decision, and on June 11, 2014 the Court of Appeals for the Federal Circuit (“CAFC”) granted a request for an en banc hearing, that means an en banc hearing before all the CAFC judges, to review the original 2-1 decision in the Suprema case.

In prior blog posts, I mentioned that Suprema was a major decision on induced infringement holding that if a product did not infringe when it crossed the border, the ITC did not have jurisdiction to find that the product violated section 337 because of induced infringement. The decision also has a major impact on general patent cases regarding induced infringement.

The ITC’s brief is due on September 15th at the CAFC, but the Commission has asked for an extension until October 15. Experts have predicted an oral argument in the case, possibly in January.

In its February 21st petition to the CAFC, the ITC set out the issues as follows:

“(1) Did the panel contradict Supreme Court precedent in Grokster and precedents of this Court when it held that infringement under 35 U.S.C. § 271(b) “is untied to an article” (Maj. Op. at 19)?

(2) Did the panel contradict Supreme Court precedent in Grokster and this Court’s precedent in Standard Oil when it held that there can be no liability for induced infringement under 35 U.S.C. § 271(b) at the time a product is imported because direct infringement does not occur until a later time (Maj. Op. at 19-21)?

(3) When the panel determined the phrase “articles that . . . infringe” in 19 U.S.C. § 1337(a)(1)(B)(i) does not extend to articles that infringe under 35 U.S.C. § 271(b), did the panel err by contradicting decades of precedent and by failing to give required deference to the U.S. International Trade Commission (“the Commission”) in its interpretation of its own statute (Maj. Op. at 20-21, 26 n.5)?

(4) Did the panel misinterpret the Commission’s order as a “ban [on the] importation of articles which may or may not later give rise to direct infringement” (Maj. Op. at 25) when the order was issued to remedy inducement of infringement and when the order permits U.S. Customs and Border Protection to allow importation upon certification that the articles are not covered by the order?

In its petition for en banc rehearing, the ITC argued that “the panel not only overturned decades of Commission practice affirmed by the courts, but also upended the law of induced infringement.” The ITC based the section 337 violation on the imported products’ combination with software produced by Texas-based Mentalix Inc., which imports Suprema scanners. More specifically, as the ITC states in its petition:

“Appellant Suprema, Inc. (“Suprema”), a Korean company, manufactures fingerprint scanners overseas and imports those scanners into the United States. Before the scanners may perform their intended purpose, they must be connected to a computer running specialized software. Suprema does not make or sell this software, but provides a Software Development Kit (“SDK”) that allows its customers to create their own customized software to operate the scanners. Suprema imports scanners and SDKs and supplies them to appellant Mentalix, Inc. (“Mentalix”), a company located in Plano, Texas. Suprema assisted Mentalix in developing Mentalix software for use with Suprema’s imported scanners. Mentalix then used the software with Suprema’s scanners in a manner that directly infringed method claim 19 of U.S. Patent 7,203,344.”

On August 13th, Suprema filed a brief arguing that the full CAFC should affirm the original panel decision that the ITC does not have authority to hear inducement patent infringement cases where a product is found to infringe after importation.  Suprema argues that the ITC’s Section 337 does not reach conduct where a product may be found to infringe only after it was imported and used together with something else — in this case, software. Suprema argues that “[Section 337] empowers the Commission to bar only the importation, and sale for or after importation, of infringing articles, not the importation of non-infringing staple articles based on the respondent’s purported state of mind,”

Google, Microsoft and other high tech companies have jumped on Suprema’s bandwagon to argue in Amicus Briefs that the full CAFC should uphold the original panel decision barring the ITC from hearing induced patent infringement cases when a product only infringes after importation.  In attached amicus brief, Microsoft Suprema, filed on August 18, Microsoft argues that the law is clear that products that do not infringe at the time they are imported are not within the ITC’s jurisdiction. In the attached separate brief, Google BRIEF, filed on August 19th, Google, Dell Inc., Samsung Electronics Co. Ltd., LG Electronics Inc. and others state that they have an interest in the case because they are “often targets of expensive litigation at the ITC.” “Allowing exclusion orders against articles that do not infringe when imported — on the ground that they may be combined with other products after importation to infringe — threatens substantial disruption to their businesses.”

According to Google’s brief, “The panel’s conclusion is correct: the statute as a whole makes more sense when infringement is judged at the time an article is imported. . .” If a product infringes after it enters the U.S., that infringement can be addressed with a suit in federal court. “The ITC need not expand its jurisdiction to reach every infringement claim that could be brought in district court because the role of the ITC is not to serve as an alternative forum for patent litigation . . . It is a trade court that may hear only the specified types of cases that Congress has designated.”

Both briefs also urged the en banc court to further hold that the ITC cannot hear cases based on alleged infringement of method patents, because such patents are infringed only when the claimed steps are actually performed. According to Microsoft, “A method is an action, not a product or good. Thus, the phrase ‘articles that infringe’ in Section 337 cannot refer to infringement of method claims.”

On August 18, the American Intellectual Property Law Association told an en banc Federal Circuit panel in an amicus brief that the ITC has the authority to find a violation of Section 337 of the Tariff Act of 1930 and issue exclusion orders on certain imports in induced infringement cases regardless of whether direct infringement occurred before or after the articles were imported. The AIPLA argues that the ITC has authority over induced infringement, saying the panel’s initial decision “overlooks the long, uninterrupted history of U.S. protection against unfair trade practices provided by Section 337.” “AIPLA respectfully submits that the Commission has such authority, and that its exercise of such authority in appropriate investigations is consistent with, indeed compelled by, Congressional intent and public policy.” The AIPLA said that Section 337 is an important tool for the effective enforcement of intellectual property rights and is not limited in regards to the time or location that an alleged act of infringement took place. If allowed to stand, however, the Federal Circuit’s initial decision may enable some foreign companies “to circumvent Section 337 and evade effective IP enforcement” by allowing them to eliminate any software-based features in their products found to directly infringe a patent while inviting end-users to download the features after importation.

DISK DRIVES—DOMESTIC INDUSTRY ISSUES

On July 17th, in the Optical Disk Drives case, an ITC administrative law judge held that there was no domestic industry in a 337 case if the Petitioner was non-practicing entity, which is purely revenue driven, and there is no proof that the NPE exploits the asserted patents under § 1337(a)(3)(C).  This ruling would require purely revenue-driven NPEs to make some showing that they exploit the asserted intellectual property under 19 U.S.C. § 1337(a)(3)(C) in every case. They could no longer rely solely on the investments of their licensees.

Although the ALJ’s decision is reviewable by the Commission itself, if the decision becomes final, it will be even more difficult for non-practicing entities (NPEs) to bring 337 cases.

TIRES FROM CHINA

On July 24, 2014, In Re: Certain Tires and Products Containing Same, Inv. No. 337-TA-894, the ITC banned the import of certain kinds of automotive tires from China and Thailand, because they violate design patents held by Toyo Tire Holdings of America Inc. The Asian companies did not respond to the 337 complaint and were found in default.

On July 24th, the ITC issued a limited exclusion order forbidding the import and sale of tires that violate Toyo’s patents by the defaulting respondents.

The American companies held in default include importers, Kentucky’s WestKy Customs LLC; California’s Tire & Wheel Master, WTD Inc., Lexani Tires Worldwide Inc. and Wholesale Tires Inc.; North Carolina’s Vittore Wheel & Tire and RTM Wheel & Tire; and Tennessee’s Simple Tire. The patents cover the unique tread and side wall patterns on Toyo- and Nitto-brand tires.

The foreign infringers include Hong Kong Tri-Ace Tire Co. Ltd., Weifang Shunfuchang Rubber & Plastic Co. Ltd., Doublestar Dong Feng Tyre Co. Ltd., Shandong Yongtai Chemical Group Co. Ltd., Shandong Linglong Tyre Co. Ltd., Svizz-One Corp. Ltd., South China Tire and Rubber Co. Ltd., Guangzhou South China Tire & Rubber Co. Ltd., Turbo Wholesale Tires Inc. and related importers and U.S. distributors.

SECTION 337 COMPLAINTS

On July 25, 2014, Bose Corp. filed a patent based section 337 case at the ITC against a Chinese company on Noise Cancelling Headphones. The respondents are: Beats Electronics LLC, Culver City, California; Beats Electronics International Ltd., Ireland; Fugang Electronic (Dong Guan) Co., Ltd., China; and PCH International Ltd., Ireland.

On August 4, 2014, Adrian Rivera and ARM Enterprises, Inc. filed a section 337 patent case against imports Beverage Brewing Capsules from a number of Chinese and Hong Kong companies. The specific respondents are: Solofill LLC, Houston, Texas; DonGuan Hai Rui Precision Mould Co., Ltd., China; Eko Brands, LLC, Woodinville, WA; Evermuch Technology Co., Ltd., Hong Kong; Ever Much Company Ltd., China; Melitta USA, Inc., North Clearwater, FL; LBP Mfg. Inc., Cicero, IL; LBP Packaging (Shenzhen) Co. Ltd., China; Spark Innovators, Corp., Fairfield, New Jersey; B. Marlboros International Ltd. (HK), Hong Kong; Amazon.com, Inc., Seattle, WA.

PATENT AND IP CASES IN GENERAL

DUPONT SUES SUN EDISON FOR INFRINGEMENT OF US SOLAR PASTE PATENTS

On August 18, 2014, Dupont filed the patent infringement suit against Sun Edison for infringing its thick-film paste patent by importing and selling certain solar modules. DUPONT SOLAR COMPLAINT

DuPont alleges that Sun Edison imports solar modules from Malaysia, which are constructed by Flextronics International Ltd. and use photovoltaic cells provided by Neo Solar Power Corp., which include a paste that uses tellurium-oxide solids.

EX DUPONT ENGINEER SENTENCED TO PRISON FOR STEALING TRADE SECRETS FOR CHINA TITANIUM DIOXIDE INDUSTRY

On August 26, 2014, a California federal judge sentenced a former DuPont Co. engineer to two and a half years in prison and ordered him to pay nearly $750,000 in restitution and forfeitures for conspiring to sell to Chinese companies trade secrets on the technology to safely produce massive amounts of titanium dioxide.

According to the Judge, although Robert Maegerle’s involvement in a conspiracy to sell DuPont’s secret method of producing titanium dioxide to Chinese companies was his first crime, it was a serious one. In March, a jury convicted Maegerle, 79, of participating in the trade-secrets scheme and also of obstructing prosecutors’ investigation into the crimes.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING ZTE

On July 28, 2014, JST Performance, Inc. d/b/a Rigid Industries and Illumination Management Solutions, Inc. filed a case for patent infringement against imports of various LED lighting products for off road vehicles against Sun Auto Electronics, LLC and Foshan Sunway Auto Electrical Company, Ltd., a Chinese company.  LED LIGHTING COMPANY SUED

On August 6, 2014, Shenzhen Liown Electronics Co., Ltd., a Chinese company, filed a patent infringement case against a US company, Luminara Worldwide, LLC, Michael L. O’Shaughnessy, and John W. Jacobson. COUNTERSUIT SHENZHEN LIOWN

On August 6, 2014, Multiplayer Network Innovations, LLC filed a patent infringement case against ZTE Corp. and ZTE (USA), Inc. ZTE

On August 7, 2014, a Taiwan company sued a Taiwan company for theft of trade secrets and patent infringement. Via Technology companies in California and Taiwan filed the patent infringement suit against Asus Computer International, a California corporation, Asutek Cmputer Inc., a Taiwan corporation, and Asmedia Technlogy Inc., a Taiwan corporation. VIA TECHNOLOGY TAIWAN

On August 13, 2014, Pacific Lock Company filed a patent infringement case against the Eastern Company d/b/a/ Security Products, World Lock Co., Ltd., and Dongguan Reeworld Security Products LtdDONGGUAN COMPANY

On August 25, 2014, Folkmanis, Inc. filed a copyright infringement case against Delivery Agent, Inc., S.F. Global Sourcing LLC, CBS Broadcasting, Inc. and Shanghai Oriland Toys Co., LtdSHANGHAI COPYRIGHT

PRODUCTS LIABILITY

On July 21, 2014, Loren Vieths filed a products liability case against Shanxi Regent Works, Inc., a Chinese company, and The Sports Authority, Inc. EXERCISE EQUIPMENT

On July 29, 2014, Eduardo and Carmen Amorin filed a products liability case for defective drywall 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.; China National Building Materials Group Corporation. TAISHAN CLASS ACTION

CFIUS—CHINESE INVESTMENT IN THE US

RALLS CORP CASE

On July 15, 2014, the Federal DC Circuit Court of Appeals in Ralls Corp. v. Committee on Foreign Investments (“CFIUS”), which is attached to my last post on this blog, issued a very surprising decision reversing the Presidential/CFIUS decision to invalidate Ralls and a Chinese company’s attempt to acquire four Oregon wind firms that were close to a US military base on national security grounds.

The DC Circuit overturned the CFIUS decision on due process procedural grounds requiring the President and CFIUS at a minimum to explain why the decision was made and grant Ralls Corp’s access to the unclassified evidence used to come to that decision and give company an opportunity to rebut the evidence. Appeal is likely, either through a petition for en banc review or a petition to the U.S. Supreme Court.

The CFIUS review process, however, has been described as a black box into which foreign investors feed information, only to get out a yes or no answer with no way of appealing the decision.

Many experts, however, have been issuing comments to the effect that the Ralls decision will not have a meaningful impact on the outcome of the case and is likely do little to boost the transparency of the CFIUS review process. Experts doubt that any of the unclassified information given to Ralls or any other company in a similar situation in the future would not have a substantial impact on the case. A former head of CFIUS stated that because these cases involve national security, “There isn’t a lot of non-deliberative information that’s not classified or not derived from classified material that can be shared.” Another attorney that specializes in this area stated, “What are they going to do with unclassified information based on a partial record?”

Although the legal victory has little practical impact, it helps to dispel the idea that the U.S. judicial system is biased against Chinese investment and avoids the chilling of the current Chinese investment boom. The U.S. has a process and if that process is not followed, there is relief within the U.S. judicial system.

CHINESE INVESTMENT IN US SEMICONDUCTOR COMPANY

In spite of or maybe because of the Ralls decision, on August 14th a group of Chinese investors made an unsolicited $1.6 billion offer for California chipmaker OmniVision Technologies Inc. The deal would send a chip maker for smartphones, including Apple Inc.’s iPhone, and tablets, to an investor group led by Hua Capital Management Ltd. The potential buyers pitching the $29-per-share bid also include state-owned Shanghai Pudong Science and Technology Investment Co. Ltd. If OmniVision accepts the offer, a comprehensive government review is likely.

CHINESE INVESTMENT OPPORTUNITIES

US FOUNDRY

A US investment company has approached me because an undisclosed US Foundry that produces metal castings has put itself on the auction block. The public information available to me is as follows:

The US Company provides complex metal casting services and products from 50 to 200,000 pounds for industry-critical applications. The Company operates through its two wholly-owned facilities (“Facility A” and “Facility B”) that aggregate in excess of 650,000 square feet, both of which have been in operation for more than 100 years.

The Company differentiates itself by offering highly-complex and highly-engineered products, compared to the simpler commoditized products of other facilities. In addition, the Company emphasizes quality over price —administering price increases without customer attrition.

The Company is focused on energy, infrastructure, and industrial equipment end markets, with approximately 53%, 33% and 13% of production in each of these markets, respectively. Products used in energy and power generation applications include the following sectors: air compression, fossil fuels, gas compression and wind. The Company also manufactures products for other industries including: construction equipment, machine tools, agriculture and refrigeration.

If anyone is interested in the opportunity, please feel free to contact me.

US INVESTMENT IN CHINA

HOSPITALS

It has been reported that on August 27, Ministry of Commerce and National Health and Family Planning Commission issued the “Notice on Establishing Wholly Foreign-owned Hospital Pilots”. The notice lays out the requirements, standards, and approval processes for foreign investors applying to qualify for establishing wholly foreign-owned hospitals in China.     The seven provinces included in the notice’s pilot zones are Beijing, Tianjin, Shanghai, Jiangsu, Fujian, Guangdong, and Hainan. Investors have the option of establishing their own new hospital, or investing through M&A. The notice regulates that only investors from Hong Kong, Macau, and Taiwan may establish hospitals featuring traditional Chinese medicine.

If anyone is interested in the opportunity, please feel free to contact me.

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.

VITAMIN C

On August 11, 2014, the parties in the Vitamin C case filed their attached final briefs in the Second Circuit.  In its attached brief, HEBEI REPLY BRIEF, Defendants HeBei Welcome Pharmaceuticals Co. Ltd. et al reiterated its arguments that it followed Chinese law when it coordinated on pricing, and that co-defendant North China Pharmaceuticals Group Corp. was not involved in the coordination.

Hebei argued:

“Appellees’ brief confirms that the judgment below cannot be affirmed unless this Court rejects a sovereign government’s view of its own laws, establishes federal courts as arbiters of the validity of foreign nations’ regulatory decisions, disregards the massive foreign policy concerns raised by that approach, creates multiple circuit splits, and rejects binding precedent. This Court should therefore decline Appellees’ invitation to sit in judgment over China’s economic development policies.

The dispositive issue is now undisputed: Appellees concede that Chinese law required active coordination by vitamin C manufacturers on vitamin C prices and output. This amounts to a concession that the Chinese government compelled violation of the Sherman Act and that the district court’s determination of Chinese law cannot survive de novo

That should end the case. But Appellees argue that this Court should find that Chinese manufacturers and their corporate affiliates could still face nine-figure penalties because they complied with their own government’s legal, regulatory, and policy decisions. Their arguments that U.S. law can prohibit the same conduct a sovereign nation ordered and directed, if accepted, would go far in eradicating the foreign sovereign compulsion, international comity, act of state, and political question doctrines altogether, contrary to decades of established law.”

In the attached brief, ANIMAL SCIENCE REPLY BRIEF, the Plaintiffs, Animal Science Products Inc. and The Ranis Co. Inc., asserted that the district court’s verdict was proper and that the companies’ actions were not covered by the Chinese government, stating:

“Appellants and the Ministry of Commerce of China (“Ministry”) ask this Court to adopt an unprecedented “whatever the Ministry says, goes” approach to overturn a jury verdict, even though the Ministry’s assertions are not supported by the evidence or even Chinese law.

In the nine years since this case was filed, two district court judges appropriately considered the evidence of Appellants’ conspiracy to fix prices and limit the supply of vitamin C imported into the U.S. and determined the nature of Chinese law in light of the evidence submitted by the parties and statements by the Ministry (appearing as Amicus). The district court then presided over a trial at which the jury—using an unobjected-to set of instructions and verdict form—concluded that the Chinese government did not compel Appellants’ cartel as a factual matter.

Appellants’ and the Ministry’s assertion that the district court’s judgment represents a groundbreaking application of the Sherman Act is overblown because foreign corporations are routinely subject to liability under U.S. antitrust law over foreign governments’ objections. No Chinese law required Appellants and their co-conspirators to set supra-competitive prices for vitamin C imported to the United States.

Appellants argue that they were required by Chinese law to accept coordination by a vitamin C Subcommittee of a China Chamber of Commerce that was acting to implement the Chinese government’s regulatory objectives. Regardless of the proper interpretation of Chinese law, the facts as determined by the jury under unobjected-to instructions showed that the Subcommittee and Chamber did not as a factual matter act to compel the conduct at issue here; rather, the jury found Appellants liable for their own voluntary conduct.

With respect to its correct rulings on Chinese law, the district court gave the Ministry’s statements appropriate respect and regard, but in multiple rulings disagreed with the Ministry, concluding that the plain language of Chinese law and the overwhelming evidence contradicted the Ministry’s position. Having made its Federal Rule of Civil Procedure 44.1 (“Rule 44.1”) ruling on issues of foreign law, the district court properly excluded copies of Chinese laws and regulations from the evidence submitted to the jury. As it should be in every trial, the jury reached its verdict based on instructions of law from the Court and not from Appellants’ counsel reading and arguing law to the jury.

The district court correctly exercised personal jurisdiction over North China Pharmaceutical Group Corporation (“NCPG”) and denied its motion for judgment as a matter of law based on the evidence of NCPG’s direct participation in a cartel selling products into the United States.”

MAGNESITE

On July 24, 2014, in Animal Science Products Inc. and Resco Products Inc. v. China Minmetals Corp., et al, in he attached decision and order, MAGNESITE DISMISSAL STANDING MAGNESITE ORDER DISMISSAL, the US Federal Court dismissed the US companies antitrust action for a price fixing cartel on Chinese exports to the US of Magnesite and Magnesite products because plaintiffs lacked standing to represent the class of direct purchasers of Magnesite from China. The Court states:

“Plaintiffs seek to represent a putative class of U.S. purchasers of magnesite. They allege that sixteen Chinese corporations have conspired to fix prices and control the supply of magnesite and magnesite products exported to the United States. As a result, they say, magnesite prices have remained above market levels since at least April 2000. . ..

There is, however, one critical fact that distinguishes Cordes & Co. from the case now before me. There, the class action was initiated by two putative class representatives who were “indisputably members of the class they sought to represent.” . . . That is, the class representatives had themselves suffered the same injury that gave rise to the assigned antitrust claims they asserted. Here, the facts are not so clear, or at least, have yet to be established, as discussed below.

Suffice it to say that, at this stage, Resco must establish its own standing, either through its own direct purchases or through the direct purchases of some entity that validly assigned its claims to Resco. . . .

Plaintiff Resco has pleaded very few facts regarding its own “direct purchases” of magnesite from Defendants. The original complaint . . . contains no statements regarding Resco’s direct purchases of magnesite, or Animal Science’s indirect purchases of magnesite. . . .

In short, Plaintiffs allege no direct purchases by Resco from any named defendants.

Nothing in the Amended Complaint constitutes a plausible factual allegation in support of the most direct and obvious form of standing: plaintiff’s direct purchases from one or more of the defendant . . .Plaintiff Resco’s status as a direct purchaser, whether obtained through its own direct purchases or by means of an assignment, is a critical and yet unresolved question in this case. That uncertainty permeates not only the Amended Complaint but the Motion to Compel Arbitration.

For the reasons discussed above, the Minmetals and Sinosteel Defendants’ Motions to Dismiss Plaintiffs’ Amended Complaint are GRANTED on standing grounds only. The Amended Complaint is DISMISSED WITHOUT PREJUDICE to the filing of a Second Amended Complaint.”

Unfortunately, the Court and the Parties may have missed the forest through the trees. Many forms of magnesium from China, including many magnesium products, are covered by US antidumping orders, which have blocked many importers from importing Chinese magnesium into the United States for decades. The Court and the Parties may ignore this reality, but the point is that the effect of antidumping orders is to raise prices. That may be the cause of the increased prices on these products.

TAIWAN LCDS CASE

On August 25, 2014, AU Optronics Corp, along with several Taiwan individuals filed the attached petition, auo petition, with the 9th Circuit Court of Appeals asking it to rehear or hold an en banc hearing in its appeal of a $500 million price-fixing fine the government won against the liquid crystal display maker. The Petition argues that the panel misinterpreted the evidence in the case.

As reported in my July post on this blog, in July a three-judge panel affirmed the Justice Department’s victory before the Federal District Court in the case against AUO, its U.S. subsidiary and former top executives Hsuan Bin Chen and Hui Hsiung concerning a global plot to fix the price of liquid crystal display panels.

CHINA ANTITRUST CASES

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 price 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 heated nationalistic rhetoric against Western and US companies.

Foreign companies have learned two early lessons from the antitrust probes. First, the Chinese law provides little protection. The message that the National Development and Reform Commission, the 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 purpose.

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 companies do in the U.S. and Europe.

MICROSOFT

As mentioned in my last post, on July 29, China time, the Chinese government conducted a dawn raid of Microsoft offices in China, apparently because of antitrust concerns. According to reports out of China, Microsoft Corp‘s internet browser and media player are being targeted in a Chinese antitrust probe, raising the prospect of China revisiting the software bundling issue at the heart of past antitrust complaints against the firm.

On August 6, 2014, it was reported that more raids were conducted on the Microsoft offices. Mr. Zhang Mao, the head of the State Administration for Industry and Commerce (SAIC), told reporters that Microsoft has not been fully transparent with information about its Windows and Office sales, but that Microsoft has expressed willingness to cooperate with ongoing investigations.

In 2004, the European Union ordered Microsoft to pay a 497 million euro ($656 million) fine and produce a version of Windows without the Windows Media Player bundled. The fine was later increased to nearly 1.4 billion euros.

The SAIC said earlier this month that Microsoft had been suspected of violating China’s anti-monopoly law since June last year in relation to problems with compatibility, bundling and document authentication for its Windows operating system and Microsoft Office software.

On August 4, 2014, Microsoft Deputy General Counsel Mary Snapp met with the SAIC in Beijing where the regulator warned Microsoft to not obstruct the probe.

But industry experts have questioned how exactly Microsoft is violating anti-trust regulations in China, where the size of its business is negligible.

AUTOMOBILE AND AUTO PARTS PRODUCERS—CHRYSLER, MERCEDES-BENZ AND VOLKSWAGEN

On August 6, 2014, it was reported that the National Development and Reform Commission (“NDRC”) had announced that it would punish Audi and Chrysler for monopoly practices, potentially paving the way for the automakers to be fined up to 10 percent of their domestic annual sales revenue in the world’s biggest car market.

NDRC spokesman Li Pumin stated that an ongoing investigation into the two companies showed they had “conducted anti-competitive behaviors” and that “They will be punished accordingly in the near future.” The NDRC has recently finished a probe of a dozen Japanese auto parts manufacturers on similar anti-trust charges.

According to Li Pumin, “The purpose is to maintain a sound competitive order in the auto market and protect consumer interest.” The NDRC did not specify the punishment for Chrysler or Audi. Under the six-year-old antimonopoly law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year.

In the  attached Article from Singapore’s Strait Times on the Auto Parts antitrust investigation, QUOTE STRAIT TIMES, which features my quote, Esther Teo for the Strait Times states:

Industry experts say automakers have too much leverage over car dealers and auto part suppliers, enabling them to control prices, considered as a violation of China’s anti-trust laws.  “Monopolistic practices are quite rampant in the auto industry. NDRC is first targeting imported luxury brands because the problem is most severe in this area,” said Yale Zhang, managing director of consultancy Automotive Foresight (Shanghai) Co. Ltd. “It’s also a warning signal to the industry. If top brands like Audi gets punishment, others would know what to do.”

Zhang said imported luxury cars in China cost, on average, 2-1/2 to three times their price in the United States. The price difference is due to higher import duties and other taxes, foreign carmakers have argued. . . .

NDRC spokesman Li Pumin reiterated at a briefing in Beijing yesterday that China will punish any violators of the law regardless of nationality. . . .

While Beijing has denied these allegations, experts say the high-profile probes are likely to have a chilling effect on the business climate unless there is more transparency about how the anti-monopoly law is being enforced. . . .

experts said more needs to be done to convince international firms that they are not being unfairly targeted. For instance, whether it is a foreign or domestic firm being investigated, the authorities should provide more detailed and public information on the reasons for the decision reached and how the fine was determined. Without such transparency, multinational firms might be less willing to invest in China, they added.

Mr William Perry, an international trade partner at Seattle-based law firm Dorsey & Whitney, told The Straits Times that the business climate for foreign firms is becoming increasingly “uncertain”. “This is likely to affect trade relations down the line, especially between the United States and China.”

DORSEY ARTICLE ON CHINA ANTITRUST

On August 25, 2014, Peter Corne, who heads Dorsey’s China practice, published the following article about the situation in China:

A Fine Season for Antitrust Enforcement in China

The World Cup has ended and visiting fans have returned home from Brazil’s hot and humid climate. Now, some companies are feeling a different kind of heat, as Chinese antitrust regulators step up their enforcement activities. The regulatory actions include an investigation into the sale of World Cup tickets to Chinese football fans. The practice at issue was the bundling of high-end tickets with hotel, transportation, and tour services. Beijing Shankai Sports Development Company Limited (“Shankai”), the exclusive dealer for World Cup tickets within Greater China, failed to clarify whether customers were free to buy the high-end tickets separately. Some employees of Shankai told customers that they could not buy high-end tickets separately. The State Administration of Industry and Commerce (“SAIC”) started its investigation soon after Shankai’s practice was exposed by State central television. Backed into a corner, Shankai had no option but to admit its guilt in the sordid tale and promised to rectify its misdemeanors, leading to the SAIC approving the target’s application for a suspension to the investigation.

In other enforcement news, China’s second antitrust enforcement agency, the National Development and Reform Commission (“NDRC”), has escalated its own enforcement efforts. NDRC branches in each of China’s northern (Beijing), central (Shanghai), and southern (Guangdong) coastal regions all had a part in what has turned into a ‘fine’ season for the optical industry in China. The practice in question involved ‘disguised’ recommended retail prices that, in reality, apparently amounted to resale price maintenance. Manufacturers of glasses and contact lenses adopted a carrot and stick approach: their distributors were punished for failing to sell the products at “recommended retail prices”, and rewarded if they did. Hoya and Weicon reportedly turned on the rest of the culprits in the industry by reporting the monopolistic activities to the NDRC and providing important evidence; in return, Hoya and Weicon were provided an amnesty from prosecution. The targeted companies (Essilor, Nikon, Carl Zeiss, Bausch & Lomb, and Johnson & Johnson) were fined RMB 8.79 million, RMB 1.68 million, RMB 1.77 million, RMB 3.69 million, and RMB 3.64 million, respectively (for a total of about $3.2 million /€2.38 million).

Not to be left out of the action, China’s third and remaining antitrust enforcement organ, the Ministry of Commerce (“MOFCOM”), for only the second time in history, rejected a transaction: the attempted global joint alliance among Maersk, Mediterranean Shipping Company, and CMA CGM. MOFCOM determined that the tie-up would restrict or eliminate competition in the Asia-European shipping route, despite the deal’s having previously been approved by the US and European antitrust authorities.

In a MOFCOM-led multiple-ministry initiative to crack down on interregional trade barriers and industrial monopolies launched by 12 ministries at the end of 2013, MOFCOM sent questionnaires to companies in no fewer than 80 different industries to ascertain their level of compliance with antitrust legislation. This suggests that the enforcement net will soon be cast even wider. The automobile industry has already been snared, but that particular enforcement action may have resulted from a Ferrari distributor’s complaint to the industry association (when Ferrari suddenly terminated the distribution relationship) this past April.

Just before this briefing went to press, Microsoft China also started feeling the summer heat. On July 28, nearly 100 regulators from nine provincial branches of the SAIC converged on Microsoft in four different locations around the country.

This seems to have arisen out of a preliminary investigation that commenced about a year ago, in response to complaints by other companies concerning alleged bundling and other issues related to Windows and Office. At the preliminary investigation stage, Microsoft personnel were interviewed and Microsoft submitted answers to a series of questions. The SAIC still could not rule out antitrust infringement, so it proceeded to file a case and initiate its dawn raid. During the raid, Microsoft staff attempted to head off the interviews by begging lack of availability of the relevant people. The regulators apparently have managed to interview already, or have required attendance to interview, a Vice President, other senior management, and marketing and financial staff. During the raid, they copied contracts and financial statements and acquired internal correspondence including emails, and seized two computers.

In short, it may be summertime, but antitrust enforcement in China has not taken a vacation.

ARTICLES BY CHINESE ANTITRUST LAWYERS

AUTO PARTS ARTICLE

In the article, Analysis of NDRC Penalty Decision on 12 Auto Parts and Bearing Companies_AnJie_Michael Gu_Eng_20140830, Note of Caution: Record Fines on 12 Japanese Auto Parts and Bearing Manufactures – Analysis of the NDRC’s Penalty Decision and Countermeasures of Companies,Michael Gu, an antitrust partner in the AnJie Law Firm, in Beijing states:

Introduction

Within six years of implementation of China’s Anti-Monopoly Law, the China’s law enforcement agency responsible for supervising price monopoly, the National Development and Reform Commission (“NDRC”), continues to strengthen its law enforcement efforts with rounds of “antitrust storm” that swept across a number of industries and companies along with record fines.

This is especially true since 2013, the NDRC has probed into number of high-profile penalty cases, including the LCD Panel case, Moutai and Wuliangye case, Baby Formula case, Shanghai Gold Jewelers case and Spectacle Lenses case. Meanwhile, the NDRC has also launched investigation into the US high-tech giants, InterDigital and Qualcomm. For InterDigital case, the investigation has been suspended. As for Qualcomm case, Qualcomm has manifested their willingness to cooperate with the NDRC in its investigation and has submitted relevant commitment.

The “antitrust round up” of the automobile and auto parts industries is undoubtedly the most prominent case recently. Under such high pressure of antitrust law enforcement, a number of major foreign invested automobile manufacturers, including BMW, Benz, Audi, Toyota and Chrysler etc., have recently announced their price cut for auto parts. On August 20, the NDRC has announced its punishment of 12 Japanese auto parts and bearing companies who engaged in price related monopolistic behavior. Eight auto parts manufacturers are imposed fines totaling RMB 831.96 million (approximately USD 135.50 million), although Hitachi is exempted of the penalty. Four bearing manufacturers are imposed fines totaling RMB 403.44 million (approximately USD 65.70 million), although Nachi-Fujikoshi is exempted of the penalty. The combined amount of the fines reaches RMB 1.24 billion (approximately USD 200 million), setting up another record in China’s Anti-Monopoly Law’s enforcement.

