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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 7, 2016

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

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

Dear Friends,

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

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

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

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

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

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

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

Best regards,

Bill Perry

TRADE POLICY AND TPP

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

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

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

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

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

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

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

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

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

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

Taiwan has brought a Steel antidumping case against China.

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

TPP IN THE LAME DUCK KEEPS ON TICKING

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

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

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

Kasich stated that

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

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

Kasich further stated,

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

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

Kasich further stated:

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

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

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

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

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

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

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

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

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

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

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

Samuelson then states:

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

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

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

TRADE

CHINA IMPORTS: KNOW YOUR RISKS

By Adams Lee, Harris Moure International Trade Group

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

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

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

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

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

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

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

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

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

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

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

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

By Adams Lee, Harris Moure International Trade Group

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

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

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

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

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

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

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

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

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

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

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

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

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

CAFC MAGNESIUM METAL DECISION

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

STEEL TRADE CASES

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

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

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

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

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

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

STAINLESS STEEL SHEET AND STRIP FROM CHINA

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

TRADE CASES AGAINST EUROPE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES

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

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

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

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

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

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

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

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

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

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

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

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

CUSTOMS LAW

IMPORTING GOODS FROM CHINA: THE RISKS ARE RISING

By Adams Lee, Harris Moure International Trade Group

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

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

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

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

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

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

By Emily Lawson, Harris Moure International Trade Group

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

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

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

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

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

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

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

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

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

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

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

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

The Court went on to state:

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

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

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

HONEY AND FURNITURE

FURNITURE

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

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

HONEY

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

ANTITRUST LAW

VITAMIN C ANTITRUST CASE—THE REAL ANTIDUMPING BACK STORY

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

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

As the Court of Appeals stated in its opinion:

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

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

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

The Court of Appeals specifically determined in the decision that:

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

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

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

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

The Court of Appeals went on to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CRIMINAL IP/TRADE SECRET CASE

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

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

U.S. Attorney Kevin E. VanderSchel stated:

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

SECTION 337 AND IP CASES

NEW 337 CASES

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

Commodity:

Device Holders

Filed by:

James B. Altman

Firm/Organization:

Foster, Murphy, Altman & Nickel, PC

Behalf of:

Nite Ize, Inc.

Description:

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

CHINESE VERSION OF 337 ARTICLE

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

阻止来自中国的侵权产品:337条款调查案

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

 

 

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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US China Trade War — TPP, Three False Trade Arguments, China President Trip, Trade, Customs, IP/Patent Securities

US Capital Pennsylvania Avenue After the Snow Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER OCTOBER 23, 2015

IMPORT ALLIANCE MEETINGS NOVEMBER 17th and 18th WASHINGTON DC       

As indicated in more detail below, the Import Alliance will have meetings on November 17th and 18th in Washington DC. On the afternoon of November 17th, we will meet in our Washington DC office and then on November 18th meet with a Congressmen and Congressional Trade Staff to discuss the issues of retroactive liability of US importers in US antidumping and countervailing duty cases and market economy for China in December 2016 as provided in the US China WTO Agreement and the China WTO Agreement.

We welcome participation from US importers and US downstream customers. Please feel free to contact me or the Import Alliance directly. See the attached pamphlet for more information. FINAL IAFA_November2015_Flyer

US CHINA TRADE WAR NEWSLETTER UPDATE NOVEMBER 6, 2015

Dear Friends,

The USTR released the test of the Trans Pacific Agreement (“TPP”) yesterday.  This has provoked another fire storm in Washington DC and we will be sending out another blog post detailing the reaction.

But now the clock starts ticking and the release of the text means that President Obama can sign the TPP on January 4th, 60 days after releasing the text of the Agreement.  The Congress could theoretically pass the TPP on February 3, 2015, 30 days after President Obama signs it.

But in talking with a Congressional trade staffer on Capitol Hill yesterday, it does not appear to be moving that quickly, but on the other hand I suspect that Congress will not wait until the Lame Duck session either after the November Presidential election.

2016 will certainly be an interesting time in the Trade area.

If you have any questions, please feel free to contact me.

Best regards,

Bill Perry

TPP TEXT RELEASED TODAY

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

The text of the Agreement is well over 800 pages. We have downloaded the text of the various Chapters, which are listed below.

