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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US CHINA TRADE WAR DEVELOPMENTS–TRADE, FALSE CLAIMS ACT, PATENTS, US/CHINESE ANTITRUST AND SECURITIES

US Capital Pennsylvania Avenue After the Snow Washington DCANNOUNCEMENT

On December 3, 2013, former Congressman Don Bonker of APCO and I will be speaking in Vancouver, Canada at a breakfast conference held by the American Chamber of Commerce on “The Trans-Pacific Partnership Demystified: A Discussion of Trade Opportunities for American and Canadian  Businesses”.

Attached is a copy of the Speech announcement.  AMCHAM – Dec 3 TPP Event – INVITE (2)  Hope to see some of you in Vancouver, Canada. 

Dear Friends,

There have been some major developments in the trade, False Claims Act, Customs fraud, patents, antitrust, Chinese antitrust and securities areas.

The big news is that after two and a half weeks, on October 17, 2013, the US Government reopened. As a result of the shutdown, in most trade cases, the Commerce Department and the US International Trade Commission (“ITC”) have tolled, pushed up, all deadlines in trade investigations and review investigations, by the number of days that the Government was shutdown.  Attached are  a Commerce Department and an ITC memo announcing their decisions to toll all deadlines in antidumping and countervailing duty and other trade cases by 16 days, which are the days the US government was shut down.  COMMERCE TOLLING MEMO  ITC TOLLING DEADLINES

TRADE

SOLAR CELLS—SETTLEMENT AND THIRD COUNTRY CELLS LOOPHOLE

Apparently, negotiations between the US and China in the Solar Cells case have slowed down because of the US government shutdown. Meanwhile, the U.S. Department of Commerce is continuing to press Chinese exporters of solar panels to demonstrate that their products fall outside of existing antidumping (AD) and countervailing duty (CVD) orders by proving that they contain  solar cells in Chinese panels and modules that are produced in third countries.

The Commerce Department has not launched a formal circumvention inquiry, but it has issued 3 to 4 questionnaires, and Chinese solar companies, Wuxi Suntech, Renesola, Yingli, LDK and Trina have responded.  Commerce has requested extensive documentation from the Chinese companies to prove not only that the solar cells are sourced from outside of China, but actually to trace those cells through their foreign production to insertion into Chinese modules and panels and then exported to the United States.  Not only is Commerce requesting the documents, we also have reports that Customs is requiring similar documents to prove that the solar cells were actually produced outside of China.

Although Chinese companies and US importers are not happy with the volume of documents requested by Commerce, in its final determination in the initial investigation, Commerce indicated that it would require importers to certify and then prove that the imported solar cells are actually produced outside of China.  Commerce has gone so far as to request that Chinese firms submit computer screenshots – or image captures of their computer  monitor – showing how they track sales and receipts of their inventory through their accounting system. Commerce  officials routinely print out screenshots from companies’ systems when they conduct on-site verifications of their claims during investigations.

Solar cells produced in countries like Taiwan and Malaysia fall outside the scope of the trade remedy orders imposed  by Commerce, even if they are assembled into panels and shipped by companies in China. Many Chinese companies  – even those that manufacture cells – have thus begun incorporating cells made in third countries in order to make sure those products shipped to the U.S. are not affected.

See also antitrust section below describing the recent antitrust complaint filed against Chinese solar companies.

CHINESE EXPORT TARIFS ON RARE EARTH METALS AND OTHER PRODUCTS

On October 10, 2013, Stewart & Stewart, a well-known law firm for US petitioners/domestic producers and US unions in antidumping and countervailing duty cases, released the attached report complaining about the Chinese government’s failure to lift export taxes on exports of raw materials, including rare earth metals.  CHINESE EXPORT TARIFFS ON RARE EARTH METALS AND OTHER RAW MATERIAL PRODUCTS

The Stewart firm argues that these export tariffs on tungsten, various metal products and wood and pulp products have been put in place to give Chinese producers an unfair advantage because they get access to cheaper raw materials.

What the Stewart firm does not mention is the fact that many of these export tariffs have been put in place by the Chinese government to deter US antidumping cases, including antidumping cases against Tungsten Ore and Silicon Carbide, antidumping orders on Magnesium, all Magnesium Products and Silicomanganese, and the new antidumping and countervailing duty orders against hardwood plywood.  All magnesium, magnesium products, including manganese metal and magnesium bricks, and silicomanganese, have been shut out of the US market not by Chinese export taxes, but by US antidumping orders.

In early 2000s, the US Magnesium Die Casting industry warned the US International Trade Commission at the Sunset Review on Magnesium that if they left the antidumping order on Magnesium from China in place, the US industry would contract. According to one magnesium die castor, in 2002, there were 16 US die cast producers in the US industry. There are now 4 producers left with the loss of 11,000 US production jobs.

What Stewart is proposing that China must dance to the US tune. But with the impact of these US antidumping and countervailing duty orders on US producers of downstream products, these antidumping and counterduty orders are truly cutting off US producers’ nose to spite their face.

NEW ANTIDUMPING AND COUNTERVAILING DUTY INVESTIGATIONS

NON-ORIENTED ELECTRICAL STEEL

On September 30, 2013, AK Steel Corporation filed antidumping and countervailing duty petitions against non-oriented electrical steel. See notice below.
Docket No: 2985
Document Type: 701 & 731 Petition
Filed By: Joseph W. Dorn
Firm/Org: King and Spalding
Behalf Of: AK Steel Corporation
Date Received: September 30, 2013
Commodity: Non-Oriented Electrical Steel
Countries: China, Germany, Japan, Korea, Sweden, and Taiwan
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 antidumping and countervailing duties on imports of Non-Oriented Electrical Steel from the People’s Republic of China, The Federal Republic of Germany, Japan, The Republic of Korea, the Kingdom of Sweden, and the People’s Republic of China (Taiwan).

The Chinese producers are: Angang Group International Trade Corp, Anshan Iron & Steel Group Corporation, Anyang Iron & Steel Group Co. Ltd. (AISCO), Baosteel Group Corporation and Baoshan Iron & Steel Company, Ltd., Baotou Iron & Steel (Group) Co., Ltd., Chongqing Iron & Steel (Group) Co., Ltd., Jiangsu Shagang Group, Jianlong Group, Fujian Xinjiu Technology Group, Foshan Jinxi Jinlan Cold Rolled Steel Sheets Co., Ltd., Jiangsu Jijing Metal Technology Co., Ltd. , Maanshan Iron & Steel Co., Ltd., Shougang Qian’an Iron & Steel Co., Ltd., Shunde POSCO Coated Steel (SHUNPO), Tianjin Jiyu Steel Co., Ltd., Taiyuan Iron & Steel (Group) Co., Ltd., Tianjin Huangtai New Energy-Saving Electromechanical Materials Co., Ltd., WISDRI (Xinyu) Cold Processing Engineering Co., Ltd., Wuhan Iron and Steel Group, Inc. (WISCO), Wuhan Iron & Steel Co., Ltd., Xinwanxin (Fujian) Fine Thin Board Co., Ltd., Xinyu Iron & Steel Co., Ltd.,  and Zhejiang Xiehe Group.

TETRAFLUOROETHANE

On October 22, 2013, Mexichem Fluor, Inc. filed an antidumping and countervailing duty petition was filed against 1, 1, 1, 2-tetrafluoroethane from China.  The Chinese respondent companies are: Bluestar, Kangtai, Dongyue, Sinochem Taicang, Juhua, Bailian, Goldsnow, and Sanmei.  Attached is a copy of the ITC initiation notice.  ITC NOTICE TETRA

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

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

APCO CHINA BRAND ARTICLE

Attached is an article published by in the Harvard Business Review by APCO China on the issues faced by Chinese companies in branding their products worldwide.  APCO BRANDS ARTICLE

DORSEY LAWYER ON SHANGHAI FREE TRADE ZONE

For an interview video on You Tube with Peter Corne, the head of Dorsey’s Shanghai office, on the new Shanghai Free Trade Zone, see http://www.youtube.com/watch?v=-K-BoK8y2Po.

