US CHINA TRADE WAR–TRUMP AND TRADE, TRADE DROP, TAA FOR COMPANIES THE ANSWER, EC NME PROBLEM, UNIVERSAL TRADE WAR, CUSTOMS AND 337

White House Fountain Snow Pennsylvania Ave Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NOVEMBER 14, 2016

Dear Friends,

This blog post contains several articles about trade and Trump after his victory on November 8th.  The Trump victory will have a significant impact on trade policy.  As stated below, the TPP is dead.  The Republican Congress will not oppose Trump and bring the TPP to the Congressional floor in the Lame Duck.  The TPP may only come back when and if the trade safety net, including Trade Adjustment Assistance for Firms/Companies, is fixed.

The trade impact on the Rust Belt states, Wisconsin, Michigan, Pennsylvania and Ohio, is a major reason for the Trump victory.  Trump’s victory means that trade wars may escalate.  But with the increase in trade wars, global trade has already started falling and that means a 2015 drop of $200 billion in US exports.  Exports create US jobs too and when exports fall US jobs fall.

As Congressman Don Bonker states, trade conflicts with China and other countries will increase both from the US and the Chinese side. Trump may well self-initiate trade cases against China and China will bring cases against the US.  But Congressional Republicans will try to limit Trump’s protectionist nature.

Xi Jinping of China has already stated that the Chinese government wants to work with President Trump because of the importance of the US China economic relationship.

Complicating the situation is that last week the EC has proposed a change to its antidumping and countervailing to allow it to continue to treat China as a nonmarket economy country or as a country which distorts its market by government practices.

On the other hand, we can expect Congress to work very close with President Trump on different policy initiatives to make the United States a much more fertile ground for US manufacturing.  This will mean cuts in Corporate tax rates and the reduction in production curtailing regulations.  Trump will try and do everything possible to increase jobs in the United States.  Hopefully, that will mean more support to Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them.

Under the Universal Trade War theme, there are articles by Chinese lawyers on Chinese antidumping law, along with newsletter from an Indian lawyer about Indian trade law.  Many of these cases in other countries target the United States.

In addition, there is an article about Customs Evasion in the Aluminum Extrusions antidumping case and several recent 337 intellectual property cases against China.

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

Best regards,

Bill Perry

TRADE AND TRADE POLICY

TRUMP VICTORY AND WHAT IT MEANS FOR TRADE

Donald Trump won the Presidency on November 8th, and on January 20, 2017 Trump will become the 45th President of the United States.  What does this mean for trade?

TPP IS DEAD

With the Trump victory, Republicans in the House and the Senate will not fight Trump and will not bring the Trans Pacific Partnership (“TPP”) to the floor during the Lame Duck session. According to recent press reports, Trump might try and renegotiate TPP, but as written, TPP  is dead.

Several weeks ago during the heat of the campaign, Paul Ryan, Speaker of the House of Representatives, stated that he could no longer campaign with Donald Trump.  ln a speech on November 9th, the day after the Trump victory, House Speaker Paul Ryan ate humble pie.

In his speech, Ryan made it very clear that Trump’s victory was the most “incredible political feat” of his lifetime.  For a video of Paul Ryan’s speech, see https://www.bing.com/videos/search?q=paul+ryan+speech+video+after+trump+victory&view=detail&mid=556B672FB48D720BC373556B672FB48D720BC373&FORM=VIRE

Ryan also made it clear that he was extremely grateful because Trump was the first time Republican Presidential candidate to win Wisconsin’s electoral votes, his home state, since 1984.  Ryan also stated that Trump had coat tails.  Trump’s victory allowed down ballet Republicans to win.  The most important example of that was Wisconsin Republican Senator Ron Johnson, who was in a very tough reelection campaign.  Trump’s victory helped Ron Jonson win and allowed the Republicans to hold on to the Senate by a 51 to 49 plurality.

The simple political reality is that Trump’s victory allowed the Republicans to hold a majority in the Senate and the House.

As Paul Ryan stated,

“Donald Trump heard a voice in this country that no one else heard.  He connected in ways with people that no one else did.  He turned politics on its head.  And now Donald Trump will lead a unified Republican government.”

There is no way that Paul Ryan is going to oppose Trump and bring the TPP to the floor of Congress in the face of that political feat.  Let the next Administration deal with this issue.  As explained below, the TPP will probably stay dead until Congress and the Administration fix the Trade Adjustment Assistance for Firms/Companies program and make many US companies competitive again so they can withstand competition from imports.

It should be noted that those Republicans that distanced themselves from Trump, such as Republican Senator Kelly Ayotte of New Hampshire, lost their races.  In light of the Trump victory and his opposition to Trump, Governor John Kasich will have little weight when he argues for the TPP.

TRUMP’S PROTECTIONIST ARGUMENT TO THE RUST BELT STATES DROVE HIS VICTORY

The big surprise in the Trump victory was that traditionally Democratic states, the Rust Belt, of Wisconsin, Michigan and Pennsylvania and Ohio all went for Trump.  To illustrate the shock to the Democratic party, Hilary Clinton did not even campaign in the State of Wisconsin because the Democrats assumed they had Wisconsin in the bag.  Why did these Rust Belt states go for Trump?  Trade.

The person who forecast this victory was Michael Moore, the very famous Democratic gadfly and movie producer.  In a true statement against interest, last summer Michael Moore explained why he, the Good Democrat, believed that Trump would win the election—the Rust Belt and Trade.  http://michaelmoore.com/trumpwillwin/.  Donald Trump spoke out against the US automobile companies moving their manufacturing to Mexico.  Trump threatened that if they did, a President Trump would impose a 35% tariff on all these cars coming back to the United States.  The Auto executives were stunned, but the Working Class in Michigan stood up and cheered.  See Moore’s powerful video predicting the Trump victory https://www.youtube.com/watch?v=YKeYbEOSqYc.  As Moore stated, Donald Trump is the “human Molotov cocktail” that these working people want to throw through the establishment window.

After the election, Moore also made it clear that it was not racism that allowed Trump to win.  As Moore stated, millions of Americans, who voted for Barak Hussein Obama for two terms, voted for Donald Trump.  See Moore’s video at http://dailycaller.com/2016/11/11/michael-moore-millions-of-trump-voters-elected-obama-twice-theyre-not-racist-video/.  To paraphrase Bill Clinton, the reason Trump won was “the economy stupid” and one of the major economic issues was trade.

Ohio’s Cuyahoga County Republican Party Chairman Robert S. Frost stated that he believes that Trump’s trade message had a deep and profound effect on the regional electorate in Ohio:

“The economy has been going gangbusters, the U.S. has been expanding its trade relationships … but there are people here who [were] working, at many times, very skilled jobs that they took a great deal of pride in. They felt like they were left behind in this economy, and Donald Trump spoke right to that in places like Youngstown to Detroit to Milwaukee.”

Exit polls showed that half of Michigan’s voters are of the opinion that free trade takes away jobs, and those trade skeptics broke for Trump by a 57 to 36 percent margin over Democratic nominee Hillary Clinton.  There are similar stories to be found in Ohio and Pennsylvania, where 47 percent and 53 percent of voters respectively felt that free trade hurts workers and jobs.

Trump’s arguments are the same protectionist arguments that Rust Belt Democrats have used to be elected for decades, but the Workers had seen no change.  By upending conventional Republican wisdom on trade, Trump opened the door to a whole new group of voters.  These workers in the Rust Belt are Nixon’s Silent Majority, the Reagan Democrats, that went for Trump.

As Frost further stated:

“Organized labor had thought that the Democrats had had their backs for the last 25 years, but they look around and see where they are, and they wonder why they had placed their faith there. Donald Trump went against what had been Republican orthodoxy on trade. Part of how we got there is that Hillary Clinton … began taking an internationalist position of trade for trade’s sake, as opposed to representing an American position on trade.”

Trump appealed to the emotions of workers who felt wronged by a steady pattern of trade liberalization that is, in their minds, was about to get much worse if the U.S. Congress had been able to ratify the Trans-Pacific Partnership accord,

On October 18, 2016 in an article in Real Clear Politics entitled “The Trump Trade Doctrine: A Path to Growth & Budget Balance”. Wilbur Ross & Peter Navarro explained why they believed the Trump Trade Policy would work:

Budget-deficit hawks often insist that the only way to balance the Federal budget is to raise taxes or cut spending. The far smarter path to balance the budget is simply to grow our economy faster.

From 1947 to 2001, the U.S. real gross domestic product grew at an annual rate of 3.5 percent. Since 2002, that rate has fallen to 1.9 percent — at the cost of millions of jobs and trillions of dollars of additional income and tax revenues.

Donald Trump’s economic plan will restore America’s real GDP growth rate to its historic norm.  It proposes tax cuts, reduced regulation, lower energy costs, and eliminating America’s chronic trade deficit. . . .

This new normal argument — it should more appropriately be called the “new dismal” — also ignores the self-inflicted negative impacts from poorly negotiated trade deals and the failure to enforce them. These bad deals include, most notably, NAFTA, China’s entry into the World Trade Organization in 2001, and, most recently, Hillary Clinton’s debilitating 2012 U.S.-Korea Free Trade Agreement.

In 2012, then Secretary of State Hillary Clinton promised that the “cutting edge” South Korean deal would create 70,000 new jobs. Instead, the US has lost 95,000 jobs and America’s trade deficit with South Korea has roughly doubled. Moreover, workers in the U.S. auto industry, particularly in states such as Michigan, Ohio, and Indiana, have been hard hit. . . .

Donald Trump has pledged to renegotiate every one of America’s bad trade deals according to the principles of the Trump Trade Doctrine. The Trump Trade Doctrine states that any new or renegotiated deal must increase the GDP growth rate, decrease the trade deficit, and strengthen the U.S. manufacturing base. . . .

Some critics will argue that reducing the flow of cheap imports from locales such as China, Mexico, and Vietnam will be inflationary and act as a regressive tax by denying lower-income households cheap imports. In reality, four decades of one-sided globalization and chronic trade deficits have shifted wealth and capital from workers to the mobile owners of capital and reduced the purchasing power of Americans.

A visit to cities like Johnstown, Pennsylvania, and Flint, Michigan, reveals quickly the falsehoods and broken promises of those who preach the gains from trade deficits — which are often financed by those who turn a profit from offshoring production. Trump’s proposals will reverse these trends, concentrate more wealth and purchasing power in the hands of domestic workers and result in substantially higher employment. This will more than offset any price increases. Moreover, as products develop a competitive advantage in America and increase their production and margins, prices per unit will go down.

To those alarmists who insist Trump’s trade policies will ignite a trade war, we say we are already engaged in a trade war — a war in which the American government has surrendered in before even engaging. Unfair trade practices and policies of our competitors are simply overlooked or ignored. As a well-documented result, America has already lost tens of thousands of factories, millions of jobs, and trillions in wages and tax revenues.

Donald Trump will simply put our government on the field in defense of American interests. As Trump pursues a policy of more balanced trade, our major trading partners are far more likely to cooperate with an America resolute about balancing its trade than they are likely to provoke a trade war.

This is true for one very simple reason: Our major trading partners and deficit counterparties are far more dependent on our markets — the largest in the world — than we are on their markets.