We have broken the Agreement down into three parts and have added consecutive page numbers to the Agreement in the right hand lower corner to make the Agreement easier to navigate.

For specific tariff changes on specific products, look at attached Chapter 2 National Treatment and Market Access for Goods, Chapters 1 – 2 – Bates 1 – 4115.  This is the largest document because it includes all imported items by tariff number.  But this is the section that will impact most companies.

The other parts of the text covering Chapters 3 to 30 is attached, Chapters 3 – 30 – Bates 4116 – 5135,  along with the Appendices, Annex 1 – 4 – Bates A-1-1074.

We will also be preparing an analysis of each Chapter, which will release in a the near future through a blog post.

USTR LIST OF CHAPTERS AND OTHER PARTS OF TPP AGREEMENT

Chapters

Preamble

  1. Initial Provisions and General definitions (Chapter Summary)
  1. National Treatment and Market Access (Chapter Summary)

Annex 2-D: Tariff Commitments
Australia General Notes to Tariff Schedule
Australia Tariff Elimination Schedule
Brunei General Notes to Tariff Schedule
Brunei Tariff Elimination Schedule
Canada General Notes to Tariff Schedule
Canada Tariff Elimination Schedule
Canada Appendix A Tariff Rate Quotas
Canada Appendix B Japan Canada Motor Vehicle NTM
Chile General Notes to Tariff Schedule
Chile Tariff Elimination Schedule
Japan General Notes to Tariff Schedule
Japan Tariff Elimination Schedule
Japan Appendix A Tariff Rate Quotas
Japan Appendix B 1 Agricultural Safeguard Measures
Japan Appendix B 2 Forest Good Safeguard Measure
Japan Appendix C Tariff-Differentials
Japan Appendix D Appendix between Japan and the United States on Motor Vehicle Trade
Japan Appendix E Appendix between Japan and Canada on Motor Vehicle Trade
Malaysia General Notes to Tariff-Schedule
Malaysia Tariff Elimination-Schedule
Malaysia Appendix A Tariff Rate Quotas
Mexico General Notes to Tariff Schedule
Mexico Appendix A, B and C Tariff Rate Quotas and Tariff Differentials
Mexico Tariff Elimination Schedule
New Zealand General Notes to Tariff Schedule
New Zealand Tariff Elimination Schedule
Peru General Notes to Tariff-Schedule
Peru Tariff Elimination Schedule
Singapore General Notes to Tariff Schedule
Singapore Tariff Elimination Schedule
US General Notes to Tariff Schedule
US Tariff Elimination-Schedule
US Appendix A Tariff Rate Quotas
US Appendix B Agricultural Safeguard Measures
US Appendix C Tariff Differentials
US Appendix D Motor Vehicle Trade
US Appendix E Earned Import Allowance Program
Viet-Nam General Notes to Tariff Schedule
Viet-Nam Tariff Elimination Schedule
Viet-Nam Appendix A Tariff Rate Quotas

  1. Rules of Origin and Origin Procedures (Chapter Summary)

Annex 3-D: Product Specific Rules
Annex 3-D: Appendix 1—Automotive

  1. Textiles and Apparel (Chapter Summary)

Annex 4-A: Textiles Product Specific Rule
Annex 4-A Appendix: Short Supply List

  1. Customs Administration and Trade Facilitation (Chapter Summary)
  1. Trade Remedies (Chapter Summary)
  1. Sanitary and Phytosanitary measures (Chapter Summary)
  1. Technical Barriers to Trade (Chapter Summary)
  1. Investment (Chapter Summary)
  1. Cross Border Trade in Services (Chapter Summary)
  1. Financial Services (Chapter Summary)
  1. Temporary Entry for Business Persons (Chapter Summary)

Annex 12-A: Temporary Entry for Business Persons
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Viet Nam

  1. Telecommunications (Chapter Summary)
  1. Electronic Commerce (Chapter Summary)
  1. Government Procurement (Chapter Summary)

Annex 15-A: Government Procurement
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Viet Nam

  1. Competition (Chapter Summary)
  1. State-Owned Enterprises (Chapter Summary)
  1. Intellectual Property (Chapter Summary)
  1. Labour (Chapter Summary)

US-BN Labor Consistency Plan
US- MY Labor Consistency Plan
US-VN Plan for Enhancement of Trade and Labor Relations