CHINESE ANTIDUMPING AND COUNTERVAILING DUTY LAW

MOFCOM SPEECH ON ANTIDUMPING AND COUNTERVAILING DUTY LAW

To understand the Chinese government’s position on the application of the US antidumping and countervailing duty law from their point of view, on October 7, 2013, following the APEC meeting in Bali, Mr. Jianhua Yu, Deputy China International Trade Representative, explained that China is by far the major target of more antidumping and countervailing duty cases than any other country worldwide, stating:

“China is in a serious trade friction situation. According to the statistics, China has got the most anti-dumping investigations among all the WTO members in 18 consecutive years and got the most anti-dumping surveies (sic) among all the countries in the world in 7 consecutive years. Chinese government will, as always, unswervingly fight against trade and investment protectionism. We advocate that all the members work together to resist trade protectionism, stay cautious and restrained, regulate the use of trade remedy measures; help and concern about each other and try to settle the trade dispute by dialogues. President Xi Jinping stressed, in recent G20 Summit, that only when you open the window to realize air convection, can fresh air come in. Trade protectionism and abuse use of trade remedy measures can only do harm to others “without serving their own interest”. Therefore, we hope to deepen the communication with governments of other economies under APEC, strenghten trade and industrial policy coordination, solve trade friction through negotiations, step up dialogues and cooperation, mutually fight against protectionism of any form and resolutely preserve and develop an opening world economy.”

CUSTOMS FRAUD

FALSE CLAIMS ACT

A major False Claims Act case for triple damages has been filed against Aluminum Extrusions companies in Hong Kong, China and the US.  See the attached complaint. ALUMINUM FCA COMPLAINT TAISHAN GOLDEN GATE AND INNOVATIVE  Some of the respondent companies are Tai Shan Golden Gain Aluminum Products, Ltd. and Innovative Aluminum in Hong Kong.  Additional respondent companies are listed below.   John Doe companies are companies that are involved in the conspiracy, but not known to the Government or the relator that filed the action.

In the Complaint, relator alleged that the respondent companies were transshipping aluminum extrusions through Malaysia and labeling the aluminum extrusions as produced in Malaysia to avoid antidumping and countervailing duties on aluminum extrusions from China.  This is Customs fraud and can result in civil and criminal penalties under the US Customs law and triple damages under the False Claims Act.

False Claims Act cases are filed by a private relator on behalf of the US government.  The relator can be a US or foreign company or a US or foreign individual, such as a person in the US, Hong Kong or China.  In this case, a US individual filed the action.  Once the complaint is filed, the US government has to decide whether to intervene or not.  In this case, the US government has chosen to intervene.

The remedy is triple damages plus attorney’s fees.  The relator is entitled to 15 to 25% of any recovery by the Federal Government.

The complaint was filed in April 2011.  The case did not become public until now because when an FCA complaint is filed, it is filed under seal, in secret, until the US government has a chance to investigate and decide whether to intervene in the case or not.  In this case, after an investigation, the US government has decided to intervene and take over the litigation.

To understand the extent of the damages, take the 374% countervailing duty rate rate in the Aluminum Extrusions case, which is the entered import value of the aluminum extrusions multiplied by 374%.  Then multiply that result by 3 so the potential damages are over 900% of the entered value.  The damages alleged in the complaint, therefore, are many 10s of millions of dollars in liability and potentially millions of dollars in payout to the relator.

False Claims Act cases can also change and become Criminal Customs cases.

The Target Companies in the False Claims Act case are: Tai Shan Golden Gain Aluminum  Products, Ltd, Sam Lei, John Lei, , Innovative Aluminum (Hong Kong), Ltd, Robert Wingfield, Steven Atkinson, Northeastern Aluminum Corporation, William Ma, Master Attraction Sbn Bhd, LMM Marketing Sbn Bhd, King River, TMI, Southeastern Aluminum Products, Inc., Basco Manufacturing Company, Waterfall Group, LLC, C.R. Laurence Company, Inc., Vitro Architectural Products, Southern Aluminum Manufacturing Company, Cardinal Shower Enclosures, Coral Industries, and John Doe Companies

US DOWNSTREAM COMPANIES THAT ARE NOT IMPORTERS OF RECORD ARE NO LONGER SAFE

Many US companies believe that if they are not the US importer of record, they cannot be held liable for Customs problems. That is simply no longer the case.

Attached is an Article about the Honey Antidumping Customs Fraud investigation, by Mike Coursey.   MIKE COURSEY HONEY GATE II ARTICLE  Mike Coursey represents the US Honey, Mushrooms and Garlic industries.

The Article starts this way:

“Still buying imports of dubious foreign origin from unrelated U.S. importers? Consider the case of Groeb Farms, Inc., which recently accepted criminal responsibility for fraudulently entered Chinese honey that had avoided $79 million in duties – despite not being directly involved in the honey’s importation.

The takeaway: Not being the importer of record for fraudulently entered goods does not insulate a “knowing” downstream buyer from criminal liability for that fraud.”

By the way, Groeb Farms has filed for bankruptcy and the two brothers that ran the company are facing possible prison terms.

The point is that downstream companies, such as consignees, that to try to avoid liability by not being importer of record so as circumvent US antidumping and countervailing duty laws with false documents submitted to Customs should be very, very careful. This is not a game; it is a crime. Such actions are not a good business strategy and expose the owners and employees of the downstream companies to criminal fraud cases and millions of dollars in liability.  Import games have consequences.

NEW PATENT CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On October 7, 2013, Polygroup Macau Limited filed a patent case for infringing Christmas Tree Lights against Willis Electric Co., Ltd., a Taiwan company.  CHRISTMAS LIGHTS PATENT CASE

On October 8, 2013, Blue Spike filed a patent case against Oppo Digital, Inc. and Guangdong Oppo Electronics Industry Co., Ltd. OPPO DIGITIAL GUANGDONG

On October 10, 2013, Pragmatus Mobile filed a patent case against ZTE. PRAGMATUS ZTE

On October 11, 2013, RCRV, Inc. d/b/a Rock Revival filed a trademark case against Guangzhou Nandadi Textile Garment Co. Ltd. GUANGDONG TRADEMARK

On October 14, 2013, Blue Spike filed a patent case against Beijing Xiaomi Technology Co., Ltd. BLUE SPIKE BEIJING COMPLAINT

On October 18, 2013, Alex is the Best filed a patent case aganst ZTE.  ZTE PATENT COMPLAINT

ANTITRUST

SOLAR ANTITRUST CASE

On October 4, 2013, a new class action $950 million antitrust case was filed by Energy Conversion Devices (“ECD”), a former US solar panel producer, which is now bankrupt, against three Chinese companies, Trina, Yingli and Suntech.  ECD argues that the three companies conspired to dominate the American solar market by coordinating a “complex”  price-fixing scheme to sell “inferior” solar panels in the U.S. at artificially low prices and achieve market domination.  According to the attached complaint, SOLAR ANTITRUST CASE the scheme forced ECD into bankruptcy.

The complaint alleges that the companies were able to do this by collaborating with raw material suppliers, lenders, Chinese trade associations and Chinese government entities to dump their solar panels in the U.S. at prices that were less  than the actual cost of materials, assembly and shipping.

The problem with this allegation is that no one knows whether the three Chinese companies were dumping or not. The Commerce Department’s antidumping determination did not determine that the Chinese companies were selling their solar panels below their raw material costs because the Commerce Department refuses to look at actual prices and costs in China to determine dumping. In fact, the real issue in Solar Panels US antidumping case was whether to use Thailand or India as the surrogate country to get the surrogate values to value Chinese consumption factors for raw materials.

What do prices and costs in Thailand or India have to do with the price of solar cells in China? Nothing!! That is the fiction embodied in the Commerce Department’s antidumping determination and now reflected in the antitrust complaint filed by ECD.

VITAMIN C CASE

The Vitamin C case is wrapping up at the District Court level.  Attached is the October 16, 2013 proposed settlement agreement with China Pharmaceutical Group Ltd. and Weisheng Pharmaceutical Group Co., Ltd.  VITAMIN C DIRECT LEGAL FEES  Note that the legal fees for the US lawyers are 7.8 million plus 1.5 million in expenses.

In other words, the Chinese respondent companies pay the legal fees of the US lawyers bringing the case.  Another incentive to bring more antitrust cases in the US against Chinese companies–big payouts to the US lawyers.