Consider that in 2015, we ran a trade deficit in goods of $746 billion. 76 percent of that trade deficit in goods concerned just four countries: China ($367 billion); Germany ($75 billion); Japan ($69 billion); and Mexico ($61 billion).

If we look at the bilateral relationships of America with each of these countries, improvement in our trade balance is clearly achievable through some combination of increased exports and reduced imports, albeit after some tough, smart negotiations — an obvious Trump strength.   The same possibilities exist with countries where we are running smaller, but nonetheless significant, deficits, such as Vietnam ($31 billion), South Korea ($28 billion), Italy ($28 billion), and India ($23 billion).

Such deficit reduction negotiations will not be wild-eyed, hip-shooting exercises. A key part of the Trump strategy will be to divert some of the products our deficit counterparties import to U.S. suppliers.

For example, many of our trading partners with which we run large trade deficits import substantial hydrocarbons from elsewhere. It would not be difficult for, say, China, Japan, Germany, and South Korea to buy more U.S. hydrocarbons. Trump intends to end the regulatory constraints on hydrocarbon production and hydrocarbon exports, resulting in as much as $95 billion gains for the U.S.

Our deficit counterparties also import lots of industrial equipment and supplies of plastics and other materials, some from the U.S. already. There is ample room here for them — along with countries like India, Mexico, and Vietnam — to switch vendors.

Trump’s strategic approach to trade negotiations would begin with product-by-product and country-by-country analyses. Our negotiators would set goals that are achievable and pursue them fiercely. No prior administration has ever approached trade as surgically as a Trump Administration would.

As a business person, rather than a politician, Trump understands this: There is no more reason to let our major trading partners take advantage of us than there is for a large private company to permit its vendors to do so.

You will notice we have not mentioned tariffs. They will be used if necessary against mercantilist cheating, but only in a very precise and defensive way.

Ultimately, our view is that doing nothing about unfair trade practices is the most hazardous course of action — and the results of this hazard are lived out every day by millions of displaced American workers and deteriorating communities. We simply cannot trade on their one-sided terms; they are just too destructive to the U.S. growth process.

At the end of the day — and on November 8th — voters have a very clear choice between Trump’s smart path to rapid growth and budget balance and Hillary Clinton’s new dismal world of economic stagnation. At least on the economy, this choice is clear.

Emphasis added.

The problem with the argument, however, is that it is based on the economic situation decades ago when the US was the largest market in the World.  That is no longer true.  China with its 1.2 billion population has a larger market than the US.  House Speaker Paul Ryan has cited many times that 75% of the World’s consumers are outside the United States.

The real problem with Trump’s trade policy is uncertainty.  No one knows how aggressive Trump will be in a new Administration.  Through the Commerce Department self-initiating antidumping and countervailing duty cases and bringing Section 201 Escape Clause cases against the World, a President Trump can certainly increase protectionist barriers in the US.

A President Trump can unravel NAFTA and dump the TPP, but if the US erects substantial barriers to US imports, countries around the World will respond by increasing barriers to US exports.

NOT RETALIATION RECIPROCITY

The problem with protectionism is that trade is a two-way street and what the US can do to countries, they can do back.  In my last blog post, I stated that although many US politicians, including Donald Trump, 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.  In this blog post, I want to restate this because the issue is not retaliation.  It is reciprocity.

Retaliation implies a tit for tat response.  You attack us.  We attack you.  The United States files an antidumping case targeting $4 billion in imports of Solar Cells from China, and China responds with a meritless Chinese antidumping case targeting $2 billion in imports of Polysilicon from the United States.  But that is not what truly happened.  In the Chinese polysilicon case, for example, the Chinese polysilicon industry was truly being hurt by US imports.

The real issue is reciprocity.  If the US can use its antidumping and countervailing duty laws to find dumping and subsidization in more than 90% of the cases, the Chinese governments and governments around the World can make the same finding with regards to imports from the United States.  What goes around comes around.

Free trade agreements, such as the TPP and the TTIP, which would break this cycle are now dead as the US and each country wants to put its industries first and make their country and industries great again.  The rise in economic nationalism results in trade wars in which country after country will fire trade guns against each other.

The argument that trade wars are already going on is true, but what the pundits do not realize is that under Trump the trade wars will get bigger.  The US has antidumping and countervailing duty orders covering $30 billion in imports from China.  The Chinese government has orders blocking about $10 billion in imports from the US, including polysilicon, chicken, numerous chemical products, and steel products.  Just recently, the Chinese government has issued an antidumping order blocking over $1 billion in Chinese imports from the United States of distiller grains, and now there is talk about a case targeting $15 billion of imports of US soybeans.  What goes around comes around.

In a November 11th editorial, entitled “The Message Of Donald Trump’s Stunning Victory” the International Business Daily stated that the one policy which has to be reined in by Republicans in Congress is trade:

“Republicans will also have to work hard to temper Trump’s anti-free-trade instincts.  A trade war is the one big risk Trump’s presidency represents for the economy.  Trump has repeatedly the he is all in favor of free trade, and the GOP needs to hold him to those words.”

TRADE IS FALLING AROUND THE WORLD

Moreover, on October 30, 2016, Binyamin Applebaum in an article entitledA Little-Noticed Fact About Trade: It’s No Longer Rising” found that trade around the world is dropping, including a drop of $200 billion in US exports:

“The growth of trade among nations is among the most consequential and controversial economic developments of recent decades. Yet despite the noisy debates, which have reached new heights during this Presidential campaign, it is a little-noticed fact that trade is no longer rising. The volume of global trade was flat in the first quarter of 2016, then fell by 0.8 percent in the second quarter, according to statisticians in the Netherlands, which happens to keep the best data.

The United States is no exception to the broader trend. The total value of American imports and exports fell by more than $200 billion last year. Through the first nine months of 2016, trade fell by an additional $470 billion It is the first time since World War II that trade with other nations has declined during a period of economic growth. . ..

But there are also signs that the slowdown is becoming structural.  Developed nations appear to be backing away from globalization.

The World Trade Organization’s most recent round of global trade talks ended in failure last year. The Trans-Pacific Partnership, an attempt to forge a regional agreement among Pacific Rim nations, also is foundering. It is opposed by both major-party American presidential candidates. Meanwhile, new barriers are rising. Britain is leaving the European Union. The World Trade Organization said in July that its members had put in place more than 2,100 new restrictions on trade since 2008.

“Curbing free trade would be stalling an engine that has brought unprecedented welfare gains around the world over many decades,” Christine Lagarde, managing director of the International Monetary Fund, wrote in a recent call for nations to renew their commitment to trade. . . .

But even if growth rebounds, automation reduces the incentives to invest in the low- labor-cost developing world, and it reduces the benefits of such investments for the residents of developing countries.”

UNFAIR TRADE CASES DO NOT WORK; THEY DO NOT SAVE THE US COMPANIES

The problem with the potential Trump policy of bringing more unfair trade cases to solve the trade problem is that trade cases do not work.  They do not save the companies and the jobs that go with them.

Bethlehem Steel, a history that I am personally aware of, had 40 years of protection from steel imports through various antidumping and countervailing duty cases and orders.  Where is Bethlehem Steel today? Green fields.

Trying to stop a wave of low priced imports by filing an unfair trade cases is like putting finger in a dike when faced with a tidal wave engulfing the entire company and industry.

When an industry and company is faced with competition from imports it is so easy to engage in globalization/international trade victimhood.  We poor US companies cannot compete because all imports are dumped and subsidized.

For countries and companies faced with import competition, the easy solution is blame the foreigner.  The only way for a company to truly survive, however, is give up the globalization victimhood mindset and do what is necessary to make the company competitive again.

EXISTING PROGRAMS TO MAKE US MANUFACTURING COMPANIES MORE COMPETITIVE IS THE ANSWER TO THE TRADE PROBLEM — TAA FOR FIRMS/COMPANIES AND THE MEP MANUFACTURING PROGRAM– BUT THEY HAVE BEEN CUT TO THE BONE

As described in my September newsletter and uschinatradewar.com blog post, which can be found at http://uschinatradewar.com/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/, free trade requires competitive US companies and industries.  For the US government to go forward with a free trade agenda and the passage of free trade agreements, it must restore the trade safety net.

The US Government already has successful programs to make US companies injured by imports competitive again, but they have been cut to the bone. Companies and Unions that want to take advantage of these programs and survive must first change their mindset and reject the defeatism of international trade/globalization victimhood.

Those programs are:

  • Trade Adjustment Assistance for Firms (Commerce)
  • The Hollings Manufacturing Extension Partnership (Commerce)

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. These two programs make US companies injured by imports competitive again.

Free trade does not have to be abandoned resulting in a lose lose situation for all countries.  When the US Government enters into Trade Agreements, such as NAFTA, the TPP, or the TTIP, Government action changes the market place.  All of a sudden US companies can be faced with a series of flash floods of foreign competition and imports that can simply wipe out US companies.  The US Government must restore the international trade safety net.

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 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 Mid Atlantic Trade Adjustment Assistance Center in this video at http://mataac.org/howitworks/ describes in detail how the program works and saved four companies and the jobs that go with them.  The reason TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan 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’ management and the Union 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 a longer proposal, taaf-2-0-white-paper, on how to expand TAA for Firms/Companies and the MEP Program to make US companies more competitive again.

UNDER TRUMP TRADE CONFLICTS WITH CHINA WILL INCREASE

As readers may remember, my deep dive on the background of this election started with a February conversation and bet with my friend, former Democratic Congressman Don Bonker.  He firmly believed that Hilary Clinton would win in a landslide and the Democrats would win the Senate and the House.

I knew people that were going to vote for Trump and believed that although Clinton would probably win, it would be a close election and the Republicans would probably keep the Senate and definitely the House.  Trump won the election and the Republicans kept the Senate and the House.

Set forth below are Congressman Bonker’s thoughts on what he believes the Trump election means for future US Trade Policy regarding China.

‘Election Results:  U.S. China Relationship

Prepared by: Congressmen Don Bonker (Democrat)

Winston Churchill’s characterization of “democracy as the worst form of government except for all the others” was on full display in America’s 2016 presidential election.   Yesterday’s torrent of election results is revealing of America’s challenges ahead, not only domestically but internationally.  This report is focused on how the election results will affect the U.S. – China relationship.

CANDIDATES WEBSITE/POSITIONS ON CHINA

Hillary Clinton

Increase cooperation in areas of common interest

Reinforce alliances in the Asia-Pacific

Ratchet up the U.S. deterrent against Chinese cyberattacks

Take a stronger stance against China’s human rights record

Donald Trump

Increase U.S. military presence in and around the South China Sea

Investigate and punish China for unfair trade practices

Designate China a currency manipulator

Ratchet up the U.S. deterrent against Chinese cyberattacks

PRESIDENTIAL ELECTION RESULTS.   U.S. presidents are not elected by the popular vote but the so-called Electoral College – each of the 50 states select “electors” equal to the number of Congressmen — that determines the outcome.  The margin is significant in that a sweeping victory with over 300 electoral votes will demonstrate a public mandate that will make the newly elected Presidents’ governing more effective.  This year, Donald Trump’s victory with 289 electoral votes [which is now with Michigan and Arizona 309 votes] is not a big margin but his party being in control of both the Senate and House of Representatives, is a sufficient mandate, something of a populist uprising not seen in recent years.