This article will analyze the train of thought and trends of the NDRC’s anti-monopoly law enforcement, application of leniency program, impact of actions of the companies (including responses to investigations and illegal conducts) on the amount of the fines, and suggestions for relevant companies in dealing with antitrust investigation. . . .

Conclusion and Suggestions for the Companies

This record penalty decision demonstrates NDRC’s determination to intensify its antitrust law enforcement. Six years since the implementation of AML, the NDRC has taken more active and aggressive approach targeting a wider range in industries. This case will not be the finishing line, but merely a starting line that directs enforcement to areas closely related to the people’s livelihood, which have always been under its antitrust radar, such as petroleum, health care, telecommunication, pharmaceuticals, automotive, banks and consumer goods.

It is worth mentioning that the NDRC has indicated in its announcement that it will conduct further investigation following the leads uncovered in this case. Thus, the relevant companies should pay special attention to their possible monopolistic conduct related to this case or other auto parts and take necessary actions in a timely manner. They are strongly encouraged to report to the NDRC as early as possible in order to obtain exemption and reduction of fines.

The NDRC has adopted more stringent and definitive approach in application of leniency program. The NDRC has placed the leniency applicants in order and granted them exemption and reduction of fines accordingly. Companies need to seek professional advice in making leniency applications as to set up appropriate strategies in securing its first place by submitting the most important evidence to the NDRC within a short period of time and cooperating with the NDRC in its investigation.

The current heated antitrust law enforcement has posed unprecedented compliance challenges to all types of companies including foreign, domestic and even state-owned companies. Companies are suggested to take the following proactive measures to control and minimize risks associated with antitrust compliance:

1. Companies should conduct internal antitrust audit to inspect and evaluate potential antitrust risk with the assistance of external counsel. It’s also advisable to provide up-to-date and tailored antitrust trainings for senior management and employees, promote awareness of antitrust compliance.

2. For companies that are already found to be in potential violation of AML, it is recommended to voluntarily report to antitrust law enforcement agencies as soon as possible and to take rectification after seeking professional advice. Rectification measures may cover rectified sales policy and sales agreement that involves price-fixing and correction of conducts of price-fixing and collusive bidding, etc. Such measures shall be sufficient to maintain competition in the market and benefit the consumers.

3. Companies that have been dawn-raided by the antitrust law enforcement agencies should cope with the investigation appropriately, defend its legitimate interest and be proactive depending on the situation (e.g. propose defense regarding the gravity of the conduct and calculation of fines). In this case, Sumitomo has submitted written defense within one week of its receipt of the Prior-Notice of Administrative Penalty issued by NDRC. The defense addresses the miscalculation of turnover of joint venture that is involved. The NDRC has accepted its defense and granted a reduction of RMB 52.32 million in its fine. It can be seen that proactive approach and proposal of defense could help the companies avoid or mitigate penalties.

MICROSOFT ARTICLE

In the report on Chinese antitrust law by the Chinese T&D Law Firm, T&D Monthly Antitrust Report of July 2014, which will be attached to my blog, Chinese antitrust lawyer John Ren had this to say about the Microsoft case:

SAIC Initiates Anti-Monopoly Investigation on Microsoft

29 July, 2014 According to the information issued on the SAIC’s official website , on July 28, around 100 enforcement officials from the SAIC conducted dawn raids on Microsoft China and its branch companies in Shanghai, Guangzhou, and Chengdu. In June 2013, SAIC verified whether Microsoft violated the AML because of the allegation of the compatibility issue due to the non-full disclosure of information about the Windows operational system and office software, tying, and file validation, reported by other enterprises. During the verification, SAIC successively interviewed Microsoft and relevant enterprises, and Microsoft submitted the responding reports focusing on issues SAIC paid attentions to. In the period, relevant enterprises also continued to provide relevant information to SAIC. SAIC concluded that the preliminary verification cannot remove the suspicion of anti-competitive practices as mentioned above. Therefore, SAIC has initiated the investigation on Microsoft for its suspected anti-monopoly conducts pursuant to the relevant laws and regulations.

On July 28, 2014, according to the AML, SAIC conducted dawn raids on four of Microsoft’s business locations, i.e. Microsoft China and its branch companies in Shanghai, Guangzhou, and Chengdu. The personnel who were investigated included the Vice Presidents, senior management and the relevant staffs in the marketing, financial and other departments of Microsoft. The enforcement officials of SAIC copied some contracts and financial statements of Microsoft, extracted large amounts of electronic data including internal communication documents and emails, and sealed and removed two working computers. During the dawn raids, the investigation contents had not been fully completed, since according to Microsoft, some of the major staffs who need to be investigated were not in China at this stage. SAIC has instructed Microsoft to arrange relevant staffs to visit SAIC for being inspected as soon as possible.

Microsoft’s Chinese councils witnessed the entire enforcement practice conducted the by SAIC. Currently, the case is still under investigation.

NOW INDIA

Now India has followed China’s lead and its antitrust agency have hit 14 carmakers, including General Motors and Ford, with fines totaling 2,545 crore ($420.3 million) for violating India’s competition laws by allegedly restricting the ability of independent repair shops to enter the market.

The Competition Commission of India alleged the companies abused their dominant position by denying access to branded spare parts and diagnostic tools to independent repairers, hampering competition while allowing authorized dealers to charge higher prices.

SECURITIES

LIHUA

On August 15, 2014, William Peck filed the attached shareholder derivative suit, LIHUA COMPLAINT, in New York Federal District Court against Lihua International, Inc, Jianhua Zhu, Daphne Yan Huang, Yaying Wang, Robert C. Bruce, Jonathan P. Serbin, Siu Ki “Kelvin” Lau, Tian Bao Wang and Ming Zhang. Lihua is a China-based copper products company, and the attached complaint alleges materially false and misleading public filings that failed to disclose a substantial asset transfer out of the company by its former CEO. The shareholders say that eight executives and board members “knew nothing” about the former CEO’s alleged diversion of assets to another company, Power Apex Holdings Ltd., which the plaintiffs say is ultimately owned by the People’s Republic of China. The new derivative suit says the company is already being sued by two putative classes of shareholders who lost money in the stock drop.

CHINA MEDIA EXPRESS

On August 15, 2014, in the attached decision, CHINA MEDIA OPINION, a New York Federal Judge certified a class of investors in a class action securities case against China MediaExpress Holdings Inc. The Plaintiff allege the Chinese company concealed material information and made various misstatement and omissions that eventually led to a stock drop. The complaint was filed in February 2011.

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

VOLKSWAGEN

On August 25, 2014, there were reports out of China that the Chinese government has launched an anticorruption probe into a former and a current executive at one of Volkswagen AG ‘s China joint ventures. The Communist Party’s Central Commission for Discipline Inspection accused Li Wu, a former deputy general manager at FAW-Volkswagen Automobile Co., and Zhou Chun, a deputy general manager of the joint venture’s Audi sales division, of “suspected serious violations of discipline and law.” The phrase is typically used in Chinese corruption cases.

DORSEY FCPA DIGEST

In the attached August edition of the FCPA Digest, DORSEY Anti_Corruption_Digest_Aug2014, Dorsey lawyers report on a corruption investigation involving China stating:

“China

It has been reported that China commenced an investigation into former domestic security chief, Zhou Yongkang, on suspicion of corruption. The Communist Party decided to question Zhou Yongkang for suspected “serious disciplinary violations”, according to the official Xinhua news agency. The investigation will be conducted by the Party’s watchdog, the Central Commission for Discipline Inspection.

During Zhou Yongkang’s five-year appointment as security chief, he oversaw the police force, civilian intelligence apparatus, paramilitary police, judges and prosecutors.”

SECURITIES COMPLAINTS

On August 6, 2014, Andrew Dennison filed the attached class action securities case against China Commercial Credit, Inc., Huichun Qin, Long Yi, Jianmin Yin, Jingeng Ling, Xiangdong Xiao and John F. Levy. CHINA COMMERCIAL

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

Best regards,

Bill Perry

US CHINA TRADE WAR–TRADE, SOLAR, CUSTOMS, PATENTS, BANKING, ANTITRUST AND SECURITIES

Washington Monument Vietnam Memorial Black Wall, Night Washingto“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—JUNE 18, 2014

Dear Friends,

There have been major developments in the trade, solar cells, tires, banking, US/Chinese antitrust, and securities areas. In addition to the trade area, the banking and China antitrust areas have had important developments this month.

TRADE

SOLAR CASES

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 attached.  CVD PRELIM FED REG factsheet-prc-crystalline-silicon-photovoltaic-prod-cvd-prelim-060314

The Countervailing Duty Rates were much higher than expected with Trina getting 18.56%, Wuxi Suntech 35.21% and all other Chinese companies getting 26.89%. In the Solar Cells case, the average preliminary countervailing duty rate was only 3.61%.

Contrary to articles in the Press, however, this was just the countervailing duty/anti-subsidy determination against China. At the present time, Commerce has issued no determination regarding Taiwan. The Antidumping Preliminary determinations against China and Taiwan are not due to come out until July 24th.

The big issue, however, right now is Scope of the imported products covered by the preliminary determination. What specific products are covered by this decision? It is simply not clear yet. Clearly Chinese Solar Cells and Chinese products with solar cells that are partially produced in China and Taiwan are covered.

What is not clear is whether Chinese solar panels and modules with solar cells that are totally produced in Taiwan or solar cells that are produced in third countries are out of the case. Commerce issued a supplemental questionnaire to all the companies in the China case asking them whether the Solar Cells are partially produced in China. Many Chinese companies have their solar cells totally produced in Taiwan. Apparently, Chinese modules and panels with solar cells totally produced in Taiwan may be out of the China case.

If the modules and panels are produced in Taiwan or Third Countries with Taiwan solar cells, those products are not covered yet, because the Taiwan prelim has not come out yet. Taiwan is not covered until July 24th or slightly thereafter.

Another question is whether Chinese modules and panels that have solar cells from third countries, such as Korea or European countries, are covered by the Chinese case or not. We have heard of companies in China producing modules and panels using solar cells from Solar World in Germany. Are those Chinese modules and panels covered by the case? Not clear at the present time.

Recently, while in China, I met with Hanergy, a Chinese Photovoltaic Film producer. Hanergy told us that they can produce solar panels with the same power as the Polysilicon solar cell panels. If true, that is a game changer because the film is totally out of the case. Technology may be what makes the Solar World antidumping and countervailing duty actions against China irrelevant over time. For more information on Hanergy, see the video at https://www.dropbox.com/sh/v78cu853pdgncsq/AAAWisz0nNkCHRUp8XgTjW-fa.

Finally, as mentioned in my last blog, in April seven US Senators from Montana, Washington State and other States sent a letter to Vice President Biden asking for help in settling the Solar Cells and Solar Products antidumping and countervailing duty cases against China. As mentioned, however, although there have been efforts to negotiate a settlement with the Chinese government, to date the effort has failed.

Under US Antidumping and Countervailing Duty Law, the petitioner, SolarWorld, would ultimately have to agree to any settlement/suspension agreement reached between the U.S. and China. Moreover, in contrast to the EU, Canada and China, there is no public interest test in US antidumping and countervailing duty law. Thus, the U.S. government cannot legally compel SolarWorld to accept the Agreement.

Persuading Solar World to agree to a suspension agreement in the US cases, however, is going to become much more difficult because of a filing on June 5th by the European Union solar panel manufacturers in the European Solar case alleging that over a hundred Chinese companies are violating the terms of a price undertaking arrangement, negotiated by the European Commission. EU ProSun President Milan Nitzschke said he believed every one of the Chinese exporters is breaching the undertaking.

One US Industry source reportedly stated, “It’s certainly raises concerns about the ability of the Chinese government or the Chinese producers to guarantee they will abide by any kind of an agreement. It would emphasize the need for very strong monitoring provisions and very strong enforcement by all of the U.S. government agencies.”

ANOTHER BLOCKBUSTER $2 BILLION ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST TIRES FROM CHINA

On June 3, 2014, a union, the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, filed an antidumping and countervailing duty case aimed at $2 billion in imports of automobile and truck tires from China. The case is specifically described as Certain Passenger Vehicle and Light Truck Tires from the People’s Republic of China.

Attached is a short form of the petition.  USITC PUB Petition Tires-Shortest Version-6-4-14 (2) The case targets about 60 to over 100 Chinese tire producers and exporters and well over 1,000 US importers. Under US antidumping and countervailing duty law, unions have standing to file cases, not just producers.

The Commerce Department preliminary countervailing duty determination will come out as soon as October 31, 2014, exposing the US importers to liability for Chinese tire imports, followed by the antidumping preliminary determination on December 30, 2014.

SRAS—NOT FILL IN THE FORMS EXERCISE—HARD NOSED LITIGATION

In the recent Tires case, the rumors are that Chinese law firms are charging as low as $6,000 to $10,000 for a separate rates application (“SRA”) at the Commerce Department for Chinese companies that are shipping $10s, if not 100s, of millions of dollars of tires to the United States. The problem with these legal fee quotes is that SRAs in antidumping and countervailing duty cases in the United States are not a fill in the form exercise. This is litigation against hard-nosed US trade litigators, who have been paid more than $1 to $3 million to throw as many Chinese companies as possible out of the US market.

Under the US antidumping law, the Commerce Department issues two questionnaires to Chinese producers and export companies. One questionnaire is a quantity and value questionnaire listing the total quantity and value of the Chinese company’s exports to the United States during the period of investigation, which in the Tires case is October 1, 2013 to March 31, 2014.

From the Chinese companies’ responses to the quantity and value questionnaires, the Commerce Department will create a list and will chose the top 2 to 5 companies out of the more than 50 to 100 companies in the investigation as “mandatory” respondents. In the Tires case, there will probably be more than 50 companies, but in the Wooden Bedroom Furniture case, it was close to 200 companies.

The 2 to 5 companies selected as mandatory respondents must respond to the entire 100 page antidumping questionnaire from Commerce, respond to numerous supplemental questionnaires, and be subject to verification. Chinese companies selected as mandatory respondents must pay very high legal fees in the $100,000 to $300,000 range depending upon the nature of the product subject to investigation. But there is a benefit to being a mandatory respondent. Only mandatory respondents can prove that they are not dumping and get completely out of the antidumping investigation.

The rest of Chinese companies must submit a separate rates application (“SRA”), which is long and detailed, to prove that the Chinese company is separate and independent from the Chinese Government. Based on the SRA, if accepted, the Commerce Department will give the Chinese company a separate dumping margin, which will usually be the weighted average rate of the Chinese companies selected as mandatory respondent.

If all mandatory companies are 0%, however, pursuant to section 735(c)(5) of the US antidumping law, 19 USC 1673d(c)(5), the Department excludes any rates that were zero when calculating the weighted-average rate assigned to non-mandatory respondents. If all the mandatory respondents get 0, the Commerce Department gets to pick an antidumping rate out of thin air. In preliminary Wood Flooring initial investigation, all three mandatory respondents received dumping rates of 0. What did the separate rate companies get–22.14%.

But if a Chinese company does not get a separate rate, Commerce assumes that it is part of the Chinese entity and gets the highest dumping rate. In the Wood Flooring case, the China wide rate is 63.96%, but in the Solar Cells case, the China wide rate is 250%, and in Wooden Bedroom Furniture the China wide rate is 216%

More importantly, preparing a SRA is not a fill in the forms exercise. The Commerce Department can reject SRAs. The SRA is reviewed by the law firm representing the US industry or union, and the lawyers will look for a reason to attack the SRA and throw the Chinese company out of the US market.

From comments on the SRA, Commerce will issue supplemental questionnaires to the separate rate companies and even conduct verification of the separate rate companies. In almost every single antidumping and countervailing duty case, the Commerce Department throws out a number of Chinese companies and refuses to give them separate rates. So in the Solar Cells case, those companies denied a separate rate or that simply did not get around to filing a SRA got a rate of 250% and were excluded from the US market for at least 2 and a half years.

The problem is the mindset. For the Chinese companies the SRA is a simple form that has to be filed out so the lowest price is the better price. Lawyers, however, do not sell commodities; they sell a service. I talked with one Chinese company in an antidumping case, who hired a very low cost Chinese lawyer to do the SRA. The Chinese law firm sent a young associate to do the SRA and then the Chinese company never saw or talked to the Chinese lawyer again. If a Chinese company that is selling 10s or 100s of millions of dollars in products to the US does not talk/meet with a US lawyer, it should start asking questions.

Meanwhile, US lawyers representing the US industry in antidumping and countervailing duty cases look at the case very differently. Recently, an article was published on how US lawyers look at representing the US industry in antidumping and countervailing duty cases. As one US lawyer stated: “You can’t cut corners . . . . The key to having as much control as you can in the case is knowing the record of evidence better than anyone in the case. You’ve got to take the time and put in the time to sit down and really soak in and understand the record.”

So US lawyers are paid enough to take the time to learn about the record and attack the Chinese companies, when the Chinese companies think this is a fill in the forms exercise and they are buying a commodity. The US lawyers representing the domestic industry are bringing cannons/big guns to the trade war when the Chinese companies are bringing pop guns/ toy guns to the trade war. No wonder so many Chinese companies get killed in US antidumping and countervailing duty cases creating enormous liability for US importers.

Old Chinese saying—This is truly picking up the sesame and losing the watermelon.

ALUMINUM EXTRUSIONS—CAFC OVERTURNS COMMERCE

Another problem for the non-mandatory Chinese companies and their US importers is the Aluminum Extrusions case. In the Aluminum Extrusions initial investigation, in the Countervailing duty (“CVD”) case, Commerce used Customs statistics to determine the mandatory respondents. Aluminum extrusions, however, is a very difficult commodity and imports come into the United States in basket tariff categories. All three Chinese mandatory respondent companies refused to respond to the Commerce Department CVD questionnaire, possibly because they were not exporting the product in question.

But two Chinese companies submitted voluntary responses and Commerce gave them 8 to 9% CVD rates. What did the rest of China get as the China Wide Countervailing Duty Rate—374%!!

Commerce took the position that it would not take the CVD rates for voluntary respondents into account in determining the CVD China Wide rate. Since the three mandatory respondents refused to respond, the rest of China got 374%.

This has become extremely dangerous because as explained in past blog posts, Commerce is expanding the Antidumping and Countervailing Duty orders to apply to downstream products and US importers of these downstream products could be exposed to retroactive liability or as much as 374% CVD rates on past imports.

Importers appealed, and on appeal the Court of International Trade forced China wide CVD rate down to about 137%, arguing that the All Facts Available Rate by Commerce was punitive and simply not commercially reasonable.

On June 3, 2014, in Maclean-Fogg Company v. United States, the Court of Appeals for the Federal Circuit (“CAFC”) in the attached 2-1 split decision reversed, holding that the Commerce Department must use the countervailing duty rates assigned to voluntary respondent companies to determine the China-wide rate.  MACLEAN FOGG

As the CAFC stated:

“The statute is clear that voluntary respondents are “exporters or producers” subject to “individual examination.” The rates calculated for them are “individual countervailable subsidy rate[s].” Within the countervailing duty statute, “investigation”/”examination” and “investigated”/“ examined” are used interchangeably. . . .

This reasoning lacks support because the general rule itself specifies its own exclusions: “any zero and de minimis margins, and any margins determined entirely on the basis of the facts available.” § 1671d(c)(5)(A)(i). The existence of exclusions means that Congress intended all “weighted average countervailable subsidy rates established for exporters and producers individually investigated” be factored into the calculation unless the conditions for exclusion are met. . . .

We thus conclude that the Court of International Trade erred in holding that the statute is ambiguous on the question of whether the countervailing duty rates (other than zero or de minimis) of voluntary respondents must be included in the general rule for calculation of the all-others rate. Because the statute is clear that such voluntary respondent rates must be included in the general all-others rate calculation, Commerce’s regulatory interpretation to the exact contrary is invalid. Commerce’s rationale for its regulation is therefore irrelevant and cannot serve to create ambiguity where none exists.

Accordingly, “exporters and producers individually investigated” in the context of 19 U.S.C. § 1671d(c)(5)(A) must be read to encompass the voluntary respondents. On the current facts, the precondition for invoking the exception provision, that “the countervailable subsidy rates established for all exporters and producers individually investigated are zero or de minimis rates, or are determined entirely under section 1677e of this title,” has not been met. §1671d(c)(5)(A)(ii). We reverse the decision of the Court of International Trade and remand for determination of the all-others rate under the general rule, § 1671d(c)(5)(A)(i).

REVERSED AND REMANDED”

In commenting on this decision, several trade lawyers have stated that since the Commerce Department takes so few voluntary respondents in cases, this decision will not have that much effect on future Commerce Department antidumping and countervailing duty cases. Commerce is simply individually investigating so few respondent companies these days that this decision will simply not have any impact.

AD ORDERS ON FRONT SEATING VALVES AND HEDP ACID LIFTED

In May and June, the Commerce Department lifted antidumping orders against front seating valves and 1-Hydroxyethiylidene-1,1-Diphosphonic Acid (HEDP) from China. See the attached notices.  FRONT SEATING VALVES ORDER REVOKED HEDP REVOKED

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

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

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

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

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

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

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

Now the story continues . . . .

As the negotiations continue, there appear to be major differences between the United States, Japan and Canada on various agricultural products. On June 3, 2014, representatives of 39 Dairy Companies stated that they would withdraw their support for a Trans-Pacific Partnership deal if Canada and Japan do not open their markets to more US dairy products. As stated in the attached June 3rd letter, Dairy_Letter_0603:

“ It is clear, however, that Japan, as well as Canada, continues to strongly resist living up to the ambitious trade goals it obligated itself to undertake upon joining TPP negotiations. The U.S. dairy industry has been a leading and long‐standing advocate for comprehensive market access and the inclusion of Japan and Canada in TPP.

Yet, we have held realistic expectations and recognize that the perfect should not be the enemy of the good. However, as reported in the media, Japan’s recent comments on market access progress show appallingly little substantive movement, and come nowhere close to our expectations. Canada will likely try to base its decisions on dairy market access off of what Japan commits to do for its most sensitive agricultural sectors, thus heightening the importance of achieving meaningful dairy market access to Japan.

We urge you to insist that TPP must remain a high standard trade agreement that can be used as a model for future U.S. free trade agreements. All TPP countries must do their part to ensure this undertaking lives up to its founding goals of comprehensive and meaningful market access. We are prepared to match the level of ambition of Japan and Canada, and urge you to press both to provide a very strong dairy package. Our industry must not provide any new access in this agreement that has not been given by those countries.

In addition, it is vital that TPP address serious non‐tariff policies by the New Zealand government that have uniquely advantaged the largest dairy exporting company in both the TPP region and the world. Tariffs are a critical component of this agreement, but not the only element.

It remains our hope that TPP negotiations with Japan and Canada can be concluded in a manner that will allow for strong support across our industry. However, our support for TPP is not unconditional. The elements cited here, which largely remain unresolved, must be concluded in a positive manner or our industry will find it difficult to support the final agreement.

Similarly, our industry has been a strong supporter of Trade Promotion Authority (TPA) and would expect to continue to support it in the future. However, should Japan and Canada not commit to minimum standards and basic market‐based principles as many other TPP countries have done, we would need to re‐examine our support for TPA.”

On June 10th, Hiroyuki Ishige, chairman of the Japanese External Trade Organization, a Japanese trade official, reportedly told a Washington think tank that resolving the issues keeping the pact from moving forward would take compromise on both sides, and that there was no such thing as a “perfect” TPP.

On June 11, 2014, Congressman Devin Nunes, a Republican Congressman from California, who is Chairman of the House Ways and Means Committee, Subcommittee on Trade, responded Nunes Opening Statement_ Hearing on Advancing the U.S. Trade Agenda_ Benefits of Expanding U.S. Agriculture Trade and Eliminating Barriers to U.S. Exports:

“Third, we must tear down tariff and non-tariff barriers to U.S. agriculture. Tariffs must be eliminated without exclusion. In negotiations for the Trans-Pacific Partnership, or TPP, I am concerned that the Administration is not holding Japan and Canada to the level of ambition that Congress has demanded. In some cases a long time frame may be warranted, but there has to be a path to zero. If any countries insist on retaining tariffs, then we must complete the negotiations without them and allow them to rejoin when they can commit to full tariff elimination.

A growing concern is non-tariff barriers, particularly unwarranted sanitary and phytosanitary or SPS measures. While countries can implement measures to protect human, animal, and plant health, many measures are actually thinly veiled protectionist barriers that ignore science and international standards, and do not enhance food safety in any way. I’m pleased that the Administration has heard Congress’s message that only strong, enforceable rules will ensure that SPS measures are transparent, science-based, and are not unduly restrictive. I am particularly concerned by European restrictions on the use of generic food names, which the EU improperly designates as geographical indications. This threatens the U.S. dairy industry and cannot be tolerated. The TPP and U.S.-EU trade negotiations are good opportunities to reduce both tariff and non-tariff barriers. To gain support in Congress, these agreements must result in complete market access.

Fourth, to strengthen USTR’s position in trade negotiations, we must pass Trade Promotion Authority without delay. The Bipartisan Congressional Trade Priorities Act introduced earlier this year would establish clear direction to open agriculture markets and address unwarranted SPS measures and other trade barriers. If the Administration finishes these negotiations before TPA is granted, it will not get the best deal for our farmers or other exporters. Therefore, I call on the Administration to focus on passing TPA in Congress before completing TPP.”

On June 10, 2014, after a trip to China, Congressman Aaron Shock, Republican from Illinois, stated that the Trans-Pacific Partnership (TPP) is the best way to motivate China to make reforms needed for it to be ready to join the deal. Schock said negotiating a “level playing field” with China would be a good thing, but Beijing is not yet ready to meet the standards of the TPP deal under negotiation. Shock further stated at a Washington DC think tank, “But there’s nothing like competition to get your act in order.”

On June 16,2014, Ways and Means Committee Chairman Dave Camp (R-MI) and Trade Subcommittee Chairman Devin Nunes (R-CA) released the following statements on the 80th anniversary of Trade Promotion Authority (TPA) WAYS AND MEANS ANNOUNCE:

Chairman Camp stated, “This month marks the 80th anniversary of the enactment of the Reciprocal Trade Agreements Act. Since its passage, every President, until now, has partnered with Congress to have this powerful tool to negotiate the best possible trade deals for America. I urge the Administration to pull out the stops to assure passage of the Bipartisan Congressional Trade Priorities Act of 2014, which strengthens the role of Congress in trade negotiations and gives the President the ability to negotiate the very best deals for U.S. exporters, creating good jobs that pay well.”

Chairman Nunes added, “History is on our side. TPA-style legislation has worked for 80 years to produce high quality agreements that create U.S. jobs. But this President doesn’t have this valuable tool. Unless he acts quickly to work with us to pass the Bipartisan Congressional Trade Promotion Authority Act of 2014, he will be unable to deliver ambitious trade agreements that benefit our economy.”

JUNE ANTIDUMPING ADMINISTRATIVE REVIEWS

On June 2, 2014, Commerce published in the Federal Register the attached notice JUNE REVIEWS COMMERCE regarding antidumping and countervailing duty cases for which reviews can be requested in the month of June. The specific antidumping and countervailing duty cases against China are: Artist Canvas, Chlorinated Isocyanurates, Furfuryl Alcohol, High Pressure Steel Cylinders, Polyester Staple Fiber, Prestressed Concrete Steel Wire Strand, Silicon Metal, and Tapered Roller Bearings (TRB).

For those US import companies that imported chlorinated iscocyanurates, polyester staple fiber, silicon metal and TRBs and the other products listed above from China during the period June 1, 2013-May 31, 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier 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.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

Two Congressmen have now agreed to meet importers in the New Jersey/NY area and in the Long Beach area to listen to their grievances regarding the US antidumping and countervailing duty laws. We are now contacting many 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 apparently takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

At the end of July, we plan an organizational meeting in Beijing, China with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help contacting US importers about the Alliance.

CUSTOMS—FALSE CLAIMS ACT

On May 15, 2014, in the attached decision, ORDER 2 SOUTHEASTERN in United States, ex rel and James Valenti vs. Robert Wingfield, Northeastern Aluminum Corp., William Ma, Southeastern Aluminum Products, Waterfall Group and C. R. Lawrence, a Federal District Judge denied a motion to dismiss in a false claims act targeting imports of Chinese aluminum extrusions transshipped through Malaysia. U.S. District Judge Brian J. Davis denied the motion from C.R. Laurence Company Inc. and Southeastern Aluminum Products Inc., which had argued that the government failed to sufficiently allege that they knowingly submitted false statements to U.S. Customs and Border Protection to avoid paying duties on imports of aluminum extrusions.

As Judge Davis stated, “These facts, accepted as true, provided a sufficient basis for the government’s claim that CRL conspired … to avoid duties on the aluminum exports and imports in violation of the [False Claims Act].”

In a separate order, the judge issued a similar denial of Southeastern’s dismissal motion, finding that the company’s claims that it was merely a buyer did not shield it from the government’s allegations.

According to the government and whistleblower James Valenti, who helps U.S. companies find foreign sources of aluminum extrusions, C.R. Laurence, Southeastern and several other companies and individuals conspired to ship Chinese-made aluminum extrusions through Malaysia in order to avoid the duties. Valenti filed his suit under seal in April 2013, and the government chose to intervene roughly six months later, although it dropped several defendants.

In its intervening complaint, the government alleged that a sales director for Chinese manufacturer Tai Shan Golden Gain Aluminum Products Ltd. conspired with C.R. Laurence, Southeastern and Waterfall Group LLC to avoid the countervailing duties by shipping the aluminum extrusion products though Malaysia.

A purportedly Malaysian subsidiary of Tai Shan also allegedly undervalued the imported aluminum, causing the amount of declared duties to be lower. According to the government, by submitting inaccurate country of origin and import value information to Customs, the companies committed Customs fraud and violated the FCA.

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

With regards to the Chinese ban on shellfish from the West Coast, on June 10, 2014, the Washington State Department of Health announced that China recently advised the NOAA at Commerce that it was lifting the ban on imports of live shellfish from Washington and Alaska stating:

June 10, 2014 update

Areas Cleared for Geoduck Export to China

Officials from China recently advised NOAA that they lifted the ban on imports of live shellfish from Washington and Alaska. The Department of Health provided NOAA with a summary of the results of inorganic arsenic testing in Washington State to date and NOAA has agreed to “clear” [certain] areas for geoduck export to China.  See http://www.doh.wa.gov/CommunityandEnvironment/Shellfish/CommercialShellfish/ChinaBan.aspx.

PATENT/IP AND 337 CASES

337 CASES

On June 13, 2014, the US International Trade Commission (“ITC”) issued a notice in the 337 patent enforcement proceeding, Certain Two-Way Global Satellite Communication Devices, System and Components Thereof, announcing the issuance of a civil penalty of $6,242,500 for violation of the Consent Order on 227 separate days by a US importer.  VIOLATION OF CONSENT ORDER 337 $6 MILLION FINE

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

On May 13, 2014, SAWT Inc. and Shanghai Aeolus Windpower Technology Co. sued Joe Moore Construction Inc. d /b/a Wind Sun Energy Systems and Urban Green Energy Inc. for infringement of US patents.  CHINA WIND CASE

On May 13, 2014, SHM International Corp. sued Chant Heat Energy Science & Technology (Zhongshan) Co., Ltd. and Guangdong Chang Group Inc. for breach of contract, breach of a confidentiality agreement, interference with customers, and unfair competition.  GRILL EQUIPMENT

On June 12, 2014, Parthenon Unified Memory Architecture LLC sued Huawei Technologies Co., Ltd., Huawei Technologies USA, Inc. and Huawei Device USA, Inc. for patent infringement.  HUAWEI

BANKING

On June 16, 2014, the US U.S. Supreme Court issued a 7-1 decision in Republic of Argentina v. NML Capital Ltd., which will send a shiver through many foreign banks, including Chinese banks. In the atthached decision, SUPREME COURT ARGENTINA CASE the Supreme Court held no provision in the Foreign Sovereign Immunities Act (“FSIA”) immunizes a foreign-sovereign judg­ment debtor from post judgment discovery of information concerning its extraterritorial assets. In other words, third parties can engage in broad discovery of a foreign sovereign’s assets in third countries.

Specifically, the Supreme Court upheld lower court rulings allowing hedge fund, NML Capital Ltd. to engage in broad discovery as part of its long-running case dispute with the Republic of Argentina over a 2001 bond default, including allowing the fund to review Argentine military records. The Supreme Court affirmed decisions at the district court and Second Circuit levels that required two third-party banks to comply with subpoenas related to Argentina’s assets held outside of U.S. courts’ jurisdiction as part of the discovery process in the dispute between Argentina and NML. As Justice Scalia writing for the Court majority stated “The prospect that NML’s general request for information about Argentina’s worldwide assets may turn up information about property that Argentina regards as immune does not mean that NML cannot pursue discovery of it.” Although discovery of Argentine assets in third countries may turn up property that Argentina regards as immune, according to the Supreme Court, that is an issue for the relevant Federal district lower court to settle.