  1. Environment (Chapter Summary)
  1. Cooperation and Capacity Building (Chapter Summary)
  1. Competitiveness and Business Facilitation (Chapter Summary)
  1. Development (Chapter Summary)
  1. Small and Medium-Sized Enterprises (Chapter Summary)
  1. Regulatory Coherence (Chapter Summary)
  1. Transparency and Anti-corruption (Chapter Summary)
  1. Administration and Institutional Provisions (Chapter Summary)
  1. Dispute Settlement (Chapter Summary)
  1. Exceptions (Chapter Summary)
  1. Final Provisions (Chapter Summary)

Annex I: Non-Conforming Measures
Consolidated Formatting Note
Australia,  Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Viet Nam
Annex II: Non-Conforming Measures Consolidated Formatting Note
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Viet Nam

Annex III: Financial Services Consolidated Formatting Note
Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Viet Nam

Annex IV: State-Owned Enterprise
Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, United States, Viet Nam

Related Instruments

Market Access Related

US- AU Letter Exchange re Recognition of FTA TRQs in TPP

US-AU Letter Exchange on Sugar Review

US-CA Letter Exchange on Milk Equivalence

US-CA Letter Exchange on Agricultural Transparency

US-CL Letter Exchange on Distinctive Products

US-CL Letter Exchange regarding Recognition of FTA TRQs in TPP

JP Exchange of Letters on Distinctive Products

JP to US Letter on Safety Regulations for Motor Vehicles

US-JP Letter Exchange on Operation of SBS Mechanism

US-JP Letter Exchange on Operation of Whey Protein Concentrate Safeguard

US-JP Letter Exchange regarding Standards of Fill

US-JP Letters related to the PHP

US-MY Letter Exchange on Auto Imports

US-MY Letter Exchange on Distinctive Products

US-NZ Letter Exchange on Distinctive Products

US-PE Letter Exchange on Distinctive Products

US-PE Letter Exchange on TRQs and Safeguards

US-VN Letter Exchange on Catfish

US-VN Letter Exchange on Distinctive Products of US

US-VN Letter Exchange on Distinctive Products of VN

US-VN Letter Exchange on Offals

Textiles and Apparel Related

US-BN Letter Exchange on Textiles and Apparel

US-MY Letter Exchange on Registered Textile and Apparel Enterprises

US-SG Exchange on Letters on Textiles and US-SG FTA

US-VN Letter Exchange on Registered Textile and Apparel Enterprises

Sanitary and Phytosanitary Related

US-CL SPS Letter Exchange regarding Salmonid Eggs

Intellectual Property Related

US-AU Letter Exchange on Selected IP Provisions

US-AU Letter Exchange on Article 17.9.7(b) of AUSFTA

US-CA Letter Exchange on IP Border Enforcement

US-CL Letter Exchange re Geographical Indications

US-CL Letter Exchange re Article 17.10.2 of US Chile FTA

US-JP Letter Exchange re Copyright Term

US-MY Letter Exchange re Articles 18.41 .50 and .52

US-MY Letter Exchange re Geographical Indications

US-MX Letter Exchange re Geographical Indications

US-MX Letter Exchange re Tequila and Mezcal

US-PE Letter Exchange re Article 16.14.3 of US-Peru TPA

US-VN Letter Exchange on Biologics

US-VN Letter Exchange re Geographical Indications

Services/Financial Services/E-Commerce

US-CL Letter Exchange regarding Express Delivery Services

US-VN Letter Exchange on Pharmaceutical Distribution

US-VN Letter Exchange regarding Electronic Payment Services

US-AU Letter Exchange on Privacy

Temporary Entry

US-JP Letter Exchange re Temporary Entry

Government Procurement

US-AU Letter Exchange on AUSFTA GP Thresholds

US-CA Letter Exchange re GP Thresholds

Letter Exchange US-CA-MX re GP Procedures

SOEs

US-SG Letter Exchange on SOE Transparency

Environment

US-CL Understanding regarding Fisheries Subsidies and Natural Disasters

US-MY Exchange of Letters on Committee to Coordinate Implementation of Environment Chapters

US-PE Understanding regarding Biodiversity and Traditional Knowledge

US-PE Understanding regarding Conservation and Trade

Annex on Transparency and Procedural Fairness for Pharmaceutical Products and Medical Devices