The election of Donald Trump was unexpected and shocking, even troubling to many in the U.S. and around the world.  The electoral vote is revealing of why and how he won the election – his anti-trade and immigration messages resonated in the four or five rust-belt states that were expected to vote for Hillary Clinton.   Not unlike the Brexit vote, he played to the anger and fear that was directed at Wall Street and Washington, D.C., a movement that will definitely take the country in a new and perilous direction.

Most disconcerting is how a President Trump will conduct foreign policy given that he has no experience compared to Hillary Clinton, who served as Secretary of State and was expected to continue the Obama Administration’s policies and alliances with other countries.  The U.S. China relationship is all about economics and trade, so his Seven-Step Trade Plan is an indication of what lies ahead:

Immediate withdraw from TPP and a renegotiation of NAFTA.

Appoint the “toughest and smartest trade negotiators.

Direct Department of Commerce to “identify every violation of trade agreements a foreign country is currently using to harm our worker” and direct all Federal agencies to use “every tool under American and international law” to end abuses.

Instruct the Treasury Department to label China a currency manipulator, promising that any international devaluation would be met with sharply through tariffs and taxes.

The U.S. Trade Representatives would be instructed to bring trade cases against Beijing under both U.S. laws and the WTO.

If China does not stop its illegal activities, Trump said he would invoke specific safeguards and tariff protections under Section 201 of the Trade Act of 1974.

U.S. China Relationship

In past years, presidential candidates have been known for their “tough talk on China” during campaigns but eventually succumb to the geopolitical realities once they become president.  Donald Trump has gone way beyond tough talk in that he has been relentless in his China bashing and threats to take punishing actions based on unfair trade practices.

More alarming have been his comments threatening the U.S. – China relationship, on one occasion stating that “I’d love to have a trade war with China…if we did no business with China, frankly we will save a lot of money.”  This hopefully is more about rhetoric than policy and a sitting President and his advisors will be more realistic and engage China in ways that will be mutually beneficial.

Ultimately, it’s not so much about the rhetoric and issues but the relationship between the two heads of state.  President Obama and President Xi Jinping had a “trust” working relationship that may not go as easily with Donald Trump, but he is a master negotiator who knows how to work out deals with others.  Much will also depend on who will be his cabinet ministers and senior advisors.

U.S. – International.    Donald Trump’s election has many world leaders concerned given his pledge of radical actions that will project a different America.  For the past 50 years, America has been the undisputed leader worldwide but that is about to change, partly because both Donald Trump’s election is rooted in American anxiety, placing the blame on globalization and trade deals for job losses and economic hardship.  In recent years partisanship and politicalizing of U.S. foreign policy has intensified in a way that inhibits a President’s ability maintain America’s leadership globally.

What does this mean in terms of America’s leadership internationally?  The reverberating message and new mandate that comes out of the election may be alarming to foreign leaders in that a Trump Administration’s foreign policy will be unpredictable, to be sure, on both the economic and geopolitical fronts that will lead to greater uncertainty.  It will definitely be more protectionist given Mr. Trump’s ranting that trade deals have caused job losses and economic hardship.  More perplexing is whether a Trump presidency will abandon America’s alliances and commitments and embark on a course that is more self-serving.

Regardless of who was elected, one of the realities will be China possibly surpassing America as the world’s most powerful nation, which will be a dramatic wake-up call for a country that has proudly embraced this status for the past hundred years.  A Trump presidency taking the country down the path of isolationism may have America backing away from its global responsibilities compared to China’s highly focused set of objectives and its growing presence internationally.  Indeed, China has wisely avoided involvement in geopolitical and security issues, such as the Middle East, and instead is concentrating on economic and investment development, which rapidly advances their leadership standing around the world.

CONGRESSIONAL ELECTIONS    

Two weeks before the election, the Democrats were expected to take control of the U. S. Senate hopefully gaining enough seats to be the Majority Party that would be fully supportive of a Hillary Clinton presidency.  Instead the Republicans will now control both branches of the U.S. government.  However, it will not represent a consensus or cooperation given the deep divisions within the Republican Party, particularly how the Trump candidacy shattered political convention by criticizing Congressional leaders and charting his own path

U.S. Senate.  The Constitution specifies that one-third of the Senate positions are up every election year, which worked to the advantage of Democrats since most of the ballot positions were Republicans.  Yet the election results favored the Republicans who will maintain their 51-45 advantage for the next two years.  The Senate has the Constitutional authority to approve treaties and appointments to high-level positions and ambassadors.  There should be cooperation, given that the same party controls both branches, but Donald Trump has defied the conventional approach to doing business, so this will add to the uncertainty.

House of Representatives.  For the past six years the Republicans have been in control with a significant margin, despite divisions of within the Party that inhibits their ability to be productive.  Prior to the election, the Republicans held 247 of the 435 seats that are up for election every year, a safe margin.  While the Democrats did pick up eleven of the Republican held seats they will continue as the Minority Party for the next few years.

The same party in control of the White House and Congress would normally make for a productive session, but uncertainty lingers given the troubled relationship between Donald Trump and Speaker Paul Ryan.  Prior to the elections, a fractured Republican Party has been unified only by its opposition to President Obama’s policies, like Obamacare, so many questions remain about how the Speaker will preside over his own problems as he prepares to work with a Trump Administration.

In contrast to Congressman Bonker, my belief is that the US China relationship may, in fact, work out better than people think under President Trump.  While in China last month I met many Chinese who liked Trump, despite his trade policy, which was enlightening.

Although Trump will be tough in trade negotiations, Trump is a business man and likes to do deals.  That means he is truly open to negotiations.

Also many Conservative publications, such as the Wall Street Journal and Investors Business Daily (“IBD”), believe that Republican Congressional leaders, such as House Speaker Paul Ryan, may be able to prevent Trump from starting an all-out, hot, trade war against China.

But the US China cold trade war will definitely continue as there will be more US trade actions against China, and more Chinese trade actions against the US.  Both countries will feel the pain.

But the relationship will become even more complicated as the EC in response to the WTO December 11, 2016 deadline to grant China market economy status proposed on November 9th amending its antidumping and countervailing law to provide that although for WTO members normal value is determined on the basis of actual prices and costs in the foreign market, in certain circumstances, e.g., China, where prices and costs are distorted because of government intervention and not free market forces, the EC Commission can look at prices and costs outside China.

EC PROPOSES CHANGES TO ITS ANTIDUMPING AND COUNTERVAILING LAW TO IN EFFECT CONTINUE TO TREAT CHINA AS A NONMARKET ECONOMY COUNTRY

On November 9, 2016 the European Commission issued the attached proposed “Regulation of the European Parliament and Of The Council,” ec-china-market-economy-regs, on the way to calculate normal value for certain nonmarket economy countries, specifically China.

The EC Commission has proposed amending its antidumping law to provide that although for WTO members normal value is determined on the basis of actual prices and costs in the foreign market, in certain circumstances, where prices and costs are distorted because of government intervention and not free market forces, e.g., China, the EC Commission can look at prices and costs outside China, stating specifically if:

domestic prices and costs would not provide a reasonable basis to determine the normal value. This could be the case, for instance, when prices or costs are not the result of free market forces because they are affected by government intervention. Relevant considerations in this respect include, for instance, the fact that the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; the state presence in firms allowing the state to interfere with respect to prices or costs; the existence of public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and the access to finance granted by institutions implementing public policy objectives.

In such circumstances, it would be inappropriate to use domestic prices and costs to determine the value at which the like product should be normally sold (“the normal value”) and a new provision (Article 2(6)a) stipulates that the normal value would instead be constructed on the basis of costs of production and sale reflecting undistorted prices or benchmarks. For this purpose, the sources that may be used would include undistorted international prices, costs, or benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country.

This methodology would allow the Commission to establish and measure the actual magnitude of dumping being practised in normal market conditions absent distortions.

For the sake of transparency and efficiency, the Commission services intend to issue public reports describing the specific situation concerning the market circumstances in any given country or sector. Of importance, the EU industry would be in a position to rely on and refer to the information contained in these reports when alleging in a complaint or a request for review that the domestic prices and costs in the exporting country are unsuitable to determine the normal value. Such reports and the evidence on which it is based would also be placed on the file of any investigation relating to that country or sector so that all interested parties would be in a position to express their views and comments.  . . .

In the light of experience gained in past proceedings, it is appropriate to clarify the circumstances in which significant distortions affecting to a considerable extent free market forces may be deemed to exist. In particular, it is appropriate to clarify that this situation may be deemed to exist, inter alia, when reported prices or costs, including the costs of raw materials, are not the result of free market forces because they are affected by government intervention. It is further appropriate to clarify that in considering whether or not such a situation exists regard may be had, inter alia, to the potential impact of the following: the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; state presence in firms allowing the state to interfere with respect to prices or costs; public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and access to finance granted by institutions implementing  public policy objectives. It is further appropriate to provide that the Commission services  may issue a report describing the specific situation concerning these criteria in a certain country or a certain sector; that such report and the evidence on which it is based may be placed on the file of any investigation relating to that country or sector . . . .

It is further appropriate to recall that costs should normally be calculated on the basis of records kept by the exporter or producer under investigation. However, where there are significant distortions in the exporting country with the consequence that costs reflected in the records of the party concerned are artificially low, such costs may be adjusted or established on any reasonable basis, including information from other representative markets or from international prices or benchmarks. In the light of experience gained in past proceedings, it is appropriate to further clarify that, for the purposes of applying the provisions introduced by this regulation, due account should be taken of all relevant evidence, including relevant assessment reports regarding the circumstances prevailing on the domestic market of the exporting producers and the evidence on which they are based, which has been placed on the file, and upon which interested parties have had an opportunity to . . .

Article 1

Regulation (EU) 2016/1036 is amended as follows:

In Article 2 the following paragraph 6a is inserted:

‘6a. (a) In case it is determined, when applying this provision or any other relevant provision of this Regulation, that it is not appropriate to use domestic prices and costs in the exporting country due to the existence of significant distortions, the normal value shall be constructed on the basis of costs of production and sale reflecting undistorted prices or benchmarks. For this purpose, the sources that may be used include undistorted international prices, costs, or benchmarks, or corresponding costs of production and sale in an appropriate representative country with a similar level of economic development as the exporting country, provided the relevant cost data are readily available. The constructed normal value shall include a reasonable amount for administrative, selling and general costs and for profits.

Significant distortions for the product concerned within the meaning of point (a) may be deemed to exist, inter alia, when reported prices or costs, including the costs of raw materials, are not the result of free market forces as they are affected by government intervention. In considering whether or not significant distortions exist regard may be had, inter alia, to the potential impact of the following: the market in question is to a significant extent served by enterprises which operate under the ownership, control or policy supervision or guidance of the authorities of the exporting country; state presence in firms allowing the state to interfere with respect to prices or costs; public policies or measures discriminating in favour of domestic suppliers or otherwise influencing free market forces; and access to finance granted by institutions implementing public policy objectives.

In Article 11(4), the following subparagraph is added:

‘In the case of a transition from a normal value calculated pursuant to the former Articles 2(7)(a) or 2(7)(b) to a normal value calculated pursuant to paragraphs 1 to 6a of Article 2, any review pursuant to this paragraph shall be deferred to the date on which the first expiry review following such transition is initiated.’