It is interesting to note that the Court rejected the position of the US government, which had backed Argentine’s position. The US fears that if U.S. courts are allowed to call for broad discovery rulings against assets held by foreign governments held outside of U.S jurisdiction, then foreign courts may attempt the same with U.S. assets around the world. According to the Court, these areas of law are to be left for Congress to change, if it chooses, not the courts.

At the same time, the Supreme Court denied Argentina’s attempt to appeal of a lower court’s ruling that it has to pay $1.4 billion owed to hedge fund NML, despite the country’s warning that the payment could force it into another default.  In its cert petition, Argentina argued the high court must intervene in its dispute with NML because the lower court decisions violate Argentina’s sovereignty.

The Second Circuit Court of Appeals had found that Argentina, which has repeatedly said it will not pay the holdout bondholders no matter what the U.S. courts decide, was bound by the terms of the original bond offering and had to pay debt holders that didn’t participate in the restructuring in full whenever it made payments to those bondholders that had agreed to the restructuring.  Argentina argued that it “must reward NML with a massive litigation windfall or face a court-ordered default, which could trigger a renewed economic catastrophe with severe consequences for millions of ordinary Argentine citizens.”

In response to the Court decision, Argentina’s President Kirchner stated that Argentina will respect its debt, but will not accept any extortion by holdout bond holders.

ANTITRUST

In the attached series of antitrust cases, companies are suing banks, including the Hong Kong Exchanges & Clearing Ltd, for triple damages under Section 1 and Section 2 of the Sherman act for conspiring to drive up prices of aluminum and zinc through the London Metal Exchange.  IOWA HK EXCHANGE HONG KONG EXCHANGE

On June 16th, the Hong Kong Exchange filed the attached motion, HKEX BRIEF OUT OF LITIGATION arguing that the New York Federal District Court should throw out the complaint against the Hong Kong Exchange because the court has no jurisdiction because the Exchange has little to no connections with the United States.

Reportedly the US Justice Department is also looking at the alleged price fixing scheme.

On June 12, 2014, Leslie Overton, the Deputy Assistant Attorney General of the Antitrust Division at the US Justice Department gave the attached speech Leslie C Overton – International Antitrust Engagement -Benefits and Opportunities 6-12-14 on international antitrust engagement, benefits and opportunities.  In that speech Overton stated:

“Both older and newer antitrust agencies have come to regard cooperation with their international counterparts as an important tool in ensuring effective competition enforcement. . . . Similarly, in the cartel context, the interaction between U.S. antitrust enforcers and their international counterparts continues to increase as more countries – including emerging economies – have come to understand the significant harm inflicted by hard core cartels, such that international cartels are likely to be pursued and prosecuted by more than one antitrust authority.

What explains this trend towards increased cooperation in antitrust enforcement?  For the antitrust agencies, the benefits of cooperation are significant. Cooperation increases the efficiency of enforcement efforts by facilitating the ability of agencies to exchange information and evidence. . . . Open and candid dialogue among enforcers helps us better understand competitive dynamics worldwide, and provides opportunities to discuss theories of harm and best practices.  It facilitates the transfer of knowledge and experience from more established agencies to newer agencies, and may help newer agencies avoid reinventing the wheel when confronting issues for the first time.

The growing incidence of effective case cooperation strengthens close ties between many enforcement agencies, at both the staff and senior manager levels.  Additionally, many of our international counterparts have told us they value having “front office” to “front office” contacts.  To this end, the Antitrust Division’s Director of Civil Enforcement, Patty Brink, is responsible for day-to-day international case cooperation in the civil context. Her direct, sometimes daily, contact with her international counterparts has helped keep several investigations on track to successful conclusion. . . .

Turning to the Antitrust Division’s criminal antitrust enforcement program, as former Deputy Assistant Attorney General (DAAG) Scott Hammond explained last fall, the Division has cooperated extensively in recent years with the Japanese Fair Trade Commission (JFTC) on investigations and prosecutions of Japanese companies and executives accused of fixing prices for auto parts installed in U.S. cars, including seat belts, air bags and steering wheels.  The JFTC has substantially assisted the Antitrust Division in its investigation, which has thus far resulted in 24 individuals and 27 companies agreeing to plead guilty and more than $2 billion in criminal fines.  Former DAAG Hammond noted that “[w]e are grateful for [the JFTC’s] assistance [in this investigation] as it has benefitted both Japanese and American businesses and consumers.”

We also engage in important international cooperation beyond the case-specific context.  We have a number of bilateral cooperation agreements where the U.S. government or U.S. antitrust agencies are parties. For example, in 2011, the DOJ and the FTC entered a memorandum of understanding (MOU) with the three agencies that enforce the Chinese anti-monopoly law, as well as an MOU with the Indian competition agencies in 2012.

We had our second annual bilateral consultation with the Chinese anti-monopoly law agencies in Beijing this past January, and planning is well underway for the third later this year in Washington.  This past November, the U.S. agencies had their first official bilateral consultation with the Indian agencies.

We and the FTC have had valuable bilateral discussions with these and other counterparts about a number of issues, such as the importance of sound economics-based analysis, transparency, and procedural fairness, which are in the interest of our consumers and theirs.  I can tell you that such bilateral discussions are quite candid, and where we have concerns we raise them with our international counterparts, while still respecting appropriate confidentiality regarding such enforcer-to-enforcer exchanges.”

 

Recently, this international cooperation was on display in Beijing on May 21-23, 2014 at an ABA Conference on Antitrust in Asia: China, at which speakers from the US FTC, Justice Department, the Chinese government’s NDRC and Ministry of Commerce and Competition Agencies from Japan, Korea, Singapore, and Australia to name a few spoke about various antitrust issues, including cartels. The point is that international cartels are now the target of not only US antitrust actions, but antitrust actions all over the world and the various competition agencies in a number of different countries are talking to each other. Companies can run, but they can no longer hide from antitrust cases.

COMPLAINTS

On May 30, 2014, Viewsonic filed the attached antitrust case against a number of Japanese, Korean and Chinese companies alleging that the companies had created a cartel to fix the prices of cathode ray tubes.   Some of the Chinese target companies are Chunghwa Picture Tubes, Beijing Matsushita and Samsung China Companies.  TELEVISIONS ANTITRUST

CHINA ANTITRUST CASES

As US antitrust cases have been on the rise in the United States, they are also rising in China. On June 17, 2014, in direct contrast to the US and EC, which had approved the merger, China’s Merger Office in the Ministry of Commerce known as MOFCOM blocked a proposed alliance among Danish shipping giant A.P. Moller-Maersk A/S and two of its partners to pool ships used on Eurasian trade routes.

MOFCOM declared that the merger agreement violated China’s anti-monopoly law because it excludes the effect of restricting competition in the European container liner shipping routes services market.  As a result, Maersk and its partners agreed to stop work on the merger.

MOFCOM’s decision to not allow the alliance marked the culmination of a review under China’s merger-control rules over the effect the agreement would have on trade routes that involve Chinese ports. Other shipping routes that did not involve ports in China were not considered as part of the review.  The Chinese regulatory body said that the proposed deal would have significantly enhanced the market power of Maersk and its partners, led to greater concentration in the relevant market and raised barriers to companies seeking to enter the market.

Maersk and its partners announced the agreement to establish the P3 network in June 2013.  The overall aim of the alliance was to make container liner shipping more efficient and improve service quality for the shippers due to more frequent and reliable services.

MOFCOM’s decision to block the merger marks the first time it has stopped a merger since 2009, when it stopped Coca-Cola Co.’s $2.5 billion bid to buy Chinese juice and beverage company Huiyuan Juice Group Ltd., which was the first time China had halted any proposed acquisition after the country’s antimonopoly law took effect in 2008.

On June 9, 2014, MOFCOM reported that China has launched a review into potential anticompetitive behavior across 80 major industries, including autos, pharmaceuticals and alcoholic drinks. Beijing last year stepped up a crackdown on antitrust practices. The Commerce Ministry’s review is part of a campaign launched last December targeting practices that hinder free market competition, such as setting up protectionist policies against companies from other cities and provinces, and granting unfair subsidies.

On June 16, 2014, it was reported that in reviewing the Microsoft Nokia merger, MOFCOM had revealed 310 Microsoft patents used in Android licensing Agreements. Up to that date Microsoft had never revealed the patents and fees in the licensing deals, unless required to do so in a courtroom. However, documents posted on the Chinese Ministry of Commerce (MOFCOM)’s website detail the full range of patents (http://www.mofcom.gov.cn/article/difang/henan/201404/20140400547823.shtml) included within licensing agreements. A list detailing all 310 patents can be found here http://images.mofcom.gov.cn/pep/201404/20140408143159274.docx).

Attached is the May Antitrust Report by T&D Associates, a Chinese law firm.  TD Monthly Antitrust Report of May 2014 One article in the report states that the NDRC has suspended its antitrust investigation of the US company, Interdigital:

“The NDRC decided to suspend the price monopoly investigation of IDC Co., US, and is continuing to supervise the fulfillment of the IDC’s promises to eliminate monopolistic conduct and its results.

According to reports, the NDRC initially launched an antitrust investigation of IDC in June 2013, and obtained evidence of IDC’s monopolistic price conduct. The related persons in charge of IDC came to the NDRC to participate in the inquiry twice, in July 2013 and January 2014. IDC was suspected of being involved in abusing their dominant position in the wireless communication standard-essential-patent market. This monopolistic conduct included setting unfair high licensing fees for Chinese corporations, requiring the reverse free licensing of corporations patents, bundling non standard-essential-patents licenses, and bundling standard-essential-patents, etc.

In the period of the investigation, the IDC actively cooperated with the authorities and reached a settlement agreement with Hua Wei on licensing fees and other clauses, and stated that it would negotiate with other Chinese corporations using the conditions agreed upon with Hua Wei as a standard. IDC submitted a petition to suspend the investigation and presented the specific measures for eliminating the results of monopolistic conduct, including not setting unfairly high licensing fees for Chinese corporations, not bundling the licensing of non standard-essential-patents and standard-essential-patents, not requiring the reverse licensing of patents of the corporations freely and not forcing Chinese corporations to accept unreasonable licensing conditions through direct lawsuits.

Concerning that the measures submitted by IDC can eliminate the results of the monopolistic conduct that originally invited suspicion, ensuring that Chinese corporations can compete fairly in the market and market competition order can be restored, the NDRC made the decision to suspend the investigation pursuant to Article 45 of the Antitrust Law and will ensure that IDC will fulfill its promises. NDRC will resume the investigation if IDC fails to fulfill its promises or other legal conditions occur.”

In the United States, in the attached response to written questions from the Senate Finance Committee, FROMAN RESPONSE specifically Senator Sherrod Brown, who raised questions about Chinese government’s enforcement of its anti-monopoly laws as a tool to pursue its industrial policy, USTR Froman stated recently:

“Sen. Sherrod Brown:

Question 6

The government of China is increasingly using its anti-monopoly laws as a tool for pursuing its nationalist industrial policies. As noted in USTR’s most recent National Trade Estimates report, China’s NDRC has in the past year significantly increased its anti-monopoly activity especially against foreign companies. As the report notes, there is significant concern about abuses of the antimonopoly law by the NDRC, including intimidation and pressure on U.S. companies to cooperate in the face of unspecified allegations, steep fines, and other forms of coercion. Does USTR have adequate legal authority and tools to address such forms of unfair competition, which do not fall neatly into the categories of prohibited activities embodied in the WTO agreements? What other tools would you find useful to address such practices?

Answer

USTR is working intensively, in cooperation with other U.S. government agencies and key trading partners, via both bilateral and multilateral engagement, to combat China’s use of the anti-monopoly law as a tool for pursuing industrial policies. We are pressing China hard, building on China’s leaders’ stated commitments to a level playing field and the rule of law. We are committed to continued intensive engagement on this important concern.”

 

It is interesting to note that Shang Ming, DJ Shang, the present Director-General of the Anti-Monopoly Bureau of MOFCOM’s merger office, used to be the Director of the Bureau of Treaties and Law at MOFCOM. Treaties and Law at one point in time was in charge of the Chinese government’s response to US and other foreign antidumping and countervailing duty cases. In other words, Shang Ming had to deal with the protectionist policies of the US Commerce Department in antidumping and countervailing duty cases. What goes around does indeed come around.

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

In the the attached May edition of the FCPA Digest, May_2014_Digest_052814 Dorsey lawyers report on several corruption investigations involving China and Hong Kong stating:

“Johnson Controls Discloses FCPA Investigation in China

In a recent SEC filing, Johnson Controls, Inc. announced that it had self-reported to the United States Department of Justice and the Securities Exchange Commission that it commenced an internal investigation in July of 2013 into possible FCPA violations in China. The possible violations date back to 2007.

Johnson Controls is one of the world’s largest manufacturers of building maintenance systems and controls, which include temperature and air regulation controls found in most large-scale buildings and industrial facilities. The company also manufactures temperature control systems for vehicles and boats, among others.  According to Johnson Control’s disclosure, the focus of the investigation is Johnson Control’s “Building Efficiency marine business in China, dating back to 2007,” which reported annual sales ranging from $20 million to $50 million during this period. No further information has been provided regarding the nature of the possible FCPA violations.

Avon Settles FCPA Allegations for $135 Million

On May 1, the beauty products company Avon announced that it had “reached an understanding” with the Department of Justice and SEC to resolve allegations that the company had violated the FCPA. Of the $135 million, $68 million will go to the DOJ, and $67 million to the SEC. The deal includes a three-year deferred prosecution agreement with the DOJ, and the institution of a compliance monitor for at least 18 months.

The agreement resolves charges relating to alleged bribes of Chinese foreign officials as evidenced by a 2005 internal audit report that concluded Avon employees may have been engaging in conduct in China that violated the FCPA relating to dollars spent on “travel, entertainment and other expenses” in convincing Chinese officials to allow the door-to-door direct marketer to enter the Chinese market.

By the end of 2013, Avon had reportedly spent approximately $300 million on its internal FCPA investigation, and as a result of the fallout after its initial disclosure in 2012, CEO Andrea Jung was asked to leave the company in 2012.

SEC Threatens Enforcement Action against Qualcomm

On April 24, Qualcomm, Inc., the world’s largest mobile chipmaker, disclosed in an SEC filing that it was the subject of an SEC investigation relating to allegations that the microchip giant had bribed officials in China’s state-owned firms. The disclosure announced that Qualcomm had received a Wells Notice from the SEC on March 13, recommending an enforcement action against the company.

The Wells Note stems from an SEC investigation that started in 2012 after a whistleblower complaint informed the SEC that Qualcomm had conducted an internal investigation and unearthed evidence of “special hiring consideration, and gifts or other benefits” provided to Chinese officials. Qualcomm’s disclosure estimates the value of the possible benefits in question to be “less than $250,000, excluding employment compensation.”

Goldman Sachs Being Probed For Hiring Practices

Earlier this month Goldman Sachs Group, Inc. disclosed in its Form 10-Q that it was the subject of an ongoing FCPA investigation by the SEC regarding its hiring practices outside the United States. The investigation centers around Goldman’s practice of hiring relatives of well-connected officials in Asia, and whether such hiring may run afoul of the FCPA.

The inquiry into Goldman’s hiring practices is part of a larger investigation into the hiring practices of other international banks, including Credit Suisse, Morgan Stanley, Citigroup, and UBS AG. In 2013, several news reports surfaced regarding the hiring practices of Wall Street banks in China.

A recent example is JP Morgan’s hiring of Wen Ruchun, the daughter of Wen Jiaboa, a former Chinese prime minister. Wen Ruchun allegedly received $75,000 per month from JP Morgan via a consulting company – Fullmark Consultants. Last year, The New York Times reported that the “practice of hiring the children of government officials was so widespread that banks competed to see who could hire the most politically connected recent college graduates.” . . . .

Hong Kong

According to reports, two of Hong Kong’s wealthiest tycoons went on trial on Thursday 8 May 2014 in the city’s biggest corruption case to date.

Brothers Thomas and Raymond Kwok, who jointly chair the development company Sun Hung Kai Properties, and Hong Kong’s former chief secretary Rafael Hui were arrested in connection with alleged bribes payments and unsecured loans amounting to HK$34 million (c.$4.38 million).

According to reports, five people were arrested in connection with the payments. The others include another Sun Hung Kai director, Thomas Chan, and Francis Kwan, the former non-executive director of the investment company, New Environmental Energy Holdings.

As stated in a Department of Justice indictment, Sun Hung Hui, faces eight charges, some of which relate to receiving payments in return for being “favourably disposed to Sun Hung Kai Properties… and Thomas Kwok and Raymond Kwok” while in office. The charges against Sun Hung Hui reportedly also relate to rent-free use of luxury apartments and acceptance of unsecured loans.

Thomas Kwok, is reported to face three charges of conspiracy to commit misconduct in public office and his brother Raymond to have been charged with four offences including furnishing false information, according to the document.

The arrests have renewed discussion on links between wealthy tycoons and officials in the Asian financial centre that have raised public suspicion for some time. The head of Social Sciences at the Hong Kong Institute of Education told AFP is quoted saying: “This case will reinforce the public perception that the Hong Kong government has been vulnerable to the possible influence of the capitalist class”.

It is said that former Hong Kong chief executive Donald Tsang ended his term in June 2012 after admitting to accepting gifts from tycoons such as trips on luxury yachts and private jets. According to reports, Hong Kong billionaire Joseph Lau was found guilty in March of this year of bribing a former minister in the gambling district of Macau in an attempt to purchase a prime development site.

The hearing took place at Hong Kong’s High Court on 8 May 2014.”

SECURITIES COMPLAINTS

On May 7, 2014, a class action securities complaint was filed by Jeffrey Grodko versus Lihua International Inc., Jianhua Zhu, and Daphne Yan Huang.  LIHUA COMPLAINT

On May 25, 2014, a class action securities complaint was filed by Ming Yang against Tibet Pharmaceuticals, Hong Yu, Taylor Z. Guo, Sabrina Y. Ren, Wenbo Chen, Youhang Pen, Solomen Chen, Anderson & Strudwick Inc., Sterne Agee Group, Inc., Hayden Zou and L. McCarthy Downs III. TIBET PHARMACEUTICALS

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

Best regards,

Bill Perry

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

White House Night Pennsylvania Ave Washington DC

“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER–APRIL 15, 2014

Dear Friends,

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

TRADE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Now the story continues . . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CAFC DENIES CONSTITUTIONAL CHALLENGE TO GPX LAW

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

CHINESE EXPORT TAXES ON RAW MATERIALS—WTO PROBLEMS

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

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

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

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

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

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

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

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

The Chinese export restraints challenged in this dispute include export duties and export quotas, as well as related export quota administration requirements. These types of export restraints can skew the playing field against the United States and other countries in the production and export of downstream products. They can artificially increase world prices for these raw material inputs while artificially lowering prices for Chinese producers. This enables China’s domestic downstream producers to produce lower-priced products from the raw materials and thereby creates significant advantages for China’s producers when competing against U.S. and other producers both in China’s market and other countries’ markets. The export restraints can also create substantial pressure on foreign downstream producers to move their operations, jobs and technologies to China.  . . .

This dispute builds on and expands an earlier victory that the United States achieved in 2011 challenging China’s use of export restraints on a different set of raw material inputs used in the steel, aluminum, and chemicals industries (bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorous and zinc). “  Emphasis added.

As stated many times on this blog, there are outstanding US antidumping orders against magnesium, foundry coke, manganese, and silicon metal, which have shut probably $1 billion of imports of these Chinese metal products out of the United States for decades.  Exolon Esk, a one company US industry, tried to bring an antidumping case against Silicon Carbide, but failed.  The US industry, however, did prevail in the Tungsten Ore case, leaving an antidumping order in place and shutting all Chinese tungsten ore out of the US market for almost 8 years.

Thus the USTR states:

Chinese export restraints . . . can skew the playing field against the United States and other countries in the production and export of downstream products. They can artificially increase world prices for these raw material inputs while artificially lowering prices for Chinese producers. This enables China’s domestic downstream producers to produce lower-priced products from the raw materials and thereby creates significant advantages for China’s producers when competing against U.S. and other producers both in China’s market and other countries’ markets. The export restraints can also create substantial pressure on foreign downstream producers to move their operations, jobs and technologies to China.  . . .

But US antidumping orders against metal and chemical products from China based on bogus numbers that have no relationship to reality can have the exact same effect as export restraints, in many cases created by the Chinese government to deter US antidumping cases.

In effect, from the US government’s point of view it can have its cake and eat it too.  Smash Chinese companies and US import companies with antidumping cases based on bogus numbers, and if the Chinese government tries to set an export price floor to deter dumping cases, slam China at the WTO.

In 2011, it was reported that U.S. lawmakers applauded the first WTO determination and called for speedy implementation of the decision.

“These WTO findings are crystal clear — China is manipulating the raw materials market at the expense of American businesses,” said Senate Finance Committee Chairman Max Baucus (D-MT) in a July 5, 2011 statement. “As a WTO member, China has a responsibility to play by the rules and respect the rights of its international partners.”

But will the same US lawmakers now do right by US importers, US downstream producers and China and follow the treaty the US signed and the demand it made and make China a market economy country in US antidumping cases on December 11, 2016?  Or will the US Congress continue to seriously damage US companies, skewing “the playing field against the United States … in the production and export of downstream products.. . .” creating “substantial pressure” on US “downstream producers to move their operations, jobs and technologies to China . .  . .”

USTR SEEKS COMMENTS ON CHINESE GOVERNMENT’S CHALLENGE TO US ANTIDUMPING CASES AGAINST CHINA

On April 8, 2014 the USTR published the attached notice in the Federal Register seeking comments by May 2, 2014 on a WTO complaint filed by China against various US antidumping cases.  USTR NOTICE WTO DISPUTE SETTLEMENT NME SINGLE COUNTRY RATE  Some of the specific issues raised by the Chinese government are targeted dumping and the use of zeroing in various initial and review antidumping investigations, the single rate presumption from non-market economies, the application of NME-wide methodology and the recourse to adverse facts available as the China wide rate.

APRIL ANTIDUMPING ADMINISTRATIVE REVIEWS

On April 1, 2014, Commerce published in the Federal Register the attached notice APRIL NOTICE REVIEW REQUEST SINKS regarding antidumping and countervailing duty cases for which reviews can be requested in the month of April.  The specific antidumping and countervailing duty cases against China are: 1-Hydroxyethylidene-1, 1-Diphosphonic Acid, (HEDP), Activated Carbon, Drawn Stainless Steel Sinks, Frontseating Service Valves, Magnesium Metal, Non-Malleable Cast Iron Pipe Fittings, and Steel Threaded Rod.

For those US import companies that imported steel sinks, activated carbon and the other products listed above from China during the period April 1, 2013-March 31, 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline.  Requests have to be filed by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

EXPORT CONTROLS

On April 4, 2014, the US government indicted a Chinese citizen and two Iranian companies for violation of US export laws for illegally exporting devices used in the production of weapon-grade uranium to Iran.

In the indictment, CHENG INDICTMENT Sihai Cheng and several Iranian co-defendants were charged with violating U.S. export laws by conspiring to export U.S.-manufactured pressure transducers to Iran.

Cheng was arrested by British authorities on Feb. 7 while traveling in the U.K. and is being held there pending extradition to the U.S.  According to the indictment, to evade US export controls, Cheng’s China agent set up front companies in China to pose as the end users in transactions with Cheng’s Shanghai office for the purpose of fraudulently obtaining export licenses from the U.S.  If convicted, Cheng faces up to 20 years in prison and fines of up to $1 million for each export violation.

THE HYPOCRISY OF US PRISON LABOR ALLEGATION

For years, the US government and Congressmen have complained about Chinese companies using prison labor to produce products, which are exported to the United States.  At a recent Housewares Show in Chicago, however, the Program Manager of the Business Development Group of the US Justice Department’s Federal Bureau of Prisons was going booth to booth saying that the prison factories run by the Justice Department’s Bureau of Prisons in the United States could match any Chinese price with US prison labor.  What goes around does indeed come around.

CURTAIN WALLS ARE DEFINITELY IN THE ALUMINUM EXTRUSIONS CASE

In the attached second scope determination on curtain wall units, Commerce determined that curtain wall units are definitely covered by the Aluminum Extrusions Antidumping and Countervailing Duty Case.  Commerce Complete and Finished Curtain Wall Ruling

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

As indicated above, at the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement.  Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies.  In US politics, only squeaky wheels get the grease.

In forthcoming newsletters we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS PROGRAM WORKS

As many of you may know, I am on the Board of Directors of the Northwest Trade Adjustment Assistance Center, the only trade program that actually works.  We provide Federal Government assistance to US companies that have been injured by imports under the Trade Adjustment Assistance for Firm (“TAAF”) program.  Total US government assistance to companies every year is $16 million.  The US government provides workers $1 billion to retrain them if they have been injured by imports.  Maybe this out of balance situation is the reason for some of the trade problems in the US.

The 2013 Report on the TAAF is attached FY13_TAAF_Annual_Report_to_Congress and can be found at http://www.eda.gov/pdf/FY13_TAAF_Annual_Report_to_Congress.pdf

Some of the key findings, however, are as follows:

“In Fiscal Year (FY) 2013, firms assisted by the U.S. Department of Commerce Economic Development Administration’s (EDA) Trade Adjustment Assistance for Firms (TAAF) program performed more successfully than the manufacturing industry as a whole, demonstrating a significant return on federal investment.  . . .

Overall, the program is effective in helping firms become more competitive and overcome negative trade impacts. Examples of TAAF program benefits to manufacturing firms can be found in the supplement and the end of this report.

In FY 2013, firms participating in the U.S. Department of Commerce Economic Development Administration’s (EDA) Trade Adjustment Assistance for Firms (TAAF) program reported that, on average, their sales increased by 85 percent, employment increased by 43 percent, and productivity increased by 29 percent from the time of TAAF certification to the completion of the TAAF program.  . . .

All TAAF-assisted firms that completed the program in FY 2011 were in operation at the end of FY 2013, indicating strong survival rates for TAAF-assisted firms in the face of import pressures.”

CHINESE ANTIDUMPING CASE

In response to the US and other antidumping and countervailing duty cases, China’s Ministry of Commerce (“MOFCOM”) is initiating their own antidumping and countervailing duty cases against the United States.

OPTICAL FIBER

On March 19, 2014, MOFCOM initiated an antidumping case against Optical Fiber Preform products imported from the US and Japan.  The Chinese petitioners are Yangtze Optical Fiber and Cable Company Ltd., Jiangsu Hengtong Optic-electric Co., Ltd, and Futong Group Co., Ltd.

The US respondent companies are Corning Incorporated and OFS Fitel, LLC.  The Japanese respondent companies are: Shin-Etsu Chemical Co., Ltd., Sumitomo Electric Industries, Ltd., Fujikura Ltd., and Furukawa.

The US alleged antidumping rate is 25.42% and US imports into China are valued at $142,065,372.  A translated initiation notice is attached.  Information about Optical Fiber Preform Antidumping Case

CELLULOSE PULP 

On April 4, 2014, China issued final antidumping duties on cellulose pulp used in paper, textiles and other goods from the US, Canada and Brazil.  The Canadian antidumping rates ranged from 13% for Fortress Specialty Cellulose Ltd. to 23.7% for all other Canadian companies.

The highest dumping rates were for the US companies with rates from 16.9% for Washington state’s Cosmo Specialty Fibers Inc. to 17.2% of Florida’s Rayonier Performance Fibers LLC.  Washington-based Weyerhaeuser Co. received 17% and Georgia-Pacific LLC’s GP Cellulose received 33.5%.  XINHUA PULP

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

With regards to the Chinese ban on shellfish from the West Coast, the Chinese government had detected inorganic arsenic in a November shipment of geoducks from Washington’s Poverty Bay. That shipment and another from Ketchikan, Alaska, that was tainted with algae toxin, led China on Dec. 3 to ban all imports of bivalve shellfish harvested in Washington, Alaska, Oregon and Northern California.

The ban has seriously hurt the Pacific Northwest shellfish industry, blocking imports to the major market for West Coast shellfish for several months now.

A March 21st trip to China by National Oceanic and Atmospheric Administration officials may have started the movement to a solution as they met with counterparts in Beijing, and talked about toxin testing methods.  In a conference call with staff from Alaska Senators Lisa Murkowski and Mark Begich’s Offices, the NOAA administrator reportedly stated that the U.S. officials came away from the March 21 meeting optimistic about resolving the dispute, and eventually lifting the ban.

According to Senator Begich’s office, Chinese officials told the NOAA representatives that they were satisfied with Alaska’s PSP testing methods. But, more work is needed to satisfy Chinese concerns about arsenic, which came from Washington State.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

What goes around does indeed come around.

US LITIGATION LIMITS AGAINST CHINESE COMPANIES AND INDIVIDUALS

On March 5, 2014, in the attached Guan v. Bi case, Judge William Orrick Ill of the California Federal District Court clarified the limited reach of federal courts over foreign litigants in two important respects.  GUAN V BI CASE

Mr. Guan and his wife sued a group of Chinese individuals and the Chinese government’s Dalian Customs Anti-Smuggling Bureau for an alleged conspiracy to extort millions of dollars from the couple.  The conspiracy included an alleged kidnaping of the couple in China.

Because plaintiffs refused the extortion demand, they were jailed for many months in China.  After release and return to the US, the Chinese couple sued in California state court.  The only defendant in the US sought to remove the case to Federal Court.  But the US defendant lived in the same state as the couple and there was no diversity.

This case, however, was not removable under the ordinary grounds for removal – federal question and diversity jurisdiction. The contested issue, therefore, was whether the international character of the dispute created any additional paths for removal to Federal District Court from State Court.  The Court held that when a foreign sovereign is sued in state court along with non-sovereign codefendants, only the foreign sovereign itself may remove the case to federal court under the Foreign Sovereign Immunities Act (FSIA).

Second, the presence of non-U.S. litigants on both sides of a case cannot create diversity jurisdiction where complete diversity doesn’t otherwise exist between U.S. litigants on each side.

PATENT/IP AND 337 CASES

ITC SAYS DIGTAL FILE TRANSFERS ARE IMPORTS UNDER SECTION 337

On April 3, 2014, the U.S. International Trade Commission (“ITC”) in Certain Digital Models, Digital Data, and Treatment Plans for Use in Making Incremental Dental Positioning Adjustment Appliances, the Appliances Made Therefrom and Methods of Making the Same affirmed that it has jurisdiction under 337 to prevent the international transmission of digital files that infringe patents.  The ITC agreed with the Administrative Law Judge that electronic files are “articles” under 337 and found that their transmission constitute “importation” under the statute.

The agency issued cease-and-desist orders against defendant.  The ITC specifically stated in the attached Federal Register notice, FED REG DIGITAL FILES CASE:

”Specifically, the Commission affirms the ALJ’s conclusion that the accused products are “articles” within the meaning of Section 337(a)(1)(B) and that the mode of bringing the accused products into the United States constitutes importation of the accused products into the United States pursuant to Section 337(a)(1)(B). The Commission has determined to find a violation with respect to (i) claims 1 and 4-8 of the `863 patent; (ii) claims 1, 3, 7, and 9 of the `666 patent; (iii) Claims 1, 3, and 5 of the `487 patent; (iv) claims 21, 30, 31 and 32 of the `325 patent; and (v) claim 1 of the `880 patent. The Commission has issued cease and desist orders directed to CCUS and CCPK, with an exemption for activities related to treatment of existing patients in the United States.”

A full copy of the opinion will be posted on my blog, when it is available.

STATE OF OKLAHOMA SUES CHINESE COMPANIES FOR COPYRIGHT INFRINGEMENT

On March 13, 2014, the State of Oklahoma through its attorney general sued Newayvalve Co., Neway Industrial Material (Suzhou) Co., Ltd., Neway Oil Equipment Co., Ltd., Neway Industrial Material (Dafeng) Co., Ltd., Neway Valve International Inc. and Neway Valve (Suzhou) Co., Ltd. for copyright infringement in China for use of unlicensed Microsoft software in China.  In the attached complaint, AG Neway Complaint_3132014 the Oklahoma Attorney General states:

“Plaintiff State of Oklahoma (“Plaintiff’), by E. Scott Pruitt, the duly elected Attorney General of the State of Oklahoma, commences this action on behalf of the State of Oklahoma under the Oklahoma Deceptive Trade Practices Act (“ODTPA”), 78 O.S. § 51 et. seq., the Oklahoma Antitrust Reform Act (“OARA”), 79 O.S. § 201 et seq., and such other causes of action that exist at common law against Defendants Neway Valve Co., Neway Industrial Material (Suzhou) Co., Ltd., Neway Industrial Material (Dafeng) Co., Ltd., and Neway Valve International, Inc. (collectively, “Neway” or “Defendants”).  Plaintiff alleges on information and belief as follows: . . .

1. Plaintiff brings this action to remedy violations of Oklahoma statutory and common law in connection with Defendants’ unfair, deceptive and anti-competitive business practices.

2. Defendants produce a variety of valves and other equipment for sale to the petroleum industry and, in doing so, compete directly with several Oklahoma-based companies for the business of oil and natural gas producers in Oklahoma.