US-AU Letter Exchange on Transparency and Procedural Fairness for Pharmaceuticals and Medical Devices

US-JP Transparency and Procedural Fairness for Pharmaceuticals and Medical Devices

US-PE Understanding re Transparency and Procedural Fairness for Pharmaceuticals and Medical Devices

US-Japan Bilateral Outcomes

US-Japan Motor Vehicle Trade Non-Tariff Measures

US-JP Letter Exchange on Certain Auto NTMs

JP to US Letter on Motor Vehicle Distribution Survey

Japan Parallel Negotiations on Non-Tariff Measures

US-JP Letter Exchange on Non-Tariff Measures

Joint Declaration of the Macroeconomic Policy Authorities of

CURRENCY MANIPULATION TEXT

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

Trans-Pacific Partnership Countries

For the first time in the context of a free trade agreement, countries have adopted a Declaration that addresses unfair currency practices by promoting transparency and accountability.

All TPP countries commit to avoid unfair currency practices and refrain from competitive devaluation.

TPP countries will publicly report their foreign-exchange intervention and foreign reserves data, some for the first time.

Officials from all TPP countries will consult regularly to address macroeconomic issues, including to engage on efforts to avoid unfair currency practices.

 

Dear Friends,

This October post will comment on the TPP Agreement in more detail as  well as President Xi Jinping’s recent trip to the US and my impressions from Beijing, China during that period, discuss the three flawed trade arguments against China, and also discuss Trade Policy, Trade, Steel and the OCTG case, IP/patent, China antitrust and securities.

As stated below, on October 5th in Atlanta, Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Vietnam and Malaysia, reached an agreement on the Trans-Pacific Partnership (“TPP”), which will link up 40 percent of the world’s economy.  President Obama cannot sign the Agreement for a minimum of 60 days after releasing the Agreement to the public. Congress cannot consider and pass the Agreement for a minimum of 30 days after that.

The real question, however, is whether the TPP can pass Congress. Although January was a possible period for Congressional consideration, some Congressional staffers are saying that it will not come until April or possibly in the lame duck session after the Presidential/Congressional election. That would be right in the middle of the Presidential election and all bets are off.

From much of the US Press point of view, President Xi’s recent trip to the US was based on deception with the Chinese government having no real interest in coming to agreement on the US China trade problems on environment, cybersecurity, bilateral investment treaty and other hot button issues. In Beijing, China, however, Chinese television was truly involved in a love fest with the United States.

In the United States, we see cynicism. In China, I saw real friendship for the United States, and a determination to work with the United States in partnership based on a win-win principle that both sides must benefit from the relationship. This is the problem of the US China relationship in a nutshell. Never give any credit to China where credit is due and where they are making efforts to solve the bilateral problems.

Fortunately for the United States, China understands the importance of the US China relationship better than many US politicians and the US press. To be specific, there is more than $500 billion in trade between the United States and China annually with US exports, including services, coming close to $200 billion. As stated above, trade is a two way street, and very few US politicians acknowledge the huge US exports to China, which create US jobs.

The Chinese government has agreed to do one very important thing with regards to the problems with the US government—talk about it. For the last several years, twice a year China and the US have conducted negotiations in the SED and JCCT talks. Now as a result, China will have periodic negotiations on cyber-attacks. In great contrast to Russia, China believes firmly in negotiations with the United States to iron out differences and that is very important for the future of US China relationship.

Also this newsletter discusses the three flawed arguments against China: Cyber Attacks, Currency Manipulation and Dumping and the problem that they foster/create a feeling of international trade victim, which leads to protectionism and a loss of jobs.

The real victims of the trade wars are upstream and downstream producers, such as US based, REC Silicon, a US exporter and major manufacturer of polysilicon and victim of the US China Solar Trade War, as it announces that it may close its US plant in Moses Lake, Washington because it is shut out of China.

Best regards,

Bill Perry

TPP SHOULD PASS CONGRESS BUT 2016 IS AN ELECTION YEAR AND ANYTHING CAN HAPPEN

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

  • Cut Tariffs on 18,000 products
  • New special 2 year safeguard for Certain domestic industries that face a surge in imports
  • State-owned companies with TPP Countries must conduct commercial activities in accordance with market- based considerations
  • Vietnam must allow formation of independent labor unions
  • Malaysia will face trade retaliation if it does not improve its forced labor and human trafficking record
  • Bar countries from requiring the localized storage of data or surrender valuable source codes as condition of market entry
  • Require parties to commit to sustainable forest management and conserve at risk plants and animals.