LCDS CASE—AU OPTRONICS EXECUTIVE BAI NOT GUILTY

In the second week in October, a Jury in San Francisco found AU Optronics Executive Richard Bai not guilty. In March 2012, a California jury found two executives for AU Optronics guilty, but in the Bai case, the Jury believed that the Justice Department had not provided sufficient evidence of guilt.

AU Optronics has appealed its criminal conviction to the San Francisco-based 9th U.S. Circuit Court of Appeals.  The Taiwan company is arguing that the U.S. Sherman Act can not be stretched to criminalize the actions of foreign companies on foreign soil. In the alternative, the defendants argue that if U.S. antitrust law does have extraterritorial reach, it should be applied in a limited way. AU Optronics argues that the fact that foreign executives met to discuss prices shouldn’t be an automatic U.S. antitrust violation.

Most comentators, however, believe that the chances of winning on this argument are very low.

In response, the Justice Department argues that U.S. antitrust law reaches foreign conduct that has a substantial and intended effect on the U.S..  Justice also also argues that part of the price-fixing conspiracy actually occurred in the U.S, stating LCD makers “reaped billions of dollars in ill-gotten gains at the expense of their U.S. customers,” . . . “That conspiracy meetings were held abroad does not change the felonious nature of defendants’ conspiracy or undo the enormous harm it caused in the United States.”

JAPANESE AUTO PARTS ANTITRUST CASES

On October 3rd and 9th more class action antitrust cases were filed against Japanese auto parts suppliers.  CLASS ACTION ANTITRUST JAPAN 2-13cv14289 CLASS ACTION ANTITRUST JAPAN

CHINA ANTITRUST CASES

As stated before, what goes around, comes around, and we now have Chinese antitrust cases against US companies.

In the attached article NRDC Steps up Anti-trust Enforcement in China Even Further by Peter Corne, head of Dorsey’s Shanghai office, and Blake Yang state:

“On June 27, Biostime, a premium manufacturer of pediatric nutrition and baby care products in China, announced through its Hong Kong holding company that subsidiary Biostime, Inc. (Guangzhou) . . . is subject to investigation by China’s National Development and Reform Commission (“NDRC”).

The main purpose of the investigation is in relation to an alleged violation of Article 14 of the Anti-Monopoly Law of the People’s Republic of China (“AML”) by Biostime, Inc. (Guangzhou) in managing the market sales prices at which the distributors and retailers sell Biostime products. This announcement caused the stock price of Biostime to fall by 7.55% to HKD 43.5 on June 28.

On July 2, it was also reported by National Business Daily, Beijing Times, and other news media that five foreign infant milk firms including Abbott Laboratories, Mead Johnson Nutrition Co., Nestlé SA, Wyeth Nutrition, and Dumex (a brand of Danone) had also been placed under investigation by the NDRC for alleged antitrust violations in relation to Article 14 of the AML.

By way of background, Article 14 of the Anti-Monopoly Law prohibits business operators from entering into vertical agreements with trading partners that fix the product prices or set minimum sales prices for resale to third parties. A violation of Article 14 may attract heavy penalties including a fine ranging from 1% to 10% of the business operator’s overall sales revenue for the preceding year. . . .

This case is significant because it underlines the more aggressive approach that the NDRC has begun to take to anti-trust law enforcement in respect of matters within its own jurisdiction (in the area of pricing). . . .

So what are the potential implications for the future of anti-trust enforcement in China? As the NDRC has become more proactive and gains more experience in this area, we would expect it to expand the scope of its attention beyond resale price maintenance and into other areas of anti-trust related to price, such as price discrimination, price gouging, bid rigging or price signaling. We would also expect the Administration of Industry and Commerce, whose investigatory activity (limited in scope to areas outside of purely pricing) has been relatively low key, to also step up its activity in this area. As suggested by its latest investigations into foreign infant milk formula companies, the NDRC appears to feel confident enough to press ahead with plans to investigate foreign companies. MNCs should prepare by conducting their own internal audits with the help of outside counsel to ascertain the extent of their exposure to risk of enforcement for AML violations.”

See also another attached article SAIC Launches First Abuse of Dominance Investigation under AML by Mr. Corne about China’s State Administration for Industry and Commerce (SAIC) investigation against Sweden’s Tetra Pak for alleged abuse of market dominance through tying and discrimination. This is the SAIC’s first publicly announced investigation into abuse of dominance since the PRC Anti-Monopoly Law (AML) came into force in 2008. The investigation also represents an extraordinary joinder of more than twenty provincial and municipal branches of the SAIC countrywide that have been mobilized jointly to conduct the investigation against the foreign company. Such actions mirror the private antitrust actions brought by US states and their attorney generals in antitrust cases.

RUMORS OF POSSIBLE CHINESE ANTITRUST ACTIONS AGAINST FOREIGN AUTOMOBILE COMPANIES

Recently, there have been rumors that the National Development and Reform Commission (NDRC), the Chinese governmental authority that regulates price monopoly activities in China, has been working with the China Automobile Dealers Association (CADA) to collect data regarding the pricing behavior of foreign auto manufacturers.  The thought is that this data will be used to determine whether the foreign manufacturers are requiring their distributors and retailers to resell products at a minimum price. This practice, known as a resale price maintenance (RPM), may violate China’s Anti-Monopoly Law (AML).

Many commentators believe that although not acknowledged publicly, the NDRC is investigating the situation and more investigations against various industries are underway.

What is sauce for the goose is sauce for the gander.

SECURITIES

SEC GRANTS DELAY IN PROCEEDING AGAINST US ACCOUNTING FIRMS FOR  REFUSING TO RELEASE AUDIT DOCUMENTS OF CHINESE COMPANIES

On October 2, 2013, in the attached order, SEC ORDER ACCOUNTING FIRMS the U.S. Securities and Exchange Commission (“SEC”) granted a request from an administrative law judge to give an additional 100 days to determine whether top accounting firms, such as Ernst & Young, Deloitte and Price, Waterhouse, have to produce audit documents of Chinese company clients that are suspected of defrauding their US investors through reverse mergers.  In December 2012 the SEC started this case because it believes the accounting firms, including the Big 4, have refused to to cooperate with document requests in an investigation into China-based companies whose securities are publicly traded in the U.S. in violation of US security laws.

The accounting firms argue that they fear violating Chinese secrecy laws. As evidenced by the complaints on this site, the SEC has cracked down in the last few years on fraudulent reverse mergers, in which Chinese companies have used existing public shell company to merge with a private operating company, leaving the shell company as the surviving legal entity. The crackdown, however, has been delayed by the Chinese privacy laws, which bar China-based auditors, including the subsidiaries of US accounting firms, from turning over Chinese client information.

The accounting firms have been fighting requests for audit paperwork related to Chinese companies accused of fraud on US investors.  In July, following bilateral investment talks, the U.S. announced that China had agreed to turn over certain audit documents to the SEC and the Public Company Accounting Oversight Board (“PCAOB”). That deal came shortly after the PCAOB announced a memorandum of understanding with the China Securities Regulatory Commission and China’s Ministry of Finance to ease restrictions on release of audit information in fraud investigations.

COMPLAINTS

A number of new securities complaints cases have been filed against Chinese companies.

On October 8, 2013, Warner Technology & Investment Company filed a complaint for securities fraud against Sichuan Apollo Solar Energy Technology Co. Ltd. and Renyi Hou. SECURITIES APOLLO

On October 9, 2013, the Securities and Exchange Commission brought a major fraud case against a Hong Kong Company CKB 168, Cyber Kids Best Education Ltd., and various individuals and other companies, such Rosanna LS Inc., USA Trade Group, Inc., Ouni International Trading Inc., E. Stock Club Corp., EZ Stock Club Corp., HTC Consulting LLC and Arcadia Business Consulting Inc.  SEC CK CASE

The complaint states that the SEC “brings this emergency action to halt an ongoing pyramid scheme and offering fraud, which primarily targets members of the Asian-American community.” The Complaint goes on to state:

“To date, the Defendants have harvested $20 million, and likely much more, from at least 400 investors in New York, California, and elsewhere in the United States, as well as millions of dollars from investors in Canada, Taiwan, Hong Kong, and other countries in Asia. . . .

Through publicly available websites, promotional materials, seminars, and videos posted to the internet, as well as through other efforts intended to create the appearance of a legitimate enterprise, Defendants have falsely portrayed CKB as a profitable multi-level marketing company that sells web-based children’s educational courses.