3. However, instead of engaging in legitimate competition, Defendants have illegally utilized unlicensed software in the production and distribution of their valves. As set forth in detail herein; in an industry characterized by thin margins, Defendants have illegitimately and unlawfully reduced their production costs by illegally obtaining copyrighted software that is crucial to the production and sale of their products. Defendants’ unlawful conduct has created an uneven playing field that favors Defendants’ products over comparable products sold by Oklahoma manufacturers.

4. Generally, federal laws and international treaties do not address the pernicious downstream effects of such acts in the Oklahoma valve manufacturing sector. The Defendants’ use of stolen software to gain a competitive advantage over domestic valve manufacturing companies,’ including those in Oklahoma, can be remedied, however, by proscribing such tactics as unfair, deceptive and anti-competitive methods of commerce under Oklahoma law.

5. Plaintiff asks this Court to enjoin Defendants unlawful business practices, impose civil fines and penalties, and award restitution, monetary damages, investigative costs and fees, and attorney fees, as well as such other relief as the Court deems just and proper.”

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

On February 27, 2014, Smartphone Technologies filed new patent cases against ZTE and Huawei.  SMARTPHONE HUAWEI SMARTPHONE ZTE

On April 7, 2014, Pragmatus Mobile sued ZTE for patent infringement.  PRAGMATUS ZTE

On April 8, 2014, Billabong International Ltd, GSM Operations PTY Ltd. and Burleigh Point Ltd d/b/a Billabong USA sued Digital Shui dba Multisport Asia for cybersquatting (unlawfully occupying a domain name in which it possesses no rights) on the <billabong.com> domain name and then demanding exorbitant sums of money as ransom for the return of the control of the Domain Names to Plaintiffs. Defendant’s conduct allegedly violates the Anticybersquatting Consumer Protection Act, 15 U.S.C. 1125(d), (“ACPA”) and the Computer Fraud and Abuse Act, 18 U.S.C. 1030(a)(4), constitutes tortious interference with contract under Virginia common law, and also constitutes a breach of fiduciary duty, including the duty of loyalty and good faith and fair dealing.  BILL4

PRODUCTS LIABILITY

On April 3, 2014, the attached products liability complaint was filed for wrongful death by Maxine Surber in the Federal District Court in the Western District of Washington States against the Shanghai Zhenhua Heavy Industries Co., Ltd. for the death of Jeff Surber who died while maintaining a ship to shore crane designed and manufactured by Shanghai Industries.  PRODUCTS LIABILITY SHANGHAI COMPANY

ANTITRUST

EXTRADITION OF FOREIGN NATIONAL TO FACE CRIMINAL ANTITRUST CHARGES

On April 4, 2013, the Justice Department announced that it was successful for the first time in extraditing a foreign national to face charges related to a cartel, worldwide antitrust bid-rigging conspiracy related to marine hose sold in the United States.  In the attached April 4th announcement, EXTRADITION OF FOREIGN NATIONAL the Justice Department stated:

“Romano Pisciotti, an Italian national, was extradited from Germany on a charge of participating in a conspiracy to suppress and eliminate competition by rigging bids, fixing prices and allocating market shares for sales of marine hose sold in the United States and elsewhere, the Department of Justice announced today. This marks the first successfully litigated extradition on an antitrust charge.

Pisciotti, a former executive with Parker ITR Srl, a marine hose manufacturer headquartered in Veniano, Italy, was arrested in Germany on June 17, 2013.  He arrived in the Southern District of Florida, in Miami, yesterday and is scheduled to make his initial appearance today in the U.S. District Court for the Southern District of Florida in Ft. Lauderdale, at 11:00 a.m. EDT.

“This first of its kind extradition on an antitrust charge allows the department to bring an alleged price fixer to the United States to face charges of participating in a worldwide conspiracy,” said Assistant Attorney General Bill Baer in charge of the Department of Justice’s Antitrust Division. “This marks a significant step forward in our ongoing efforts to work with our international antitrust colleagues to ensure that those who seek to subvert U.S. law are brought to justice.”

Marine hose is a flexible rubber hose used to transfer oil between tankers and storage facilities. During the conspiracy, the cartel affected prices for hundreds of millions of dollars in sales of marine hose and related products sold worldwide. . . .

Pisciotti is charged with violating the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals. . . .

As a result of the department’s ongoing marine hose investigation, five companies, including Parker ITR; Bridgestone Corp. of Japan; Manuli SPa of Italy’s Florida subsidiary; Trelleborg of France; and Dunlop Marine and Oil Ltd, of the United Kingdom, and nine individuals have pleaded guilty.”

VITAMIN C CASE

As mentioned in my last e-mail, the Vitamin C case is wrapping up at the District Court level.  The final judgment was revised downward from $153 million to a $147 million judgment because of double counting against by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.

On April 7, 2014, Hebei and NCPGC filed the attached appeals brief Hebei vitamin c appeal brief with the Second Circuit Court of Appeals requesting that the Court reverse US District Judge Brian M. Cogan’s judgment imposing nearly $150 million in damages and a permanent injunction as the company was complying with Chinese laws and regulations by fixing prices on Vitamin-C exports.  In its brief, which will be posted on my blog, Hebei and NCPGC specifically state in part:

“The district court imposed nearly $150 million in penalties and a permanent injunction on Appellants for complying with their own nation’s laws and regulations in reaching price and output agreements on vitamin C exports. The text of the applicable regulations, authoritative legal interpretations offered by the Chinese government, unrebutted expert testimony on Chinese law, and other evidence that the Chinese government mandated the challenged conduct had no impact on the district court.  Rather, the court attacked the credibility of the Chinese government and seized on translated words without due regard for their cultural and linguistic context in order to hold that China’s regime of export regulations for vitamin C constituted a purely private “cartel.” Proper regard for Chinese sovereignty should have led to dismissal of Appellees’ claims under the doctrines of foreign sovereign compulsion, international comity, act of state, or political question. The judgment below represents a massive extension of U.S. federal judicial power into the affairs of a sovereign nation and matters of foreign affairs. This Court should hasten to repudiate it.

The new system was intended to facilitate China’s entry into the World Trade Organization (“WTO”) and avoid antidumping sanctions imposed by foreign governments while maintaining the Ministry’s policy of ensuring the orderly development of key export industries, such as vitamin C.  . . The Ministry explained that the new system would be “convenient for exporters while it is conducive for the chambers to coordinate export price and industry self-discipline.”

As could be predicted, the Chinese government has taken umbrage at the district court judgment. Chinese officials have noted the judgment will “cause problems for the international community” and “eventually harm the interests of the United States. . .  . Leading commentators have observed that the case “has potentially expansive implications for how the U.S. antitrust laws do and should interact with executive branch and foreign interests on international trade,” “is at least in tension with the executive branch’s position [in the WTO],” and “rais[es] the question of whether our antitrust laws ought to be interpreted as giving greater deference to the sovereignty of individual U.S. states than to the sovereignty of foreign governments.”  . . . .

The district court’s dismissal of the government’s views was both disrespectful and unfounded. The WTO filings and reports on which the district court relied to claim the Chinese government had taken contrary positions before that body (essentially accusing a sovereign government of lying) do not stand for the proposition that China imposed no legal obligation on vitamin C producers to coordinate on export pricing and output.  . .  . Rather, they only state that China had abandoned “restrictions on exports through non-automatic licensing or other means justified by specific product under the WTO Agreement or the Protocol,” “[n]on-automatic export licensing requirements under WTO agreement and accession,” and “export quotas and licenses[.]” . .  . .

None of them said that China had abandoned management of pricing in vitamin C exports, let alone that the Chinese regulatory regime had become non-compulsory. The Chinese government’s representations in both forums were perfectly consistent.

Finally, the U.S. Trade Representative and the WTO have found that the Chinese government continued to regulate export pricing on a variety of products subject to the same basic regulatory regime as vitamin C during the relevant time period, and that failure to comply was “subject to investigation leading to potential criminal and administrative penalties.”  . . . . This evidence further illustrates that the district court’s construction of Chinese law was erroneous. . . .

As discussed above, there is a true conflict between Chinese law and U.S. law in these circumstances. All Defendants were Chinese and the conduct took place entirely in China. Complaints about Chinese export policies could properly be addressed through diplomatic channels and/or the WTO’s processes. The purpose was not to harm Americans but to ease the transition of China’s vitamin C industry from central planning to a more market-oriented program and to prevent the harm to China’s trade relations that would result from dumping charges. The exercise of jurisdiction by the district court has already inflicted harm on U.S.- China relations. The court’s decision creates the prospect of Chinese firms being under conflicting conduct requirements. The U.S. and China are both members of the WTO and are subject to its rules on export restrictions. Simply put, every relevant substantial consideration favors comity abstention.

This case raises precisely the same set of concerns about the inappropriateness of the judicial branch treading on delicate foreign policy questions. The Chinese government chose to regulate its domestic vitamin C export industry in what it believed was the most effective manner within its system. Insofar as China’s sovereign policy decisions about how best to manage its economy conflict with the policies embodied in U.S. antitrust laws, that conflict should be addressed “through diplomatic channels,” and not through the “unnecessary irritant of a private antitrust action.”  . . .

For China’s economic regulations and enforcement practices “to be reexamined and perhaps condemned by [U.S.] courts . . .would very certainly imperil the amicable relations between [the U.S. and Chinese] governments and vex the peace of nations.” . . .Indeed, the U.S. and Chinese governments are currently engaged in ongoing discussions on issues involving Chinese regulation of its exports, and the U.S. has availed itself of WTO dispute settlement procedures against China based on the WTO’s rules on export restrictions. .  .. The U.S.’s active engagement in these avenues for resolving disputes between sovereign governments demonstrates that disputes involving China’s regulation of its own exports are foreign relations issues properly committed to the Executive Branch.  The U.S. judiciary should be loath to insert itself into such discussions.”

On April 14, 2014, the Chinese Ministry of Commerce (“MOFCOM”) filed its own Amicus Brief in support of the two Chinese companies.  In the attached Amicus Brief, MOFCOM VITAMIN C APPEAL BRIEF MOFCOM stated:

“The Ministry of Commerce of the People’s Republic of China (“MOFCOM”) is a component of the central Chinese government and the highest administrative authority in China authorized to regulate trade between China and other countries, including all export commerce.  It is the equivalent in the Chinese governmental system of a cabinet-level department of the United States government.  MOFCOM formulates strategies, guidelines, and policies concerning domestic and foreign trade and international cooperation.  MOFCOM also drafts and enforces laws and regulations governing domestic and foreign trade, and regulates markets to achieve an integrated, competitive, and orderly market system.

MOFCOM has been actively involved in this litigation since 2006, when it filed an amicus brief in support of defendants’ motion to dismiss. That appearance was historic.  It marked the first time that any entity of the Government of China had appeared as an amicus, explained to the district court that MOFCOM had directed the defendants’ conduct, and endeavored to describe the varying regulatory mechanisms used to compel defendants’ compliance.

MOFCOM has a compelling interest in this appeal because the district court refused to defer to MOFCOM’s interpretation of Chinese law and announced its own contrary view of what Chinese law required of the defendants.  Moreover, the district court implied that MOFCOM’s interpretation was not just wrong, but intentionally false: “a post-hoc attempt to shield defendants’ conduct from antitrust scrutiny.”  That charge is profoundly disrespectful, and wholly unfounded.

MOFCOM files this brief to set straight the record about its regulatory and litigation conduct; to ensure that this Court understands the Chinese Government’s displeasure about the district court’s treatment of MOFCOM; and to urge reversal of the judgment below, which unfairly penalizes a Chinese company for complying with Chinese law. . .  .

The district court denied summary judgment.   It did not question the basic tenets of the foreign sovereign compulsion doctrine, but held on the basis of its independent assessment of Chinese law, and in direct contradiction to MOFCOM’s interpretation, that Chinese law “did not compel defendants’ conduct.”  . . .  The district court acknowledged that both the Supreme Court and the Second Circuit have held that a foreign government’s statement concerning the meaning of its own law is “‘conclusive’” of that law’s meaning. .  . .

The district court then announced it would “decline to defer to [MOFCOM’s] interpretation of Chinese law,” . . . citing this Court’s statement that “[w]here a choice between two interpretations of ambiguous foreign law rests finely balanced, the support of a foreign sovereign for one interpretation furnishes legitimate assistance.” . . .   The district court appeared to draw from this that deference is unwarranted if a foreign law question is not “finely balanced,” and outlined its grounds for refusing to defer in this case. . . .   The district court first said that the 2009 statement was “particularly undeserving of deference” because it did not “cite to any [specific] sources to support its broad assertions about the regulatory system governing vitamin C exports,” contained “ambiguous terms and phrases,” and did not “distinguish between” the 1997 and 2002 export regulatory regimes. . . . The district court conceded, however, that MOFCOM’s amicus brief, on which the 2009 statement expressly relied, “attempted to explain the regulatory system governing vitamin C exports by citing to, and discussing, specific governmental directives and Chamber documents.” . . .

The district court next pointed to statements China had made to the World Trade Organization (“WTO”) indicating that “‘export administration … of vitamin C’” ceased on January 1, 2002. It asserted that this statement “appear[ed] to contradict [MOFCOM’s] position in the instant litigation,” and deemed this a “further reason not to defer.” . . .

Third, the district court stated that “more careful scrutiny of a foreign government’s statement is warranted” when “the alleged compulsion is in the defendants’ own self-interest.” . . . . Finally, the district court opined that “the factual record contradicts [MOFCOM’s] position.” . . .

Having thus determined that it would not defer to MOFCOM’s interpretation of Chinese law, the district court conducted an independent review of Chinese law, including documents the court described as “traditional sources of foreign law.” . . . . The district court at points suggested it would rely on the “plain language” of these documents, . . ., but its analysis also contained a series of inferences about how to interpret Chinese legal texts.  None of those inferences was premised, at least expressly, on any principle of Chinese law. . . .

The district court erred by disregarding MOFCOM’s formal statements of Chinese law, conducting an independent examination of that law based on “plain language” of translated texts and ungrounded assumptions about how to interpret Chinese law, and declaring that MOFCOM’s interpretation of Chinese law was exactly backwards.  The court’s erroneous conclusions were not supported by any determination of any Chinese government official, Chinese court, or Chinese scholar, and yet exposed Chinese companies to massive class-action antitrust liability for conduct occurring solely within China.  Several companies yielded to that in terrorem pressure and settled. The remaining defendants face a nine-figure judgment that should be vacated for at least three reasons.

First, the district court failed to follow Supreme Court precedent holding that a foreign government’s formal statements about the interpretation of its own law are “conclusive” in American courts.

Second, the district court overlooked comity concerns that at a minimum demand that “conclusive” deference to such statements must be given when foreign sovereign compulsion is asserted as a defense in a private antitrust suit. The foreign sovereign compulsion doctrine owes its very existence to the recognition that significant questions of international law and comity would arise if U.S. courts allowed American law to override a foreign sovereign’s contrary command about how to organize its own domestic commerce. When a foreign sovereign appears in such a case to say what it demanded of a defendant, it should not be open to a district court to deny the command was given.

Third, the district court expressly “decline[d] to defer to [MOFCOM’s] interpretation of Chinese law.”  Instead, the district court simply resolved all questions as it saw fit, applying self-made interpretive canons not grounded in Chinese law, and as such reached a conclusion that is contrary to Chinese law.

The district court’s approach and result have deeply troubled the Chinese government, which has sent a diplomatic note concerning this case to the U.S. State Department.  This Court should reverse, and in so doing reaffirm that principles of international comity require district courts to treat official statements of a foreign government with a high degree of deference and respect, and with due caution about the court’s ability to determine accurately the law of an unfamiliar legal system. . . .

The district court asserted that China’s statements to the WTO that it had given up “‘export administration … of vitamin C’ as of January 1, 2002,” “appear to contradict” MOFCOM’s position that Chinese law continued after that date to require industry coordination of export price and quantity. . . .   That conclusion, however, reflects a basic misunderstanding of the technical trade-policy context in which those statements were made.

The statements cited by the district court relate to a “transitional review” in which China participated following its 2001 accession to the WTO.  Each statement provides in part that “on 1 January 2002, China gave up export administration” of certain goods, including “vitamin C.” But in context—and as indicated by the headings that preceded them—these statements indicated only that China abandoned “restrictions on exports through non-automatic licensing” on that date, and not that China eliminated every existing export restriction in one stroke.

A third document cited by the district court unambiguously demonstrates that this more confined reading is precisely what China intended.  That document . . . is a report by the WTO Secretariat summarizing its “trade policy review” with respect to China.  Citing one of the two “export administration” statements described above, the WTO Secretariat explained that “[o]n 1 January 2002, China abolished export quotas and licenses for … Vitamin C.”   Thus, the WTO Secretariat expressly interpreted China’s earlier “export administration” statements to relate to abolition of “export quotas and licenses for … Vitamin C,” but not all other forms of export regulation.

The United States government adopted exactly this same construction in a 2009 WTO dispute resolution proceeding, alleging (as China later acknowledged), that China had maintained “a system that prevents exportation unless the seller meets or exceeds the minimum export price.”  In other words, the United States adopted exactly the same position in WTO dispute settlement proceedings that MOFCOM has urged in this case: after 2002, China was still requiring exporters to abide by a price-setting regime.  China’s statements to the WTO, accordingly, did . . .not provide any basis for the district court to refuse to accord MOFCOM deference. . . .

MOFCOM grants that a district court that faces a contested question of foreign law with no aid from a foreign government often will have no choice but to grasp the nettle and do its best. But here, the district court’s confusion was self-inflicted.  MOFCOM offered an authoritative view of Chinese law.  The district court erroneously refused that assistance and then, predictably, floundered in its attempt to discern the operation of a complex foreign regulatory system.  The district court instead should have deferred, as it unquestionably would have been required to do had a U.S. regulator presented an analogous statement in a brief. . . . Its failure to do so, or at a minimum to apply Chinese legal principles to its independent analysis, requires reversal.”

US JUDGE REFUSES TO DISMISS US ANTITRUST CASE AGAINST CHINESE SOLAR COMPANIES

On March 31, 2014, Judge Armstrong of the California Federal District Court rejected the Chinese solar companies’ motion to dismiss The Solyndra Residual Trust vs. Suntech Power Holdings, Suntech America, Trina Solar Limited, Trina US, Yingli Green Energy Holding Ltd, Yingli Green Energy Americas Inc (“Solyndra v. Suntech”) antitrust case.  In the attached decision, Solyndra order denying motion to dismiss Judge Armstrong stated:

“According to Plaintiff, the alleged price fixing scheme which led to the demise of Solyndra and numerous other American solar panel manufacturers was perpetrated by Suntech, Trina and Yingli (all of which are publicly-traded on the New York Stock Exchange), and their respective American alter egos, Suntech America, Trina U.S. and Yingli Americas. . . . Defendants are members of the China New Energy Chamber of Commerce (“China New Energy”), a trade association which has the stated purpose of promoting “collaboration” amongst its members. . . . Through China New Energy, Defendants were able to meet regularly and develop a coordinated pricing and output strategy aimed at dominating the United States solar panel market. . . .

Defendants, desiring to dominate the United States market for solar panels, became concerned with the innovation presented by Solyndra’s technology. . . .  To that end, Defendants allegedly formed a conspiracy to “dump” (i.e., to price their panels below cost) their solar panels in the United States market.  . . To that end, as demand for solar panels was rising, Defendants acted contrary to “rational economic rules” by “slash[ing] their prices in an effort to aggressively capture market share and drive competition from the marketplace.” . . .

Defendants also are alleged to have used China New Energy to fix prices at artificially low rates. . .  . Each year since founding in 2006, China New Energy has held an International Forum (“Forum”), at which the chairs of Suntech, Trina and Yingli have been featured speakers. . . . Defendants allegedly used China New Energy’s annual International Forum as a means of meeting and communicating with one another and reach agreements to fix and lower prices.  . . . After each Forum, prices charged by each of the Defendants fell precipitously. . . .For example, after meeting during the second Forum which held on December 11-12, 2007, Defendants lowered their prices by 40%.  . . . This pricing behavior “shocked” even seasoned industry analysts, who had predicted price reductions of only 5% per year.  . .

As prices for Chinese solar panels in the United States plummeted, American solar manufacturers could not keep pace.  .  . Since 2010, “at least twelve domestic U.S. manufacturers have shut down plants, declared bankruptcy, or staged significant layoffs.” . . .

In contrast, Defendants now occupy a dominant position in the American solar panel market, and by the end of 2011, controlled 65% of the rooftop solar market. . . . Correspondingly, Defendants’ net revenues soared, with Suntech’s net revenue alone increasing to $3.1 billion in 2011 from $1.6 billion in 2009. . . .

Here, the pleadings specifically allege facts that are more than sufficient to suggest that Defendants reached an agreement to fix prices and flood the American market with their below cost Chinese-made panels for the purpose of stifling competition. The FAC alleges that Defendants effectively controlled their industry trade organization, China New Energy, and held meetings at its annual Forums to coordinate their market strategy including the coordinated, drastic lowering of prices to dominate the American market for solar panels. After each Forum held between 2007 and 2010, Defendants’ prices uniformly fell precipitously. These uniform price decreases were completely unanticipated within the industry, given that it was economically irrational to slash prices so significantly in the face of rising demand. . . . . Allegedly as a result of Defendants’ predatory and collusive conduct, Solyndra and a host of other American competitors went out of business, while Defendants correspondingly increased their sales and market share in the United States. . . .

Construing these allegations in a light most favorable to Plaintiff, the Court finds that they are sufficient to present a plausible claim that Defendants formed an agreement to restrain trade.”

CHINA ANTITRUST CASES

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

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from China’s National Development and Reform Commission (NDRC).

In the US National Trade Estimate report, its annual reports on trade barriers, released on March 31, 2014, 2014 NTE Report on FTB the USTR expressed concerned about the deteriorating conditions for US companies operating in or hoping to export to China across a broad range of sectors, due to selective anti-monopoly law enforcement.  With regards to stepped-up enforcement of anti-monopoly laws by China’s National Development and Reform Commission (NDRC), the USTR stated in its March 31st report:

“Anti-Monopoly Law

The Chinese government’s interventionist policies and practices and the large role of SOEs in China’s economy have created some uncertainty regarding how the Anti-Monopoly Law will be applied. One provision in the Anti-Monopoly Law protects the lawful operations of SOEs and government monopolies in industries deemed nationally important. To date, China has enforced the Anti-Monopoly Law against SOEs, but concerns remain that enforcement against SOEs will be more limited.

In 2013, NDRC increased its enforcement activity noticeably, particularly against foreign enterprises. In addition, U.S. industry has expressed concern about insufficient predictability, fairness and transparency in NDRC’s investigative processes, including NDRC pressure to “cooperate” in the face of unspecified allegations or face steep fines. U.S. industry also has reported pressure from NDRC against seeking outside counsel, in particular international counsel, or having counsel present at meetings.”

EXPLOSIVE GROWTH IN CHINESE ANTITRUST CASES

A recent report by John Yong Ren, a well-known Chinese antitrust lawyer, states that there was an explosive growth in antitrust cases under China’s anti-monopoly law in 2013, with even more cases coming in 2014.  T&D Monthly Antitrust Report of March 2014

It was reported that both the Justice Department and now the NDRC have started investigations of Auto Parts and are targeting capacitor manufacturers.

SECURITIES

On March 11, 2014, in the attached complaint, AGFEED COMPLAINT the Securities and Exchange Commission (“SEC”) filed suit against Agfeed Industries, Junhong Xiong, Selina Jin, Songyan Li, Shaobo Ouyang, Edward J. Pazdro and K. Ivan Gothner for accounting fraud.  The SEC sued bankrupt AgFeed Industries Inc. and former principals of the company over an alleged accounting fraud scheme, in which revenues were inflated by $239 million in order to boost the industrial hog producer’s stock price.

Four executives at the China-based but U.S.-traded company purportedly used a variety of methods to inflate revenue from 2008 through 2011, such as faking invoices for sales of feed and nonexistent hogs, which executives later tried to cover up by claiming the bogus hogs had died.

According to Andrew J. Ceresney, director of the SEC’s Enforcement Division, “AgFeed’s accounting misdeeds started in China, and U.S. executives failed to properly investigate and disclose them to investors.  This is a cautionary tale of what happens when an audit committee chair fails to perform his gatekeeper function in the face of massive red flags.”

According to the SEC the fraud started in China and U.S. management eventually got wise to the fraud, which included keeping two sets of books: one for insiders with accurate information, and one with inflated figures shown to outside auditors. But instead of intervening, US management moved to spin off the company’s feed division and reported nothing about the incident to law enforcement or investors.

FOREIGN CORRUPT PRACTICES ACT—EXTRADITION OF FOREIGN NATIONALS TO FACE US JUSTICE

On April 2, 2014, the US Government indicated six foreign nationals in an alleged conspiracy to bribe Indian officials to approve a $500 million titanium mining project.

Dmitry Firtash, identified by prosecutors as the leader of the alleged conspiracy, co-owns RosUkrEnergo with the Russian gas company Gazprom, and controls international conglomerate Group DF that owns several mining companies.

Firtash was arrested in Vienna on March 12 and later released on about $174 million bail.  Prosecutors are seeking forfeitures of about $10.6 million from the defendants.

Prosecutors additionally want Firtash to forfeit his interests in Group DF and its assets, including more than 150 companies in the British Virgin Islands, Switzerland and Cyprus.  The foreign nationals face up to 20 years in prison for the most serious charges and up to a million dollars in fines.

In announcing the indictment in the attached statement, FOREIGN INDIVIDUALS PROSECUTED UNDER FCPA the Justice Department stated:

“Fighting global corruption is part of the fabric of the Department of Justice,” said Acting Assistant Attorney General O’Neil. “The charges against six foreign nationals announced today send the unmistakable message that we will root out and attack foreign bribery and bring to justice those who improperly influence foreign officials, wherever we find them.”

“Criminal conspiracies that extend beyond our borders are not beyond our reach,” said U.S. Attorney Fardon. “We will use all of the tools and resources available to us to ensure the integrity of global business transactions that involve U.S. commerce.”

“This case is another example of the FBI’s willingness to aggressively investigate corrupt conduct around the globe” said Special Agent in Charge Holley. “With the assistance of our law enforcement partners, both foreign and domestic, we will continue to pursue those who allegedly bribe foreign officials in return for lucrative business contracts.”

Tom Gorman, a Dorsey partner in our Washington DC office, who formerly worked in the SEC enforcement division, has described this indictment as follows:

“FCPA enforcement officials have repeatedly emphasized that they intend to focus on individuals as an effective means of halting possible violations. A case unsealed yesterday underscores this point.”

See his entire article on his blog at http://www.secactions.com/fcpa-a-focus-on-individuals/

SEC GETS $33 MILLION DOLLAR DEFAULT JUDGMENT AGAINST CHINESE ELECTRONICS COMPANY AND EMPLOYEES

On March 10, 2014, in SEC v. China Intelligent Lighting & Electronics Inc. et al, a New York Federal Judge issued the attached default judgments NDEF IDEF in favor of the U.S. Securities and Exchange Commission and against two Chinese electronic companies accused of misleading investors about the use of money from public offerings, ordering the companies to pay a total of almost $33 million.

SECURITIES COMPLAINTS

On March 27, 2014, the SEC filed suit against World Capital Market Inc, WCM777 Inc. WCM777 Ltd. d/b/a WCM777 Enterprises and Ming Xu a/k/a Phil Ming Xu and Kingdom Capital Market, Manna Holding Group, Manna Source International, WCM Resources, Aeon Operating and PMX Jewels for securities fraud.  As described in the attached complaint SEC WORLD CAPITAL MARKETS,

“This matter involves an ongoing pyramid scheme, Ponzi scheme, and misappropriation of investor funds through an unregistered securities offering that targets members of the Asian-American and Hispanic-American communities, as well as foreign investors. Beginning around March 2013 and continuing to the present, operating under the offering name “WCM777,” Defendants have collected over $65 million from investors in the United States and abroad.  Of that amount, over $28 million was deposited into bank accounts in the United States between March and October 2013.  After October 2013, Defendants deposited investor funds into a bank account in Hong Kong.”

Apparently, the investors were not only in the US, but also in China and Hong Kong.

In the attached complaint, a Brad Berkowitz has filed a class action securities case against Sino Gas and several Chinese individuals and companies.  SINO GAS

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

Best regards,

Bill Perry

US CHINA TRADE WAR–TRADE, OCTG AND SOLAR, TTP, CUSTOMS, IP/PATENT, ANTITRUST AND SECURITIES

Renmin Square Chongqing Sichuan China at Night“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—MARCH 7, 2014

Dear Friends,

There have been major developments in the trade, Solar Cells, TTP, TPA, Chinese Antidumping, patents, US/Chinese antitrust, and securities areas.

TRADE

THE OCTG EXAMPLE—WHY NME STATUS FOR CHINA DOES NOT REFLECT MARKET REALITY

As indicated in past newsletters, the nonmarket economy status of China means that the Commerce Department does not use actual prices and costs in China to determine dumping rates for Chinese companies.  In addition, Chinese companies must submit separate rates applications to show that the company is separate and independent from the Chinese government or the Chinese company will be considered part of the Chinese entity and get the highest antidumping rate.

Although the US China WTO Agreement provides that China is to be treated as a market economy by December 11, 2016, recently in Washington DC, US government officials indicated that they have no intention of abiding by this Agreement and will continue to follow the US antidumping law as written.  In other words, as it stands now, the Commerce Department will not make China a market economy country in 2016, even though this provision was put into the WTO Accession Agreement at the demand of the United States.

The unfairness of the NME methodology against China, however, is illustrated by the Countervailing Duty and Antidumping Cases on Oil Country Tubular Goods, which are steel pipes used to drill oil wells.  In January 2010 the Commerce Department issued a countervailing duty order on OCTG from China with rates ranging from 10.49 to 15.78.  On May 2010, the Commerce Department issued an antidumping order on OCTG from China with dumping rates ranging from 32.07% to 99%.  These high rates had the effect of shutting most Chinese OCTG out of the US market.  CVDOCTGORDER  AD ORDER OCTG

Again, since it is a Nonmarket Economy Country, the Chinese CVD/anti-subsidy  rates are based on the Commerce Department’s refusal to look at any benchmarks in China.  In the Antidumping (“AD”) Case, the Commerce Department refused to look at any prices or costs in China.  In the China OCTG case, Commerce used surrogate values from publicly available published information in India, most of which were Indian import statistics.  But if products can be sourced domestically in India, often import statistics are highly inflated.

In the first review investigation on OCTG from China, Commerce decided to pick values for raw materials from a list of different surrogate countries, including Colombia, Indonesia, Peru, the Philippines, South Africa, Thailand, and Ukraine.  Commerce chose Indonesia.  OCTG PRELIM  Since importers are exposed to retroactive liability if antidumping rates go up and the Commerce Department is constantly switching surrogate countries so the Chinese companies cannot know whether they are dumping, no importer is willing to take the risk and import from China with exposure to millions of dollars in retroactive antidumping and countervailing duties on OCTG from China.

So what happened?  Because of the high antidumping and countervailing duty rates against China based on bogus cost calculations, imports from other countries entered the United States and replaced the Chinese imports.  On July 2, 2013, in response to the increase in imports from other countries, the US OCTG industry filed antidumping investigations against India, Korea, the Philippines, Saudi Arabia, Taiwan, Thailand, Turkey, Ukraine, and Vietnam and countervailing duty investigations against India and Turkey.

As the ITC stated in its atached preliminary staff report:

Subject imports of OCTG have increased since 2010.  At the beginning of 2010, Countervailing duties on OCTG imported from China entered into effect, and antidumping duties followed in April 2010.  After the placement of AD and CVD duties on Chinese product, subject imports increased….

ITC PRELIMINARY OCTG MANY COUNTRIES Pub4422 OCTG pdf

As the Commission also stated in its preliminary staff report, “Korea has been the largest source of imports of OCTG since 2010.”  In fact, the word on the street was that the Koreans had increased their exports to the US replacing more than 50% of the Chinese imports.

In fact, since 1984 OCTG imports have been the subject of approximately 50 antidumping and countervailing duty investigations against various countries.  The first OCTG cases were filed in 1984 and I worked on those cases when I was at the US International Trade Commission (“ITC”) in the early 1980s.  In effect, the US OCTG industry has had some form of protection from imports for about 30 years.

In the CVD cases, the Petition alleged that the Indian companies were allegedly benefitting from almost 70 different Indian government subsidy programs and the Turkish companies from almost 25 different Turkish government programs.

But now the Commerce Department must use actual benchmarks in target countries to calculate countervailing duty rates and actual prices and costs to calculate antidumping rates.

On December 17, 2013, the Commerce Department issued its preliminary Countervailing Duty Determinations against India and Turkey.  Despite the allegations that the Indian and Turkish companies were benefitting from a total of almost a hundred government programs, the Countervailing Duty Rates for India and Turkey, Drum Roll Please, were 0 to 3.5% for India and 0% for Turkey.  factsheet-OCTG-Prelim-multiple-121713

On February 18, 2014, the Commerce Department issued its attached preliminary antidumping determinations.  OCTG PRELIMINARY AD DETERMINATION FACT SHEET  Other than Thailand, most producers in the countries answered the Commerce Department’s antidumping questionnaire.  What were the actual calculated antidumping rates based on actual prices and costs in their respective countries?