A quick look at the latest statements from USTR, the White House and the Department of Agriculture indicate that two areas will see major benefits – Agriculture and Services, including banking and legal services. Also a number of manufacturing and high tech products will see substantial benefits.

The TPP would phase out thousands of import tariffs as well as other barriers to international trade, such as Japanese regulations, that keep out some American-made autos and trucks. It also would establish uniform rules on corporations’ intellectual property and open the Internet even in Vietnam.

USTR has stated the TPP would end more than 18,000 tariffs that the TPP countries have placed on US exports, including autos, machinery, information technology and consumer goods, chemicals and agricultural products, such as avocados in California and wheat, pork and beef from the Plains states.

Right after the Atlanta agreement, USTR Michael Froman stated in an interview:

In sector after sector, our workers are the most productive in the world. Our farmers and ranchers are globally competitive. Our manufacturing plants are globally competitive. If there’s a level playing field, we can compete, and we believe we can win.

Froman further stated that the US, which has an average tariff of approximately 1.4 percent, faces tariffs twice as high when US companies export to other countries. Froman also stated that Iowa would benefit from decreases in tariffs on pork, currently as high as 388 percent, and beef, which are as high as 50 percent:

“We already know there’s great demand for American beef in Japan,” where the beef tariff would ultimately drop to 9 percent from 38.5 percent currently.”

Tariffs on beer, some as high as 47 percent in certain TPP countries, will be “eliminated”

Froman further stated,

We’re working with the other countries to finalize details of the text and put it through a legal scrub.” In the meantime, “we’re having ongoing conversations with congressional leadership and our congressional partners about the process going forward”

On October 16th, however, during a Council on Foreign Relations conference call, USTR Froman also stated that the TPP could not be renegotiated and expressed confidence that Congress would eventually pass the TPP Agreement, stating:

“This is a different kind of agreement than other [free trade agreements] we’ve negotiated; other negotiations have tended to be between the U.S. and one other trading partner. It’s infinitely more complex when you’ve got 11 other trading partners at the table. This isn’t one of those agreements where [you can] reopen an issue or renegotiate a provision.”

Froman conceded that some TPP countries will need “capacity building to technical assistance” when it comes to implementation and enforcement in areas such as patent systems and promoting independent unions, but noted that U.S. officials are working to address concerns voiced by skeptics in government and industry:

“We’re working with Congress, we’re working with the other agencies to develop a full plan for the monitoring and enforcement of TPP. And we’re working with the U.S. Department of Labor on the enforcement of labor provisions, working with our embassies, people on the ground who can help monitor the implementation and cite enforcement issues as they arise.”

Froman further stated:

“TPP presents a choice between two futures, one in which the U.S. is helping to lead on trade and starting a race to the top in terms of global standards, and the other where we take a backseat or sit on the sidelines and allow a race to the bottom that would undermine U.S. influence around the world and result in a lower standard, less open global trading system.”

According to Paulson Institute, in addition to agriculture and manufacturing, the TPP will cause substantial growth in the service industries, including the legal and banking industries. The elimination of services barrier in the TPP countries could lead U.S. services exports to jump by $300 billion. The Paulson Institute further stated a major reason:

“high barriers to service imports and investment that now prevail in TPP countries will be lowered. The barriers include outright bans, quotas, restrictive licenses, buy-national procurement rules, and discriminatory access to distribution networks.”

Meanwhile five former Democratic National Committee chairmen urged party members and Congress to support the 12-nation Trans-Pacific Partnership, arguing that the pact will ultimately benefit American workers and businesses by expanding labor rights around the world.

Automobile tires made in Ohio that face tariffs or foreign taxes as high as 40 percent would be eliminated.  According to Josh Earnest, White House press secretary:

“The TPP actually goes one step further by making sure that manufacturers aren’t at a disadvantage when they sell their tires abroad to any of our 11 TPP countries. So Ohio is a good example.”