STEEL TRADE CASES

CERTAIN CARBON AND ALLOY STEEL CUT TO LENGTH PLATE FROM AUSTRIA, BELGIUM, CHINA, FRANCE GERMANY, ITALY, JAPAN, KOREA AND TAIWAN

On November 7, 2016, in the attached fact sheet, factsheet-multiple-ctl-plate-ad-prelim-11082016, Commerce announced its affirmative preliminary determinations in the antidumping duty investigations of imports of certain carbon and alloy steel cut-to-length plate from Austria, Belgium, China, France, Germany, Italy, Japan, Korea, and Taiwan.

For Austria, the antidumping rate is 41.97%.  For Belgium, the antidumping rate ranges from 2.41 to 8.5%.  For China, the antidumping rate is 68.27%.  For France, the antidumping rate ranges from 4.26 to 12.97%.  For Germany, the antidumping rate ranges from 0 to 6.56%.  For Italy, the antidumping rate ranges from 6.10 to 130.63%.  For Japan, the antidumping rate ranges from 14.96 to 48.64%.  For Korea the antidumping rate is 6.82%.  For Taiwan, the antidumping rate ranges from 3.51 to 28%.

CIRCULAR WELDED CARBON-QUALITY STEEL PIPE FROM OMAN, PAKISTAN, UNITED ARAB EMIRATES, AND VIETNAM

On October 24, 2016, Commerce in the attached fact sheet, pipe, announced its affirmative final determinations in the antidumping duty (AD) investigations of imports of circular welded carbon- quality steel pipe from Oman, Pakistan, the United Arab Emirates, and Vietnam, and countervailing duty (CVD) investigation of imports of circular welded carbon-quality steel pipe from Pakistan.

For Oman, the antidumping rate is 7.24%.  For Pakistan, the antidumping rate is 11.08% and the countervailing duty rate is 64.81%.  For United Arab Emirates the antidumping rates range from 5.58% to 6.43%.  For Vietnam the antidumping rate ranges from 0 to 113%

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

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

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

Because of this situation, this part of the newsletter will concentrate on antidumping and countervailing duty cases in other countries.

CHINA

Set forth below are two articles by Chinese trade lawyers on how to respond in Chinese trade cases against the United States and other countries.

ROLAND ZHU, ALLBRIGHT LAW FIRM

A General Description of Anti-Dumping Regulation

of the People’s Republic of China

by Roland Zhu, Allbright Law Firm

In order to maintain foreign trade order and fair competition, China’s Ministry of Commerce (hereinafter referred to as “MOFCOM”) is responsible for conducting anti-dumping investigations against foreign exporters in case that imported products enter the market of the People’s Republic of China by way of dumping, and cause material damage or constitute a threat of material damage to an already established domestic industry, or cause a material impediment to the establishment of a domestic industry in accordance with the Foreign Trade Law of the People’s Republic of China, Regulations of the People’s Republic of China on Anti-Dumping and Interim Rules on Placing Cases on File for Antidumping Investigations, which are effective and applicable law.

Where there exists dumping or may exist dumping, an anti-dumping investigation may arise. A complete set of anti-dumping investigation procedure usually follows these steps:

  1. MOFCOM may place a case on file for antidumping investigations upon the application of an applicant; it may also place a case on file on its own initiative for anti-dumping investigations.
  2. MOFCOM shall, within 60 days as of its receipt of the application letter and the relevant evidence submitted by the applicant, examine whether the application is filed by the domestic industry or filed by representing the domestic industry, the contents of the application letter and the evidence attached to it, etc., and shall decide to initiate an investigation or not. Prior to the decision to initiate an investigation, the government of the exporting country (region) concerned shall be notified.
  3. MOFCOM shall publish the decision to initiate an investigation and notify the applicant, the known exporters and importers, the government of the exporting country (region) and other interested organizations and parties (hereinafter collectively referred to as “the interested parties”). As soon as the decision to initiate an investigation is published, MOFCOM shall provide the full text of the written application to the known exporters and the government of the exporting country (region).
  4. MOFCOM may conduct an investigation and collect information from the interested parties by, among other methods, sending questionnaires, using samples, holding public hearings and making on-the-spot verification.
  5. MOFCOM shall, on the basis of its findings, make a preliminary determination on dumping and injury, as well as on whether there exists a causal link between dumping and injury. The preliminary determination shall be published by MOFCOM.
  6. In cases where a preliminary determination on dumping, injury and the causal link between the two is affirmative, MOFCOM shall conduct further investigations on dumping, the dumping margin, the injury and its degree, and, make a final determination on the basis of its findings. The final determination shall be published by MOFCOM. Before the final determination is made, MOFCOM shall inform all known interested parties of the essential facts on which the final determination is based.
  7. An anti-dumping investigation shall be concluded within 12 months from the date of publication of the decision to initiate the investigation, and the period may be extended in special circumstances, but in no case shall the extension be more than 6 months.
  8. The anti-dumping measures taken by MOFCOM shall include provisional anti-dumping measures, price undertakings and anti-dumping duties. The period for applying the provisional anti-dumping measures shall not exceed four months from the effective date set forth in the public notice regarding the decision on provisional anti-dumping measures, and, in special circumstances, may be extended to nine months. The period for the levy of an anti-dumping duty and fulfillment of a price undertaking shall not exceed five years, and may be extended if, as a result of the review, it is determined that the termination of the anti-dumping duty would possibly lead to continuation or recurrence of dumping and injury.
  9. The review proceedings shall be conducted with reference to the relevant provisions of Regulations of the People’s Republic of China on Anti-Dumping. Any review shall be concluded within 12 months from the date of the decision of initiation of such a review.

Answers to General Questions about Chinese Antidumping cases are listed below or you may refer to the general description of Chinese anti-dumping regulations.

  1. Information on recent cases filed in China against other countries

Answer: Please see the table below, which summarizes recent cases filed in China during the year of 2016 against other countries are:

Initiation Date  Subject Merchandise  Investigation Type  Countries

1/12/2016  Dried Distiller Grains        AD and CVD             USA

2/5/2016    Pyridine                                AD Interim Review  Japan and India

4/20/2015   Vinyldine Chloride           Initial AD Review       Japan

Vinyl Chloride Copolymer Resin

9/22/2016     Sugar                        Safeguard       Multiple Countries  including Brazil/Argentina

  1. What agency makes the AD and CVD decision? What agency makes the injury determination? How long does the initial investigation take?  Are there mandatory companies?

Answer: The Trade Remedy and Investigation Bureau of the Ministry of Commerce of the People’s Republic of China (the “Bureau”) makes the AD and CVD decisions as well as the injury determinations. An anti-dumping or countervailing investigation shall be concluded within 12 months from the date of publication of the decision to initiate the investigation, and the period may be extended in special circumstances, but in no case shall the extension be more than 6 months. There are mandatory companies in China’s AD investigation. The applicant, the known exporters and importers, the government of the exporting country (region) and other interested organizations and parties can register to the Bureau in order to participate in this anti-dumping investigation within 20 days from the date of promulgation of the initial announcement. The Bureau selects the respondents among those who have submitted dumping sampling questionnaire by using sampling survey. For other interested parties, including those are not chosen to answer the investigation questionnaire and those don’t register to the Bureau, the Bureau may make determinations on the basis of the facts already known and the best information available.

  1. Is the Chinese antidumping and countervailing duty law prospective or retrospective, retroactive liability? Is there a public interest test? Are there annual reviews?  How long do the orders stay in place?

Answer:  For retrospective issues you mentioned above, according to the Article 93 of Legislation Law of the People’s Republic of China, Chinese antidumping and countervailing duty law shall not be retroactive, but the regulations formulated specially for the purpose of better protecting the rights and interests of citizens, legal persons and other organizations are excepted. The period for the levy of an anti-dumping duty shall not exceed 5 years, and may be extended as appropriate if, as a result of the review, it is determined that the termination of the anti-dumping duty would possibly lead to continuation or recurrence of dumping and injury. A midterm review may be conducted upon request by the interested parties and on the basis of examination of the relevant evidence submitted by the interested parties.

  1. Are there special rules for Non Market Economy Countries?

Answer:  There are no such special rules in China.

Attached are several weekly newsletters, teams-newsletter-en-vol-2016-38 teams-newsletter-en-vol-2016-39 teams-newsletter-en-vol-2016-40, issued by Roland Zhu and his trade group at the Allbright Law Office.

FRANK HANG, GLOBAL LAW OFFICE

How Should Foreign Companies Respond to an Antidumping Investigation in China

  1. Definition of Dumping

According to Chinese Law, dumping consists of three factors-Dumping, Injury and Causation. As for the calculation of Dumping Margin, the following shall be taken into consideration:

  • Dumping Margin= (Normal Value-Export Price)/CIF Price
  • Normal Value and Export Price shall be compared on the same level, usually ex-factory level
  • Comparison: a. weighted average Normal Value to weighted average Export Price; b. transaction-to-transaction comparison of Normal Value and Export Price; c. weighted average Normal Value to each transaction Export Price.

When calculating the Normal Value, the following methods are chosen by MOFCOM:

  • Domestic Sales Price
  • Constructed Value=Production Cost + S G & A + Reasonable Profit
  • Export Price to a Third Country (Region)

In terms of category of AD Duty, China’s normal practice is to assign antidumping rates to producers, not trading companies. And there are 3 different types of rates for the enterprises to bear:

  • Individual Rate
  • Weighted Average Rate
  • Country-wide Rate (Best Information Available, BIA)

When it comes to Injury Analysis, several factors shall be considered by MOFCOM: Imported Volume, Imported Price and other factors such as actual and potential decline of domestic industry in sales, profits, output, market share, productivity, return on investment or utilization of capacity, etc., factors affecting domestic prices; the magnitude of the margin of dumping, the actual or potential negative effects of the dumped imports on the domestic industry’s cash flow, inventories, employment, wages, growth, ability of capital raising or investment, etc.

Cumulative Assessment means that the margin of dumping established in relation to the dumped imports from each country (region) is no less than 2 percent, and the volume of such imports from each country (region) is not negligible. It is negligible if the volume of the dumped imports from a particular country (region) is found to account for less than 3 percent of the total imports of the like products, unless countries (regions) which individually account for less than 3 percent of the total imports of the like products collectively account for more than 7 percent of the total imports of the like products.

  1. AD Investigating Procedures

In China, the AD Investigating Authority is MOFCOM Trade Remedy and Investigation Bureau who is not only in charge of determination of dumping margin but also in charge of determination of injury and causation. 

Following procedures in a Chinese AD Investigation Case: Filing of the Petition are:

Filing Responding Registration, Issuing Questionnaires, Submitting Questionnaire Responses, Preliminary Determination, Public Hearing, On-site Verification, Final Determination, Price Undertaking, Administrative Reconsideration, Administrative Lawsuit, Interim Review, Sun-set Review, New Shipper Review, etc.

Within 10 working days after the deadline of filing the responding registration, the investigating authority will issue questionnaires to the registered companies. If the registered companies are numerous, the investigating authority will use sampling (usually 2 mandatory companies for each country/area).