The Korean producers, the largest exporters, received antidumping rates of 0% and a complete negative antidumping determination as to Korea.

The Indian producers received antidumping rates of 0 to 55.29%.  The Philippines producer received 8.9%.  The Saudi Arabian producer 2.65%.  The Taiwan producers received antidumping rates ranging from 0 to 2.65%.  The Turkish producers received rates of 0 to 4.87%.  The Ukrainian producer, Ukraine is a market economy country, received a rate of 5.31%.

When the Commerce Department uses actual prices and costs in the subject country to calculate actual antidumping rates, high dumping rates fall dramatically and are often non-existent.  But the Commerce Department has used an unfair methodology against China in US AD and CVD cases for more than 30 years and has no intention at the present time of ever treating China as a market economy country.  This is fairness Commerce style.

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

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

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

During a recent trip to Washington DC, Government officials and Congressional staff stated that they were firmly convinced that the TPA will eventually pass Congress.  Apparently, the TPA must start up in the House of Representatives and according to a knowledgeable source, there is bipartisan support for the TPA in the House.  The source mentioned that if the House passes the TPA, there will be substantial pressure in the Senate to pass the TPA and knowledgeable officials believe that a House originated TPA would pass the Senate today.  But that source could be wrong.

According to government officials, any Senator or Congressman can see the current negotiating text of the TPP or TTIP.  Also any interested Senator or Congressman can ask to be a “Congressional advisor” and such Senator or Congressman will be given negotiating credentials and can attend any of the negotiating sessions.  Congressional Staffers from relevant Congressional committees also have been at the TPP and TTIP negotiations.

These activities indicate that the Trade Agreements are moving and when Trade Agreements move in Congress, at a certain point in time, there becomes a band wagon effect and everyone wants to jump onboard the Free Trade/FTA Express.  We will have to see if that bandwagon effect truly starts up in Congress.

TRADE PROMOTION AUTHORITY (“TPA”), TPP AND THE TTIP/TRANS-ATLANTIC NEGOTIATIONS CONTINUE AS CONGRESSIONAL GROUPS PUSH TPA THROUGH CONGRESS

As mentioned, in my last newsletter, 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, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014,. HOUSE FAST TRACK BILL  The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

Senators Baucus and Hatch introduced the TPA in the Senate.  Chairman Camp of the House Ways and Means Committee introduced the TPA bill in the House, but President Obama could not persuade one Democratic Congressman to introduce the TPA bill into the House.

After the January 16th hearing, Republicans, including House Speaker Boehner, and free trade Democrats urged President Obama to get more involved saying that he has to become personally involved in pushing the TPA or the new Bill will simply not pass Congress. Many trade commentators were stating that if the President’s trade agenda falls apart, there is no one else to blame but the President himself.  They argue that the President has failed to reassure doubters, explain trade’s enormous benefits, assuage concerns, correct misconceptions, or make an affirmative public case as to why new trade agreements are essential to the nation’s prosperity.  This failure has left a vacuum that has been filled by organized, anti-trade interests, many on the Democratic side of the aisle, who have made it very difficult for Democratic Congressmen to support the TPA and the Trade Agreements.

In response to the Republicans call in Congress for the Administration to do more, on January 28th President Obama spoke about the importance of the importance of the TPA and the Trade Agreements in his State of the Union.  On January 29th, however, Senator Harry Reid, the Senate Majority Leader, the head Democrat in the Senate, came out against TPA, stating, “Everyone would be well-advised to not push this right now.”

Since the Majority Leader, Senator Harry Reid controls the bills that are allowed on the Senate Floor, the statement appeared to indicate that the TPA bills are dead in the Congress, which means that the President’s trade agenda and his push for these agreements are also dead.

On January 29th White House press secretary Jay Carney stated:

“Leader Reid has always been clear on his position on this particular issue. As the President said in the State of the Union address, he will continue to work to enact bipartisan trade promotion authority to protect our workers and environment and to open markets to new goods stamped ‘Made in the U.S.A.’ And we will not cede this important opportunity for American workers and businesses to our competitors.”

On February 4th, it was reported that StopFastTrack.com, a new coalition opposed to the TPA bill and the TPP and TA Trade Agreements is building grassroots support, gathering more than a half a million signatures and making tens of thousands of calls to Senators and Congressmen lawmakers to argue against trade legislation in Congress.

Although the Administration apparently looked at Senator Reid’s statement as a setback, they have decided to push forward.  On February 10th, the United States Trade Representative (“USTR”) Froman stated with regards to Labor Standards that the TPP and the other agreements offer a chance to improve global labor practices and to raise standards across the globe.  On February 14th the Administration stated that despite opposition of the top Congressional Democrats, the Administration still aims to complete the TPP negotiations in 2014.

On February 18th President Obama promoted the benefits of the TPP in discussions with the Mexican President and Canadian Prime Minister.  During that trip, Obama stated that it was “inaccurate” to suggest that Democratic lawmakers universally oppose the TPP, adding that he believes the agreement, if it’s a good one, will ultimately pick up approval in Congress. “There are elements of my party that oppose this trade deal; there are elements of my party that oppose the South Korea free trade agreement, the Colombia free trade agreement and the Panama free trade agreement — all of which we passed with Democratic votes.  So what I’ve said to President Peña Nieto and Prime Minister Harper is we’ll get this passed if it’s a good agreement.”

On February 18th USTR Michael Froman stated that the Obama administration would put in place transparency measures to quell criticism of TPP and TTIP, stressing that the two deals need to advance to significantly improve employment and environmental standards around the globe and better protect U.S. intellectual property.

In a speech at the Center for American Progress’ office, Froman stated that the and that the Trade Agreements are opportunities to help shape the terms of a significant segment of international trade and raise global standards through the promotion of U.S. values, according to the USTR.  Froman stated:

“Trade, done right, is part of the solution, not part of the problem. . . Through enforcement actions we are able to stand up for our rights and fight for our people. Through negotiations we are able to create new opportunities.”

The USTR acknowledged Congressional criticism about the deals and urged Congress to “step forward” and update its role in negotiating trade agreements. He said members of Congress were welcome to view the text of the deals as they stand at any time, and noted that no trade agreement will win approval without Congressional assent.

The Chorus has begun to rise about the benefits of the Agreements.  On February 19th, Mr. Myron Briliant, the executive vice president and head of international affairs at the U.S. Chamber of Commerce, published an article in the Wall Street Journal entitled, “Why Harry Reid Must Reconsider on Trade”, stating:

“Take the U.S. auto industry, which has made a comeback after the recession. Automobiles made in the U.S. face a 35% import tariff in Malaysia, shutting American manufacturers out of the market.

Though the U.S. is the largest agricultural exporter in the world, Vietnam levies double- and triple-digit duties on U.S. farm goods. The country recently raised taxes on a number of products ranging from walnuts to tomato sauce. Express shippers, insurers and banks are at a major disadvantage in Japan, where regulations prop up a state-owned company called Japan Post Holdings.

The interference damages the U.S. economy.  In 2010, the Commerce Department estimated that foreign tariffs reduce the earnings of U.S. factory workers by as much as 12%. The impact spreads to other sectors such as agriculture due to non-tariff barriers including unscientific sanitary requirements. The way to fix these inequalities? New trade agreements that demand accountability and fairness.

Free trade agreements have eliminated disadvantages in the past. America’s 20 trade-agreement partners represent 10% of the global economy, but they buy nearly half of our exports. Citizens of these countries purchase 12 times more U.S. exports per capita than citizens of countries without trade agreements. The U.S. boasts a trade surplus in manufacturing, agriculture and services with these 20 partners, unlike the trade deficit it runs with the rest of the world.

American workers reap the benefits. Earnings are 18% higher for workers in factories that export than in those that don’t, according to a 2010 Commerce Department report.

Small businesses also stand to gain from freer trade. Large firms often find a way to work around foreign trade barriers, but tariffs are often a deal-breaker for small companies. Creating new trade agreements would significantly help the U.S.’s 300,000 small exporters. . . .

But to tackle any of these inequalities, Congress must first approve TPA. . . .Without TPA, U.S. exports will remain at a profound disadvantage. Renewing TPA would help restore fair competition in trade—and put economic growth in the U.S. ahead of partisan politics.”

 

On February 24th, it was reported that the US and Japan were not able to reach agreement in the most recent TPP negotiations.  In attached letter dated February 21st, Grassley-Bennet-Letter-to-Froman-Japan-TPP-2-21-14-2 a bipartisan group of senators urged the U.S. not to close TPP negotiations unless Japan agrees to drop protection for certain agricultural products.  Specifically, 18 senators led by Sens. Charles Grassley, R-Iowa, and Michael F. Bennet, D-Colo., told U.S. Trade Representative Michael Froman that they were concerned that Japan had not yet made an offer in the course of the TPP negotiations to open up its agriculture sector without exceptions. The senators said that allowing special treatment for some of Japan’s agricultural products may undermine U.S. efforts to secure more access to the agriculture markets in the 11 other countries involved in the TPP.

As the Senators stated:

“We write to express our concerns that Japan has not yet made a comprehensive offer on agricultural products as part of the Trans-Pacific Partnership (TPP) negotiations. We believe that this situation could undermine the Administration’s goal of significantly increasing market access for U.S. agricultural products in TPP party countries.

In previous trade negotiations, the United States requested and received full and comprehensive liberalization in the agricultural sector from both developed countries like Japan as well as developing countries. By requesting special treatment for its agricultural sector in the TPP, Japan may upset the careful balance of concessions that the eleven economies involved in the negotiations have achieved. If Japan continues to insist on protecting certain agricultural products, other countries with sensitivities in the agricultural sector may make similar demands.

As intended, the TPP will facilitate additional trade relationships with Asia-Pacific countries and set an important precedent for future trade agreements. Most immediately, a positive outcome with Japan on sensitive agricultural products will buoy the prospects for reaching an acceptable agreement with the EU in the Transatlantic Trade and Investment Partnership negotiations.

The market access package that the Administration negotiates with Japan has the potential to support billions of dollars in future exports and hundreds of thousands of jobs. For this reason, we seek assurances from you that the U.S. will not close the TPP negotiations without an acceptable comprehensive agreement with Japan to eliminate tariff and non-tariff barriers in agriculture.”

 

In the last week in February, USTR Froman went to Singapore to meet with trade ministers from the 11 other TPP countries — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The ministerial meeting was the first since December, when the TPP countries stated they could not wrap up negotiations by the end of 2013.

At the Singapore meeting, the two countries that had problems were Japan and Canada.  The TPP discussions ended February 25th with no agreement although gaps on unresolved issues had narrowed, and the 12 countries in the talks remain “fully committed” to closing a deal.

The U.S. has pushed for greater access to the Japanese agriculture market, while Japan has sought to keep tariff and other trade protections on certain agricultural products, such as rice, wheat and pork.

On March 3rd it was reported that representatives of the US dairy industry were losing patience with Japan and Canada and their failure to fully open their markets to foreign dairy productions.  The concern was so high that they raised the issue of closing the talks without Japan and Canada.  Apparently, in Singapore, not only the United States, but the rest of the countries were increasingly impatient with Japan and Canada.

After the close of a TPP ministers’ meeting in Singapore, the National Milk Producers Federation and the U.S. Dairy Export Council issued a joint statement calling for negotiators to ramp up the pressure on Japan and Canada to secure full tariff elimination on dairy products.

“It is time to finish the Trans-Pacific Partnership negotiations, including resolving the treatment of agricultural trade,” USDEC President Tom Suber said. “The principle of creating comprehensive market access is too important to this and future trade agreements. Therefore, if Japan and Canada are not committed to this goal, we need to move forward without them.”

Recently, in Washington DC, government sources indicated that if there is no movement from the two countries, the TPP should be finalized without Japan and Canada.

The two US Dairy groups also reiterated their longstanding demands that a final TPP deal include effective disciplines for applying sanitary and phytosanitary measures that are science based and enforceable and prevent restrictions on the use of common food products.

The Congressional problem is most apparent in the debate over whether to include currency manipulation restrictions in the TPP.  Dire warnings over misaligned currency creating unfair advantages in exports have become a rallying cry for US industries.  It appears quite likely that any bill providing trade promotion authority will insist that the TPP and any other trade agreement include a provision addressing the use of monetary policy or other methods to promote exports through currency manipulation.

Numerous countries participating in the TPP negotiations, however, have already taken a strong stance against the inclusion of any provision on currency, and the Obama administration is on record opposing the provisions for that reason.

Obama wants the Trade Agreements, but not if they conflict with a more immediate political goal, preserving the Senate in the mid-term 2014 for the Democrats.  That balancing act has marked Mr. Obama’s approach since 2008. To persuade union voters who blame globalization for stagnant wages, Obama the candidate spoke of renegotiating the North American Free Trade Agreement. Then, as President, he dropped the idea.

As a fallback strategy, Mr. Obama and his aides now aim to flip the situation around. They hope to persuade lawmakers to grant that authority after midterm elections by showing them a tentative Asia deal.  That would leave little time for action before the 2016 presidential primary season — which, if 2008 is any guide, will probably increase Democratic resistance.

During my recent trip to Washington, I began to see a more optimistic view of the Trade Talks.  Congressional staffers and commentators stated that Sen. Reid’s position on trade is well known and that he has a decades-long record of opposition to trade agreements.  His current stance is completely consistent with that record.  But Reid could have stopped the ratification of recent free-trade agreements with South Korea, Colombia and Panama, but he did not.

One reason is China.  While China is not part of the TPP, hopefully the TPP will create rules, which can used to restrain some of the Chinese actions in the future. People familiar with the negotiations say China is watching closely, consulting with players at the table and lobbying through its proxies against proposed new standards for state-owned enterprises.  New rules ratified in the Trans-Pacific Partnership would set a minimum expectation for any future, broader deal that might one day include China, such as an all-Asia free-trade zone.

USTR ISSUES ANNUAL TRADE REPORT TO CONGRESS

On March 3rd, the USTR issued its annual trade report to Congress.  Chapter I The Presidents Trade Policy Agenda  In its summary, the USTR stated that concluding the TPP and the TTIP with Europe were two primary objectives:

Conclude the Ambitious Trans-Pacific Partnership Negotiations . . .

TPP will expand U.S. trade with dynamic economies throughout the rapidly growing Asia-Pacific region. Experts estimate that economies around the Pacific Rim will continue to grow faster than the world average, elevating income levels and creating increased market opportunities. Along with the United States, TPP partners now include Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. . . . According to an analysis supported by the Peterson Institute for International Economics, a successful TPP agreement would provide global income benefits of an estimated $223 billion per year, by 2025, while potentially expanding annual U.S. exports by $124 billion. TPP countries also account for 28 percent of global marine catch and over a third of global timber production, thus providing a meaningful opportunity to advance environmental stewardship efforts in the region.

The entry of Japan, the world’s third-largest economy, into TPP negotiations in July 2013 has further expanded the commercial impact of the TPP agreement.

Advance Negotiations with the European Union in the Transatlantic Trade and Investment Partnership

On June 17, 2013 President Obama and EU leaders announced that the United States and the EU would launch negotiations on a comprehensive trade and investment agreement to strengthen a partnership that already supports $1 trillion in annual two-way trade, nearly $4 trillion in investment, and roughly 13 million direct jobs – the Transatlantic Trade and Investment Partnership (T-TIP) agreement.

This year, we expect to make significant progress in the T-TIP negotiations. After three negotiating rounds in the latter half of 2013, the Administration plans to maintain a similar pace for the talks in 2014.

On March 4th, House Ways and Means Committee Chairman Dave Camp (R-MI) released the following statement in response to the President’s 2014 Trade Agenda:

Camp: “I welcome the Administration’s focus on developing new markets for goods and services produced by U.S. manufacturers, service providers, and farmers, as well as on ensuring that our trading partners play by the rules. In particular, I hope that we can conclude the Trans-Pacific Partnership shortly with those countries now willing, ready, and able to meet its ambitious obligations. We must increase market access for goods, services, and agriculture products, as well as secure enforceable rules related to issues such as intellectual property protection, disciplines on state-owned enterprises, restraints on localization barriers, investor-state dispute settlement, cross-border data flows, and disciplines on sanitary and phytosanitary barriers. . . .

“While the Agenda fails to address the problem of currency manipulation, it otherwise generally meets the objectives set in the bipartisan, bicameral Trade Priorities Act. That legislation also provides the necessary tools to address the unfairness and distortion caused when countries manipulate their currencies to gain a trade advantage.

“TPA is my top trade priority because it opens new markets and establishes enforceable rules for our trading partners, creating new U.S. jobs and economic activity. The President will not be able to conclude and implement any of the trade negotiations set forth in his Agenda without TPA. That’s why I was so surprised to see TPA barely mentioned in the document. In addition, while I welcome the transparency measures outlined in the Agenda, our bipartisan bill goes considerably further in setting out requirements for the Administration to consult with Congress and share timely and detailed information – another reason why I am seeking rapid bipartisan consideration of this bill. TPA is necessary to set out the negotiating objectives that Congress defines as vital, establish the terms for Congressional consultations during the negotiations, and retain for Congress the final say in consideration of implementing bills after the negotiations.

SOLAR CELLS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN

Attached is my latest article on the Solar Cell/Products Wars with China in the Solar Industry Magazine.  PERRY ARTICLE SOLAR INDUSTRY MAGAZINE

As mentioned in previous newsletters, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  See the attached initiation notice, factsheet-multiple-solar-products-initiation-012313 which includes the scope of the merchandise, the specific products covered by the new antidumping and countervailing duty investigations.

Many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases.

In the attached February 5, 2014 letter to President Obama, SOLAR WORLD LETTER Solar World, the Petitioner in the Solar Cells and Solar Products cases, stated that it “remains open to any prospective resolution that promises to hold China accountable to trade agreements and laws that enable fair trade. “

On February 14, 2014, as indicated in the attached announcement, ITC AFFIRMATIVE PRELIM SOLAR PRODUCTS CASE.htm the US International Trade Commission (“ITC”), four Commissioners voting, reached an affirmative preliminary injury determination finding that there is a reasonable indication that a U.S. industry is materially injured by reason of imports of certain crystalline silicon photovoltaic products from China that are allegedly subsidized and from China and Taiwan that are allegedly sold in the United States at less than fair value.

In response to the ITC vote, on February 19, 2014, MOFCOM stated that the ITC failed to consider the facts in determining that Chinese solar products had caused “substantial damage” to the U.S. domestic industry.   MOFCOM in particular pointed out that solar products “originated in China bring huge commercial benefits and job opportunities for the upstream and downstream industries of the U.S.”

MOFCOM went on to emphasize that solving trade disputes through dialogue and negotiations is the best way to solve the Solar problems between the US and China.

As mentioned in previous newsletters, the ITC’s standard in a 45 day preliminary injury investigations in antidumping and countervailing duty cases is very low.  To find a “reasonable indication” of material injury or threat of material injury all the Commissioners have to find is that more evidence will be discovered in a final injury investigation  Thus, the ITC decision was simply to continue the investigation and not that that Chinese imports caused substantial damage to the US industry.

Also as mentioned in previous newsletters, there is no public interest test and end user companies do not have standing in US antidumping and countervailing duty cases.  Thus, the ITC cannot consider whether the Chinese imports are providing substantial benefits to downstream industries or consumers in its determination.

On a recent trip to Washington DC, several knowledgeable sources stated that there is still no real movement at the Commerce Department on a Suspension Agreement in the Solar Cells/Products cases.  This would indicate that although there has been a lot of talk, there is still no action.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance.

As indicated above, at the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required  by the WTO Accession Agreement.  Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

In forthcoming newsletters we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

CHINESE ANTIDUMPING CASE—DRY CLEANING CHEMICALS FROM THE US

On February 20th, it was reported that China has imposed provisional anti-dumping duties ranging from 33 percent to more than 76 percent on dry cleaning chemicals from the U.S. and Europe after finding the imports were sold at unfair prices and were injuring Chinese producers.  More specifically, MOFCOM announced that it would level antidumping duties on imports from the US and Europe of perchlorethylene, a chemical sometimes referred to as tetrachloroethylene, and used as a solvent in the dry cleaning industry.

According to MOFCOM, U.S.-based Dow Chemical Co., PPG Industries Inc., Axiall Corp. and Occidental Chemical Corp. all face 76.2 percent dumping margins under the provisional Chinese duty order.

CUSTOMS

EXECUTIVE ORDER TO STREAMLINE TRADE 

On February 19th, President Obama signed the attached executive order executive order to speed up the creation of a single, electronic portal for businesses to submit information related to shipments that cross U.S. borders, a move intended to save time and money for importers and exporters.

The executive order calls for the development, by the end of 2016, of an International Trade Data System that would allow businesses to provide import and export data to the U.S. government through a “single window,” according to a fact sheet put out by the White House. The changes are expected to cut processing and approval times “from days to minutes” for shipments coming to and leaving the U.S.

CUSTOMS FRAUD—LIABILITY OF INDIVIDUAL OWNERS AND EMPLOYEES

There has been a recent development at the Court of Appeals for the Federal Circuit (“CAFC”) regarding the liability of individuals for Customs violations with a CAFC decision to hold an en banc review by the entire Court of its July 30, 2013 decision in United States v. Trek Leather, Inc.  United States v. Trek Leather, Inc., 724 F.3d 1330 (CAFC 2013) In that case a three judge panel in the CAFC based on a 2-1 decision determined that corporate officers of an “importer of record” are not directly liable for penalties under § 1592(c)(2) “absent piercing Trek’s corporate veil to establish that Shadadpuri was the actual importer of record, as defined by statute, or establishing that Shadadpuri is liable for fraud under §1592(a)(1)(A), or as an aider and abettor of fraud.”

On March 5, 2014 the CAFC issued the attached orderTREK LEATHER CASE accepting the US Government’s petition for a rehearing en banc, which means a hearing before all eleven judges of the CAFC.  The CAFC ordering the parties to file briefs on the following issues:

A) 19 U.S.C. § 1592(a) imposes liability on any “person” who “enter[s], introduce[s], or attempt[s] to enter or introduce” merchandise into United States commerce by means of fraud, gross negligence, or negligence by the means described in § 1592(a). What is the meaning of “person” within this statutory provision?  How do other statutory provisions of Title 19 affect this inquiry?

B) If corporate officers or shareholders qualify as “persons” under § 1592(a), can they be held personally liable for duties and penalties imposed under § 1592(c)(2)

and

(3) when, while acting within the course and scope of their employment on behalf of the corporation by which they are employed, they provide inaccurate information relating to the entry or introduction of merchandise into the United States by their corporation? If so, under what circumstances?

C) What is the scope of “gross negligence” and “negligence” in 19 U.S.C. § 1592(a) and what is the relevant duty? How do other statutory provisions in Title 19 affect this inquiry?

In its request for the rehearing, the Government stated:

“The panel’s decision provides a roadmap for importers to negligently violate the customs laws; one individual can transact the same importing business using multiple shell companies as importers of record, allowing evasion of personal liability for duties and penalties in all but the most egregious situations.”

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA—NOW TRANSSHIPMENT

With regards to the Chinese ban on shellfish from the West Coast, on January 31st it was reported that the Chinese government wants to send an audit team to the US to check how seafood is tested.  In the meantime, they would not relax the ban on the West Coast shellfish.

The Chinese government had detected inorganic arsenic in a November shipment of geoducks from Washington’s Poverty Bay. That shipment and another from Ketchikan, Alaska, that was tainted with algae toxin, led China on Dec. 3 to ban all imports of bivalve shellfish harvested in Washington, Alaska, Oregon and Northern California.

The ban has seriously hurt the Pacific Northwest shellfish industry, blocking imports to the major market for geoducks right before Friday’s observance of Chinese New Year.

In Early February it was reported that the ban on Pacific Coast shellfish is still in place as the US government had received a letter from China stating the fact.

See the attached article and a link to a report by Chinese television on the Geoduck problem http://pugetsoundblogs.com/waterways/2014/01/23/chinese-tv-discusses-shellfish-import-ban/#axzz2v8CrqCIY

A local Washington newspaper reported that one Indian tribe was able to get around the Chinese ban on shellfish imports by shipping the geoducks to Hong Kong and Canada.  One Tribal Fisheries Manager stated that Buyers were able to get around the ban “by going through Canada and Hong Kong to get restricted American geoducks to China. .  . Some of the buyers are Canadian.  They end up buying product, crossing the border and shipping to China that way . . .Other buyers have been able to get product to Hong Kong and over to China. . . The buyers themselves are figuring out ways to get product to China.”

The problem is that these schemes are considered transshipment, and the US government and US Congressmen have been complaining about this unfair practice in Chinese food imports for many, many years.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

What goes around does indeed come around.

PATENT/IP AND 337 CASES

ITC IS MAKING IT MORE DIFFICULT FOR PATENT TROLLS

In a Jan. 9 decision clearing Hewlett-Packard Co. and others of infringement, the ITC reversed long-standing precedent and held for the first time that in order to use licensing activities to satisfy the domestic industry requirement for suing at the ITC, nonpracticing entities (“NPES”) must prove that there are products that practice the patent.

The Commission specifically stated in the order:

“We affirm the ALJ’s application of his ground rules to find that TPL failed to demonstrate the existence of articles practicing the mapping patents.  . . .  Because TPL did not demonstrate the existence of articles practicing the mapping patents, it cannot demonstrate the existence of a domestic industry.”

In this decision the ITC reversed long-standing precedent and held for the first time that in order to use licensing activities to satisfy the domestic industry requirement for suing at the ITC, NPES must prove that there are products that practice the patent.

The ITC had previously held that licensing alone could satisfy the requirement, regardless of whether licensees used the patents in their products. Proving the existence of products covered by the patents may be difficult for NPES and could discourage them from suing at the ITC.  Those NPES that do not keep close watch on whether the invention is being practiced will have a much more difficult time meeting the domestic industry requirement at the ITC.

ITC REQUESTS EN BANC REHEARING AT CAFC OF SUPREMA DECISION

On February 21, 2014, the ITC requested at the Court of Appeals for the Federal Circuit (“CAFC”) a panel rehearing or a rehearing en bank of the CAFC December 13th decision in Suprema v.International Trade Commission.  In Suprema, the CAFC by a split vote vacated the exclusionary order in Certain Biometric Scanning Devices, Inv. No. 337-TA-720, holding that “an exclusion order based on a violation of 19 U.S.C. §1337(a)(1)(B)(i) may not be predicated on a theory of induced infringement under 35 U.S.C. §271(b) where direct infringement does not occur until after importation of the articles the exclusion order would bar.”  See previous January Post for a description and copy of the CAFC decision.

In its Brief filed at the CAFC, the ITC argues that this December 13th decision overturns many past 337 decisions and is contrary to CAFC and Supreme Court precedent stating:

By holding that “there are no ‘articles that . . . infringe’ at the time of importation when direct infringement has yet to occur”, the panel overlooked Supreme Court precedent that culpability for induced infringement is independent from direct infringement and attaches at “the distribution of the tool intended for infringing use.” . . . The panel also overlooked this Court’s precedent that liability for infringement by inducement attaches “as of the time the acts were committed, not at some future date” of direct infringement. . . .

By interpreting 19 U.S.C. § 1337(a)(1)(B)(i) to reach only articles that directly infringe at the time of importation, the panel overlooked decades of precedent affirming Commission orders that exclude articles proven to indirectly infringe under 35 U.S.C. §§ 271(b) and (c). . . . Even though it appears that the panel in this case did not intend its decision to preclude an action under section 337 based on contributory infringement, parties in other cases have already argued to this Court that “[t]he reasoning in Suprema also dooms [a] contributory infringement claim” because in such a claim articles do not directly infringe at the time of importation.  . . .

By characterizing the Commission’s order as a “ban [on the] importation of articles which may or may not later give rise to direct infringement” . ., the panel confused the question of an appropriate remedy under 19 U.S.C. § 1337(d) with the question of liability under 19 U.S.C. § 1337(a)(1)(B)(i), in contravention” of past CAFC precedent.

DUPONT TRADE SECRET CONVICTION

As reported in my last newsletter, there is an ongoing jury trial in California Federal District Court regarding the theft of trade secrets from Dupont  by a California businessman and a former DuPont Co. engineer, which were accused of stealing DuPont’s proprietary method of manufacturing titanium dioxide and selling the information to Chinese government-owned companies for $28 million.

On March 5th, the jury found businessman Walter Liew and his company USA Performance Technology Inc. along with  Robert Maegerle, the former DuPont engineer, guilty of conspiracy to commit economic espionage and possession of trade secrets and a number of other charges.

The US Attorney’s office spoke in favor of the decision stating, “Fighting economic espionage and trade secret theft is one of the top priorities of this office and we will aggressively pursue anyone, anywhere, who attempts to steal valuable information from the United States. . .  . As today’s verdict demonstrates, foreign governments threaten our economic and national security by engaging in aggressive and determined efforts to steal U.S. intellectual property. I commend the efforts of the women and men of the FBI and the IRS in protecting America’s businesses and our national security.”

The jury’s verdict came after nearly a week of deliberations, following six weeks of testimony detailing Liew’s efforts to steal DuPont’s secrets and secure contracts with Chinese companies, including Pangang Group Co. and its subsidiaries, to build titanium-dioxide-making factories in China.  The Judge ordered Liew to prison, while Maegerle remains free.  Both are scheduled to be sentenced June 10.

NEW 337 CASE AGAINST CHINESE COMPANIES FOR IMPORTS OF SULFENTRAZONE

Docket No: 3004

Document Type: 337 Complaint

Filed By: Lisa a. Chiarini

Firm/Org: Hughes, Hubbard, & Reed LLP

Behalf Of: FMC Corporation

Date Received: March 5, 2014

Commodity: Sulfentrazone from China

Description:  Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Sulfentrazone, Sylfentrazone Compositions, and Processes for Making Sulfentrazone. The proposed respondents are: Beijing Nutrichem Science and Technology Stock Co., Ltd., China; Summit Agro USA LLC, Cary, North Carolina; Summit Agro North America Holding Corporation, New York, New York; and Jiangxi Heyi Chemicals Co. Ltd., China.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

On February 13, 2014, Back Joy Orthotics filed a patent and copyright case against Forvic International, a Korean company, and Wook Yoon, a Korean national, against imports of back seat supports that are produced in China.  BACKJOY PATENT CASE

On February 17, 2014 Simon Nicholas Richmond filed a patent infringement case against Forever Gifts in Texas and Forever Gifts in China for imports of solar garden lights that allegedly infringe his patent. FOREVER SOLAR POWER GARDEN LIGHTS

On February 6, 2014,AIM IP filed a patent infringement case against Futurewei Technologies dba Huawei.  FUTUREWEI HUAWEI CASE

On February 27, 2014, Smartphone Technologies filed new patent cases against ZTE and Huawei.  SMARTPHONE HUAWEI  SMARTPHONE ZTE

ANTITRUST

VITAMIN C CASE

As mentioned in my last e-mail, the Vitamin C case is wrapping up at the District Court level.  The attached final judgment was revised downward from $153 million to a $147 million judgment against by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing because of double counting.  VITAMIN C JUDGMENT REVISED 147 MILLION

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

CHINA ANTITRUST CASES

Commentators have observed that governments are increasingly using antitrust and other regulatory powers for broader political and economic purposes.

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from China’s National Development and Reform Commission (NDRC). On February 19th, the head of China’s NDRC confirmed that it was investigating Qualcomm and also Interdigtal for potential antitrust violations.  Both companies were raided by Chinese agents in November and have delivered statements to Chinese investigators.  The NDRC said that Qualcomm Inc. was suspected of overcharging and abusing its market position and could face record fines of more than $1 billion.  Any settlement with InterDigital or Qualcomm is likely to include commitments to lower patent licensing fees for Chinese customers.

The NDRC is also looking at drugmaker GlaxoSmithKline and Apple. Apparently, the Chinese government has decided to use the nation’s antitrust laws to level the playing field for all companies.

SECURITIES

TOM GORMAN, DORSEY SECURITIES/SEC EXPERT, INTERVIEWED ON CHINESE TELEVISION

Recently, Tom Gorman, a partner in our Washington DC, who used to work in the Enforcement Division in the Securities and Exchange Commission, was interviewed by Phoenix Television on the refusal of Chinese Auditors to supply the SEC Accounting Documents from Chinese companies and the problems that have come from IPOs/securities listings of Chinese companies in the US.  The link to the interview is

http://video19.ifeng.com/video07/2014/02/09/1691951-102-007-0040.mp4

 FCPA DIGEST

Dorsey has just published its attached Foreign Corrupt Practices Digest.  FCPA DIGEST  With regards to China, the Digest states:

CHINA

Avon Products

Avon Products Inc. estimates a payment of up to $132 million to settle an ongoing corruption investigation. The US Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) alleged that Avon has paid bribes in China and other countries in exchange for permits to sell its products.