What CKB really sells, however, is the false promise of easy wealth. . . . Defendants have falsely portrayed CKB as a profitable multi-level marketing company that sells web-based children’s educational courses.

In fact, CKB has little or no retail consumer sales to generate the promised returns and no apparent source of revenues other than money received from new investors. Instead, CKB is a classic pyramid scheme that depends on the recruitment of new investors to pay promised returns to existing ones. CKB’s inevitable collapse will cause substantial investor losses.”

On October 15, 2013, another class action securities complaint was filed against Chinese company, Light in the Box.  LIGHT COMPLAINT

On October 18, 2013, the US Securities and Exchange Commission filed a securities fraud complaint against Yuhe International Inc. and Gao Zhentao in Weifang, Shandong Province. YUE COMPLAINT

On October 28, 2013, Phuong Ho filed an attached class action securities complaint against NQ Mobile Inc. of Beijing China, several Chinese individuals, Piper Jeffray, Oppenheimer and Canaccord.  HO NQ MOBILE

SECURITIES CLASS ACTION CERTIFICATION–CHINA INTELLIGENT LIGHTING

On October 28, 2013, a Federal Judge in California certified a class of shareholders suing China Intelligent lighting and Electronics Inc. for securities fraud, alleging that the company and the underwriters exaggerated the company’s revenues ahead of its public offering in June 2010.  According to the Plaintiff shareholders, China Intelligent overstated its revenue for the 2008 and 2009 fiscal years by roughly $74 million in its offering documents, which were prepared with help from underwriters WestPark Capital Inc. and auditors MaloneBailey LLP and Kempisty & Co. PC, after which its auditor resigned and the U.S. Securities and Exchange Commission banned public sales of company stock. See attached order.  CTORDER CLASS CERTIFICATION

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE, CUSTOMS, PATENTS, ANTITRUST AND SECURITIES

Houhai Lake at Night With Drum and Bell Tower Beijing, China TraDear Friends,

There have been some major developments in the trade, solar cells, Customs, 337/patents, antitrust and securities areas.

TRADE

SOLAR CELLS—BEAT GOES ON

On September 26th there were reports that the United States and China have been negotiating for the past several weeks toward a settlement of existing trade remedy cases affecting Chinese solar cells that would set a minimum floor price and limit Chinese imports.   Apparently, the arrangement would be similar to the one China reached with the European Union, which also included a floor price and provisions aimed at limiting Chinese imports.  Another US objective is to remove Chinese duties affecting U.S. exports of solar-grade polysilicon to China.

Apparently, negotiations have taken place, but it is still unclear how intense the talks are at this time or whether they are anywhere close to a breakthrough.   Sources report that the U.S. Trade Representative (“USTR”), which is leading the negotiations for the U.S. side, has been talking to the domestic manufacturing industury.  As mentioned before since antidumping and countervailing duty orders have already been issued, there cannot be a suspension agreement.

One speculation is that the US and Chinese government could enter into a memorandum of understanding like the U.S-Canada lumber agreement.   Regarding who has more leverage in the negotiations, as described below, with the third country loophole in place, since the Chinese companies can source the cells from Taiwan, Chinese companies may not be that affected by the Trade Remedy orders.  But certain Chinese producers make most of their money by producing solar cells in China, not the modules and panels.

Furhter increasing the pressure, there was quite a flurry in the newspapers as the Chinese Ministry of Commerce (“MOFCOM”) announced on September 20th its preliminary countervailing duty of 6.5% against Polysilicon from the United States against Hemlock and AE Polysilicon.  Other US producers, such as REC Silicon, received a 0% CVD rate. The CVD duty is in addition to the antidumping rates on polysilicon from 53 to over 60% on certain exporters.  See attached announcement.  MOFCOM ANNOUNCEMENT POLYSILICON

One trade publication quoted me stating that “I really think the United States, for the first time, has encountered a trade war,” Perry said. “All of a sudden, when it throws a rock at China, China throws two or three back.”

In addition, certain newspaper assumed that the countervailing duty replaced the antidumping duty against US polysilicon and the newspapers declared victory for the US side.  See http://www.renewableenergyworld.com/rea/blog/post/print/2013/09/china-escalates-trade-war-with-us-over-polysilicon-upping-tariffs-to-63-5

But the reality is quite different.  Just like the United States, the Chinese countervailing duty is added to the antidumping duty against US polysilicon so US producers/exporters are still under enormous pressure because of the Chinese trade case.  The U.S. imports of polysilicon into China were roughly $2 billion, while the imports of Chinese solar cells to the U.S. were roughly $4 billion.  The looming uncertainty has already cost the U.S. manufacturing jobs.  As mentioned in my last post, an August 18th article in the Seattle Times stated that Hemlock Semiconductor, the third-largest polysilicon producer, announced plans in January to lay off 400 employees at its Michigan and Tennessee plants, citing an oversupply of solar panels because of the potential for Chinese tariffs.  The article also stated that REC Silicon said the trade issues caused it enough uncertainty as far back as January of 2013 to delay a $1 billion capacity expansion at its Moses Lake plant in Washington.

The MOFCOM Polysilicon Decision increased pressure on the United States to negotiate a settlement agreement.  On September 23rd, a US solar industry association, the Solar Energy Industrial Association, released a proposed settlement of the solar cells and polysilicon trade cases.  SEIA SETTLEMENT PROPOSAL  In the attached announcement issued on September 23rd, the SEIA states:

“With no end in sight to the ongoing solar trade dispute between the United States and China, the Solar Energy Industries Association (SEIA) is offering an industry compromise between the U.S. and Chinese solar industries, which could serve as the centerpiece for a fair, negotiated settlement of outstanding issues, benefit end users, and encourage the proliferation of solar energy in the United States and globally. . . .

For months, SEIA has been working behind the scenes in Washington and Beijing to resolve the current conflict and head off an escalation of trade sanctions. SEIA has warned U.S. negotiators that any settlement similar to the recently announced EU-China agreement would represent a blow to the U.S. solar industry because of an expected increase in solar prices. SEIA also believes that any resolution of the U.S.-China solar dispute must recognize the interests of all stakeholders, including American consumers, and not just one segment of the industry.

Highlights of SEIA’s proposed solution include:

• Chinese companies would agree to create a fund that would benefit U.S. solar manufacturers directly and help to grow the U.S. market. Money for the fund would come from a percentage of the price premium Chinese companies are currently paying to third-country cell producers to get around U.S. trade sanctions, reducing costs and supply chain distortion for Chinese companies.

• The Chinese government would also agree to end its antidumping and countervailing duty investigations on U.S. polysilicon exports to China, and remove the threat of artificial cost increases in a key raw material in the solar value chain, benefiting not just Chinese solar companies but all users of solar energy.

• In return, the U.S. antidumping and countervailing duties orders would be phased out.”

In other words, the SEIA is proposing that the US Solar Industry and the Chinese solar industry simply come together and sing Kumbhaya, a let’s get together song, and everything will be fine again.  The reality is much different.

Although the United States and Chinese governments apparently are negotiating, the first problem with any settlement agreement is that the Chinese government has to agree.  With the Third Country loophole in place, that is if foreign solar cells are put in Chinese panels and modules, the panels and modules are not in the antidumping and countervailing duty case, Chinese modules and panels are not shut out of the US.  In fact, estimates are that the price difference between Chinese and Taiwan solar cells is an estimated 5 to 10 cents so the prices for modules and panels in the United States have only gone up by about $10.  Such a small prices increase has no impact on the US market.  So unless Commerce closes the loophole on its own or because of Court appeals, the Chinese government has no incentive to enter into such a settlement agreement.

Moreover, the US Solar Cell industry has no interest in such a settlement agreement.  In response to SEIA proposal, US counsel representing the US solar cell producers, including Solar World, indicated that they did not have any any intention of giving up unless and until China’s unfair trade practices have stopped.

Counsel for the US industry indicated that his clients are highly skeptical of any arrangement or settlement with China given its history of predatory trade pract1ces.  Since no agreement was negotiated in the initial investigation, getting the US industry’s agreement will be critical to any Solar Cells agreement because the Petitioners, including Solar World, must agree to withdraw their complaint.

This fight will definitely go on.