According to Earnest, leather boots that are shipped from Texas to TPP countries face foreign taxes as high as 30 percent, which would be eliminated, along with tariff elimination or reduction on exports of US-made bourbon whisky, Port wine, Michigan cars and Missouri barbecue sauce.

The agreement will immediately cut in half and eventually eliminate Japan’s 8.5 percent tariff on imports of fresh cherries. On October 6, 2015, Secretary of Agriculture Tom Vilsack stated:

“The TPP is a high-value, high-standards agreement that will allow the U.S. and other nations to counter Chinese influence in the region. History will tell us that agriculture is a winner every time in trade deals, and TPP is going to be no exception to that history.”

Vilsack stated that some of the agricultural products that will see lower tariffs are U.S. beef, pork, produce, nuts and wine. TPP will reduce Japanese tariffs on beef imports from 38.5 percent to 9 percent, and Japan also will eliminate 80 percent of its pork tariffs in 11 years.

Highly protected dairy industries in Canada and Japan also will be opened to limited import access. Japan has a 40 percent tariff on cheese, which will be eliminated under the TPP, and the country established a low-tariff quota for milk powder and butter equivalent to 70,000 tons of raw milk. Canada granted duty-free access to 3.25 percent of its dairy sector.

Vilsack said historic reductions in tariffs on U.S. exports should indicate that the TPP is a “net winner” and that failing to grasp the opportunity to sell more U.S. products to a rapidly expanding middle class in the Asia Pacific would be a mistake.

With regards to dairy products, Vilsack stated:

“When it came to Canada and Japan, we pushed for as strong access as possible and focused on the most lucrative products for the U.S. At the same time, we were somewhat sensitive to New Zealand expanding access in the U.S.”

The U.S. dairy industry in 2014 said it was prepared to eliminate all tariffs affecting trade with Canada and Japan if they did the same. In the end, the U.S. had to pull back when it became apparent the two countries weren’t ready to go from “zero to 100.”  Japan, which counts dairy among its five sensitive agricultural commodities protected by a politically influential union of farmer cooperatives and tariffs and quotas, committed to phasing out tariffs on cheese over 16 years and created low-tariff quotas for milk powder and butter.

Those offers meant the U.S. had to balance New Zealand’s requests for a completely liberalized international dairy market resembling its own, where there are no tariffs. Dairy also is New Zealand’s No. 1 export and can move into new markets quickly. The U.S. agreed in 20 to 30 years to eliminate tariffs on less sensitive products like milk powder and non-fat dry milk from Australia, Canada and New Zealand, and allow additional butter and cheese imports through tariff-rate quotas. All tariffs on dairy products from Japan, Malaysia and Vietnam would be gone within 20 years. The U.S. also will have safeguard measures for milk powders and some cheese to combat potential import surges.

Jim Mulhern, president and chief executive officer of the National Milk Producers Federation (NMPF), stated:

“Based on information available to date, it appears that our industry has successfully avoided the type of disproportionate one-way street that we were deeply concerned could have resulted under this agreement. New Zealand did not get the unfettered access to the U.S. market that it long sought; but Japan and Canada did not open their markets to the degree we sought.”

The entire U.S. horticulture sector is the hidden winner in the TPP agricultural deal. All tariffs would go to zero if TPP were implemented in countries like Japan, Vietnam and Malaysia that currently have high taxes on imports. Japan imposes an 8.5 percent tariff on frozen French fries, which would be eliminated in four years, and a 20 percent tariff on dehydrated potatoes that would be phased out over six years.  Once the TPP is implemented, more than 50 percent of U.S. farm goods will get immediate duty-free treatment in Japan, most of which are horticultural products, such as grapes, strawberries, walnuts, almonds, raisins and certain fruit juices. Vietnam has tariffs up to 40 percent on vegetable imports that would end within 11 years, while Malaysia would immediately eliminate tariffs as high as 90 percent.

To see a White House video on how the TPP works and benefits exports of Washington State Cherries, see https://www.whitehouse.gov/issues/economy/trade#cherry.

The real question, however, is whether the TPP can pass Congress. Although January was a possible period for Congressional consideration, some Congressional staffers stated that it would not come until April. Recently, statements have been made that there will be no vote on TPP until the lame duck session in Congress after the Presidential/Congressional elections in November 2016. Recently, however, the White House indicated that it wants a Congressional vote on the TPP before the Lame Duck session.