It has been reported that following an internal investigation in 2008, Avon discovered that questionable payments and gifts of millions of dollars have been made to officials in China, Brazil, Mexico, Argentina, India and Japan. In 2011, Avon fired four executives, including the general manager and the finance chief of the company’s China unit.

Since 2008, the company has reportedly spent about $340 million in legal and other costs. The investigation is ongoing.

 JPMorgan

It has been alleged that a top Chinese regulator, Xiang Junbo, with interests in the insurance sector, asked Jamie Dimon, the chief executive of JPMorgan, for a favor to hire a young job applicant.

JPMorgan reportedly secured a number of business deals with Chinese insurance companies following Mr. Dimon’s meeting with Mr. Xiang.

US authorities are investigating whether hiring at JPMorgan and other banks was done for the purposes of securing contracts with Chinese companies.

 Former Minister of Public Security

It is reported that Mr. Zhou Yongkang, former member of the Politburo Standing Committee and Minister of the Public Security, is being investigated for alleged corruption.

The investigation is reportedly part of a wider national anti-corruption campaign particularly targeted at current and former executives of the China National Petroleum Corporation.

It has been reported that Mr. Yongkang is under house arrest. Investigations are still pending.

COMPLAINTS

On February 4, 2014, a class action securities case was filed Rodney Omanoff et al. v. Patrizio & Zhao, Xinggeng John Zhao for misstating the financial information of Keyuan Petrochemicals, Inc.,  a Nevada corporation, headquartered in China.  KEYYUAN PETROCHEMICALS

On February 6, 2014, the US Government, Securities and Exchange Commission/SEC filed an insider trade case against Hao He a/k/a Jimmy He for trading shares of Sina Corporation in Shanghai, China based on inside information.  HAO HE

On February 19, 2014, a class action securities case was filed by Maria Cecilia Ghilardoti against Montaage Technology Group and various Chinese individuals.  Montage Technology is a Caymans Company with substantial semiconductor plants and other operations in China and Hong Kong.  MONTAGE SECURITIES COMPLAINT

On February 20, 2014 Peter Schiff et al filed a class action securities case against China Nutrifruit Group Limited, a Chinese company in Daqing, China.  Schiff v China Nutrifruit Group~

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEFAULT DANGERS, TRANS PACIFIC PARTNERSHIP IN JEOPARDY, TRADE, CUSTOMS ANTITRUST AND SECURITIES

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER

Dear Friends,

There have been some major developments in litigation, including dangers of default judgments, trade, Solar Cells, Chinese Antidumping, patents, US/Chinese antitrust, and securities areas.

January was a very important month for US Trade Policy because of the problems with the Trade Promotion Authority/Fast Track Trade Bill and the Trans Pacific Partnership (“TPP”) and Trans- Atlantic (“TA”) Trade Agreements in Congress.  Literally there have been day to day developments culminating with President Obama’s January 28th State of the Union address followed by the January 29th decision of Senate Majority leader Harry Reid to oppose the Trade Promotion Authority (“TPA”) Bill and the TPP and TA Negotiations.

As described below, Senator Reid’s decision to not allow the TPA bill to be introduced in the Senate may be the day free trade died.  If Senator Reid’s decision becomes final, this will have a dramatic impact on all trade relations, including trade relations with China, as the United States becomes more and more protectionist.

US LITIGATION AGAINST CHINESE COMPANIES—DANGERS OF DEFAULT

Recently through a Chinese law firm a Chinese company approached us because they were facing a US trademark case brought by a competitor in the United States.  The company’s question, why respond?  We are a Chinese company and you cannot catch us and make us pay damages in the United States.

We pointed out that the trademark case in question is a tough case for the Plaintiffs to prove because the trademarks in question are not registered marks and are common law marks.  If the Chinese company fights the case, it would have a good chance of winning the case.  But if the Chinese company defaults, it loses the right to contest the merits of the case.

In antidumping and countervailing duty cases, Chinese companies with US import operations have also told us, “Don’t worry.  We will never pay antidumping and countervailing duties; they cannot catch us in China.”  The times, however, are changing.

In many US cases against Chinese companies in Federal District Court, Plaintiffs are asking for damages, an injunction and punitive damages.  If the Chinese company wants to sell its products in the United States again, it has to fight.  If it does not fight, when the Chinese company sells its products in the United States, those products, including all inventory and accounts receivable, can be attached to satisfy the judgment.

Moreover, when a default judgment is for money damages, the US company is seeking to collect actual damages, interest from the date of the judgment or before, statutory damages, possibly punitive damages and attorney’s fees, which eventually will total millions of dollars.  If the Chinese company has a strong legal argument against the US Plaintiff, when it defaults, the Chinese company loses the right to make those legal arguments.

Moreover, this is no longer the 1990s or even early 2,000s.  Over the last two decades, Chinese companies have grown up and have bank accounts and assets/money and subsidiaries all over the world.  But that means it is easier for US judgment holders to collect money on their default judgments against Chinese companies.

If the Chinese company continues to do business in the US in the face of a default judgment, Plaintiffs can attach the company’s assets.  U.S. Marshalls can show up at a U.S. trade show and take all the company’s trade show materials to satisfy the judgment.  US Marshalls can go to warehouses where the company stores its products and take them.  US plaintiffs can go after the Chinese company’s accounts receivable.  The US Plaintiffs and their US lawyers can attach or garnish the Chinese company’s bank accounts–in the U.S., Hong Kong, the EC, Taiwan and countries all over the World where US judgments are enforceable and also now in China itself.

If the Chinese company banks with a Chinese bank that has a branch in the U.S., such as New York, Plaintiffs will garnish that branch bank and go after the China company’s  assets/bank accounts located in any of the bank’s other branches, wherever located, including China.

In 2010 a US inventor sued Chinese tire companies in Shandong Province for patent infringement and unfair competition in a Federal District Court in Virginia.  The Chinese companies did not fight the case and the Federal District Court entered a default judgment for $26 million.

In September 2013, in the attached complaint TIRES COLLECTION CASE the US law firm and inventor sued the Chinese Industrial and Commercial Bank Branch in New York City, saying give the US Plaintiffs the records and assets of these companies in China to satisfy the US $26 million judgment.  If the Chinese bank branch refuses to pay, the Bank could face fines of $100,000 a day, as an example.

Under the Single Entity Doctrine, US Federal Courts have held that if the Court has jurisdiction over the Chinese bank branch, it has jurisdiction over the bank worldwide.  If a Chinese company has any bank accounts in Chinese banks, such as the Bank of China or the Industrial and Commerce Bank, those banks have branches in New York City and the Chinese company can be attacked through its bank.  We are presently representing a Chinese Bank in a similar case and have 30 lawyers working full time on the case in Guangzhou on discovery.

The point is that Chinese companies can run, but they cannot hide.  If a Chinese company defaults in US litigation, it can be attacked in the US, Hong Kong, Taiwan, EC, Canada and many other countries, and now China through Chinese bank branches in the US.  So when a Chinese company defaults in US litigation, it puts the entire company at risk.

On the other hand, if the Chinese company decides to fight the case and hire a US lawyer, it may be able to pay a small amount of money as compensation or simply change its product or trade dress slightly and settle the entire case.  In many cases, if the Chinese company fights, it may be able to win the entire case and in certain situations get money from the US company bringing the case.

Ignoring US litigation is like picking up the sesame and losing the watermelon.  If the Chinese company does business in the United States and intends to continue to do business in the United States, trying to avoid service or defaulting after service may materially damage its business.  It will certainly materially damage its ability to do business in the United States.  The costs of default may be significant and far greater than that which would be necessary to defend against the US lawsuit.

TRADE

TRADE NEGOTIATIONS—TPP AND BALI/DOHA ROUND

As mentioned in my past newsletter, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA) negotiations with the EC.  Experts have estimated that TPP and TA Agreements could increase global business by several trillion dollars, if they can be concluded and implemented. 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.  Although companies see the substantial increase in business from the TPP and TA Trade Agreements, unions only see a loss of US manufacturing jobs.  To date, President Obama cannot get one Democratic Congressman to support Trade Promotion Authority (“TPA”) in Congress.  Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the mid-term elections as soft on trade.

This rising protectionism in Congress directly threatens the TPP and all future trade deals with China and many other countries.

TPP NEGOTIATIONS MAY END AS SENATOR MAJORITY LEADER HARRY REID REFUSES TO LET THE TPA BILL GET TO THE SENATE FLOOR

As the Doha Round chances went up, the chance of TPP and TA Agreements fell down and may have fallen down completely.  As mentioned in my last post, USTR and US government officials were predicting that the TPP negotiations would conclude at the end of the year with an Agreement.  That is not going to happen.  The Congressional problems regarding the TPP have grown larger and larger and, in fact, may now be insurmountable.

Although the TPP does not include China, China is the elephant in the room and so its presence is very much in the mind of all the negotiators and the political powers in the United States.  The public reaction to TPP and the TPA, which is needed to conclude the TPP agreement, in part, is a reaction to trade with China and is a reflection of public and political attitudes in the United States to trade with China.

In January the TPP and Trans-Atlantic Agreements have created high drama on Capitol Hill as there have been literally day to day developments.

TRADE PROMOTION AUTHORITY (“TPA”)

On January 9, 2014, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014. HOUSE FAST TRACK BILL The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

In introducing the new Trade Priorities Act, Senator Baucus stated that “This is our opportunity to tell the Administration – and our trading partners – what Congress’ negotiating priorities are.  TPA legislation is critical to a successful trade agenda. It is critical to boosting U.S. exports and creating jobs. And it’s critical to fueling America’s growing economy.”

According to Senator Hatch, “Every President since FDR has sought trade promotion authority from Congress because of the job-creating benefits of trade. Renewing TPA will help advance a robust trade agenda that will help American businesses, workers, farmers and ranchers by giving them greater access to overseas markets.”

The TPA Bill set out a clear directive on currency manipulation, provided greater transparency and gave Congress greater oversight of the Administration’s trade negotiations.

Both Senators Baucus and Hatch and Congressman Camp called TPA a “vital tool” as the U.S. continues TPP negotiations as well as free trade TA agreement talks with the European Union (EU).   The National Association of Manufacturers and the National Retail Federation quickly got behind the proposal and urged Congress to quickly pass it

As mentioned in past posts, however, the Administration considers the TPP negotiations to be secret and has not released any official negotiating texts.  Thus opposition is growing in Congress.  In November 2013, a group of over 170 lawmakers in the House sent letters to the President saying they opposed fast-track authority because modern trade agreements affect so many policies under Congress’ purview, and it should have much larger role in shaping the terms of the Agreements.

Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, stated that he was developing alternative legislation

On January 10th, it was reported that with opposition growing in Congress and the upcoming midterm elections, President Obama was going to have to mount a very serious lobbying effort to move the TPA legislation through Congress.  The proposed TPA legislation has drawn strong opposition from labor unions, including the AFL-CIO, which vowed to “actively work to block its passage,” and also environmental groups like the Sierra Club and consumer advocacy groups like Public Citizen.  Many Congressmen and Senators, especially on the Republican side of the aisle, stated that moving the TPA bill through Congress would require a strong lobbying effort on the part of the Obama administration, possibly even including remarks about TPA in the 2014 State of the Union address.

Prospects for a fast-track bill moving forward in 2014 are further complicated by the Congressional elections in November.  The TPA Bill is a test of the administration’s influence and clout on Capitol Hill and right now the Administration’s clout on Capitol Hill is very weak.  The TPA fight is a fight over a number of different issues and the extent to which Congress can influence the negotiating process.

Typically multi-national corporations strongly back free-trade agreements. The Chamber of Commerce, which sometimes spends more than $100 million lobbying a year, and the Business Roundtable, were quick to put out statements supporting the legislation. Also weighing in was a coalition called Trade Benefits America, which includes companies ranging from General Electric Corp. to Wal-Mart Stores Inc.

On January 15th it was reported that President Obama could not find one Democratic Congressman in the House of Representatives to co-sponsor the TPA bill. Meanwhile, the bill’s main Democratic backer in the Senate, Finance Committee Chairman Max Baucus, is retiring from the Senate and on his way out to be Ambassador to China, and key senior Democratic Senators on the committee, including Senator Wyden, its incoming chairman, say they either don’t support the bill or want to change it.

Democratic Reps. George Miller of California, Louise Slaughter of New York and Rosa DeLauro of Connecticut said of the proposed TPA Bill: “Our constituents did not send us to Washington to ship their jobs overseas, and Congress will not be a rubber stamp for another flawed trade deal that will hang the middle class out to dry.”

The free-trade push joins a growing list of policies Obama has championed that are unpopular with Democrats.  Both Republican and Democratic Members complained that the Obama administration’s outreach on trade has been disorganized.

Another Democratic complaint is that the negotiations for both trade deals are confidential and too far along for Congress to play a meaningful role in their outcome. Five influential Senate Democrats told U.S. Trade Representative Michael Froman that they won’t support the trade promotion authority bill without assurances that Congress can hold U.S. trade negotiators “more accountable” during the talks, rather than after a deal is finished and lawmakers can only cast up-or-down votes.

For Republicans, Democrats used pro-trade votes to blast GOP presidential candidate Mitt Romney and House Republicans in the Midwest states and elsewhere as supporters of outsourcing jobs.  According to one GOP leader in the House, given Obama’s political problems within his own party, House Republicans are insisting that Democrats deliver at least 50 votes in support of the bill, including at least one from the party’s leadership, before they’ll bring it to the floor.

On January 16, 2013, the Senate Finance Committee held a hearing on the TPA Bill and the TPP and TA negotiations, but USTR refused to send a witness.  Many industry witnesses did appear, however.  See http://www.finance.senate.gov/hearings/hearing/?id=bd99ab08-5056-a032-523f-27ddae65e3d0 for a video of the hearing.  The failure of USTR to show up at the hearing illustrated the difficulty ahead for the TPP.

At the hearing in the attached statement LARRY COHEN TESTIMONY TPP DIFFICULTY Labor Leader Larry Cohen, President of the Communications Workers of America, a union, spoke against the TPP, stating:

 

“Free trade agreements have been devastating for our balance of trade. In 1993, the year before the North American Free Trade Agreement (“NAFTA”), our trade deficit in goods was -$132 billion or -1.9 percent of our GDP. By 2012, our trade deficit ballooned to -$741 billion or -4.6 percent of our GDP. The growth of our trade deficit to such levels has been a strong drag on our economy and especially in terms of jobs and wages.

And specific trade deals have been most at fault for the increased trade deficit. Here are three examples. In 1993, the U.S. had a trade surplus in goods with Mexico of $1.66 billion. By 1995, just one year after NAFTA, this had changed to a $15.8 billion deficit and by 2012 the deficit with Mexico had increased even further to $62 billion.

Allowing China into the WTO also has been disastrous. The U.S. had a trade deficit in goods with China of $83 billion in 2001 when China was admitted to the WTO. This deficit has ballooned to $315 billion in 2012. And for a most recent example, in just one year after the U.S.-Korea trade agreement took effect, our trade deficit in goods with South Korea increased by $5.5 billion or 46%.

Last year, our federal budget deficit was more than $680 billion. But our trade deficit in goods for 2012 was $741 billion. While a lot of attention in Congress and in Washington, DC has focused on the federal deficit, little attention has been focused on our trade deficit and its negative impact on our economy, jobs and wages. If we had trade deals that actually led to balanced trade, our economy would generate more than 3 million more jobs. Unfortunately, our current model for free trade agreements increases our trade deficits and reduces our employment. . . .

In the economy as a whole, average real weekly take home pay for a U.S. worker today is $637 compared to where it was 40 years ago at $731 a week — $100 less.  . . .

Trade agreements have become the new tool in the arsenal for the unfettered corporate attack on collective bargaining rights. With trade agreements, threats to offshore work and actually offshoring the work in highly unionized industries has increased. The result — the share of the private sector workforce protected by a collective bargaining agreement has declined from a high of 35.7 percent to just 6.6 percent today. This is another direct link cited by most economists as a factor in the rising inequality in our country today.  . . .

In telecommunications, we have seen the virtual elimination of telecom manufacturing equipment in the US, the elimination of a U.S. national company, and hundreds of thousands of lost jobs in that supply chain.  . . .

Many groups representing U.S. consumers are especially concerned with how trade agreements can be used to degrade our food safety protections. Allowing for Fast Track consideration of TPP would further jeopardize the safety of the food consumed in the U.S. Seafood standards in particular could be challenged through the TPP. The FDA has detained hundreds of seafood exports from TPP countries because they were contaminated. For example in Fiscal Year 2012, the FDA detained 206 imported seafood products from Vietnam alone because of concerns including salmonella, e-coli, methyl mercury, filth and residues from drugs that are banned in the U.S.  Currently the FDA is only able to inspect between 1-2 percent of our food imports.  The TPP, by greatly expanding our food imports (especially seafood) would result in an even lower percentage of inspections.  . . . .

Trade agreements are no longer just about tariffs and quotas – they are about the food we eat, the air we breathe, the jobs we hold. Congress needs to have an enhanced and enforceable role in this new era when massive trade agreements can cover so many policy issues. We cannot abdicate the legislative and policy formation process to the USTR and non-elected representatives. Or, we would argue that trade policy should commence with the Congress adopting policy priorities and the countries with whom we will negotiate. It’s clear that this is not what has happened.  . . .

For example, we are concerned that Vietnam has been chosen as a trade partner. In Vietnam which has a population of 90 million people, the minimum wage is $0.28 per hour and the average wage is $0.75 an hour. There is no right to free association or expression. Our own Department of Labor has placed garments made in Vietnam on the federal “Do Not Procure” list for documented use of forced child labor in apparel production.  Vietnam’s extremely low wages, non-existent workers’ rights, and extensive roster of human rights violations will only further exacerbate the already strong downward pressure on U.S. wages.  We should not enter into trade agreements with countries with such records. . . .

Shouldn’t this proposition of including countries with such abysmal records like Vietnams be debated? Shouldn’t the U.S. Congress determine if that approach is appropriate? Shouldn’t the US Trade Representative further consult with Congress as negotiations progress?  . . . .”

 

For more details, see also video on CWA website http://action.cwa-union.org/c/1372/p/dia/action3/common/public/?action_KEY=7357

Yet at the same time, Senator Portman of Ohio, who was formerly USTR under President Bush, noted at the Senate Finance hearing that in terms of exports, in ranking of countries the US rates just above Ethiopia and that 40% of US exports were to countries that had signed trade agreements with the US.

After the hearing, Republicans, including House Speaker Boehner, and free trade Democrats urged President Obama to get more involved saying that the President has to become personally involved in pushing the TPA or the new Bill will simply not pass Congress.  As mentioned, in the House, President Obama faces the problem that not one Democratic Congressman is willing to co-sponsor a TPA Bill.

On January 16th, there were also reports that Congressional Democrats were very upset about the draft environmental provisions of the TPP that had been leaked by Wikileaks.  The draft environmental chapter of the TPP agreement and a report by negotiators from the 12 countries involved in the talks, show that the pact would fall short in enforcing the higher environmental standards of other recent U.S. trade deals. Those pacts threaten sanctions against trading partners that violate international agreements to protect endangered species, prevent overfishing and regulate chemicals that deplete the ozone layer.

Immediately, Sen. Bob Casey (D-Pa.), a member of the Senate Finance Committee, which oversees Trade, stated ““It’s of grave concern. It’s as if our negotiators, decade after decade, have to walk into the door and … say, ‘Yes, we have concerns about leveling the playing field on labor and environment protections,’ but by the end of it, we say, don’t worry about it.”

Although the United States is pushing for robust environmental provisions, apparently the 11 other countries are all opposed to more strict environmental standards.  The inability of the U.S. to secure its key environmental demands made it even more difficult for the TPA bill.

According to Rep. Rosa DeLauro (D-Conn.),” As more information about the Trans-Pacific Partnership being negotiated in secret is revealed, the more the public can see how clearly this potential agreement, which is unprecedented in scope, would not only lead to the outsourcing of jobs, but also harm American consumers and the environment.”   All of this did little to help Obama persuade liberal Democrats on the TPA Bill

On January 17, 2013, it was reported that progressive advocacy groups were ramping up efforts to oppose the TPP and TPA legislation urging their members to push their representatives in Congress to fight the trade policies.

The progressive-leaning Democracy for America sent an email to its members saying they should call their local congressional representatives and urge them to vote down a proposal that would grant trade promotion, or “fast-track,” authority to the Obama administration.

On Monday, January 27th, 550 labor, environmental and consumer advocacy groups, including the United Autoworkers, which provided President Obama critical support on previous trade pacts, such as the South Korea FTA, sent a letter to Congress urging them to reject the fast-track bill.

The email campaign comes two days after a dozen Senators, comprised of 11 Democrats and Sen. Bernie Sanders, an independent from Vermont, wrote to Senate Majority Leader Harry Reid, D-Nev., expressing “deep concern” over the chance that trade promotion authority would be renewed.

JANUARY 28 — STATE OF THE UNION

In response to the Republicans call in Congress for the Administration to do more regarding the TPA bill, President Obama responded in his State of the Union pushing the TPA bill and TPP and the TA Agreements.  President Obama stated:

“We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA”.  Look China and Europe aren’t standing on the sidelines.  Neither should we.”

What was very interesting about this point is that in contrast to almost every other point made in the State of the Union, when President Obama spoke about Trade, the Republicans cheered, but the Democrats in President Obama’s own party were silent.

JANUARY 29TH—THE DAY FREE TRADE MAY HAVE DIED

But the next day, Senator Harry Reid, the Senate Majority Leader, the head Democrat in the Senate, came out against TPA, stating:

“Everyone knows how I feel about this.  Senator Baucus knows.  Senator Wyden knows.  The White House knows.  Everyone would be well-advised to not push this right now.”

As Majority Leader, Senator Harry Reid controls the bills that are allowed on the Senate Floor.  With Senator Harry Reid’s opposition, the TPA bill is dead in the Congress, which means that the President’s trade agenda and his push for these agreements are also dead.  In an ironic point, this situation will probably only change if the Republicans take over the Senate in 2014.

The lawmakers opposed to the TPA Bill argue that in light of the top secret nature of the negotiations, multiparty trade deals go far beyond the scope of the smaller, typically single-nation trade accords that were done in the past.  These new multinational deals affect larger portions of the U.S. and global economies and touch on many policies under Congressional jurisdiction.  Congress, therefore, should have a greater say on trade deals beyond the ability to accept or reject them.

On January 29, 2014, David Bonior, a former Michigan Congressman, who voted for NAFTA, in an article entitled Obama’s Free-Trade Conundrum stated:

 

“But Mr. Obama’s desire for fast-track authority on the T.P.P. and other agreements clashes with another priority in his speech: reducing income inequality.

This month is the 20th anniversary of the North American Free Trade Agreement, which significantly eliminated tariffs and other trade barriers across the continent and has been used as a model for the T.P.P.  Anyone looking for evidence on what this new agreement will do to income inequality in America needs to consider Nafta’s 20-year record. . . .

The result is downward pressure on middle-class wages as manufacturing workers are forced to compete with imports made by poorly paid workers abroad. . . .The shift in employment from high-paying manufacturing jobs to low paying service jobs has contributed to overall wage stagnation. The average American wage has grown less than 1 percent annually in real terms since Nafta, even as productivity grew three times faster. . . .

The Nafta data poses a significant challenge for President Obama. As he said on Tuesday, he wants to battle the plague of income inequality and he wants to expand the Nafta model with T.P.P.  But he cannot have it both ways.”

 

In response to Senator Reid’s statement, it was reported that Sen. John Cornyn  (R., Texas.) stated “You can kiss any new trade deals goodbye. . . I think the majority leader’s focus is on the November elections and he doesn’t want to expose his vulnerable members to controversial votes.”

The latest developments come amid growing skepticism in Japan about the U.S.’s commitment to free trade. “It’s up to the resolve of the U.S. government,” Japan’s economy minister, Akira Amari, told reporters in Tokyo. “If the president comes to the negotiating table with a strong enough determination to wrap it up by spring, other countries will follow suit.”

Sen. Chuck Schumer (D., N.Y.) stated “I think there’s a lot of dubiousness in our caucus to fast track, given that every time we sign a free-trade agreement it seems other countries violate the rules and we don’t”.

Unions opposing the trade deals were happy with the outcome.   According to Larry Cohen, head of the Communications Workers of America, “For those of us who want to have a progressive trade agenda, it means that we’re encouraged.”

On January 30th, House Speaker John Boehner spoke out against President Obama suggesting that he needs to push Senate Majority Leader Harry Reid to get the TPA bill through Congress.

On February 3rd, President Obama met with Senate Majority Leader Harry Reid but the President did not bring up the trade issue and made no effort at the meeting to change Senator Reid’s mind on the TPA bill.

On February 4th, it was reported that StopFastTrack.com, a new coalition opposed to the TPA bill and the TPP and TA Trade Agreements is building grassroots support, gathering more than a half a million signatures and making tens of thousands of calls to Senators and Congressmen lawmakers to argue against trade legislation in Congress.

According to the report, unions, environmental groups, and political organizations—working under the umbrella site —have nearly 600,000 supporters  and made more than 40,000 phone calls to Congress, opposing the trade measures.

Another political organization, Democracy for America, has obtained 125,000 electronic signatures on a petition requesting that Nancy Pelosi, top House Democrat, follow Senator Reid’s lead and stop the TPA bill in the House.

Many trade experts believe that Senate Majority Leader Harry Reid’s decision not to bring the TPA bill to the Senate Floor casts substantial doubt over the negotiations for the TPP and the TA deals.  Most commentators are stating that all these Agreements are at risk right now.

White House press secretary Jay Carney stated on Wednesday, January 29th,

“Leader Reid has always been clear on his position on this particular issue.  As the President said in the State of the Union address, he will continue to work to enact bipartisan trade promotion authority to protect our workers and environment and to open markets to new goods stamped ‘Made in the U.S.A.’ And we will not cede this important opportunity for American workers and businesses to our competitors.”

Harry Reid’s decision could be a critical tipping point in US trade policy as the US becomes more and more protectionist.  It took a President Bill Clinton with his tremendous political ability to persuade Democratic Senators and Congressmen “to do the right thing” on NAFTA and enact it into law.  But President Obama is not Bill Clinton.

DOHA ROUND-BALI

As mentioned in the last newsletter, much to the surprise of many Government officials and companies, in December the WTO round in Bali resulted in all the WTO countries agreeing to Trade Facilitation Agreement to modernize customs procedures, as well as provisions on agriculture and economic development.  If there had been no Agreement in Bali, it could very well have meant the end of the multilateral effort to lower trade barriers through negotiations.

On January 7, 2014 WTO Director-General Roberto Azevedo stated:

“Just six weeks ago, the fate of the multilateral trading system hung in the balance. Today, we can talk with confidence about how we can continue to develop and strengthen the system for the future.”

According to Azevedo, the Bali Trade Facilitation Agreement could possibly add as much as $1 trillion to the world’s economy each year.

The question now is what happens in the future.  Most experts believe that the WTO members will in the short term pursue agreements that affect only certain sectors or include only some countries.  Thus, there will probably be sector-by-sector trade negotiations at the WTO.

Agreements affecting trade of environmental goods and services might be one of the likely near-term targets.  But the Trade Facilitation Agreement still must be implemented as the details have to be ironed out, including Customs procedures in developing countries and other issues.  Implementation also means the Agreement must go through Congress and without TPA, it will be difficult for Bali Agreement to get through Congress.

Azevedo himself realizes the problems stating, “The task of strengthening the multilateral system and moving towards delivering on the[Doha Development Agenda] will be difficult, but it is not impossible.”

SOLAR PRODUCTS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN–QUANTITY AND VALUE QUESTIONNAIRE DUE FEBRUARY 13TH AT COMMERCE

Commerce has issued a quantity and value questionnaire in the new Solar Products/Modules/Panels antidumping case/initial investigation against China.  The deadline for the response to the Quantity and Value Questionnaire is February 13, 2014.

Attached are the quantity and value questionnaire and the fact sheet that was issued by Commerce. factsheet-multiple-solar-products-initiation-012313   prc-qv-solar-products-012714

The quantity and value questionnaire requires the Chinese exporter to report all sales during the period April 1, 2013 to September 30, 2013.  Specifically, Commerce is requiring the Chinese exporter to report the total number of modules, panels or laminates during that period, the total number of megawatts, the terms of sale and the total value of sales.

A Chinese exporter/producer must submit a response to this quantity and value questionnaire by February 13th.  If not, it will receive the highest dumping rate of 165%.

SOLAR CELLS REVIEW INVESTIGATION

To further complicate the Solar case, on February 3rd Commerce published in the attached Federal Register notice initiating the first Solar Cells review investigation.  This case will cover imports of Chinese solar cells during the review period.

So to be clear, the Solar Cells Review Investigation covers Chinese solar cells.  The Solar Products new investigation covers imports of Chinese modules and panels with Taiwan and other solar cells in them.

For the first Solar Cells Review Investigation, attached are the notice, in which many Chinese companies are named, and the Quantity and Value questionnaire.  Solar Cells AD CVD Initiation Notice 1st Review (2) SOLAR CELLS REVIEW QV Chinese companies named in the Solar Cells Review investigation need to file the QV questionnaire response on February 19th .   Chinese companies also need to file separate rate applications or certifications on or before April 4, 2014 at Commerce in first review investigation to keep their separate rate from the Solar Cells initial investigation.  Failure to file these documents meand that imports of Chinese solar cells will be assessed a rate of 250%.

Solar Trade problems with China are getting complicated.

SOLAR PRODUCTS INITIAL INVESTIGATION

As mentioned in my last post, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  The Scope of the Merchandise, the specific products covered by the new antidumping and countervailing duty investigations, are described in the attached notice and petition:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

See the injury petition in my last post on this blog.

In the subsequent Commerce Department initiation notice, which is attached, however, in contrast to the petition, solar consumer products are specifically excluded:

“Also excluded from the scope of this investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm2 in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.”

Initiation Notice – Certain Crystalline Silicon Photovoltaic Products 1-24-14

In addition, Commerce reduced the All Others/Facts available rate in the China case from 298% to 165%, but raised the antidumping rate for Taiwan to 75.68% from 39%.  The trade volume is large.  According to Commerce, imports of the subject merchandise from China and Taiwan were valued at $2.1 billion and $513.5 million, respectively.

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days, when the Commerce Department’s preliminary determinations are due on May 30, 2014 (CVD) and July 29, 2014 (AD).  Commerce Department investigations almost always are extended out to the full time.

Chinese companies also must submit their response to the quantity and value questionnaire by February 13th and be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 22nd, the day after the Government was closed, the ITC held a preliminary conference.  The Commission’s preliminary injury determination is due February 14th.

Meanwhile, many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

The Solar Energy Industries Association (SEIA) has announced that it is opposed to the case, calling it an “escalation” of the U.S.-China solar trade conflict.  Experts also stated that the duties could cripple the end user portion of the solar Industry, which is far larger than the domestic production industry.  As the SEIA stated, “From past experiences, we have learned that a conflict within one segment of the solar industry ripples across the entire solar supply chain.”

The market pressure driving solar prices downward is not caused by dumping, but the industry’s efforts to achieve so-called grid parity, where the price for solar power is comparable to that for traditional-source power.  But prices for US oil and natural gas are falling fast.  With falling costs for traditional forms of energy, it is very difficult for solar energy to be competitive.

The effect of this case, however, will be to drive up the costs of solar products,

Although the SEIA and some members of Congress have called for a settlement of the solar trade dispute, Solar World has expressed skepticism about such a deal, making it more difficult to conclude a government to government deal settling the case.  As mentioned in a prior post, there is no public interest standard in US antidumping and countervailing duty law, as compared to EC, Canada and China.  Also End Users have no standing in US antidumping and countervailing duty cases.  Thus it is difficult for the US Government to pressure Solar World to drop its case.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases stating:

 

“The two parties should follow the trend and make efforts to promote cooperation proceeding from the overall interests of clean energy development, so as to ensure the steady development, rather than restricting competition and cooperation by frequently taking trade remedy measures. It is proved that, that U.S. initiated investigations and levy high anti-dumping and countervailing duties in 2011 not only failed to change the situation of poor operation and lacking of competitiveness of its domestic industries, resulting in significant negative impacts on downstream industries including the assembly industry and services sector, but also triggered a worldwide chain reaction of trade disputes on PV products, which caused chaos in the whole industry.  . . .”

 

See attached statement MOFCOM STATEMENT

CURTAIN WALL UNITS ARE COVERED BY THE ALUMINUM EXTRUSIONS CASE

On January 30, 2014, in Shenyang Yuanda Aluminum Industry Engineering Co. v. United States, Judge Eaton in the Court of International Trade affirmed the Commerce Department’s determination that Curtain Wall Units, the sides of buildings, are with the scope of the AD and CVD orders on aluminum extrusions from China.  The Court stated in part;

“Because curtain wall units are “parts for” a finished curtain wall, the court’s primary holding is that curtain wall units and other parts of curtain wall systems fall within the scope of the Orders.”

See the attached decision.  SHENYANG YUANDA

As a result of the Court’s and the Commerce Department’s determination, the sides of buildings from China are now covered by US antidumping and countervailing duty orders with duties as high as over 100 to 300% for certain imports.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

WIRE ROD

On January 31, 2014, a new antidumping and countervailing duty case was filed against carbon steel wire rod from China.  See notice below.