HARDWOOD PLYWOOD CASE

Another major trade fight is the antidumping and countervailing duty case against Hardwood Plywood from China.  On September 17, 2013, the Commerce Department issued its final antidumping and countervailing duty determinations in the Hardwood Plywood from China case.  As indicated in the attached notice, COMMERCE DEPARTMENT FACT SHEET HARDWOOD PLYWOOD the Antidumping rates range from 55.76% to 62.55% for the mandatory respondents and 59.46% for the rest of the Chinese companies that cooperated in the investigation and 121% for the Chinese companies that did not cooperate.

In the Countervailing Duty case, the three companies that were chosen as mandatory respondents received 0%.  But as mentioned before, even though the Chinese companies that were individually examined received 0%, the Commerce Department’s methodology does not let the Department go negative on the rest of China.  Despite the 0% dumping rates for the mandatory Chinese respondent companies, all other Chinese companies, more than 100 companies, received a 13.58% Countervailing Duty rate.  Fairness Commerce style.

In addition, how did the Commerce Department calculate an antidumping rates of approximately 55 to 62% for Chinese companies?  By using Bulgaria as the surrogate country.  Do you really think that Bulgaria is a more market driven economy than China?  Of course not, but that is not the point.

On September 19, 2013 at the ITC injury hearing Senator Wyden from Oregon testified for the US Industry stating:

“The growing tide of Chinese imports is sinking the boat of the American hardwood plywood industry . . .Left unchecked, these illegal trade practices undermine economic growth, struggling Oregon communities, and encourage more of these unacceptable trade practices by China and others who seek to play by their own rules. . .  American communities that are reliant on manufacturing had been brought “to the brink of economic collapse because of unfair trade.”

But who is the real loser in the Hardwood Plywood case, not the Chinese nor the US hardwood plywood industry.  The real losers in the Hardwood Plywood case are the downstream US producers of cabinets, furniture, boats, paneling and in home construction, crating and packaging, store fixtures, flooring underlayment and many other products, some of which are located in Oregon.

As Mr. Simon, the co-chairman of American Alliance and for Hardwood Plywood, and Mr. Titus, the executive vice president of the US Kitchen Cabinet Manufacturers Association, state in the attached article from the Wall Street Journal, “Protectionists Pick Your Pocket Again, You’ll Pay More for Cabinets, and Anything Made with Chinese Plywood and US jobs will be lost too” WSJ ARTICLE:

“Many thousands of U.S. factories depend on a steady, affordable supply of this plywood for the products they will sell at home and abroad.  Whether those downstream manufacturers sink or swim may be determined in Washington this week in two separate events—a ruling and a hearing.

The damage to U.S. manufacturers that rely on hardwood plywood has already begun. The combined tariffs have jolted supply chains, spiking the cost of imported hardwood plywood and creating painful shortages due to a lack of domestic supply. The first to suffer will be American jobs in manufacturing and woodworking. .. . Today, many U.S. manufacturers that depend on imported Chinese hardwood plywood fear that the tariffs will force the production of cabinets, furniture and other products now made in the U.S. to sites overseas. The domestic kitchen and bath-cabinet industries alone have $8.2 billion in annual sales. But how will the U.S. industry, hit by tariffs, compete with kitchen cabinets and other products made abroad—that can be shipped to the U.S. free of import duties? Competition will come from Canada and Mexico as well as China. . . .

This point was reinforced by Mr. Carl Spencer of Spencer Cabinetry, who testified at the ITC on behalf of the Kitchen Cabinetry industry in the attached article from Woodworking Network, ” Plywood Antidumping Ruling: Upside-Down System of Justice”  See  http://www.woodworkingnetwork.com/wood-blogs/industrial-woodworker/production-industry-guest-blogs/Upside-Down-System-of-Justice-226075531.html?page=2#sthash.wgd6pcex.dpbs

In the Article, Mr. Spencer states:

“My in-depth exposure has convinced me that a lot more American cabinetmakers need to get involved right away. This isn’t just someone else’s issue — our own very existence may be at stake, and it’s ten seconds to midnight. . . .”

“It’s a serious mistake for your readers to think this will not greatly affect them. Whether we buy any imported plywood or not, restricting the longstanding pipeline of hardwood plywood imported for use as secondary wood will trigger spot shortages and drive up prices of all domestic material for everyone.  That is the whole reason the Cartel of Six filed their complaint in the first place. . . .

“even though our hardwood plywood prices will go up a lot, they will not go up for our direct cabinetmaking competitors in China, Canada, Mexico, or elsewhere. As an example, we are already competing every day with Canadian companies, whose primary market is the United States.”

“From our point of view, our own government’s actions amount to a de facto stimulus, not for Americans, but instead for the Chinese, Canadian, and Mexican cabinet industries — all of whom can still buy plywood from China at the true world price. In the end, it is the American cabinet companies that will be punished, especially the small ones, and American jobs that will be lost.” . . .

“As it stands now, over 9,300 of us cabinet companies must now pay them for it for as long as we survive . .  .”

“The handwriting is on the wall. It might be well for the woodworking press to move their headquarters to Canada and have staff who speak Mandarin in order to better keep up with the new American cabinet industry.”

 

When the US government imposes antidumping and countervailing duties on US imports using an unfair process that is tilted in favor of US producers, the Government creates little monopolies.  When the products at issue are raw materials, the real losers are US producers of downstream products, which are either driven out of business because they cannot compete in the downstream market with imports that have access to the cheaper raw materials or forced to close their US production facilities and move to China.

NEW ANTIDUMPING AND COUNTERVAILING DUTY INVESTIGATIONS

MSG

On September 16, 2013, the Commerce Department initiated antidumping and countervailing duty review investigations on Monosodium Glutamate (“MSG”) from China. ITC Notice and Chinese companies in the review are listed below:

ITC NOTICE

Docket No: 2979

Document Type: 701 & 731 Petition

Filed By: Iain R. McPhie

Firm/Org: Squire Sanders (US) LLP

Behalf Of: Ajinomoto North America Inc.

Date Received: September 16, 2013

Commodity: Monosodium Glutamate (MSG)

Country: China and Indonesia

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 antidumping and countervailing duties on imports of Monosodium Glutamate (MSG) from People’s Republic of China and Republic of Indonesia.

Status: 701-TA-503-504 and 731-TA-1229-1230 (Preliminary)

The Chinese respondent producers and exporters in the MSG case are: Fufeng Group, Meihua Holdings Group, Henan Lotus Flower Gourmet Powder Co., Ltd, COFCO Biochemical (Anhui) Co. Ltd.), Shandong Linghua Monosodium Glutamate Incorporated Co. , Jining Jusheng Gourmet Powder Food Co., Ltd., Shandong Xinle Monosodium Glutamate Foods Co. Ltd.,  COFCO Limited, Ningxia Eppen Bio-Tech Co., Ltd., Huanyu Gelin Food Development Co Ltd., Haerbing Juhua Biotech Co. Ltd, Fujian Province Jianyang Wuyi MSG Co., Ltd., and Shandong Qilu MSG Group Co.,

GOES

On September 18, 2013, an antidumping and countervailing duty petition was filed against Grain Oriented Electrical Steel from China.   Notice and Chinese companies are listed below:

ITC NOTICE

Docket No: 2980

Document Type: 701 & 731 Petition

Filed By: John M. Herrmann

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: AK Steel Corporation, Allegheny Ludlum LLC, and the United

Steelworkers

Date Received: September 18, 2013

Commodity: Grain-Oriented Electrical Steel

Countries: People’s Republic of China, The Czech Republic, The Federal Republic of Germany, Japan, The Republic of Korea, Poland, and the Russian Federation.

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 antidumping and countervailing duties on imports of Grain-Oriented Electrical Steel from the People’s Republic of China, The Czech Republic, The Federal Republic of Germany, Japan, The Republic of Korea, Poland, and The Russian Federation.

Status:  701-TA-505 & 731-TA-1231-1238

The Chinese respondents in the GOES case are: Anshan Iron & Steel Group Corporation, Hebei Shougang Qian’an Iron & Steel Co., Ltd. (subsidiary of Beijing Shougang Co. Ltd.), Baoshan Iron & Steel Co., Ltd. (subsidiary of Baosteel Group headed by parent company Shanghai Baosteel Group Corporation) (“Baosteel”), and Wuhan Iron & Steel Co. Ltd. (”Wuhan” or “WISCO”).