It is important to note that foreign producers/foreign exporters must submit their responding registration documents to the investigating authority within 20 days as of the date of initiation through a PRC practicing attorney or by themselves. If they fail to do so, foreign producers will be treated as non-cooperative and MOFCOM will use the best information available (“BIA”) to make determination.

For the respondents, when submitting Questionnaire Response, they need to keep in mind that the questionnaire response must be submitted to the investigating authority within 37 days as of the date of the issuance of the questionnaires. The responding companies may apply for extension and the investigating authorities usually only give an extension of 7 days. And the questionnaire responses must be submitted through a PRC practicing attorney. After receiving the questionnaire responses, the investigating authority will review them and issue the supplementary questionnaires if certain questions require clarification or explanation further.

In an Interim Review, an application for interim review shall be filed within 30 days as of the expiration date of each year after the effective date of AD measures. The producers applying for interim reviews must have exported the subject merchandise to China within a period of 12 months prior to the application, and the export referred must have been made in sufficient quantities.

  1. Key Points of AD Defense Strategies
  • Establishing an overall responding strategy before submitting the questionnaire responses to MOFCOM;
  • Collaborating with the respondent’s department of administration, sales, production, finance, in-house counsel, foreign attorneys, PRC attorneys closely and efficiently;
  • Accountant’s role is important in the calculation of dumping margin;
  • Well-prepared for on-site verification;
  • Communicating effectively with MOFCOM officials at different levels;
  • Cooperate with other respondents on non-injury defense;
  • Leverage the exporting country (region)’s government;
  • Obtaining support from importers and down-stream companies.

INDIA

Attached is a newsletter, ls-international-trade-amicus-september-2016, from the Lakshmikumaran & Sridharan Law Firm in New Delhi on Indian antidumping law.

CUSTOMS LAW

ALUMINUM EXTRUSIONS

On October 26, 2016, the Wall Street Journal in an article entitled “Homeland Security Probes U.S. Aluminum Firms Over Chinese Imports” reported that Federal investigators had launched an investigation into whether Liu Zhongtian, a Chinese billionaire and the founder and chairman of aluminum giant China Zhongwang Holdings Ltd., was engaged in transshipment of aluminum extrusions to the United States in violation of US civil and criminal laws.

Commerce is investigating whether a New Jersey company, Aluminum Shapes LLC, imported pallets to remelt as a way to avoid a countervailing duty rate of 374%, part of a broader probe into Mr. Liu’s activities. The Commerce Department said preliminary findings would be released in coming weeks. Aluminum Shapes last month denied that the pallets were used as raw material for its plant.

Homeland Security is also investigating whether nearly one million tons of aluminum shipped to Aluminicaste Fundición de México, a factory once owned by Mr. Liu’s son, were part of an effort to evade U.S. tariffs by routing the metal through another country to disguise its origins.

SECTION 337 AND IP CASES

NEW 337 CASES

OPTICAL FIBERS

On October 31, 2016, DSM Deso Tech, Inc. and DSM IP Assets B.V. filed a 337 patent case against UV Curable Coatings for Optical Fibers, Coated Optical Fibers, and Products from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Commodity:

UV Curable Coatings for Optical Fibers, Coated Optical Fibers, and Products

Filed By:
Christine E. Lehman

Firm/Organization:
Finnegan, Henderson, Farabow, Garrett, & Dunner, LLP

Behalf Of:

DSM Deso Tech, Inc. and DSM IP Assets B.V.

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 UV Curable Coating for Optical Fibers, Coated Optional Fibers, and Products Containing Same. The proposed respondents are Momentive UV Coatings (Shanghai) Co., Ltd., China and OFS Fitel, LLC, Norcross, Georgia.

SWEETENERS

On October 27, 2016, Celanese filed a 337 patent case against High Potency Sweeteners, ACE-K, from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Commodity:

High-Potency Sweeteners

Filed By:

Joshua B. Pond

Firm/Organization:

Kilpatrick Townsend & Stockton LLP

Behalf Of:
Celanese International Corporation, Celanese Sales U.S. Ltd. and Celanese IP Hungary Bt

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 High-Potency Sweeteners, Processes for Making Same, and Products Containing Same. The proposed respondents are Suzhou Hope Technology Co., Ltd., China; Anhui Jinhe Industrial Co., Ltd., China; and Vitasweet Co., Ltd.,   China.

MOBILE ELECTRONIC DEVICES

On October 14, 2016, Qualcomm filed a 337 patent case against Mobile Electronic Devices from China.  The relevant parts of the ITC notice along with the names of the Chinese respondent companies are below.

Received:

Friday, October 14, 2016

Commodity:

Mobile Electronic Devices

Filed By:

Blaney Harper

Firm/Organization:

Jones Day

Behalf Of:

Qualcomm Incorporated

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 Mobile Electronic Devices. The proposed respondents are Zhuhai Meizu Technology Co., Ltd., China; Zhuhai Meizu Telecom Equipment Co., Ltd., China; Dest Technology Limited, China; LGYD Limited, China; and Overseas Electronics, Inc., Chicago, IL.

If you have any questions about these cases or about Trump and Trade, 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–CHINA STOCK MARKET CRASH, TRADE, IP/PATENT, SECURITIES

Zhengyang Gate from Qianmen Gate Tiananmen Square Beijing ChinaTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER JULY 30, 2015

Dear Friends,

Since the last blog post focused on trade policy and trade and customs issues, with extensive coverage of the Trade Promotion Authority fight in the US Congress, after addressing the trade area briefly, this blog post plays catch up and follows the other issues, products liability, patents/IP, antitrust and most important securities.

With the dramatic plunge in the Chinese stock market, there is real lesson to be learned from all the US securities cases reported in this blog against Chinese companies that have listed in the United States. There is a fundamental difference between the US and Chinese stock markets.

Best regards,

Bill Perry 

CHINA STOCK MARKET CRASH—WARNINGS FROM THE UNITED STATES

On July 27, 2015, both CNN and the Wall Street Journal reported a sharp drop in the Chinese stock market of 8.5%. This drop took place after a drop of 32% in the Shanghai exchange, wiping out almost $3 trillion in value. As CNN stated on July 27th:

China stocks drop 8.5% in massive rout…China’s Shanghai Composite index shed 8.5% on Monday, a bone-rattling decline that raises questions about the government’s ability to prevent a crash. Beijing managed to stabilize markets with a dramatic rescue in late June and early July, intervening in a number of ways to limit losses for investors.

But the rout has now resumed: Monday’s slump was the biggest daily percentage decline since 2007. The vast majority of companies listed in Shanghai, including many large state-owned firms, fell by the maximum daily limit of 10%. Losses in Shanghai, and on the smaller Shenzhen Composite index, accelerated into the close. Shenzhen, which is heavy on tech stocks, closed down 7%.

Investors are worried about a possible withdrawal of stock market support by Beijing, and signs of a sharper slowdown in China’s economy.

Industrial profit data released Monday indicate that factories in the world’s second-largest economy are losing momentum. Profits dropped 0.3% in June, compared to the same period last year, the government said.

On Friday, an early measure of China’s manufacturing activity for July came in below analyst expectations. The reading was the lowest in 15 months.

China’s stock markets have been extremely volatile this year. The first signs of trouble came in June, after the Shanghai Composite peaked at more than 5,100 points, a gain of roughly 150% over the previous 12 months. When the bubble burst, the index lost 32% of its value in just 18 trading sessions.

As the Wall Street Journal reported on the same day, “The combined value of China’s stock markets eclipses many of the world’s biggest exchanges…” In reporting the July 27th stock plunge in China, the Wall Street Journal also stated:

Chinese shares suffered their biggest one-day drop in over eight years, wiping out hundreds of billions of dollars of market value and calling into question the effectiveness of Beijing’s recent efforts to prop up the market. . . .

Traders and analysts listed several reasons for the sudden slide, which came amid relatively thin trading volumes. Some cited fears of the effect of an unwinding of heavy investor borrowing to buy shares, while others pointed to concern that the government could soon pull back on its recent attempts to underpin the market. . . . .

Monday’s big decline shows investors have become skeptical of the market and of the government’s ability to control it. The move fits with the history of the volatile Chinese market, where government-engineered bull markets have often ended with spectacular selloffs that left stocks languishing for years. . . .

“The cat is out of the bag when it comes to China, and the collapse in the stock market overnight has confirmed that Beijing’s stabilization polices are not working,” says David Madden, market analyst at brokerage IG. “I feel that confidence will be difficult to get back, no matter how much money they throw at it.” . . .

The market-rescue measures could mean more harm down the road, they say, by reinforcing the idea that the government will come to the rescue whenever there is a crisis, undermining the progress China has made in allowing more room for risk in its financial system. . . .

To put the Chinese stock market drop in perspective, in the Charts accompanying the Article, the Wall Street Journal reported that the New York Stock Exchange has a total value of $19.7 trillion with NASDAQ being $7.4 trillion for a total of $27.1 trillion. In contrast, the Wall Street Journal reported that the composite China Stock Exchange value is $14.2 trillion, but this includes the Hong Kong Exchange of $4 trillion, which is run by much stricter rules than Shanghai and Shenzhen. The Shanghai and Shenzhen stock exchanges total $10.3 trillion, with the Shanghai stock exchange at $5.9 trillion and the Shenzhen stock exchange being $4.4 trillion. The $10.3 trillion dollar value, however, is still greater than the $5 trillion stock market of Japan and the $1.8 trillion of Germany.

With the 30 percent drop in the Chinese stock market since June, the loss in Chinese stock is about $3 trillion. This Chinese stock bubble is so big that it is very difficult for any government, even the Chinese government, to control the market. The United States faced this problem in 1929, which led to the Great Depression, and the Japanese government faced a stock market collapse in the early 1990s, which led to the lost decade. Stock market bubbles can get so large that no government can control the situation.

As Donald Straszheim, head of China research at New York-based Evercore ISI, a well- known US analyst on the Chinese stock market, recently stated, “The markets in China now are not really markets. They are government operations.”

Because of this problem, on July 27th it was widely reported that the International Monetary Fund (“IMF”) has told the Chinese government that while interventions in the stock market in general are appropriate to prevent major disorder, prices should be allowed to settle through market forces.   Chinese officials reportedly assured the lender that the measures should be considered temporary. But that statement alone creates instability in the market because no one knows when the Chinese government will terminate the measures.

Before the IMF announcement, as reported in the Wall Street Journal on July 23, 2015, many US hedge fund managers, who had been bullish on China, have changed their story:

The world’s biggest hedge fund has turned on the world’s fastest-growing economy. Bridgewater Associates LP, one of Wall Street’s more out-spoken bulls on China, told investors this week that the country’s recent stock market rout will likely have broad, far reaching repercussions.

The fund’s executives once had been vocal advocates of China’s potential. But that was before panic in the country’s stock markets shaved a third of the value off Shanghai’s main index . . . “Our views about China have changed” Bridgewater’s billionaire founder, Raymond Dalio, wrote with colleagues in a note sent to clients earlier this week. “There are now no safe places to invest.” Bridgewater, which has $169 billion under management, is renowned for its ability to navigate global economic trends . . . .

The move adds Mr. Dalio and Bridgewater to a growing chorus of high-profile investors who are challenging the long-held view that China’s rise will provide a ballast to a whole host of investments, from commodities to bonds to shares in multinational firms. . . . .