Docket No: 3000

Document Type: 701 & 731 Petition

Filed By: Kathleen Cannon

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: ArceloMittal USA LLC, Charter Steel, Evraz Rocky Mountain Steel, Gerdau Ameristeel US Inc., and Keystone Consolidated Industries Inc, and Nucor Corporation.

Date Received: January 31, 2014

Confidential: Yes

Commodity: Carbon and Certain Alloy Steel Wire Rod

Country: People’s Republic of China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and antidumping duties on Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China.

Status: 701-TA-512 & 731-TA-1248

ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

In February Chinese producers and exporters, US importers and US producers have the opportunity to request an antidumping and/or countervailing duty review investigation of certain outstanding AD and CVD orders by filing a review request at Commerce by the last day of February for the following cases against China :

Period of review ————————————————————————              Antidumping Duty Proceedings

The People’s Republic of China:

Certain Preserved Mushrooms, A-570-851………..     2/1/13-1/31/14

Folding Metal Tables and Chairs \2\, A-570-868…     6/1/12-11/5/12

Frozen Warmwater Shrimp, A-570-893……………     2/1/13-1/31/14

Heavy Forged Hand Tools, With or Without Handles,     2/1/13-1/31/14      A-570-803…………………………………

Small Diameter Graphite Electrodes, A-570-929….     2/1/13-1/31/14

Uncovered Innerspring Units, A-570-928………..     2/1/13-1/31/14

Utility Scale Wind Towers, A-570-981………….    2/13/13-1/31/13

Countervailing Duty Proceedings

The People’s Republic of China:

Utility Scale Wind      2/13/13-12/31/13  Towers, C-570-982.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

As mentioned in prior 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 the antidumping and countervailing duty laws against China.

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

We will be targeting two major issues—Working for market economy treatment for China in 2016 as provided in the US China WTO Agreement and working against retroactive liability for US importers. The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

In forthcoming posts we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

CHINESE ANTIDUMPING CASE

POLYSILICON

On January 20, 2014, China issued final antidumping and countervailing duties against solar-grade polysilicon imported from the U.S.  Under the Chinese polysilicon antidumping duty order, US companies face dumping rates ranging from 53% to 57%.  On the Countervailing Duty side, US companies face rates from 0 to 2.1%.

On January 26, 2014, MOFCOM announced that given “the special market conditions” it has decided not to carry out antidumping and anti-subsidy measures for the moment.  Apparently, MOFCOM is hoping for a negotiated suspension agreement in the new Solar Products case.

FDA—FOOD PROBLEMS

CHINESE CHICKEN

On December 19, 2013, fourteen Congressmen circulated a letter in Congress asking their Congressional colleagues to ensure Chinese-processed chicken is kept out of the school lunch and other child nutrition programs. The letter also states that chicken slaughtered in China should be banned from the US market.  The letter states:

“It is because we are deeply concerned about the safety of the food served to the American people, especially our children, that we write to express our serious apprehension about the Food Safety and Inspection Service (FSIS) recent decision to allow China to process chicken raised in the United States, as well as Canada and Chile, to then export to the United States. Furthermore, we believe FSIS is likely to eventually allow China to export its own raw poultry to the United States.”

CHINA CHICKEN PROBLEM CONG LETTER

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

On December 5th, the Washington State Government reported that on December 3rd the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Washington, Oregon, and northern California. China reported a shipment of geoduck clams tested high in paralytic shellfish poison (PSP) and arsenic.  See my past post on this blog for more on this fight and the attached announcement.

The ban has already devastated shellfish growers in Washington, Alaska, Oregon and Northern California.  It also affects clams, oysters and other shellfish from U.S. waters.

China is the world’s largest importer of geoducks (pronounced “gooey duck”), with more than half of all the harvest from Washington, British Columbia and Alaska getting shipped to China. With China cut off, there are few places for the harvest to go.

Test results showed that, on average, arsenic was present in the geoduck bodies at a level of 0.327 parts per million (ppm), which falls below China’s legal limit of 0.5 ppm. Arsenic in the actual meat of the geoducks registered at 0.063 ppm, eight times lower than the limit.

On January 9th it was reported that Laboratory tests on Washington State’s exports of geoduck clams, found no evidence of unsafe or excessive levels of arsenic.  Although the test results have been sent to China, to date they have not yet received a response, and the ban remains in place.

The problem, however, arises from US export forms for the geoduck shipment.  The form does not allow for more specificity in identifying the source from which the shellfish were harvested.  While the problem shipments of shellfish came from isolated areas in Washington and Alaska, “Area 67″ encompasses all the coastal regions from Northern California through Alaska’s Pacific Coast. As a result, Chinese authorities were forced to ban shellfish from all of Area 67.

National shellfish programs provide forms that set forth specific shippers and harvest locations, which allow the governmental authorities to easily trace shipments back to specific shippers and harvest locations. If there’s a contamination problem domestically, shellfish growers can easily isolate the problem instead of shutting down the entire industry.

The World Health Organization is said to be considering setting safe levels for
inorganic arsenic in food in the .2-.3 ppm range in 2014. The Washington geoduck claims that tested high for inorganic arsenic in China, however, were harvested from a tract of land managed by the Department of Natural Resources that has since been closed. The tract is within the shadow of a copper smelter that was operated near Tacoma for 100 years.   According to Marian Abbett, manager of the Tacoma smelter clean up for the Washington Department of Ecology, “Well we know that arsenic levels are elevated in the surface soils in that area.  Soil samples from the surrounding land show levels of arsenic between 40 and 200 ppm, though that number does not directly equate to levels of arsenic that will end up in the water, or in shellfish.”

The area was closed to all shellfish harvest until 2007, when the Puyallup Tribe petitioned state agencies to reopen the tract for geoduck harvest. At that time the Department of Health conducted tests on geoduck in the area and found levels of .05 ppm. That’s an order of magnitude below the amount found by the Chinese in October of 2013 and well within the safety parameters set by the Chinese.

However, state agencies have not tested for inorganic arsenic or other metals in shellfish from the area since it was reopened in 2007.

Arsenic is a carcinogen that has also been associated with long-term respiratory effects, disruption of immune system function, cardiovascular effects, diabetes and neurodevelopmental problems in kids.

“There’s no safe level, but at some point you’ve crossed the threshold to being really dangerous and we don’t quite know where that threshold is at this point,” Cottingham said.

But the ban is having a real effect on fishermen in Washington State.  Ninety percent of the geoduck harvested in Washington is sold to China and Hong Kong.

The clams can fetch up to $150 per pound in China, but today the Suquamish tribe is losing $20,000 each day that the ban is in place, but the impacts of the ban are being felt well beyond the reservation. John Jones, another Suquamish diver, stated, “My brothers are from Port Gamble and they’re out of work.  They shut down diving everywhere, not just for us but for the state.”

Although British Columbia in Canada is not affected, the Chinese ban impacts all shellfish throughout Puget Sound, Alaska, Oregon and Northern California.  The shellfish industry in Washington is worth $270 million annually, and China is the biggest market for exports.

This is the broadest shellfish ban China has ever put in place, but it’s not the first time China has banned a major import from the U.S.  Beef imports from the U.S. have been banned for the past ten years. More recently, China rejected about half a million tons of U.S. corn because it contained a genetically modified strain.

Chinese officials have been slow to reveal details of their shellfish testing methods. That’s prompted some to raise concerns about political motivations behind the shellfish ban.

Although there is a possibility that the Chinese are retaliating for past problems with food imports in the US, there is strong evidence that the Chinese have a legitimate problem.  The contaminated geoduck clams were harvested near the former site of a copper smelter in Tacoma, which had leached arsenic into the surrounding area.

Again Chinese problems with US shellfish must be kept in context.  As indicated above, US Congressmen want to ban all chicken processed in China.  Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

PATENT/IP AND 337 CASES

INTERDIGITAL SETTLES 337 PATENT CASE WITH HUAWEI

On January 2, 2014, InterDigital Communications Inc. and Huawei Technologies filed a confidential settlement of their 337 patent case over 3G and 4G wireless devices.  Huawei’s antitrust strategy seems to have worked.

CHINESE COMPANY LOOSES 337 RESINS TRADE SECRET CASE

On January 15, 2014, in Certain Rubber Resins and Processes for Manufacturing Same, Investigation No. 337-TA-849, the U.S. International Trade Commission (“ITC”) determined that there was a violation of section 337, 19 USC 1337, because a Chinese chemical maker and other companies had stolen trade secrets covering the recipe for rubber resins held by New York company, Sl Group Inc.  The Commission issued a limited exclusion order for 10-years excluding infringing imports of the Chinese resins into the United States from Sino Legend (Zhangjiagang) Chemical Co. Ltd. and the other named respondent companies in the case.

According to the 337 complaint, although SL Group had closely guarded the formula and the equipment used to create the resin, the manager of Sl Group’s Shanghai chemical plant defected to Sino Legend in 2007 and took the design with him.

The ITC’s ruling is directly contrary to the ruling of a Chinese court, which reached the opposite conclusion and found that there was no misappropriation.  After acquiring the trade secret, Sino Legend has been able to take over about 70% of the Chinese market for the rubber resins in question, which are used in tire production.

In response to the ruling, Sino Legend has stated that the Commission’s ruling will not substantially affect its business because the ITC’s ruling will allow its customers to use all Sino Legend resins in any of their non-U.S. production facilities, and then import those products into the U.S. without restriction.

DUPONT TRADE SECRETS CASE — TITANIUM DIOXIDE

In an ongoing criminal trial in California this month, prosecutors described how an ex-DuPont engineer and two conspirators stole DuPont trade secrets regarding a specific process to produce very high quality titanium dioxide, and sold the designs to Chinese state owned companies earning $28 million.

Chinese-American Walter Liew and his wife, Christina, founded multiple companies in Northern California and hired as a consultant ex-DuPont engineer Robert Maegerle, who knew the process of safely producing massive amounts of titanium dioxide.  Maegerle allegedly shared what he learned building plants for DuPont with the Liews, who used the information to negotiate contracts with Chinese companies, including Pangang Group Co., to build titanium-dioxide-making factories in China. However, both Maegerle and Walter Liew knew Dupont had patented that information and it was confidential.

Titanium dioxide is a white pigment used in everything from iPhone cases to toothpaste.  But it is hot, dirty and dangerous and DuPont figured out a way to make the product commercially viable.  According to the prosecutor, that process is what the Chinese companies wanted.

Maegerle is charged with trade-secrets theft, conspiracy and obstruction of justice.  Christina Liew faces charges of economic espionage, trade-secret theft, and tampering with witnesses and evidence in a separate trial.

Lawyers for the defendants argued that they did not copy DuPont’s factory plans verbatim, but used them as the basis to design around and develop their own production techniques for producing titanium dioxide.

Later in the trial, however, a government expert testified that Dupont fiercely guarded its trade secrets for making high-quality titanium dioxide and that the trade secrets made Dupont the envy of the industry.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On December 31, 2013, Laserdynamics filed a patent case against Haier. HAIER PATENT CASE

On January 7, 2014, Bluebonnet Telecommunications filed patent cases against ZTE and Huawei. BLUEBONNETZTE HUAWEI BLUEBONNET

On January 7, 2014, Toyo Tire and Rubber filed a patent case against South China Tire and Rubber Co. TOYO TIRE CASE

On January 10, 2014, Personal Audio filed a patent case against Huawei and ZTE. PERSONAL AUDIO HUAWEI ZTE

On January 10, 2014, Thomas & Betts filed a trademark, unfair competition, case against Zhejiang Shengyu City Fengfan Electrical Fittings Co. TRADEMARK WRENCH ZHEJIANG

On January 13, 2014, Laerdahl Medical filed a patent case against Shanghai Honglian Medical Instrument Development Co. SHANGHAI MEDICAL

On January 13, 2014, ICON Health and Fitness filed a trademark case against Zhongshan Camry Electronics Co. ZHONGSHAN TRADEMARK

On January 14, 2014, Kee Action Sports filed a patent case against Shyang Huei Industrial Co., a Taiwan company. TAIWAN SUN

On January 14, 2014 Toyo Tire and Rubber filed a patent case against Hong Kong Tri-Ace Tire Co and Doublestar Dong Feng Tyre Co. TOYO DONG FENG

On January 16, 2014, Touchscreen Gestures filed patent cases against Huawei and ZTE. TOUCHSCREEN ZTE TOUCHSCREEN HUAWEI

On January 29, 2014, Standard Fiber filed a trade secret case against Shanghai Tianan Home Co, Teetex, LLC, and Anwen “Alvin” Li. SHANGHAI TRADE SECRET

Complaints are posted above.

ANTITRUST

VITAMIN C CASE

As mentioned in my last post, the Vitamin C antitrust case against Chinese Vitamin C companies is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  In addition, the judgment has increased by $4 million, specifically $4,093,163.35, to $158 million, specifically $158,203,163.35, to pay the Plaintiffs’ legal fees. FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

JUSTICE IS GETTING TOUGHER ON INTERNATIONAL CARTELS DEMANDING JAIL TIME FOR FOREIGN EXECUTIVES

There are reports that in 2013 and now 2014 the Justice Department has ramped up its enforcement in international cartels/price fixing antitrust cases looking for more prison sentences for foreign executives involved in these cartels.

On January 30th, Bill Baer, the Assistant Attorney General for the Antitrust Division gave the attached speech to the New York State Bar Association in which he described in detail international antitrust enforcement, including increased enforcement of antitrust cases against international cartels, and the DOJ’s increased cooperation with Chinese antitrust authorities.  BILL BAER DOJ STATEMENT ANTITRUST ENFORCEMENT The Assistant Attorney General stated:

 

“With those preliminary observations in mind, let me focus on the progress antitrust enforcement has made these last five years. President Obama promised during his first campaign that his administration would vigorously enforce the antitrust laws.  He pledged to “step up review of merger activity,” “take aggressive action to curb the growth of international cartels,” and ‘ensure that the benefits of competition are fully realized by consumers.’

“I think the record shows the Antitrust Division has followed through on the President’s pledge. Criminal enforcement provides an excellent starting point. We continue to vigorously pursue and prosecute international and domestic cartels. Since January 2009, we have filed 339 criminal cases, a more than 60 percent increase over the prior five years. We secured $4.2 billion in criminal fines in that period. . . .

Effective cartel enforcement requires holding accountable both corporations and the senior executives who orchestrate their unlawful conduct. We have charged 109 corporations with criminal antitrust violations since 2009. We have ensured that those corporations have paid appropriate—and stiff—criminal fines, and those 109 corporations together have paid the highest five-year fine total in division history. The division also charged 311 individuals with antitrust crimes during the past five years.

Experience teaches that the threat of prison time is the most effective deterrent against criminal antitrust violations. We seek sentences commensurate with the economic harm caused by the perpetrators. The statistics show that the courts are embracing the effort to hold company executives accountable for their bad behavior. The average prison sentence in our cases has increased from 20 months in the period 2000-09 to 25 months during the years 2010-2013. Of course, we can never know for certain the full deterrent effect of our enforcement efforts. But we do know that self-reporting under our leniency program remains at high levels and that, increasingly, non-U.S. companies are reporting anticompetitive behavior. They are responding to the fact we are prosecuting off-shore conduct with a U.S. impact. In recent years the number of foreign nationals sentenced to U.S. incarceration has increased threefold. The message should be clear: the division will vigorously and successfully prosecute international cartel behavior that harms U.S. consumers regardless of where that conduct takes place. . . .

The division has brought criminal cases in a range of industries over the past several years. One of our most significant ongoing investigations involves the auto parts industry. We are prosecuting price fixing and bid rigging involving a number of parts that were installed in cars sold in the U.S., including wire harnesses, instrument panel clusters, and seatbelts.  . . .

To date, we have charged 24 companies and 26 executives with participating in multiple international conspiracies, and those numbers are sure to grow as the investigation continues.   These charges have resulted in $1.8 billion in criminal fines, including the third-largest criminal antitrust fine ever.   Of the 26 executives charged so far, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements requiring significant sentences.

During the past several years, the division also prosecuted international price-fixing conspiracies involving liquid crystal display panels. These conspiracies hurt U.S. consumers by dramatically inflating prices for computer monitors, notebook computers, and televisions, among other products. In 2012, the division secured convictions of Taiwan-based AU Optronics, its subsidiary, AU Optronics Corp. America, and three former top executives for their participation in such a conspiracy.   The trial against AU Optronics was the first time the division proceeded under the alternative fine statute, 18 U.S.C. § 1571, which allows for fines up to two times the gain or loss resulting from the conduct. The division proved beyond a reasonable doubt to the jury that the combined gains to the participants in the conspiracy were $500 million or more and that the defendants’ conduct accordingly merited a fine exceeding the Sherman Act’s $100 million maximum.   . . .

There is more to come.  . . . There can be little doubt that the division vigorously prosecutes wrongdoers. . . .

During the Obama administration U.S. enforcers have broken new ground in relations with China and India. In the past few years, the division and the FTC have entered into Memoranda of Understanding (MOU) with the Chinese and Indian enforcement agencies.  These MOUs have led to annual bi-lateral meetings between the U.S. antitrust enforcement agencies and agencies from these nations.  Indeed, earlier this month, I attended with Chairwoman Ramirez a bi-lateral meeting with the Chinese authorities in Beijing. We see candid engagement with the Chinese and Indian agencies as important, and we look forward to increased cooperation in the coming years.

Cooperation also plays an important role in our international criminal cartel investigations. Working with competition enforcers in non-U.S. jurisdictions, we share information where we are able; and we can plan coordinated raids around the world, reducing the opportunity for key evidence to go missing or be destroyed. . . .”

 

When foreign corporate executives are found to be guilty of engaging in a cartel to set prices, this is considered a crime of moral turpitude and the foreign executive is barred from entering the US for a minimum of 15 years.  Under a memorandum of understanding between Justice and Immigration and Naturalization Services (“INS”), now Immigration and Customs Enforcement (“ICE”), if the foreign executive pleads guilty and cooperates with authorities, that executive can be exempted from the 15 year exclusion and continue to enter the US.  Antitrust criminal defense attorneys have argued that this exemption is unfair because it places unfair pressure on the foreign executive to forgo their right to trial.

On January 24, 2014, in response to questions from Congress on this issue, Assistant Attorney General Baer stated in the attached response:

 

“In general, moral turpitude has been held to be conduct that is inherently dishonest and contrary to accepted rules of morality and the duties owed between persons or to society in general. Tax fraud, mail fraud, securities fraud, and theft offenses, for example, have been held to be crimes of moral turpitude. Similarly, price-fixing, bid-rigging, and market allocation agreements among companies that hold themselves out to the public as competitors are inherently deceptive and defraud consumers who expect the benefits of competition. Thus, the division’s Memorandum of Understanding (“MOU”) with INS states that INS, now the Department of Homeland Security as successor to INS, considers criminal antitrust offenses to be crimes involving moral turpitude, which may subject an alien defendant to exclusion or deportation.

However, an alien defendant who is convicted of an antitrust offense at trial retains the ability to contest his removability from the United States.

In today’s global marketplace, many culpable executives involved in international cartels affecting U.S. consumers and commerce are foreign nationals. They may live and work outside the U.S., but their cartel conduct affects billions of dollars of U.S. commerce yearly and takes money out of consumers’ pockets. The MOU was drafted in order to allow the Antitrust Division to secure jurisdiction over and cooperation of these foreign nationals in the division’s investigations and prosecutions of international cartels and to hold these foreign nationals accountable for antitrust crimes, just as domestic defendants are held accountable.

The cooperation of defendants receiving immigration relief under the MOU is critical to the division’s ability to investigate and prosecute international cartel activity. A foreign defendant’s willingness to cooperate with the division provides the basis for the waiver of inadmissibility under the MOU, and fulfilling the continuing cooperation requirements with the division is a condition of a defendant’s retention of the waiver. Having cooperating witnesses from multiple companies is essential to fully investigate cartels and to hold responsible individuals at each corporate conspirator accountable.

Moreover, having defendants who have pleaded guilty is important at Antitrust Division trials. Extending the MOU waiver to noncooperating defendants would undermine the incentives provided by the MOU and be unjust to those foreign nationals who are willing to accept responsibility for their criminal conduct, submit to U.S. jurisdiction, cooperate with the division, and serve time in U.S. prison. It would also be unworkable to require pleading foreign defendants to continue their cooperation to maintain the waiver while at the same time giving the MOU waiver to non-pleading defendants who have not accepted responsibility and fully cooperated with the division.”

BAER STATEMENTS TO CONGRESS

CHINA ANTITRUST CASES

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from the NDRC.  China’s National Development and Reform Commission (NDRC) is becoming an increasingly aggressive regulator and is focusing on information technology providers, especially companies that license patent technology for mobile devices and networks.

Apparently, the NDRC is trying to lower domestic costs as China rolls out its faster 4G mobile networks this year.  US -based Qualcomm is scheduled to obtain the vast majority of licensing fees for the chip sets used by handsets in China, the world’s biggest smartphone market in the World.

Under the Chinese antimonopoly law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year.  Qualcomm reportedly earned $12.3 billion in China for its fiscal year ended September 29, or nearly half of its global sales.

Qualcomm is no stranger to substantial fines.  In 2009, South Korea’s Fair Trade Commission fined the company 273 billion won ($252 million), the highest Korean penalty ever against a single company, for abusing its dominant position in CDMA modem chips which were then used in handsets manufactured in Korea.

SECURITIES

SEC DROPS CHINESE AUDIT CASE AGAINST DELOITTE

On January 27th the SEC told the Federal Court that it was dropping its case against Deloitte for failure to turn over audit documents of a Chinese technology company.  The SEC stated that Deloitte was supplying the audit papers to the China Securities Regulatory Commission, which, in turn, was supplying the records to the SEC.

The dismissal of the case, however, will not affect a separate SEC action against the Chinese offices of the Big Four accounting firms for refusing to reveal client documents to the SEC.  An SEC administrative law judge recently ruled that the China based offices are barred from auditing companies that do business in the U.S.

JURY CLEARS CHINESE INVESTMENT ADVISOR SIMING YANG

On January 13th, a jury in the Federal District Court found Chinese investment adviser Siming Yang not guilty on insider trading claims brought by the U.S. Securities and Exchange Commission (“SEC”), but did find Yang guilty for other violations, including making false disclosures to the regulator.

FOREIGN CORRUPT PRACTICE ACT–CORRUPTION ISSUES IN CHINA FOR FOREIGN COMPANIES

On February 4th, Carl Hinze in Dorsey’s Shanghai office published the attached article “Doing business in and with China: Battling a corruption culture by building a compliance culture”.

HINZE ARTICLE FCPA

COMPLAINTS

On January 10, 2014, Deborah Donoghue filed the attached securities case against Secure alert, Short Swing Profits, which are all owned by Sapinda Asia and Lars Windhorst, a Hong Kong Company, for short swing profits. SAPINDA HK

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

Best regards,

Bill Perry

US CHINA TRADE WAR–REAGAN PREDICTED IT, TRADE, CUSTOMS, 337/PATENTS, US CHINA ANTITRUST, AND SECURITIES

Washington Monument After the Snow Washington DCJanuary 3, 2014

“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN , JUNE 28, 1986

Dear Friends,

There have been some major developments in the trade, Customs, patents, US/Chinese antitrust, and securities areas.

In looking at the first posts I wrote on my blog, they were relatively short, but with the US litigation against Chinese companies in the US and the Chinese litigation against US companies growing, the Posts will grow even larger.

As mentioned before, the US China Trade War is expanding into many different areas.  Trade and Customs were simply the first areas of attack.

PRESIDENT RONALD REAGAN PREDICTED TRADE WAR WITH CHINA

My intention was to upload this post to my blog by the end of December.  Unfortunately, did not make it, but while on Christmas break I was at the Ronald Reagan Center in Santa Barbara, California.

In October 1980, I joined the US International Trade Commission (“ITC”) as a staff attorney in the Office of General Counsel and later in the Chief Counsel’s office in the Commerce Department.  During that entire time, Ronald Reagan was President.  During that period, the ITC was also the most free trade Commission in its history as Reagan appointed Commissioner after Commissioner with strong free trade ideologies, such as Susan Liebeler, Anne Brunsdale, and Robert Cass.  From my observation, Ronald Reagan was the most free trade president in my lifetime.  Congress, however, does not like free traders.

While at the Santa Barbara Center, I listened to the attached speech by President Ronald Reagan on international trade and was amazed because he predicted with absolute accuracy the present state of trade relations with China.  REAGAN IT SPEECH  On June 28, 1986 from his California Ranch, President Reagan stated as follows:

 

“Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a  nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.

That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flimflammery in American politics.

But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth. You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

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

We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. They organized the General Agreement on Tariffs and Trade, or GATT, to promote free trade. It hasn’t all been easy going, however. 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.”

 

Several thoughts come to mind when reading this speech.  When President Reagan speaks of a “protected industry” that  “is so listless and its competitive instincts so atrophied that it can’t stand up to the competition”, think the US Steel Industry, which has had antidumping and countervailing duty orders in place against steel imports for more than 40 years.  Is Bethlehem Steel alive today?  No, the orders did not work.

Second, President Reagan mentions the Smoot-Hawley Tariff Act.  The real name of that law is the Tariff Act of 1930, and where are the US antidumping and countervailing duty laws to be found—The Tariff Act of 1930.  Yes, many parts of the Smoot Hawley Tariff Act are alive today.

Finally President Reagan truly predicted the Trade War with China, including the Chinese reaction to the Solar Cells antidumping and countervailing duty cases and the other trade cases against China.  The Solar Cells cases against China has led to the Polysilicon antidumping and countervailing duty cases against the US, wiping out $2 billion in US exports to China.  The Section 421 Tires case described below led to Chinese antidumping and countervailing duty cases against automobiles and chicken from the US.

The Trade War with China truly has become a pie fight in the old Hollywood comedies– “Everything and everybody just gets messier and messier,” but the sad part is that it costs jobs.

TRADE

SOLAR CELLS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN

On December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan with alleged antidumping rates of 298%.

The antidumping and countervailing duty petition covers crystalline silicon photovoltaic products, including solar cells, modules and panels,  from China and Taiwan.  The specific products covered by the new antidumping and countervailing duty investigations are:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

“Also excluded from the scope of this investigation are any products covered by the existing antidumping and countervailing duty orders on crystalline silicon photovoltaic cells, whether or not assembled into modules, from the People’s Republic of China- case numbers A-570-979 and C-570-980.”

Attached is a copy of the injury petition.  AD CVD CASE SOLAR WORLD TAIWAN AND CHINA

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days.  Chinese companies also must be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 3, 2014, the US International Trade Commission issued the attached notice regarding the preliminary injury investigation in the new Solar Cells, Modules and Panels case against China and Taiwan.  USITC Solar Panels PRELIMNARY NOTICE  The ITC’s preliminary conference is scheduled for January 21st in Washington DC.

If anyone is interested in participating in the case at the ITC or the Commerce Department, please feel free to contact me.

FIRST SOLAR CELLS CASE–REVIEW REQUESTS

In the first Solar Cells case, the first annual review investigations have just started up, which will determine the actual liability of US importers for antidumping and countervailing duties on their imports.  On December 31, 2013, Solar World and the other US solar cell producers filed the attached letters requesting that the Chinese companies named in the letters be included in the review investigations. AD SolarWorld Review Request-12-31-13 SolarWorld CVD Review Request-12-31-13

If you are a Chinese producer/exporter and you are named in the letter, you must partcipate in the review investigation or you will lose your 24% antidumping rate and your new rate will be 250%.  If you are an importer of solar cells during the specific review periods and your Chinese suppliers are named in these letters, you must make sure that they participate in the review investigations.  If your suppliers do not participate, the antidumping rate will go from 24% to 250% and you the importer will be retroactively liable for the difference plus interest.

TRADE NEGOTIATIONS—BALI/DOHA ROUND AND TPP

In the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) negotiations.  Both negotiations could have a major impact on China trade.

Attached is an article that I have written together with a Canadian trade and customs lawyer about the impact of the TPP from both the US and Canadian point of view.FINAL ARTICLE TPP US CHINA

DOHA ROUND-BALI

From China’s point of view, the WTO negotiations in the Doha Round are extremely important.  The only way that China can deter many trade actions is to work within the multilateral framework to reduce trade barriers to Chinese products.

Multilateral WTO negotiations are even more important for China because of the ongoing TPP negotiations, which at this moment do not include China.  As indicated in my attached article on the TPP, the US and other countries see the TPP negotiations as one way to offset China’s rise in the trade area.

But multilateral and bilateral trade negotiations are by their nature a give and take.  All countries in the negotiations have to be willing to reduce some of their own trade barriers to persuade other countries to lower their trade barriers.  No country wins or loses on all issues.  By their nature, trade negotiations involve tradeoffs.

So the WTO and TPP trade negotiations are going to be of continued interest to Chinese companies and US importers.

WTO NEGOTIATIONS-BALI

As mentioned in a past post, the United States Trade Representative (“USTR”) pointed to the coming World Trade Organization (“WTO”) multilateral negotiations in Bali on trade facilitation measures, which would streamline customs procedures, as being very important as well as the proposed Trans-Pacific Partnership with 11 other Pacific Rim countries, which were “posed to close”.

On November 27, 2013, however, there were reports that the WTO multilateral negotiations in Bali had broken down, in part over the Trade Facilitation report.  But those statements were premature.

On December 6, 2013, WTO members announced that a Trade Facilitation Agreement had been struck by the member countries.  This would be the first WTO-wide agreement in the organization’s nearly two decade history.  Round-the-clock negotiations at the conference led to the so-called Bali package -the first membership-wide agreement since the WTO was created in 1995.  The Bali Package includes measures on trade facilitation, intended to streamline customs and other procedures that affect the shipment of goods across borders, as well as provisions on agriculture and economic development.

“For the first time in our history: the WTO has truly delivered.” WTO Director-General Roberto Azevedo said in a December 5th statement. “I challenged you all, here in Bali, to show the political will we needed to take us across the finish line. You did that. And I thank you for it.”

The WTO was able to overcome objections from Cuba, Venezuela, Bolivia and Nicaragua because it did not address a U.S. embargo against Cuba, which has been in place for more than 50 years, and other trade embargoes.  The agreement was to add an additional sentence in Bali deal’s text that upheld the “principle of non-discrimination in goods in transit.”

India also raised concerns over part of the package’s agriculture section that dealt with agricultural subsidy programs that some developing countries offer to promote “food security” and combat hunger.

Those concerns, however, appeared to have been largely addressed in the draft text circulated December 3rd, which contained an interim agreement, under which WTO members would refrain from lodging disputes against developing countries that stockpile crops as part of a food security program, as long as the subsidies do not distort trade.

The Peterson Institute for International Economics said an ambitious agreement on trade facilitation could add $960 billion to the world economy.  But the symbolism is more important.  The Bali Agreement is very important for both developed and developing countries.  Many of the FTA agreements, such as the ongoing TPP agreements, could hurt the developing countries the most.  The movement of both the TPP and the Trans- Atlantic Agreement puts more pressure on the WTO countries to reach a deal.

The importance of the Bali Agreement is that it means the WTO can still be an effective forum for truly multilateral trade negotiations.  If no deal had been reached in Bali, this could have led to the collapse of the WTO as a multilateral forum to negotiate reductions of trade barriers.

In a speech in Bali, WTO Director-General Roberto Azevedo stated, “What’s at stake is the cause of multilateralism itself”

TPP NEGOTIATIONS RUN INTO HEADWINDS

The USTR and US government officials were predicting that the Trans Pacific Partnership (“TPP”) negotiations would conclude at the end of the year with an Agreement.  That was simply too optimistic.  Secret negotiations are going to generate controversey.

On December 10th, the Trade Ministers for the 12 countries negotiating the TPP announced in Singapore “substantial progress” in the talks, but there would be no deal by the end of the year.  In a joint statement, the Ministers indicated that they had engaged in productive discussions, identifying potential solutions to a number of outstanding obstacles, but more meetings would be held in 2014.

Rep. Sander Levin, D-Mich., the top Democrat on the Ways and Means Committee of U.S. House of Representatives, indicated that critical work lay ahead, especially the continued closure of Japan’s market to U.S. cars and agricultural products, the implementation of enforceable labor and environmental rules, and strict rules on currency manipulation and state-owned enterprises.

South Korea has indicated interest in the talks, but it is unlikely that any other country would join the agreement while the talks are still ongoing.  Presently, the TPP negotiations include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The two most important countries for the US, however, are Japan and possibly Vietnam.  Japan is important because of decades long problems involving automobiles and agriculture products, and Vietnam because as a non-market economy Communist country, it could be a forerunner to China.

 On December 10th Ways and Means Committee Chairman Dave Camp (R-MI) stated that there had been significant progress in the Singapore Round and countries will continue their work in January.

“The headway achieved so far on TPP is positive, but more work remains. There are longstanding issues that need to be resolved, like access for U.S. automakers and farmers, and we should take the time to get this agreement right. I look forward to consulting with Ambassador Froman when he returns on the next steps. Concluding these negotiations, as well as other trade agreements, will require Congressional passage of Trade Promotion Authority legislation. Given the considerable bipartisan and bicameral progress that has been made on that front, I expect we will be in a position to do so early next year if we have the Administration’s active participation.”