The first question, however, is when will the actual text of the TPP be released to the Public and that apparently will not happen until late November, which means President Obama cannot sign the Agreement until 60 days later and the Congress cannot pass it until 30 days after that.

But this time deadline seems to be moving away as there are further negotiations to clean up the legal terms in the Agreement, especially on currency manipulation. This will mean that the TPP will be a major issue in the Presidential primary and election, which makes it more difficult.

On October 5th, Senator Sessions, a well-known Republican Senator, who opposes TPP, told Breitbart news that it is possible to kill the TPP bill, but then following the law he stated that the Bill does not require 60 votes to pass filibuster in the Senate or 67 votes because it is a treaty:

“I think it’s possible. When they passed fast track, they got 60 votes… The treaty itself now is no longer subject to supermajority or filibuster. It will pass with a simple majority. It cannot be amended: it’ll be brought up one day and voted on the next day with no amendments– up or down. And in the past, they’ve always passed. And I think that will be what experts will tell you today, but I think the American people are getting more and more uneasy about the effect of trade and the promises that our trading partners are going to comply with their part of the bargain and that we’re all going to benefit have not been real . . . .”

But since the TPP only requires a simple majority to pass the Senate, not the 60 votes to pass Trade Promotion Authority (“TPA”), it should pass but now the ball is truly in the Court of Senators Orrin Hatch, Chairman of the Senate Finance Committee, Senator Ron Wyden, Ranking Democratic Member of the Senate Finance Committee, and Representative Paul Ryan, Chairman of the House Ways and Means Committee. All three members are in the Center of their respective parties. No matter what the Press states, Senator Hatch is not on the extreme right wing of the Republican party and neither is Paul Ryan. If they approve the TPP, a majority of Republican members should stay with them.

The heaviest lift, however, will be on the Democratic side by Senator Ron Wyden because the majority of the Democratic Party is against the Free Trade Agreement because of the power of the Unions. The only reason the TPA bill passed in late July is that the Republicans won the mid-term elections in 2014. If the Democrats has won, Senator Harry Reid had already stated that the TPA bill would not have come to the floor. But to pass the TPA bill through the Senate, the Republicans still needed Democratic votes because of the 60 vote filibuster rule. The TPA bill received 62 votes, but just 62 and no more with a number of Democratic votes, including Senators Patty Murray and Maria Cantwell from Washington State, to replace the Republican Senators, such Senator Sessions and Senator Rand Paul, who voted against the Agreement.

But these three members, Hatch, Wyden and Ryan are critical to the passage of the TPP. One problem is that October 5th, the day of the announcement, Senate Finance Committee Chairman Orrin Hatch stated that although the details of the TPP “are still emerging, unfortunately I am afraid this deal appears to fall woefully short.” Also listen to his October 8th phone call on CSPAN https://www.youtube.com/watch?v=F2T6xA7XMuY when he explains his concerns in more detail.

Another problem is the turmoil in the House of Representatives over the next speaker. Paul Ryan’s name has been mentioned, but some conservative members are against Ryan because of his stand on the TPP. As the Wall Street Journal stated on October 21, 2015 in its editorial entitled, The Ryan Stakes:

“He has impeccable conservative credentials. . . . Yet in the last week some on the right have come out against Mr. Ryan because he supposedly is not conservative enough – in particular because he favors free trade . . . .”

The Administration will have some heavy lifting to persuade Senators Hatch, Wyden and Representative Ryan that the TPP does meet the high standards set by the Congress in the TPA legislation in July. But if these three lawmakers approve, a majority of the members in the Senate and House should pass the TPP.

Other lawmakers that will be critical in this upcoming battle are in the Senate, Republican Senator Mitch McConnell and Democratic Senators Patty Murray and Maria Cantwell from Washington State and in the House, Republican representatives Pat Tiberi and Dave Reichert on the Subcommittee on Trade, House Ways and Means. Also important in the House, will be the 50 member New Dem Coalition, which is pro international trade and pro economic growth, such as Representatives Ron Kind, Rick Larson, Derek Kilmer and Suzan DelBene. See the Politico article, which describes the New Democrat Coalition in detail at   http://www.politico.com/story/2015/08/new-dems-plan-assertive-new-presence-in-house-121208.html. See also http://www.newdempac.com.