Kingdon Capital Management ILC, a nearly $3 billion New York hedge-fund firm, told clients this week it had sold all its shares in Chinese companies listed on the Hong Kong exchange. It said it was spooked by the fallout from a surge in China in the use of borrowed money to purchase stocks, particularly after authorities cracked down on the practice, helping drag down Kingdon’s investments.

The firm said it would wait until the level of such borrowing in the market drops further before going in anew.

The shifts by Kingdon and Bridgewater follow a series of concerns raised publicly last week about China by other high profile hedge-fund managers, including Elliott Management Corp. founder Paul Singer, Perry Capital LLC founder Richard Perry and Pershing Square Capital Management LP founder William Ackman. . . .

“It looks worse to me than 2007 in the United States,” Mr. Ackman said during an investment conference in New York, pointing to the unreliability of the government’s economic statistics. ”Much worse.”

But there is a more fundamental problem with the Chinese stock market. Before the recent crash there was already indications/warnings in this blog that the Chinese stock market could drop significantly. The warning/indication is the very significant number of private class action securities cases brought in the United States and cases brought by the Securities and Exchange Commission (“SEC”) against Chinese companies that have listed their stock on US exchanges. In contrast to the Chinese system, the SEC’s job is not to pump up the US stock market and intervene in its actions. The SEC’s job is to protect the integrity of the market, which means that the earnings and statements of public companies must be accurate and truthful. This is important because real investments in stock of public companies require that the actual earnings and assets of the company be real, not fake.

The same could be said of the Hong Kong Stock Exchange, which in contrast to the in-China Exchanges, is heavily regulated by the Securities and Futures Commission of Hong Kong (“SFC”). In contrast to China, this year the SFC is reporting another record year of investment in the fund management business and that the market growth since 1999 can be attributed to the “robust regulatory regime . . .[which] is fundamental to Hong Kong’s development as an international asset management centre. . .” and the SFC’s continued cooperation and work with international regulators. See http://www.secactions.com/sfc-reports-hong-kongs-growth-as-international-investment-hub/.

In contrast to the SEC and the SFC, however, the role of the China Securities Regulatory Commission, according to its spokesman Zhang Xiaojun, is to “continue efforts to stabilize market and investor sentiment, and prevent systemic risk.” The state-owned China Securities Finance Corp apparently has pledged to loan 21 Chinese securities firms about $42 billion to purchase shares. This reaction has left the Chinese government heavily invested in its own stock market. The China Securities Finance Corp had borrowed a stunning 1.22 trillion renminbi from commercial banks to buy stocks as of July 13, according to financial media Caixin, and is now one of the top 10 shareholders of many listed firms.

But the key economic criterion in judging the health of a stock market is valuation, which is comparing the earnings of various companies and their stock price. As Alex Frangos of the Wall Street Journal stated in an opinion piece on July 27th:

A main critique of the government’s plan is that it is simply unsustainable. Beijing may have hoped that it could prop up the market long enough for economic and earnings growth to catch up and make valuations more reasonable. . . .

And valuations are still extremely high. The overall Shanghai market trades at 15 times forward earnings, near its long-term average. Yet stripping out China’s banks, which investors have shunned for fear of hidden bad loans, ratios look much higher. The tech heavy Shenzhen market, for instance, traded at 31 times forward earnings, 65% above its historical average, before Monday’s fall. . . . It is clearly a dangerous game for investors to stick around in Chinese stocks while that happens.

Other Chinese stock experts have stated that price-to-earnings ratios in China — a measure that indicates whether a company is fairly valued — have been well over 100 this year, in the neighborhood of values on the NASDAQ when the U.S. dot-com bubble burst.

But the problem with that statement is that it assumes that the earnings stated by Chinese companies, in fact, are accurate. People can truly invest in stock with confidence only when they know that the company statistics are factual and true earnings of a company are available to the public.

I have one family member, who has done very well in the US stock market, buying Microsoft, for example, when it was a very young company, at $3 a share. But she charts stocks and uses graphs to determine the predicted earnings growth and compares the charts against the stock price to determine whether a company’s stock is undervalued or overvalued.

She started out in an investment club run by the National Association of Investment Clubs (“NAIC”). One can find their website at http://www.betterinvesting.org. The NAIC describes its fundamental principle of value investing, followed by such stock experts as Warren Buffet, as follows:

This is the Golden Rule for most investors who employ fundamental analysis and have a long term perspective. Buy stocks of high-quality companies at good prices and continue holding them as long as the companies’ performance merits doing so.

Sales drives earnings; earnings drives the stock price. That’s what it comes down to for fundamental investors. You might hear of different ways to buy and sell stocks, and countless books have touted systems that promise great returns. But over the long term fundamental analysis is what works in building wealth.

Fundamental analysis comes down to studying a company’s financial performance. Broadly, there are those who look for growth stocks and those who look for value equities, but the line between value and growth investing is gray: As Warren Buffett says, value and growth “are joined at the hip.”

Value investing, as practiced by Buffett and his mentor Benjamin Graham, is a time-tested method involving fundamental analysis that has served many investors well. But for the typical person . . . fundamental analysis focused on growth stocks might be more appropriate.

This is because individual investors can spot a good growth company quickly. . .

The Three Most Important Ideas:

Management, Management, Management

The individual investors who belong to Better Investing ask two questions when studying a stock:

  • Is this a well-managed company?
  • Is its stock reasonably priced?

 We seek great management because talented, capable executives know how to ensure their company thrives over the long term amid competitive battles and periodic downturns. These are the people, in other words, who are responsible for driving the sales and growth increases that fuel stock prices.

See http://www.betterinvesting.org/Public/SingleTabs/BI+Mag/Articles+Archives/0210publiccs.htm for more information.

But value investing is based on comparing actual company earnings to stock prices.

Although certain Chinese companies do not play with their earning and numbers, the number of securities cases in the United States against Chinese companies, which have listed in the United States, indicate that many do. When the faulty earnings are coupled with a Chinese government approach not to protect the integrity of the market but to simply puff up the market, bubbles are created, and when bubbles burst many individuals and companies are badly burned.

The difference between investing in the United States and investing in China is the difference between investing and gambling. In the United States, many analysts believe that the US stock market is not overvalued because the earnings to stock price do not indicate a vastly overpriced market. When I was in college, the Dow Jones Industrial Average for the New York Stock Exchange was at 700. It is now on July 27th at 17,440. What justifies that high stock average is not speculation or simply attempts by the US government to puff up the market, it is significantly increased earnings by US companies, but that means that the earnings reported by US public companies must be real and accurate.

In addition, when a professional gambler goes into the casinos in Las Vegas and Macau, he knows the odds/risks associated with each different gambling game and which game gives him the best chances of winning. So professional gamblers will often play blackjack or poker, because the odds are much better than with slot machines.

But in the Chinese stock market, one does not even know the odds of winning. In China, an investor does not have a government agency committed to making sure that the earnings and assets reported by a Chinese company are accurate. In fact, in China the actual earnings and assets of companies, especially state-owned companies, may be confidential available only to management and not to investors in the Chinese stock market.

As one Chinese stock analyst in Shanghai recently stated, the severity of an 8.5 percent drop in the Shanghai Composite Index is bad enough, but what angers him the most is not knowing why it tumbled so much. In a market where unprecedented intervention has made government money one of the biggest drivers of share prices, authorities are not transparent enough for investors to make informed decisions. Thus Chinese markets are not real markets; they are government gambling operations in which real corporate earnings are often confidential and not based on reality.

The Chinese stock market can only recover and become stable when the Government truly protects the integrity of the market by making sure that the earnings/numbers reported by Chinese companies that list on the markets are true and accurate.

For further information on this issue, please see article below on the Puda Coal case and the other US Securities cases filed against Chinese companies.

TRADE POLICY

The Trans Pacific Partnership (“TPP”) negotiations are ongoing in Maui, Hawaii with 13 countries, including the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Although Japanese Prime Minister Shinzo Abe will attend, the chance of actually sealing a final agreement is a long shot at best. Many issues need to be finalized including access to the Canadian Dairy and Poultry markets and to the Japanese rice market.

In addition to the Japanese Prime Minister, several US Senators and Representatives will be there, including Representative Rosa DeLauro, a staunch opponent of the agreement.

Although election year politics in 2016 are a concern in the US, the Canadian National Election is in this October of 2015 making it very difficult for the Canadian government to cave on dairy and poultry issues. Canadian officials along Congresswoman DeLauro are all arguing that the negotiations need to slow down. Congresswoman DeLauro has stated:

The administration has indicated they want to wrap up negotiations in this round. My colleagues and I are here to say that is altogether too fast a schedule. The agreement itself is riddled with problems. Congress, industry, advocates still have enormous concerns which the administration has done little or nothing to resolve.

But for Congress to vote on the Agreement before Christmas and 2016, an election year, the Agreement has to be completed by September or October at the latest. Paul Ryan has predicted a final agreement in late fall, which would be after the Canadian elections in mid-October.

TRADE AND CUSTOMS ENFORCEMENT BILL STILL AT THE CONFERENCE COMMITTEE STAGE

The new Trade and Customs Enforcement Bill, which was passed by both the House and Senate, is still at the Conference Committee stage to iron out the differences between the two bills. The Senate has appointed conferees- Senators Hatch, Cornyn, Thune, Isakson, Wyden, Schumer, and Stabenow.

On July 29, 2015, the House Ways and Means issued the attached Press Release, HOUSE WAYS AND MEANS TRADE CUSTOMS BILL, stating:

WASHINGTON, DCLast month, the House passed the Trade Facilitation and Trade Enforcement Act, important legislation to update and strengthen the enforcement of our trade laws. This followed the passage of a Senate version of the bill in May. Today, Ways and Means Committee Chairman Paul Ryan (R-WI) released the following statement on the status of the legislation.

“Since the passage of customs and trade enforcement legislation in the House and Senate, work has taken place to resolve the differences between the two chambers’ bills. I am pleased that we have made significant progress, and I expect this will allow us to move to a formal conference committee soon after Congress returns from this district work period. I am confident the bill we send to the president will include important House priorities and provide the United States the enforcement tools needed to ensure American workers and businesses are competing on a level playing field.”

Effectively this means that the new Customs and Trade Enforcement bill will have to wait until after the August legislative recess.

TRADE

NEW STEEL CASE FILED

On July 28, 2015, a new steel case was filed against Cold-Rolled Steel Flat Products from China, Brazil, India, Japan, Korea, Netherlands, Russia, and the United Kingdom.

In the attached Federal Register notice, ITC FED REG NOTICE COLD ROLLED STEEL, the US International Trade Commission (“ITC”) has set the preliminary injury conference on August 18. 2015.

The decision to bring the large antidumping and countervailing duty case coincided with U.S. Steel’s announcement that it had posted a $261 million net loss in the second quarter of 2015.

U.S. Steel President and CEO Mario Longhi stated:

“We’ve taken aggressive and decisive actions to address the extremely challenging conditions we continue to face in North America.  Our Carnegie Way efforts, combined with short-term cost improvements, have helped to partially offset the continued depressed volumes and low prices in both the tubular and flat-rolled markets as well as the negative impact of tremendously high levels of imports.”