As indicated below, the ironic point is that the Chinese Government has levied antidumping and countervailing duties on US exports of GOES to China.  Although the US has taken the GOES case to the WTO and won a victory, the orders stay in place in China.  The 3 plus years that the orders have been in place, however, have allowed the Chinese GOES industry to catch up and now export GOES to the US, which is causing problems for the US GOES industry.

In the Steel Antidumping and Countervailing Duty Wars between the US and China, what goes around, comes around.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

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

CHINESE ANTIDUMPING AND COUNTERVAILING DUTY LAW

POLYSILICON

Attached is the Chinese Government’s Ministry of Commerce (“MOFCOM”) September 20th announcement of preliminary countervailing duties to be levied on polysilicon imports from the US.  MOFCOM ANNOUNCEMENT POLYSILICON

SILICON STEEL—GOES

The US battle with the Chinese government on its antidumping and countervailing duty orders against GOES from the US is still being fought out.  In response to the August 12th announcement by MOFCOM that it had met its WTO obligations in the GOES case, on September 11, 2013, the USTR stated that it is “currently evaluating China’s re-determination of antidumping and countervailing duties on GOES from the United States” and that if the Chinese government’s actions are not sufficient to comply with the WTO’s recommendations and rulings, the US could initiate further proceedings at the WTO.

As the recent US antidumping and countervailing petitions against GOES from  China indicate, however, the US GOES industry has already lost its technical/tactical advantage.

Although the US Steel industry complains about Chinese antidumping and countervailing duty cases against US GOES exports, in light of US refusal to use actual prices and cost in China calculate dumping rates and the Commerce Department’s methodology that finds dumping and subsidization in 100% of the cases against China, such criticism has a very hollow ring.

CUSTOMS

HONEY CASE

On September 30, 2013, a US agent for a dozen Chinese honey importers was sentenced to three years in prison for her role in smuggling operations that allegedly avoided nearly $40 million in US antidumping duties. At a federal court hearing in Chicago, Hung Yi lin -who pled guilty last year to three counts of entry of goods into the U.S. by means of false statements- was also ordered to pay $512,852 in restitution, but avoided the six-year prison sentence sought by prosecutors.

Lin, 43, also known as Katy Lin, allegedly played a pivotal role in helping her clients falsify documents on shipping containers loaded with Chinese-origin honey from 2009 to 2012, making it appear that they were filled with sugars or syrups. Through her California-based company KBB Express, Lin brought in $11.5 million of honey into the US avoiding almost $40 million in antidumping duties.

Ms. Lin’s attorney argued that his client was simply a hardworking immigrant, who was merely a freight forwarder and did not profit from the scheme.  Ms. Lin in tears told the US Judge Milton I. Shadur that she was not attempting to flee prosecution, when she was arrested on her way out of the country.  “I’m really sorry if anything I did hurt this country. I came here for my dream . . . .”

In response, however, the Assistant US Attorney argued that the Mr. Lin’s role was absolutely critical in the sophisticated scheme.  The Assistant U.S. Attorney also stressed the damage to the U.S. honey industry when the price of honey collapsed due to the smuggling operation and other similar schemes.

PATENTS

337 CASES

CAFC DETERMINATION –MICROSOFT NO DOMESTIC INDUSTRY UNDER 337

On October 3, 2013, the third day of the Government shutdown, we can say that at least the Courts are open. Today the Court of Appeals for the Federal Circuit (“CAFC”) issued its attached decision in Microsoft v. US International Trade Commission (“ITC”) and Motorola in which Microsoft appealed an ITC determination of no violation in a 337 case.  MICROSOFT DOMESTIC INDUSTRY  The CAFC affirmed the ITC on almost every part of the decision, remanding on one small aspect of one patent back to the ITC.  The most important issue is the its decision on domestic industry, which will effect future 337 cases against China.

In that decision, which is attached, the CAFC dismissed one part of Microsoft’s patent case becasue Microsofit did not establish that the patented invention, the specific patent in question, was actually practiced in the United States and, therefore, there was no domestic US industry with regards to this patented product.  The CAFC stated:

“Microsoft’s failing was simple. Although Dr. Olivier purported to identify “client applications” in an example application that Microsoft provides to third party phone manufacturers, Microsoft failed to show that any such “client applications” are actually implemented on any third-party mobile device.  .  .  According to the ALJ, because Microsoft did not point to evidence that its expert examined client applications in fact running on third-party mobile phones or confirmed how they operated, Microsoft failed to show that there is a domestic industry product that actually practices the ’376 patent.  . . .In this appeal, we do not reach Microsoft’s challenge to the non-infringement determination because we find substantial evidence to support the Commission’s finding of no domestic industry, which suffices to support its finding of no violation based on this patent. There is no question about the substantiality of Microsoft’s investment in its operating system or about the importance of that operating system to mobile phones on which it runs.”

“But that is not enough under the statute. Section 337, though not requiring that an article protected by the patent be produced in the United States, unmistakably requires that the domestic company’s substantial investments relate to actual “articles protected by the patent.”  19 U.S.C. §§ 1337(a)(2), (3). A company seeking section 337 protection must therefore provide evidence that its substantial domestic investment—e.g., in research and development—relates to an actual article that practices the patent, regardless of whether or not that article is manufactured domestically or abroad. . . .”

“We conclude that there is substantial evidence to support the Commission’s determination that Microsoft failed to meet that requirement. . . . The Commission did not lack substantial evidence to support its finding that Microsoft simply failed to identify any actual phones with the required components performing as required.  . . .”

“On that basis, the Commission could find that Microsoft failed to show that any Microsoft-supported products practiced the ’376 patent. We therefore affirm the Commission’s finding of no proven domestic industry, and hence no section 337 violation, involving this patent.”

SUPREME COURT ARGUMENTS ON DOMESTIC INDUSTRY

On September 9, 2013, in Nokia v. US International Trade Commission, Nokia attempted to persuade the Supreme Court to take jurisdiction and overturn the CAFC’s January 2013 decision in Interdigitial Communications LLC et al v.  International Trade Commission and Nokia Inc. that licensing of specific patents by InterDigital in the United States was enough to be a domestic industry under section 337.  Nokia argued that nonpracticing entities should not be considered a domestic industry under section 337.

In response, according to InterDigital, when it ruled that it had satisfied the domestic industry requirement, the CAFC simply followed “the intent of Congress to enlarge the domestic industry requirement to cover licensing activities – when those activities are substantial and connected to exploitation of the patents at issue. . . .”  InterDig Brief

In the attached Supreme Court brief, the ITC sided with InterDigital.  ITC BRIEF  19 USC 1337(a)(3) (C) specifically provides that a domestic industry “shall be considered to exist if there is in the United States with respect to the articles protected by the patent, “substantial investment in the patent’s exploitation, including engineering, research and development or licensing”.  The ITC pointed to record evidence that InterDigitial had “invested a total of approximately $7.6 million in salaries and benefits for employees engaged in its licensing activities, and it received almost $1 billion in revenues from portfolio licenses (including the patents in suit) related to its cellular technology. . . .”

In addition, the ITC pointed to the CAFC’s explanation that in 19 1337(a)(3)(C) Congress intended to protect “innovators who did not actually produce goods in this country, but who were injured by the importation of goods that incorporated the technology that they had invented or sought to license”.

NEW 337 CASE

HANDHELD MAGNIFIERS

On September 26, 2013, a new 337 case was filed against Aumed Group Corp. in China on handheld magnifiers. See notice below:

Docket No: 2984

Document Type: 337 Complaint

Filed By: Matthew B. Lowrie

Firm/Org: Foley & Lardner

Behalf Of: Freedom Scientific, Inc

Date Received: September 26, 2013

Commodity: Handheld Magnifiers

Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Handheld Magnifiers and Products Containing Same. The proposed respondents are Aumed Group Corp., China; and Aumed Inc., San Carlos, CA.

MARINE SONAR DEVICES AGAINST HONG KONG

On September 20, 2013, a new 337 case was filed on Marine Sonar Imaging Devices against a Hong Kong company.  See notice below.