In addition, Congressional leaders announced that they had come to agreement on providing the Administration Trade Promotion Authority or Fast Track Authority.

But the TPP then ran into headwinds.

AGRICULTURE

On December 19, 2013, American Farm Bureau Federation, American Meat Institute, American Soybean Association, International Dairy Foods Association, National Association of Wheat Growers, National Cattlemen’s Beef Association, National Chicken Council, National Corn Growers Association, National Milk Producers Federation, National Oilseed Processors Association, National Pork Producers Council, National Turkey Federation, North American Meat Association, U.S. Dairy Export Council, U.S. Grains Council, U.S. Wheat Associates, USA Rice Federation announced that they would oppose the TPP if a final version did not require Japan to eliminate tariffs on virtually all US agricultural exports.

In the attached letter AG LETTER TO USTR to U.S. Trade Representative Michael Froman, the seventeen agriculture industry groups stated:

“Dear Mr. Ambassador:

We are writing to express our concern with the state of play of the Trans-Pacific Partnership (TPP) negotiations. Each of our organizations has expressed in the past strong support for a comprehensive, high-standard TPP agreement. However, we have watched with growing alarm the unwillingness of Japanese negotiators to present a comprehensive offer on agricultural products, and we now believe this situation is threatening to undermine the negotiations.

In previous negotiations, the United States has demanded and received from developing country trading partners full and comprehensive liberalization in the agricultural sector. Yet in the TPP negotiations, Japan – a rich, developed country – is demanding special treatment for its agricultural sector. We consider an agreement that includes such special treatment for Japan to be unacceptable.

If Japan is allowed to claim exceptions for sensitive products, other TPP partners will inevitably demand the right to do the same. This could quickly lead to the unraveling of the agreement, as other parties pull their offers on sensitive products, or their concessions on sensitive issues, off the table.

However, even if it were possible to prevent the agreement among current parties from unraveling, granting exceptions to Japan, or any other party, would have far-reaching consequences. As the TPP expands to include other countries in the Asia-Pacific region, we can expect other countries with sensitivities in the agricultural sector, such as China, to make similar demands. Moreover, a weak agreement with Japan would inevitably have significant negative implications for our ability to reach an acceptable agreement with the EU in the Transatlantic Trade and Investment Partnership negotiations.

U.S. agriculture has always supported trade agreements and Trade Promotion Authority as the most effective means of eliminating tariff and non-tariff barriers and expanding global trade. However, the market access package you negotiate with Japan has the potential to impact billions in future exports and hundreds of thousands of jobs.

In conclusion, TPP must include comprehensive liberalization in the agricultural sector by all participating countries. If Japan continues to insist on unreasonable protections to a range of agricultural categories, we ask you to consider concluding TPP without Japan. It will ultimately be difficult for our organizations to support a TPP agreement with Japan that does not include comprehensive trade liberalization for all agricultural sectors.”

This is an extremely important development because US agriculture is the primary force pushing for Free Trade Agreements.  If the farmers do not support the TPP, there will be no agreement.

UNIONS

On December 9th, The International Association of Machinists and Aerospace Workers (“IAM”), which represents around 700,000 current and former industrial workers, announced that the TPP would be a job killer, leading to a massive loss of American jobs.  The IAM argued that past trade deals did not create jobs and has lead to a “death sentence” for American workers.

The IAM stated that it is strongly opposed to the revival of “fast-track” authorities that expired in 2007 and “If TPP is implemented, U.S. manufacturing may well find itself on the endangered species list.”

DRUGS AND IP

On December 11, 2013, potential provisions in the TPP on drug patent protections and the length of copyright terms came under fire with Democratic lawmakers, library associations and consumer groups voicing concern over proposals that are currently on the table.

Several Democratic Congressmen urged USTR to reconsider its reported proposals for handling pharmaceutical patents in the TPP. CONG LETTER A number of libraries, digital rights and consumer groups argued against a copyright protection for a term of 70 years after the creator of a particular work dies.

Representative Henry Waxman, D-Calif and Senator Orrin Hatch, R-Utah sent separate letters arguing for and against the proposal of a 12-year market exclusivity period for biologics – drugs developed through biologic processes that can be used to treat diseases like cancer and rheumatoid arthritis.  Waxman argues for 7 years and Hatch is arguing for 12 years.

As Representative Waxman states in the attached letter Waxman TPP Drug IP Letter:

“The United States only recently established its biosimilars pathway when it enacted the Patient Protection and Affordable Care Act (PPACA) (Pub. L. No. 111-148) and the consequences of PPACA’s mandated twelve years of biologics exclusivity are not yet known.

Proposing twelve years of exclusivity in the context of TPP negotiations would conflict with stated Administration policy, as reflected in President Obama’s FY 2014 budget proposal, recommending that the exclusivity period for biologics be reduced to seven years. Were the TPP ultimately to contain a twelve year biologics exclusivity provision, it would impede the ability of Congress to achieve the President’s proposed seven year change because doing so would run afoul of U.S. trade obligations.

As we have discussed before, it is also critical that USTR ensure that developing countries are not left behind in this agreement. The United States must ensure that the TPP does not result in generic medicines becoming available in TPP developing countries later than in the United States. In addition, the patent flexibilities available to developing nations in the Doha Declaration on Public Health should not be denied or weakened in the agreement.”

SECTION 421 SPECIAL SAFEGUARD PROVISION AGAINST CHINA EXPIRED ON DECEMBER 11, 2013

On December 11, 2013, Section 421 of the Trade Act of 1974, a special safeguard law against China, expired as a result of provisions in the US China WTO Agreement.  The safeguard allowed the President to impose higher tariffs and other trade relief if the US International Trade Commission (“ITC”) determined that increased imports from China caused or threatened material injury to a US industry.

Although there were several affirmative ITC Section 421 determinations during the Bush Administration, President Bush refused to provide relief.  The provision resulted in trade restrictions only once, when President Obama approved an ITC determination that the importation of Chinese rubber tires was injuring U.S. tire manufacturers.

Many US tire producers, however, were opposed to the Section 421 case, but the Unions were very much in favor of the relief, which President Obama issued to counter criticism in an election year that he was not tough enough on China.

President Obama’s decision to impose relief in the Tires case, however, resulted in the Chinese government bringing antidumping and countervailing duty cases against the United States on automobiles and chicken.  The Chicken AD and CVD orders in China continue to block approximately $1 billion in the US exports of chicken to China.

SILICA BRICKS

On December 12, 2013, in another surprising decision, the ITC in 6-0 unanimous determination reached a negative injury determination in the antidumping case on silica bricks from China.  ITC NEGATIVE SILICA BRICKS The ITC negative determination followed a Commerce Department affirmative determination issuing Chinese companies antidumping rates ranging from 63.81 to 73.1% on imports of silica bricks.

JANUARY REVIEW INVESTIGATIONS

On January 2, 2014, the Commerce Department issued its monthly notice stating that Chinese companies and US importers that want review investigations in the following investigations should file such a request by the end of the month.  The specific antidumping and countervailing duty investigations at issue are:

Antidumping Investitgations

On THE PEOPLE’S REPUBLIC OF CHINA:
Crepe Paper Products, A-570-895………………    1/1/13-12/31/13
Ferrovanadium, A-570-873…………………….    1/1/13-12/31/13
Folding Gift Boxes, A-570-866………………..    1/1/13-12/31/13
Potassium Permanganate, A-570-001………………..    1/1/13-12/31/13
Wooden Bedroom Furniture, A-570-890………………    1/1/13-12/31/13

Countervailing Duty Proceedings

THE PEOPLE’S REPUBLIC OF CHINA:
Certain Oil Country Tubular Goods, C-570-944…..    1/1/13-12/31/13
Circular Welded Carbon Quality Steel Line Pipe, C-   1/1/13-12/31/13
570-936…………………………………..

SHELLFISH

On December 5th, the Washington State Government reported that on December 3 the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Canada, Washington, Oregon, and northern California.  WASHINGTON SHELLFISH ANNOUNCE

China reported a shipment of geoducks tested high in paralytic shellfish poison (PSP) and arsenic.

The Washington Government has stated that it is working with the U.S. Food and Drug Administration, the National Oceanic and Atmospheric Administration, and its state partners gathering facts, tracing the geoducks to the original harvest area, and closely reviewing its PSP test data.

On December 20th, Washington State and tribal officials closed a 135-acre geoduck-harvesting area outside Federal Way Washington until they could fully investigate the toxicity levels that caused China to ban shellfish imported from the West Coast.

Washington State officials learned that arsenic was the toxin Chinese authorities detected in a shipment of geoduck clams to China from Washington’s Poverty Bay.

That shipment, along with one from Ketchikan, Alaska, led China on Dec. 3 to ban all imports of shellfish harvested in Washington, Alaska, Oregon and Northern California.

The Washington Department of Health traced the shipment back to 385 pounds of geoduck harvested in October by the Puyallup Tribe in Poverty Bay on what the Department of Natural Resources calls the Redondo Tract.

“There are no federal safety standards at all for arsenic in shellfish because it is not something that is typically an issue,” said Tim Church, the health department’s director of communications. “With the tests that we’ve done in the past, we’ve never found levels of arsenic that would be a concern for eating shellfish.”

China has not said when it will lift the ban on West Coast shellfish.

The Chinese government’s decision to ban all shellfish harvested from Northern California to Alaska would appear to be excessive, but that decision must be taken in context.

Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

CHINESE TEXTILE MANUFACTURER MOVES TO—SOUTH CAROLINA

In a bright spot, it has been reported that a Chinese yarn maker has decided it can make more money setting up shop in the US in South Carolina.  Keer Group Co., a yarn spinning factory in Hangzhou, China, has moved to South Carolina.

A number of Asian textile manufacturers have decided to set up production in the U.S. to save money as salaries, energy and other costs rise at home. Keer has invested $218 million to build a factory in Lancaster County, not far from Charlotte, N.C. The new plant will pay half as much as Mr. Zhu does for electricity in China and get local government support, he says.  Keer expects to create at least 500 jobs.

In another benefit, Keer can ship yarn to manufacturers in Central America, which, unlike companies in China, can send finished clothes duty-free to the U.S.

In September, JN Fibers Inc. of China agreed to build a $45 million plant in South Carolina that turns plastic bottles into polyester fibers used to stuff pillows and furniture. That investment is expected to create 318 jobs.

Keer stated costs for industrial land in Hangzhou have increased because China’s textile industry is plagued by overcapacity, which has squeezed profits, and local governments are reluctant to sell land to producers.

The local government in South Carolina, which has 8.1% unemployment, has set an annual fixed fee in lieu of taxes that Keer will pay for 30 years. Sixty percent of that annual fee will be returned to the company each year until it has paid off a $7.7 million bond that the county issued to help buy the land.

MAKING OF A T-SHIRT

The reality of interdependence in our Trade World is illustrated by the attached video from the Colbert Report, which traces the production of a T-shirt sold in the United States from the cotton produced in the US to cloth produced in Indonesia to the T-shirt produced in Bangledesh. http://www.colbertnation.com/the-colbert-report-videos/431141/december-10-2013/alex-blumberg

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

CHINESE ANTIDUMPING CASE

CHICKEN

In response to a WTO determination, on December 27, 2013, MOFCOM announced that it would reinvestigate the antidumping and countervailing duties on chicken from the US, specifically against white-feather broiler chicken products from the U.S.

CUSTOMS

INSURANCE COMPANY LIABLE FOR NEW SHIPPER ANTIDUMPING DUTIES IN CRAWFISH CASE

In an antidumping new shipper review investigation on Crawfish from China, a US importer, New Phoenix, posted eight single-transaction bonds issued by Great American to cover seven entries of crawfish tailmeat, with a value of $1,219,458 for each bond or a total of $6,097,290 in liability.  When the importer could not pay, the US Customs Service sued the insurance company for the amount of the bonds plus interest.

In attached decision, the Court of Appeals for the Federal Circuit orders Great American to pay the $6 million plus postjudgment interest.  INSURANCE COMPANIES OWE AD DUTIES

RHINO HORN

On December 19, 2013, the US Justice Department announced that Zhifei Li, the owner of an antique business in China, had pled guilty to being the organizer of an illegal wildlife smuggling conspiracy in which 30 rhinoceros horns and numerous objects made from rhino horn and elephant ivory worth more than $4.5 million were smuggled from the United States to China.  See attached Justice Department notice.  RHINO HORN

Li was arrested in Florida in January 2013 on federal charges brought under seal in New Jersey.  Shortly after arriving in the country, he pled guilty to a total of 11 counts: one count of conspiracy to smuggle and violate the Lacey Act; seven counts of smuggling; one count of illegal wildlife trafficking in violation of the Lacey Act; and two counts of making false wildlife documents.

Li was arrested as part of “Operation Crash” – a nationwide effort led by the USFWS and the Justice Department to investigate and prosecute those involved in the black market trade of rhinoceros horns and other protected species.

Acting Assistant Attorney General Dreher for the Justice Department’s Environment and Natural Resources Division stated:

The take-down of the Li smuggling ring is an important development in our effort to enforce wildlife protection laws. Rhino horn can sell for more than gold and is just as rare, but rhino horn and elephant ivory are more than mere commodities. Each illegally traded horn or tusk represents a dead animal, poaching, bribery, smuggling and organized crime. The Justice Department will continue to vigorously enforce the law designed to protect wildlife. This is a continuing investigation.

In pleading guilty, Li admitted that he sold 30 smuggled, raw rhinoceros horns worth approximately $3 million –approximately $17,500 per pound – to factories in China where raw rhinoceros horns are carved into fake antiques known as Zuo Jiu (which means “to make it as old” in Mandarin).  In China, there is a centuries-old tradition of drinking from an intricately carved “libation cup” made from a rhinoceros horn. Owning or drinking from such a cup is believed by some to bring good health, and true antiques are highly prized by collectors. The escalating value of such items has resulted in an increased demand for rhinoceros horn that has helped fuel a thriving black market, including recently carved fake antiques.

PATENT/IP AND 337 CASES

NO 337 VIOLATION IF IMPORTED PRODUCT ON ENTRY DOES NOT INFRINGE THE PATENT

On December 13, 2013, the Court of Appeals for the Federal Circuit (CAFC) in the attached Suprema, Inc. and Mentalix Inc. vs. ITC held that an exclusion order based on a violation of § 337(a)(1)(B)(i) may not be predicated on a theory of induced infringement where no direct infringement occurs until post-importation.  CAFC Slip Opinion 12-1170 SUPREMA INC – CROSS MATCH v ITC

The patents at issue concern fingerprint machines.  The Suprema fingerprint machines had multiple uses, but after the fingerprint machines were imported into the United States, software from Mentalix was applied to the Suprema fingerprint machines, resulting in infringement of patents held by a US company.  The ITC found that Suprema and Mentalix had violated section 337 based on an induced infringement theory and issued an exclusion order.

The CAFC determined not so fast.  Section 337 is also a trade statute, and the Commission’s authority in section 337 cases is based on its jurisdiction over the imported products.  According to the CAFC, however, the imported products have to infringe the patent at the time the products are imported into the US, especially where the imported product has multiple uses and the only infringing use happens after the product is imported into the US.

As the CAFC stated in its opinion:

“The Commission’s mandate to deal with matters of patent infringement under § 337(a)(1)(B)(i) is thus premised on the “importation,” “sale for importation,” or “sale within the United States after importation” of “articles that . . . infringe.” . . . Thus, the Commission’s authority extends to “articles that . . . infringe a valid and enforceable United States patent.” The focus is on the infringing nature of the articles at the time of importation, not on the intent of the parties with respect to the imported goods.  . . .

Given the nature of the conduct proscribed in § 271(b) and the nature of the authority granted to the Commission in § 337, we hold that the statutory grant of authority in § 337 cannot extend to the conduct proscribed in § 271(b) where the acts of underlying direct infringement occur post-importation. Section 337(a)(1)(B)(i) grants the Commission authority to deal with the “importation,” “sale for importation,” or “sale within the United States after importation” of “articles that . . . infringe a valid and enforceable U.S patent.” The patent laws essentially define articles that infringe in § 271(a) and (c), and those provisions’ standards for infringement (aside from the “United States” requirements, of course) must be met at or before importation in order for the articles to be infringing when imported. Section 271(b) makes unlawful certain conduct (inducing infringement) that becomes tied to an article only through the underlying direct infringement. Prior to the commission of any direct infringement, for purposes of inducement of infringement, there are no “articles that . . . infringe”—a prerequisite to the Commission’s exercise of authority based on § 337(a)(1)(B)(i).

Consequently, we hold that the Commission lacked the authority to enter an exclusion order directed to Suprema’s scanners premised on Suprema’s purported induced infringement of the method claimed in the ’344 patent.”

The key point is that section 337 is not just an intellectual property statute; it is also a trade statute.  Section 337, just like the antidumping and countervailing duty law, regulates imports, and thus the CAFC is stating that since 337 is a trade statute, the product must be infringing at the time of importation.  If the infringement happens after importation, that can be a real problem for the US patent holder in a 337 case.

337 CASE RESULTS IN ANTITRUST RETALIATION IN CHINA

As indicated below, Interdigital has filed a section 337 case against Huawei.  Huawei retaliated by filing an antitrust case in China under Chinese law.  The Chinese government’s antitrust authority, NDRC, is now threatening jail time to Interdigital executives.

What is worse is that on December 20th, in the attached decision the ITC rejected Interdigital’s complaint and found no violation of section 337 so Interdigital lost the section 337 case, but is stuck with a Chinese antitrust case.  ITC NOTICE INTERDIGITAL  Sometimes you bite off more than you can chew.

NEW 337 CASES AGAINST CHINESE COMPANIES

On December 11, 2013, Tyco filed a new 337 case against imports of certain surveillance systems.  One of the respondents is Ningbo Signatronic Technologies, Ltd., China.

The ITC notice is set forth below:

Docket No: 2990

Document Type: 337 Complaint

Filed By: Brian R. Nester, Sidley Austin LLP

Behalf Of: Tyco Fire & Security Gmbh (TFSG), Sensormatic Electronic, LLC

(Sensormatic) and Tyco Integrated Security, LLC (TIS)

Date Received: December 11, 2013

Commodity: Acousto-Magnetic Electronic Article Surveillance Systems

Description: Letter to James R. Holbein, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Acousto-Magnetic Electronic Article Surveillance Systems, Components Thereof, and Products containing same. The proposed respondents are: Ningbo Signatronic Technologies, Ltd., China; All-Tag Security Americas, Inc., Boca Raton, Florida; All-Tag Security Hong Kong Co., Ltd., Hong Kong; All-Tag Europe SPRL; Brussels; All-Tag Security UK Ltd., United Kingdom; Best Security Industries, Delray Beach, FL; and Signatronic Corporation, Boca Raton, FL.

 

On December 18th, Pragmatus filed a section 337 case against ZTE on Wireless Devices.  The notice is below:

Docket No: 2992

Document Type:337 Complaint

Filed By:Anthony Grillo

Firm/Org:Marino and Grillo LLC

Behalf Of:Pragmatus Mobile, LLC

Date Received:December 18, 2013

Commodity:Wireless Devices, including Mobile Phones and Tablets II

Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Wireless Devices, Including Mobile Phones and Tablets II. The proposed respondents are Nokia Corporation (Nokia Oyj), Finland; Nokia, Inc., Sunnyvale, CA; Samsung Electronics Co., Ltd, Korea; Samsung Electronics America, Inc., Ridgefield Park, NJ; Samsung Telecommunications America, L.L.C., richardson, TX; Sony Corporation, Tokyo; Sony Mobile Communications AB, Sweden; Sony Mobile Communications (USA), Inc., Atlanta, GA; ZTE Corporation, China; and ZTE (USA) Inc., Richardson TX.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On December 2, 2013, Chanel filed a major trademark suit against a number of John Doe Unknown companies that were infringing its trademarks.  CHANEL TMK CHINA In the Complaint Chanel states:

“Defendants are partnerships or unincorporated business associations, which operate through domain names registered with registrars in multiple countries, commercial internet e-stores via the third party marketplace website C2Coffer.com, and commercial Internet auction store via the third party marketplace website iOffer.com, and are comprised of individuals and/or business entities of unknown makeup, all of whom, upon information and belief, reside in the People’s Republic of China or other foreign jurisdictions with lax trademark enforcement systems.”

On December 3, 2013, Concinnnitas and George W. Hindman filed patent cases against Huawei Device USA Inc. and ZTE. CONCINNATIS HUAWEI CONCINNATIS ZTE

On December 11, 2013, in addition to the 337 case Tyco sued Ningbo for patent infringement in Federal District court.  NINGBO PATENT

On December 12, 2013, US company Harmonic Drive LLC filed a trademark case against NAC Harmonic Drive, Inc., Harmonic Drive Canada and Beijing CTKM Harmonic Drive Co.  HARMONIC DRIVE

On December 18, 2013 Content Guard Holdings, Inc., filed a patent case against Huawei Device USA and other companies. CONTENT GUARD HUAWEI

On December 17, 2013, Microsoft sued Sichuan Changhong Electric Co., Ltd. for software piracy. MICROSOFT STOLEN SOFTWARE

ANTITRUST

VITAMIN C CASE

As mentioned, the Vitamin C case is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  VITAMIN C FINAL JUDGMENT

On December 30, 2013, the Judge amended the order to add an additional $4,093,163.35 to pay the legal fees of the lawyers bringing the case against the Chinese companies.  See the attached documents.  ATTORNEYS FEES VITAMIN C FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment.

Boies Schiller, the Plaintiffs’ lawyer, also announced on December 11th that it was paying associate bonuses that were as high as $300,000, with the average distribution across the litigation firm’s 133 associates at $85,000.

It pays to sue Chinese companies.

CHINA ANTITRUST CASES

As mentioned in the last post, Qualcomm, a US mobile chip maker, announced that it is the target of an antitrust investigation led by the National Development and Reform Commission (“NDRC”), China’s top economic planning body and antitrust authority.  Also Cisco announced that Chinese companies are reducing their purchases of Cisco equipment in response to the N.S.A. disclosures and the recent US Congressional activity aimed at curtailing purchases of equipment from Huawei and other Chinese companies.

There are three Chinese government entities entrusted with investigating and enforcing the Chinese Anti-Monopoly Law, which was passed in 2007: the State Administration for Industry and Commerce, the Ministry of Commerce, and the NDRC.  The fact that the antitrust investigation is coming from the NDRC, which is in charge of price supervision and inspection, suggests that the government’s objective is to make 4G service more affordable before its introduction next year.

This year, the commission led an inquiry into six foreign dairy companies, including Mead Johnson Nutrition and Groupe Danone, after allegations that they broke anti-monopoly rules and fixed prices.  The investigation resulted in a fine of $109 million, a record for anti-monopoly violations in China.

Now China is using antitrust cases to counterattack 337 patent cases.

INTERDIGITAL—CHINA BRINGS ANTITRUST CASES IN RESPONSE TO 337 CASE

In July 2011, Interdigital filed a section 337 patent case at the US International Trade Commission (“ITC”) against Huawei.  In response, on December 5, 2011, Huawei filed two complaints before the Shenzhen Intermediate People’s Court (the Shenzhen Court) in China, alleging that, by filing the section 337 case and engaging in certain patent practices, InterDigital had (1) abused its dominant market position, contrary to the Anti-Monopoly Law of the People’s Republic of China (AML), and (2) as an owner of several Standard Essential Patents (“SEP”) for 2G, 3G and 4G telecommunications technologies, it had failed to negotiate a fair, reasonable and non-discriminatory license for those patents.

On February 4, 2013, the Shenzhen Court ruled that InterDigital had abused its dominant market position and thus violated the Chinese Anti-Monopoly Law by  tying its standard essential patents with non-standard essential patents during licensing negotiations and seeking injunctive relief against Huawei before the US Federal Court and in the section 337 case before the US ITC while still in negotiations with Huawei to force Huawei to accept unreasonable licensing terms, including excessive royalties.

InterDigital’s requirement that Huawei pay significantly (sometimes even 100 times) higher royalty rates than those required of Apple, Samsung and other companies for the same set of patents, even while Huawei’s global sales were much less than Apple and Samsung, appeared to the Courts to be prima facie evidence of discriminatory treatment. In addition, the Courts noted that InterDigital had also required Huawei to license back all of its global patents on a royalty-free basis (as of 31 December 2010, Huawei owned 31,869 Chinese patents, 8,892 PCT international patent applications and 8,279 overseas patents). To the Court, this appeared contrary to fair or reasonable principles.

The Shenzhen Court ordered InterDigital to cease its unlawful practices and pay Huawei $3.2 million in damages.

On October 28, 2013, there were reports that that the Guangdong Higher People’s Court affirmed most of the rulings of the Shenzhen Court, including the $3.2 million award in damages.

 Unfortunately, the decisions of both the Shenzhen Court and the Guangdong Higher People’s Court have not been publicly disclosed, possibly because of trade secret issues. Thus the following observations are based on media reports and an article by a Chinese attorney.

Apparently, the Chinese Court determined that the owner of a Standard Essentials Patent has a 100 per cent market share in the technology licensing market for that SEP and, therefore, a monopoly, no matter how the market is defined.   If the holder of the Standard Essentials Patent tries to extract supra competitive royalties from industry participants, that is abuse of monopoly power.  In addition, apparently, the Chinese courts determined that by seeking injunctive relief at the ITC under 337 against Huawei, a willing licensee, the conduct constituted an abuse of the Chinese Anti-Monopoly Law.

Both the EC Competition Commission and the FTC have been concerned about the use of standard essential patents to exclude competition.

It should also be noted that the Chinese courts were also concerned that InterDigital’s principal business is patent licensing and that it does not manufacture any product. As a result, Huawei was in a weak bargaining position during licensing negotiations because cross-licensing would not be available, and InterDigital could make use of this advantage to extract more favorable contract terms from Huawei. The Shenzhen Court apparently found that InterDigital had tried to exploit this advantage, by insisting on unreasonably high royalties and requesting Huawei to license back its patents on a royalty-free basis.

There are reports that Qiu Yongqing, a senior judge at the Guangdong Higher People’s Court presiding over the case, is reported to have stated that Huawei “used antitrust law as a weapon to counterattack” monopolization by multinationals in the technology sector, and that other Chinese companies should learn from Huawei.

On December 16, 2013, the dispute between Interdigital and Huawei escalated. In a letter to the NDRC, Interdigital’s CEO announced that it would not send executives to a December 18th meeting with Chinese authorities over China’s monopoly investigation due to threats of possible imprisonment of Interdigital executives, which allegedly included U.S. counsel accompanying the firm to the meeting.

In a statement, CEO William Merritt said:

“To this date, we have cooperated fully with the NDRC’s investigation of our company, and continue to believe that we have done absolutely nothing wrong . . .  However, we are simply unable to comply with any investigation that is accompanied by a threat to the safety of our executives.”

Interdigital’s letter indicated also that the NDRC had informed it that its probe was sparked by InterDigital’s suit in the U.S. International Trade Commission against Chinese firms.

Meanwhile, there are reports out of China that the NDRC will recruit at least 170 new employees for the antitrust law enforcement team to battle price fixing.  The NDRC said its antitrust probes focus on six industries – aerospace, daily chemicals, automobiles, telecommunications, pharmaceuticals and home appliances.

Thus if a US Company brings a 337 IP case at the ITC against Chinese companies, it should be prepared for a possible antitrust case in China.

What goes around, comes around. 

SECURITIES

Attached is a description of Dorsey’s litigation team to handle for Chinese companies US Securities and Exchange Commission (“SEC”) and Class Actions Securities cases.  DORSEY SECURITIES LITIGATION TEAM

CHINESE AUDIT DOCUMENTS TURNED OVER TO SEC

On December 13, 2013, it was reported that Chinese governmental authorities have turned over more audit documents to U.S. regulators regarding U.S.-traded Chinese companies as part of a sweeping U.S. probe of accounting fraud by Chinese companies publicly traded in the US.

Audit documents regarding at least six Chinese companies trading on U.S. exchanges now have been either turned over to U.S. regulators or are “in the pipeline” to be furnished to the Securities and Exchange Commission (“SEC”).

The fight for the audit document resulted from SEC efforts to probe a wave of accounting and disclosure problems at more than 100 U.S.-traded Chinese companies that surfaced starting in 2011. U.S. investors lost billions of dollars when the companies’ stocks plunged once the problems were disclosed. The SEC has filed more than a dozen lawsuits against some of these Chinese companies and their executives and has won settlements in some cases.

But the investigations have been impeded because China-based audit firms, including Chinese affiliates of the Big Four, have refused to hand over audit documents to the SEC out of fear that providing the documents would violate China’s strict state-secrecy rules, which could land their auditors in jail.

Ultimately, that dispute led to the agreement earlier this year, which addressed the audit firms’ concerns by having them give the documents to Chinese regulators, who then would provide them to the U.S.

SERVING CHINESE COMPANIES IN SECURITIES AND OTHER US LITIGATION BY J. JACKSON, DORSEY LITIGATION PARTNER

SERVICE ISSUES IN US LITIGATION AGAINST CHINESE COMPANIES

By

J. Jackson, Partner and Chairman of Dorsey’s China Litigation Practice

Attached is a copy of the opinion in Bravetti v. Liu (D.N.J. December 11, 2013), SERVICE CHINESE RESPONDENTS Bavetti v Liu  which may be of interest to Chinese companies.  In Bravetti, Plaintiffs proceeding derivatively on behalf of American Oriental Bioengineering, Inc. sued current and former officer and directors, each of whom is a resident of the PRC.  The matter came before the Court, Magistrate Judge Bongiovanni, on Plaintiffs’ motion to allow service on the individual defendants by personally serving the U.S. counsel for the company, American Oriental.  Defendants opposed the motion, arguing that the Hague Convention provides the exclusive means for service of process on PRC’s residents and that service on U.S. counsel for the company did not comport with due process.  The Court rejected Defendants’ arguments and allowed service to proceed by personal service on U.S. counsel for the company.

Plaintiffs brought their motion under Rule 4(f)(3) of the Federal Rules of Civil Procedure, which provides,

“(f) Serving an Individual in a Foreign Country. Unless federal law provides otherwise, an individual—other than a minor, an incompetent person, or a person whose waiver has been filed—may be served at a place not within any judicial district of the United States:

*    *     *

(3) by other means not prohibited by international agreement, as the court orders.”

The Court allowed the requested service using the following analysis:  It began by acknowledging, “Courts may direct service when ‘the particularities and necessities of a given case require alternative service of process.’  See Rio Properties, Inc. v. Rio Int’l Interlink, 284 F.3d 1007 at 1016 (9th Cir. 2002).”

The Court further held that alternative service of process was not prohibited by the Hague Convention.  The Court noted that the Hague Convention does not apply “’where the address of the person to be served is not known.’”  Hague Convention, Art. 1.  Here, service was difficult under the Hague Convention, because the residences of the Defendants in the PRC was not known.  Further, the Court found that the Hague Convention does not apply because Plaintiff’s proposed method of service does not require the transmittal of documents abroad.  Under Khachatryan v. Toyota Motor Sales, U.S.A., Inc., 578 F.Supp.2d 1224, 1228 (C.D. Cal. 2008), the Hague Convention did not apply where Khachatryan served Toyota Japan under California law in a manner which did not require the transmittal of documents abroad.  Here, the proposed method to serve Loeb & Loeb in the United States does not require the transmittal of documents abroad.  Thus, the Hague convention does not apply.

The Court last addressed Defendants’ Due Process argument, finding that service on the Company’s U.S. counsel is “reasonably calculated, under the circumstances, to apprise interested parties of the pendency of the action and afford them the opportunity to present their objections.”  Mullane v. Central Hanover Bank &Trust Co., 339 U.S. 306, 314 (1950).  In finding service on the company’s counsel appropriate here, the Court relied on opinions from the United States District Court for the Central District of California, including Brown v. China Integrated Energy, Inc., 285 F.R.D. 560, 566 (C.D. Cal. 2012) (citations omitted) and Rose v. Deer Consumer Products, Inc., 2011 WL 6951969, at *2 (C.D. Cal 2011), both of which allowed service on U.S. registered agents or counsel for individuals residing in the PRC.

Bravetti’s holding should not be limited to Securities derivative litigation.  Whenever a plaintiff finds itself faced with service on PRC residents who, either individually, by agency, or through direct or indirect counsel have a presence in the U.S., that plaintiff will be encouraged to proceed under Civil Procedure Rule 4(f)(3) and seek permission to allow service on their agents, their counsel, or the agents or counsel of the companies on which they serve.

Chinese companies need to keep these issues in mind when they participate in US litigation.

SEC ENFORCEMENT ACTIONS

Tom Gorman, a partner in our Washington DC office, who was originally with US Securities and Exchange Commission’s (“SEC”) enforcement division, was quoted in the attached article about how the SEC has increased its enforcement capability after the Bernie Madoff case.  GORMAN SEC

COMPLAINTS

On December 2, 2013, the attached class action securities case was filed by John Hsieh against NQ Mobile and various individuals.  HSIEH NQ MOBILE

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

Best regards,

Bill Perry

 

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