COUNTRY DUMPING MARGINS ALLEGED

Brazil 50.07 – 59.74 percent

China 265.98 percent

India 42.28 percent

Japan 82.58 percent

South Korea 93.32 – 176.13 percent

Netherlands 47.36 – 136.46 percent

Russia 69.12 – 320.45 percent

United Kingdom 47.64 – 84.34 percent

See ITC announcement below:

Docket Number 3080

Received: 

Tuesday, July 28, 2015

Commodity: 

Cold-Rolled Steel Flat Products

Investigation Number: 

701-TA-540-544 and 731-TA-1283-1290

Filed By: 

Alan H. Price; Jeffrey D. Gerrish; Roger B. Schagrin; R. Alan Luuberda; and Stephen A. Jones

Firm/Organization: 

Wiley Rein LLP; Skadden, Arps, Slate, Meagher & Flom LLP; Schagrin Associates; Kelley Drye & Warren LLP; King & Spalding LLP

Behalf Of: 

AK Steel Corporation, Arcelor Mittal USA LLC, Nucor Corporation, Steel Dynamics Inc., and United States Steel Corporation

Country: 

Brazil, China, India, Japan, Korea, Netherlands, Russia, and the United Kingdom

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 anti-dumping duties on Certain Cold-Rolled Steel Flat Products from Brazil, China, India, Japan, Korea, Netherlands, Russia, and the United Kingdom.

IMPORT ALLIANCE FOR AMERICA

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

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

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

See the Import Alliance website at http://www.importallianceforamerica.com.

We will be targeting two major issues—working for market economy treatment for China in 2016 as provided in the US China WTO Agreement for the benefit of importers and working against retroactive liability for US importers.  The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.

We are now in the process of trying to gather importers to meet with various Congressional trade staff as soon as possible to discuss these issues.  If you are interested, please contact the Import Alliance through its website or myself directly.

BUSINESS DEALS AND INVESTING IN IRAN?

Nelson Dong, Larry Ward, and Clint Foss of the Dorsey Export Controls/National Security Group have written an article on when sanctions might be lifted against Iran. The primary point they make is:

In the “best case” scenario, if all the involved governments approve the [Joint Comprehensive Plan of Action] (“JCPA”), Iran cooperates, and the IAEA is eventually then able to establish the Implementation Day so that the European Union and the United States will then alter their respective sanctions regimes, what should the U.S. business community expect? Does this mean anything close to “business as usual” for U.S. exports and trade with, and investments in, Iran?

The short answer to this “what” question is “Absolutely not!” Careful and thoughtful strategic planners in U.S. companies need to be aware of the extremely limited effect that “lifting sanctions” will have for those U.S. companies after that Implementation Day.

See the full article at http://www.dorsey.com/eu-us-business-interests-2015-iran-nuclear-settlement (emphasis in the original).

CHINA ANTIDUMPING

On May 21, 2015, in the attached notice, US OPTICAL FIBER MOFCOM PRELIM, the Chinese Ministry of Commerce (“MOFCOM”) announced preliminary antidumping duties on imports of Optical Fiber Preform from Japan and the United States. The Antidumping rates are listed below:

Japanese companies:

1. Shin-Etsu Chemical Co., Ltd. 8.9%
2. Sumitomo Electric Industries, Ltd. 7.8%

3. Fujikura Ltd. 8.3%

4. Furukawa Electric Co., Ltd. 8.3%

5. ALL Others 8.9%

U.S. companies:

  1. Corning Incorporated 39.0%
  2. OFS Fitel, LLC. 16.9%
  3. ALL Others 39.0%

PRODUCTS LIABILITY

MORE CASES AGAINST LUMBER LIQUIDATORS

The cases against Lumber Liquidators keep rolling on.

False Advertising and Consumer Protection

On May 29, 2015, Dennis Chapman filed the attached class action complaint  against Lumber Liquidators for false advertising and consumer protection violations. CHAPMAN LUMBER LIQUIDATORS

On June 9, 2015, Melanie Jeffcoat filed the attached class action complaint against Lumber Liquidators for false advertising and consumer protection violations. JEFFCOAT LUMBER LIQUIDATORS

On July 29, 2015, Laura Gonzalez filed the attached complaint, GONZALEZ LUMBER LIQUIDATORS, against Lumber Liquidators for false advertising and consumer protection violations.

IP/PATENT AND 337 CASES

NEW 337 COMPLAINTS

On June 12, 2015, a new 337 patent case was filed against Containers for Lip Balm. The ITC Notice is set forth below:

Received:

Friday, June 12, 2015

Commodity:

Lip Balm Products, Containers for Lip Balm

Investigation Number:

337-TA-961

Filed By:

Louis S. Mastriani

Firm/Organization:

Adduci, Mastriani and Schaumberg LLP

Behalf Of:

eos Products, LLC and The Kind Group LLC

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 Lip Balm Products, Containers for Lip Balm, and Components Thereof. The proposed respondents are: OraLabs, Inc., Parker, CO; CVS Health Corporation, Woonsocket, RI; CVS Pharmacy, Inc., Woonsocket, RI; Walgreens Boots Alliance, Inc., Deerfield, IL; Walgreen Co., Deerfield, IL; Dollar Tree, Inc., Chesapeake, VA; Dollar Tree Stores, Inc., Chesapeake, VA; Five Below Inc., Philadelphia, PA; Wuxi Sunmart Science and Technology Co., Ltd., a/k/a Wuxi Sunmart Group Co., Ltd., a/k/a Wuxi Shengma Science & Technology Co., Ltd., China; and Wuxi Sunmart Plastic Co., Ltd., China.

PATENT AND OTHER INTELLECTUAL PROPERTY CASES

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

On June 5, 2015, Xerafy Ltd. filed the attached patent infringement complaint, ZHEJIANG PATENT CASE, against Sensestone Technologies Co., Ltd. and Zhejiang Jiakang Technologies Co., Ltd.

On June 10, 2015, Wenger SA filed the attached trademark infringement complaint, WENGER FUZHOU TMK COMPLAINT, against Fuzhou Hunter Product Import and Export Co., Swiss Digital USA, Krummholz International, Swissgear SARL, and Zhijian “Hunter” Li.

On June 19, 2015, Fellowship Filtering Technologies filed the attached patent complaint, BAIDU PATENT, against Baidu, Inc. Beijing Baidu Netcom Science & Technology Co. and Baidu USA LLC.

On July 1, 2015, Personalized Media Communications filed the attached patent complaint, TOP VICTORY, against Top Victory Electronics (Taiwan) Co. Ltd., TPV Int’l (USA), Inc., Envision Peripherals, Inc., Top Victory Electronics (Fujian) Co. Ltd., TPV Electronics (Fujian) Co. Ltd., TPV Technology Ltd. and Vizio, Inc.

On July 1, 2015, China International Marine Containers (Group) Ltd., Columbian Boiler Company LLC and Gaz Liquifieds Industrie filed the attached patent complaint, MARINE PATENT CASE, against Jiangzi Oxygen Plant Co., Ltd.

On July 14, 2015, Conair Corp and Babyliss Faco filed the attached patent complaint, CONAIR, against Taizhou Jinba Health Technology Co., Ltd.

ANTITRUST

There have been developments in the China antitrust area.

CHINA ANTI-MONOPOLY CASES

T&D JULY REPORT

In early May and July T&D sent us their attached May and June reports on Chinese competition law. T&D Monthly Antitrust Report of May 2015 TD Monthly Antitrust Report of June 2015

SECURITIES

PUDA COAL

In light of the recent China stock market crash, it is informative to review the latest US developments in the Puda Coal case. In various newsletters and blog posts in 2013 and 2014, I reported complaints filed by the SEC and various Private parties in class action securities cases against Puda Coal, a Chinese company listed on the US Stock Exchange. Puda Coal defrauded investors by taking their one asset, a Chinese coal mine, and transferring a 49 percent stake in Shanxi Coal to a private equity fund controlled by state-owned firm CITIC Group, which then sold interests to Chinese investors. They took this action without notifying their US investors.

In April 2013, I reported a class action securities case was brought in the Federal Court in the Southern District of New York against Puda Coal Inc. and CITIC Trust Co., Ltd.  The complaint alleged that CITIC is “the largest Chinese private equity fund and merchant bank, which, by means of a transfer of 49% ownership interest and a 51 % pledge as security for a loan, now controls Puda’s sole operating subsidiary and its only source of revenues.”

The complaint further alleged that “this action arises from a fraudulent scheme in which Puda insiders improperly transferred the Company’s only revenue-producing, operating subsidiary to CITIC and then, with the assistance of CITIC, falsely portrayed to investors in Puda that the Company still possessed its operating subsidiary.”

In March of 2013 I sent out an article by our China office about the famous bench decision by the Delaware Court in In Re Puda Coal, Inc. Stockholders Litigation, C.A. No. 6476-CS (Del. Ch. Feb. 6, 2013). In that attached February 3, 2013 decision, PUDA COAL STRINE RULING DELAWARE, Chancellor Leo Strine, Jr., of the Delaware Court of Chancery refused to dismiss a claim for breach of fiduciary duty against independent directors of Puda Coal Inc., a Delaware corporation with primary assets and operations in China. Plaintiffs alleged that the independent directors “had failed to detect the unauthorized sale of the company’s assets by its chairman. “

In the opinion Chancellor Strine bluntly reminded independent directors that they must be capable of fulfilling their fiduciary duty of oversight, no matter where the company’s assets or operations are located. As Chancellor Strine stated in several quotes from the opinion:

“[I]f you’re going to have a company domiciled for purposes of its relations  with its investors in Delaware and the assets and operations of that company are situated in China … in order for you to meet your obligation of good  faith, you better have your physical body in China an awful lot. You better have in place a system of controls to make sure that you know that you  actually own the assets. You better have the language skills to navigate the environment in which the company is operating. You better have retained  accountants and lawyers who are fit to the task of maintaining a system of controls over a public company.”

“Independent directors who step into these situations involving essentially the fiduciary oversight of assets in other parts of the world have a duty not to be dummy directors … [I]f the assets are in Russia, if they’re in Nigeria,  if they’re in the Middle East, if they’re in China, that you’re not going to be able to sit in your home in the U.S. and do a conference call four times a  year and discharge your duty of loyalty. That won’t cut it.”

“There’s no such thing as being a dummy director in Delaware, a shill, someone who just puts themselves up and represents to the investing public that they’re a monitor.”

Strine also had a message for independent directors who, like the independent directors of Puda Coal, thought they could avoid responsibility by resigning. He suggested that the act of resignation itself could be a breach of fiduciary duty. “And that’s another reason for sustaining the complaint.”

The Puda Coal story continues, and on July 24, 2015, the U.S. Securities and Exchange Commission (“SEC”) won a $250 million default judgment against two former executives of China-based Puda Coal Inc. for allegedly defrauding U.S. investors, after the defendants failed to appear in New York federal court to face the claims.

During a brief hearing in Manhattan court, Judge Denise Cote ordered former Puda Coal chairman Ming Zhao and CEO Liping Zhu to jointly pay $116 million in disgorgement and $17.6 million in prejudgment interest. The judge also ordered Zhao to pay a $116 million penalty and Zhu to pay a $1.2 million penalty.