Docket No: 2981

Document Type: 337 Complaint

Filed By: M. Scott Stevens

Firm/Org: Alston and Bird LLP

Behalf Of: Navico Inc. and Navico Holding AS

Date Received: September 20, 2013

Commodity: Marine Sonar Imaging Devices

Description:  Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Marine Sonar Imaging Devices, Products  Containing the Same, and Components Thereof. The proposed respondents are: Raymarine Inc., Nashua, New Hampshire; Raymarine UK Ltd., United Kingdom;  and In-Tech Electronics Ltd, Hong Kong.

NEW PATENT BILL PROPOSES TO MAKE IT MORE DIFFICULT FOR NPES/PATENT TROLLS

The House of Representatives released the attached draft patent bill on September 23, 2013 aimed at making it more difficult for patent trolls, non-practicing entities (“NPEs”), to bring patent cases.  HOUSE PATENT BILL  The bill will raise the pleading requirements, making it more difficult for NPEs to file frivolous suits.  The pleading requirements would also increase the cost and complexity of patent cases.

The bill would also require the losing party in patent cases to pay the costs of the prevailing party unless the judge finds that the suit was “substantially justified,” creating an exception in patent cases to the “American rule” that parties are generally responsible for paying their own attorney’s fees.

NEW PATENT CASES AGAINST HUAWEI, ZTE, HANGZHOU COMPANY AND OTHER CHINESE COMPANIES

On September 9, 2013, ACQIS filed a patent complaint against Huawei.  ACQIS HUAWEI

On September 17, 2013, C. B. Worldwide Inc. filed a patent complaint against Chinese companies, Hangzhou Yizhan Pet Products, Allara China Ltd., Shanghai ITCPC Import and Export Co. and Petlike.  The complaint alleges misappropriation of technology, patent infringement and breach of contract.  CHINA TOYS HANGZHOU

On September 25, 2013, Nidec Motor Corporation filed a patent complaint in the Federal District Court in Missouri against Broad Ocean Motor, Broad Ocean Technologies and Zhongshan Broad Ocean Motor Co., Ltd.

On September 26, 2013, James Grove and LF Products filed a patent case against COSTCO and Global Furniture (Zhejiang) Co. Ltd.  ZHEJIANG COSTCO

On September 26, 2013, SPH America filed patent complaints against Huawei and ZTE.  SPH ZTE   SPH HUAWEI

On September 30, 2013 and October 1, 2013, Super Interconnect Technologies filed patent complaints against Huawei and ZTE.  SUPER INTERCONNECT ZTE   SUPER INTERCONNECT HUAWEI

ANTITRUST

JUSTICE DEPARTMENT’S SYSTEMATIC INVESTIGATION OF ASIAN CARTELS

To illustrate that antitrust cases against Chinese companies for price fixing are not just China bashing, the following are additional examples of the major movement by the Justice Department and private plaintiffs in the United States to go after cartels, price fixing by foreign companies, aimed at the US market.  Well known antitrust experts have told me that Justice is targeting foreign cartels, especially Asian cartels, and is systematically going through industry after industry looking for evidence of price fixing.

In light of the ongoing cases against Vitamin C, Magnesium and Bauxite from China, it is just a matter of time before the Justice Department and Private Plaintiffs start to target Chinese companies for price fixing on various products.  One of the first targets of such price fixing investigations may be auto parts.

NINE JAPANESE AUTO PARTS COMPANIES PLEAD GUILTY TO PRICE FIXING CARTEL

On September 26th, the Justice Department issued the attached announcement that Nine automobile parts manufacturers and two executives agreed to plead guilty to fixing prices on automobile parts sold to U.S. car manufacturers and installed in U.S. cars.  FULL DOJ NOTICE AUTO PARTS SEPT 26  NINE JAPANESE AUTO PARTS COMPANIES PLEAD GUILTY

 The nine Japanese Companies agreed to pay a total of more than $740 million in Criminal fines.  The September 26th announcement states as follows:

“Nine Japan-based companies and two executives have agreed to plead guilty and to pay a total of more than $740 million in criminal fines for their roles in separate conspiracies to fix the prices of more than 30 different products sold to U.S. car manufacturers and installed in cars sold in the United States and elsewhere . . .  The department said that price-fixed automobile parts were sold to Chrysler, Ford and General Motors, as well as to the U.S. subsidiaries of Honda, Mazda, Mitsubishi, Nissan, Toyota and Fuji Heavy Industries–more commonly known by its brand name, Subaru.”

“These international price-fixing conspiracies affected more than $5 billion in automobile parts sold to U.S. car manufacturers, and more than 25 million cars purchased by American consumers were affected by the illegal conduct,” said Attorney General Eric Holder. “The Department of Justice will continue to crack down on cartel behavior that causes American consumers and businesses to pay higher prices for the products and services they rely upon in their everyday lives.”

“Some of the price-fixing conspiracies lasted for a decade or longer, and many car models were fitted with multiple parts that were fixed by the auto parts suppliers,” said Scott D. Hammond, Deputy Assistant Attorney General of the Antitrust Division’s criminal enforcement program. “The Antitrust Division has worked hand in hand with its international competition colleagues who have provided invaluable assistance to the Justice Department in breaking up these worldwide price-fixing cartels.”

“Today’s charges should send a message to companies who believe they don’t need to follow the rules,” said Ronald Hosko, Assistant Director of the FBI’s Criminal Division. “If you violate the laws of this country, the FBI will investigate and put a stop to the threat you pose to our commercial system. The integrity of our markets is a part of the foundation of a free society.”

“Including those announced today, 20 companies and 21 executives have been charged in the Antitrust Division’s ongoing investigation into price fixing and bid rigging in the auto parts industry. All 20 companies have either pleaded guilty or have agreed to plead guilty and have agreed to pay more than $1.6 billion in criminal fines. Seventeen of the 21 executives have been sentenced to serve time in U.S. prisons or have entered into plea agreements calling for significant prison sentences.”

“Each of the companies and executives charged today has agreed to cooperate with the department’s ongoing antitrust investigation. The plea agreements are subject to court approval. The companies’ and executives’ agreed-upon fines and sentences are:

• Hitachi Automotive Systems Ltd. to pay a $195 million criminal fine;

• Jtekt Corporation to pay a $103.27 million criminal fine;

• Mitsuba Corporation to pay a $135 million criminal fine;

• Mitsubishi Electric Corporation (MELCO) to pay a $190 million criminal fine;

• Mitsubishi Heavy Industries Ltd. to pay a $14.5 million criminal fine;

• NSK Ltd. to pay a $68.2 million criminal fine;

• T.RAD Co. Ltd. to pay a $13.75 criminal fine;

• Valeo Japan Co. Ltd. to pay a $13.6 million criminal fine;

• Yamashita Rubber Co. Ltd. to pay a $11 million criminal fine;

• Tetsuya Kunida, a Japanese citizen, to serve 12 months and one day in a U.S. prison, and to pay a $20,000 criminal fine; and

• Gary Walker, a U.S. citizen and former executive of a U.S. subsidiary of a Japan-based automotive products supplier to serve 14 months in a U.S. prison, and to pay a $20,000 criminal fine.”

 

At a news conference about the guilty plea, Scott D. Hammond, Assistant Attorney General of the Antitrust Division’s Criminal Enforcement Program, stated as follows in the attached statement:

“We have seen a pattern during the course of this investigation. The detection of one auto part conspiracy has led to the discovery of other conspiracies involving a new set of products, a new group of conspirators and a new list of victims. And as the Attorney General said, our work isn’t done. . . .”

“The companies and executives charged today will pay a heavy price for their conduct. As of today, more than $1.6 billion in criminal fines have been obtained thus far and 17 auto parts executives are currently serving prison time or are awaiting sentencing. The deterrent impact of their sentences should resonate in boardrooms around the world.”

“As today’s charges demonstrate, global cartels operating largely outside of our borders often constitute the biggest competitive threat to our economy, our businesses and our consumers. The Antitrust Division and the FBI have worked closely with our international competition colleagues to break up these worldwide price-fixing cartels.”

SCOTT HAMOND SPEECH

LIQUID CRYSTAL DISPLAY (LCDS) FROM TAIWAN

In San Francisco, a criminal antitrust trial is proceeding against Borlong Bai of AU Optronics in Taiwan for his involvement in a cartel to price liquid crystal displays.  AUO, its US subsidiary  and two executives were convicted of price fixing last year and two other executives were found not guilty.  Bai’s attorneys are arguing that although he was a manager of AUO’s division that sold LCDs to laptop computer companies, Bai simply used the information he received to outmaneuver his rivals and not to fix prices.