In the February 2012 complaint, the SEC alleged that Zhao secretly transferred Puda Coal’s sole revenue-producing asset to himself and then sold a large portion to CITIC. Puda Coal then conducted two public offerings without telling U.S. investors that it was a shell company.

The SEC in its motion for a default judgment argued that the defendants’ refusal to face the allegations in New York “evinces a cavalier attitude toward these proceedings and the harm caused by their conduct.”

The SEC also said in its June 8 court filing that the scheme had caused U.S. investors to lose $499 million in market capitalization. “Here, defendants came into the U.S. public markets to raise capital for their coal mining venture and then absconded with the proceeds, leaving the shareholders of Puda with an empty shell,” the SEC wrote. “In short, they stole the coal company for their own purposes and fraudulently used the U.S. capital markets to finance their expansion plans.”

UPDATES ON US SECURITIES CASES AGAINST CHINESE COMPANIES

Private securities class actions continue to plague Chinese companies whose securities are traded through American Depositary Shares (ADS’s) in the United States. Chinese companies frequently use ADS’s to trade their shares, which may involve fewer required disclosures than issuance of stocks in the United States. This practice does not immunize these companies from securities litigation, as illustrated by several recent noteworthy class actions.

  • Alibaba

The federal courts system recently centralized eight class actions against Alibaba, the largest e-commerce online service in China, in the U.S. District Court for the Southern District of New York.[1] Alibaba entered the U.S. securities market last year amidst great fanfare, as the Alibaba IPO was reputedly the largest ever in the United States, raising $25 billion for the company, surpassing the previous record held by the Agricultural Bank of China.[2]

Having entered the U.S. market, the company found itself the target of class actions filed in federal courts in California and New York filed over the past several months. After hearing arguments from the litigants, the U.S. Judicial Panel on Multidistrict Litigation determined that centralization of the litigation in New York best served the interests of justice, citing the fact that the relevant documents and witnesses are available in New York.[3] Judge Colleen McMahon will preside over the cases.

The attached complaints, Khunt v Alibaba (SDNY) Klein v Alibaba (SDNY) Ziolkowski v Alibaba (SDNY) MING HUANG ALIBABA Rand v Alibaba (SDNY), generally allege that all purchasers of Alibaba ADS’s suffered harm from misstatements by the company. On Jauary 28, 2015, media outlets reported that the State Administration of Industry and Commerce, a Chinese regulator, had discussed with Alibaba some concerns over the company’s business practices in July 2014, prior to the IPO. The regulator allegedly discussed the use of Alibaba’s online services by some vendors to market counterfeit goods, among other alleged infractions. On January 29, Alibaba also reported earnings that were lower than previously expected. According to the complaints, these disclosures contributed to a sharp decline in share prices, which led to the lawsuits.

  • Xunlei

In an action filed in federal court in California, the plaintiff alleges that Xunlei, an internet platform for digital content in China, released misleading public statements that harmed investors in the company’s ADS’s that are traded on Nasdaq.[4] In this case, the plaintiff targets not only the Chinese firm, but also the U.S. financial companies that acted as underwriters for the company’s IPO. The complaint names J.P. Morgan Securities, Citigroup, and Oppenheimer as co-defendants.

The complaint alleges that the company’s registration statement filed in connection with the IPO contained misstatements. The allegations focus on the company’s efforts in developing a new product that would enable crowd sourcing of unused bandwith and data storage. The complaint alleges that the company failed to disclose in its prospectus the risks associated with that project, which contributed to lower earnings and lower share prices.

  • Yingli

Two class actions have been filed in federal court in California against Yingli Green Energy, a major producer of solar energy products in China.[5] Both complaints accuse Yingli of misstatements in its releases of quarterly and annual financial reports from March 2014 to March 2015. The allegations focus on a drop in the value of Yingli’s ADS’s on the New York Stock Exchange after the March 25, 2015 news release. The complaints allege that the company misrepresented its financial outlook in its earlier public statements.

Unlike the above cases alleging public misstatements in connection with ADS’s, a recent case in the District of Nevada takes issue with the fact that the company said nothing at all (i.e., “going dark”). The case against China Mining alleges that the company failed to make timely securities filings in the United States despite a contractual obligation to make such filings pursuant to an agreement in connection with the sales of over-the-counter securities. The complaint further alleges that the company’s principal used the proceeds of the sale for personal uses in breach of the agreement. The plaintiffs assert state-law contractual and fiduciary claims in addition to private claims for alleged securities fraud under federal law.

Besides private enforcement, federal regulators also have been busy prosecuting persons affiliated with Chinese interests. Here are some recent developments as reported by the blog post, “SEC Actions”:

  • Former Qualcomm Executive Sentenced For Insider Trading:

Jing Wang, a former Qualcomm Inc. Executive Vice President, began by constructing a cover-up. Then he engaged in insider trading, using inside information taken from his employer. The scheme failed. Mr. Wang has been sentenced to 18 months in prison and directed to pay a $500,000 fine after pleading guilty to securities fraud based on his insider trading, money laundering tied to his efforts to evade detection and admitted to obstruction. U.S. v. Wang, 3:13-cr-03487 (C.D. Calif. Filed Sept. 20, 2013).

(http://www.secactions.com/former-qualcomm-executive-sentenced-for-insider-trading/)

  • SEC Brings First Unregistered Broker Charges Based on EB-5 Program:

The EB-5 program was designed to create a path to becoming a permanent residence in the U.S. for certain immigrants while facilitating job creation in the United States. Initiated in 1990, the program gives a foreign applicant a path to permanent residency following an investment of $1 million, or $500,000 in a targeted employment area. The investment must be in a USCIS approved U.S. commercial enterprise, defined as any for-profit activity formed for the ongoing conduct of lawful business. The applicant obtains a conditional green card following the investment. It is good for two years. If the investment creates or preserves at least 10 full time jobs during the two year period the applicant may obtain a permanent green card.

While the program has been successful at spurring investment in the U.S. and giving applicants an opportunity to obtain a permanent green card, there have been difficulties. In the past the SEC has brought fraud actions based on the investment program. Now the Commission has brought its first action charging individuals with acting as unregistered brokers in connection with the EB-5 program. In the Matter of Ireeco, LLC, Adm. Proc. File No. 3-16647 (June 23, 2015).

See http://www.secactions.com/sec-brings-first-unregistered-broker-charges-based-on-eb-5-program/.

  • SEC Files Another Suspicious Trading Case:

Outsized trades continue to draw SEC scrutiny and enforcement actions – even where the agency does not have the evidence to fully plead a claim. Despite the difficulties of these so-called “suspicious” trading cases, in many instances the Commission is able to develop the evidence to support its allegations. In the meantime the trading profits are typically held in a frozen account.

SEC v. Luo, (S.D.N.Y. Filed June 23, 2014) is a “suspicious” trading case. The action centers on the buy-out announcement for Qihoo 360 Technology Co, Ltd, by its Chairman and CEO and a consortium of other affiliates, announced on June 17, 2015. Defendant Hijian Luo is a resident of Guangzhou, China. He is the CEO of 4399 Co., Ltd., an online game company that provides single, multiplayer and children’s games along with animation through the internet.

See http://www.secactions.com/sec-files-another-suspicious-trading-case/.

[1] O’Silva v. Alibaba Group Holding Ltd., No. 15-05002 (N.D. Cal.); Ziolkowski v. Alibaba Group Holding Ltd., No. 15-01405 (S.D.N.Y.); Chao v. Alibaba Group Holding Ltd., No. 15-05020 (C.D. Cal.); Rand v. Alibaba Group Holding Ltd., No. 15-00991 (S.D.N.Y.); Huang v. Alibaba Group Holding Ltd., No. 15-04991 (C.D. Cal.); Klein v. Alibaba Group Holding Ltd., No. 15-00811 (S.D.N.Y.); Khunt v. Alibaba Group Holding Ltd., No. 15-00759 (S.D.N.Y.)

[2] R. Mac, Alibaba Claims Title for Largest Global IPO Ever with Extra Share Sales, Forbes, Sept. 22, 2014.

[3] Transfer Order, In re Alibaba Group Holding Ltd. Sec. Litig., MDL No. 2631 (U.S. Jud. Panel on Multidistrict Litig. June 24, 2015).

[4] Keally v. Xunlei Ltd., No. 15-04524 (C.D. Cal.)

[5] Mangla v. Yingli Green Energy Holding Co., No. 15-04600 (C.D. Cal.); Knox v. Yingli Green Energy Holding Co., No. 15-04003 (C.D. Cal.).

FOREIGN CORRUPT PRACTICES ACT

Recently, Dorsey& Whitney LLP issued its attached July 2015 Anti-Corruption Digest, Anti-Corruption-Digest-July2015.

NEW SEC, SECURITIES, AND COMMODITIES CASES AGAINST CHINESE COMPANIES FOR FRAUD

On May 28, 2015, Kevin T. Fox filed a class action securities action against Yingli Green Energy Holding Co. Ltd., Liansheng Miao, and Yiyu Wang in the U.S. District Court for the Central District of California (Case No. 15-4003). Bhimsain Mangla filed a similar complaint in the same court on June 17, 2015 (Case No. 15-4600).  See attached complaints.  YINGLI SECURITIES MANGLA YINGLI COMPLAINT

On June 15, 2015, Doug Keally filed the attached class action securities complaint, XUNLEI SECURITIES ACTION, against Xunlei Ltd., Sean Shenglong Zou, Tao Shomas Wu, J.P. Morgan Securities LLC, Citigroup Global Markets Inc., and Oppenheimer & Co., Inc. in the U.S. District Court for the Central District of California (Case No. 15-4524).

On June 16, 2015, Euro Pacific Capital, Inc. filed the attached complaint , SECURITIES GOING DARK CHINA MINING, on behalf of a large group of individual investors against U.S. China Mining Group, Inc. and Hongwen Li in the U.S. District Court for the Southern District of New York under the federal securities law and state contract and fiduciary law (Case No. 15-4636) because the company decided to go dark and delist from the US exchanges.

On June 23, 2015, Maverick Fund, L.D.C. filed the attached first thin film solar complaint, FIRST SOLAR THIN FILM, against First Solar Inc., Michael J. Ahearn, Robert J. Gilette, Mark R. Widmar, Jens Meyerhoff, James Zhu, Bruce Sohn, and David Eaglesham, alleging violations of federal securities law in the U.S. District Court for the District of Arizona (Case No. 15-1156).

On July 1, 2015, the US Commodity Futures Trading Commission filed the attached complaint, KERING CAPITAL, against Yumin Li and Kering Capital Ltd. for violations of the Commodities Exchange Act

On July 6, 2015, the Securities and Exchange Commission filed the attached securities complaint, LUCA SECURITIES,  against Luca International Group, LLC, Luca Resources Group, Luca Energy Fund, LLC, Entholpy EMC, Inc., Bingqing Yang, Lei (Lily) Lei, Anthony Pollace, Yong (Micahael) Chen, Luca Operation LLC, Luca Barnet Shale Joint Venture, Luca to Kalon Energy LLC, Luca Oil, J&Q Int’l Trading, Inc., Skyline Trading LLC and Xiang Long Zh

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

Best regards,

Bill Perry

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