The Justice Department is arguing that Bai was essential to the global conspiracy to fix prices of LCDs.

ANTITRUST AG BILL BAER SPEECH ON CRIMINAL ANTITRUST CASES LCDS FROM TAIWAN

On September 25, 2013, Bill Baer, the Assistant Attorney General for the Antitrust Division at the Justice Department spoke to the Georgetown Law’s 7th Annual Global Antitrust Enforcement Symposium on the importance of the lesson from the LCDs case against Taiwan companies.  BAER DOJ STATEMENT  Mr. Baer stated in the attached speech:

“Criminal enforcement is a large part of what we do at the Division. Effective sanctions matter there too. Guided by the federal Sentencing Guidelines, our prosecutors seek criminal sentences that are consistent with statutory considerations and reflect the seriousness of the offense, promote respect for the law, provide just punishment, afford deterrence, protect the public, and offer defendants an opportunity for effective rehabilitation.”

“Last year, for the first time, the division recommended that a criminal antitrust defendant be required, as a condition of its probation, to retain an independent corporate monitor to develop and implement an effective antitrust compliance program. The defendant, AU Optronics Corporation (AUO), its U.S. subsidiary, and two of its top executives, had been convicted at trial for their role in a conspiracy to fix the price of liquid crystal display (LCD) panels – a conspiracy that had a significant impact on U.S. commerce.”

“Rarely has a company needed an effective antitrust compliance program as much as AUO. AUO was founded the very month the LCD conspiracy began. From its inception, AUO’s standard operating procedure was collusion. “Antitrust compliance program” was not in its lexicon. Even after conviction, AUO continued to employ convicted price-fixers and indicted fugitives. As a result, the division argued that there was no reason to believe that AUO’s conviction and the imposition of a criminal fine – even a large fine – would deter AUO from engaging in future collusive conduct.”

“The court agreed.  In addition to a $500 million fine, the court sentenced AUO and its subsidiary to three years of probation during which the companies are required to develop, adopt, and implement an effective compliance and ethics program, and to retain an independent monitor to oversee that program. Consistent with the division’s willingness to request external monitors in the civil context, the division will consider seeking conditions of criminal probation that include independent monitors when faced with circumstances in which the division is not persuaded that penalties alone will deter future illegal behavior.”

Attached are two class action complaints filed in October against Japanese auto parts.  As a result of the Justice Department plea agreements, Japanese auto parts companies and probably eventually Taiwan auto parts companies are exposed to $100s of millions, if not billions of dollars in liability under private right of action triple damage antitrust cases.  AUTO PARTS SWITCHES PANASONIC  DIAMOND AUTO PARTS AT CASE

US FTC CHAIRWOMAN STATES THAT CHINA NEEDS TO ENSURE PROCEDURAL FAIRNESS IN ITS ANTITRUST PROCEEDINGS

On September 25, 2013, at a conference in Washington DC, FTC Chairwoman Edith Ramirez questioned the Chinese Government’s fairness in antitrust proceedings.  Ms. Ramirez stated:

“While every country must determine its own competition policy, we believe consumers and competition policy are best served when competition enforcement is based solely on economic analysis of effects on competition.  But if other factors nonetheless enter into competition decisions, their nature and effect should be transparent.”

The problem with Ms. Ramirez’s statement is that the Chinese government’s first experience with US government fairness is through the US antidumping laws.  For decades, the Chinese companies and government have been subjected to Commerce Department antidumping and countervailing duty proceedings, which are clearly not fair and transparent.  With its surrogate country and surrogate value analysis, Commerce Department determinations in antidumping cases on their face are arbitrary and capricious.  Using Bulgaria as a surrogate country in the Hardwood Plywood case is just such an example.

The procedural unfairness inherent in US antidumping and countervailing duty laws affects the entire legal relationship between the US and China.  Chinese government officials and many Chinese companies sincerely believe that the United States is simply out to bash Chinese companies and procedural fairness be damned.

What is sauce for the goose is sauce for the gander.  If the Commerce Department uses inherently unfair procedures in its antidumping and countervailing duty investigations, which have no basis in economic reality, from the Chinese government’s point of view why should it base its competition policy on “economic analysis of effects of competition.”

CLASS ACTION ANTITRUST CASE AGAINST KOREAN NOODLE COMPANIES

On September 5, 2013, the attached class action antitrust case complaint was filed in Federal District Court in California by Stephen Fenerjian against Korean noodle companies for price fixing on exports of noodles to the United States.  The target companies are: Nong Shim Company Ltd., Nong Shim America Inc., Ottogi Company Ltd., Ottogi America, Inc., Samyang Foods Company Ltd., Samyang (USA) Inc., Korea Yakult Co., Ltd., and Paldo Company Ltd.  KOREAN NOODLES ANTITRUST CASE

SECURITIES

SEC GRANTS DELAY IN PROCEEDING AGAINST US ACCOUNTING FIRMS FOR REFUSING TO RELEASE AUDIT DOCUMENTS OF CHINESE COMPANIES

On October 2, 2013, in the attached order, SEC ORDER ACCOUNTING FIRMS the U.S. Securities and Exchange Commission (“SEC”) granted a request from an administrative law judge to give an additional 100 days to determine whether top accounting firms, such as Ernst & Young, Deloitte and Price, Waterhouse, have to produce audit document of Chinese company clients that are suspected of defrauding their US investors through reverse mergers.  In December 2012 the SEC started this case because it believes the accounting firms, including the Big 4, have refused to to cooperate with document requests in an investigation into China-based companies whose securities are publicly traded in the U.S. in violation of US security laws.  The accounting firms argue that they fear violating Chinese secrecy laws.  As evidenced by the complaints on this site, the SEC has cracked down in the last few years on fraudulent reverse mergers, in which Chinese companies have used existing public shell company to merge with a private operating company, leaving the shell company as the surviving legal entity.  The crackdown, however, has been delayed by the Chinese privacy laws, which bar China-based auditors, including the subsidiaries of US accounting firms, from turning over Chinese client information.

The accounting firms have been fighting requests for audit paperwork related to Chinese companies accused of fraud on US investors.  In July, following bilateral investment talks, the U.S. announced that China had agreed to turn over certain audit documents to the SEC and the Public Company Accounting Oversight Board.  That deal came shortly after the PCAOB announced a memorandum of understanding with the China Securities Regulatory Commission and the country’s Ministry of Finance to ease restrictions on release of audit information in fraud investigations.

COMPLAINTS

A number of new securities complaints cases have been filed against Chinese companies.

On September 26, 2013, the Securities and Exchange Commission (“SEC”) filed the attached  securities fraud complaint against Lee Chi Ling (“Lee”) and Perfect Genius Limited (“Perfect Genius”), alleging securities fraud in a classic “pump and dump”scheme from at least June 2004 through at least February 2006 to manipulate the price of the common stock of China Energy Savings Technology, Inc.   PERFECT GENIUS

On September 26, 2013, the SEC filed a securities fraud complaint against defendants Chan Tze Ngon, a/k/a Chen Zi Ang and Ron Chan, (“Chan”), and Jiang Xiangyuan (“Jiang”).  The case involves two securities fraud schemes engineered by former high level officials of ChinaCast Education Corporation (“ChinaCast”) to steal about $100 million out of the company by diverting monety to their private accounts.  CHINA CAST

On September 27, 2013, the SEC filed a securities fraud complaint against Universal Travel Group (UTG), a China-based travel company, UTG’s former ChiefExecutive Officer Jiangping Jiang (“Jiang”); and UTG’s former Chief Financial Officer, Jing Xie (“Xie”) for diverting $41 million in public and private stock offerings in the United States to numerous unknown parties in Hong Kong and the PRC. In an interesting note, the attached complaint also includes consent judgements by UTG, Jian and Xie in which they agree to the SEC charges and agree to pay fines and penalties.  Even in China, you can run, but not hide.  UNIVARSAL TRAVEL

On September 30, 2013, Another class action securities case was filed against Light in the Box Holding, a Beijing company, and two Chinese individuals for securities fraud.  LIGHT IN THE BOX

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

Best regards,

Bill Perry

Law Blog Development & Digital Marketing by Adrian Dayton & Company