But Democrats have felt significant pressure from environmental groups and labor unions, who are fiercely opposed to the accord. Meanwhile, Republicans have struggled to strike a balance between support for free trade in general and the deep mistrust of giving Obama more power among GOP voters.

But as stated above, 2016 is an election year, and in contrast to several Republican candidates, such as Marco Rubio, Jeb Bush, and John Kasich, which are inclined to support the Agreement, but want to read it first, Donald Trump on the Republican side and Bernie Sanders on the Democratic side are both fighting hard against the TPP. It is interesting to note that the extreme Right of the Republican party, Donald Trump, and the extreme Left of the Democratic party, Bernie Sanders, both have a common goal to stop the Trade Agreement and send the United States back to protectionism. They are both populists and they know that being protectionist stirs up the bases.

Keep in mind that the Unions are solidly behind Sanders and recently the Teamsters told the Clinton campaign that they would not endorse her because they wanted to talk to Trump first. They like Trump’s stand on the trade agreements, including TPP.

Trump has taken the strongest position against TPP or Obamatrade as he calls it — making opposition to global trade policies and trade agreements one of the key issues of his campaign. In a quote to Breitbart News, even though he has not read the Agreement, GOP frontrunner Donald Trump hammered President Barack Obama for failing the American worker with the TPP stating:

“The incompetence and dishonesty of the President, his administration and—perhaps most disturbing—the Congress of the United States are about to place American jobs and the very livelihoods of Americans at risk . . . . The only entities to benefit from this trade deal will be other countries, particularly China and Japan, and big corporations in America. . . .”

Trump indicated that if crony capitalism were not bad enough, then sticking it to unions, small businesses and everyday Americans seems to be the new blood sport inside the Washington DC Beltway.

“If this was such a good deal, why was there not more transparency? Why are we striking trade agreements with countries we already have agreements with? Why is there no effort to make sure we have fair trade instead of ‘free’ trade that isn’t free to Americans? Why do we not have accompanying legislation that will punish countries that manipulate their currencies to seek unfair advantage in trade arrangements? Why has the Congress not addressed prohibitive corporate tax rates and trade agreements that continue to drain dollars and jobs from America’s shores?”

Trump finally stated:

“It’s time for leadership in Washington It’s time to elect a President who will represent the only special interest not getting any attention—The American People. It’s time to send a real businessman to the White House. It’s time to Make America Great Again.”

For full article see http://www.breitbart.com/big-government/2015/10/05/exclusive-donald-trump-declares-war-on-obamatrade-time-to-send-a-real-businessman-to-white-house-to-end-this/.

By the way, if you want to see one video circulating China now, it is Trump blaming China 234 times for all the US economic problems. http://www.huffingtonpost.com/entry/donald-trump-says-china_55e06f30e4b0aec9f352e904

In regards to the TPP, Trump’s major argument is that we have lousy negotiators in Washington DC and he will appoint better negotiators if he becomes President. The TPP, however, has been negotiated by the United States Trade Representative’s office (“USTR”) for more than five years. USTR’s officials are considered the top trade officials/negotiators in the US Government, and Ambassador Froman, who heads up USTR, is a trade pro, liked by both Democrats and Republicans in Congress.

Bottom line is the TPP deal is probably the best deal the US could get under the circumstances. Just having a tough negotiator, does not mean that there would be a better deal. All of international trade law is based on reciprocity and what the US can do to other countries, those countries can do back.

In contrast to Trump, the Washington Post likes the deal. On October 5th, it issued an editorial stating:

“The Trans-Pacific Partnership is a trade deal worth celebrating

The United States and 11 other nations concluded the long-awaited Trans-Pacific Partnership trade deal, or TPP, on Monday -demonstrating that it is still possible for this country to exercise world leadership, and to do big things in its own national interest, given consistent White House leadership and sufficient bipartisan support in Congress.

As President Obama sees it, the TPP would achieve both economic and strategic goals. By slashing tariffs and harmonizing regulatory regimes covering 40 percent of the global economy, the deal would spur growth in the United States and abroad. By knitting the U.S. and Japanese economies together in their first free-trade deal-and binding both of them closer to rising Asian nations-the TPP would create a counterweight to China in East Asia. Not incidentally, the deal would also help Japan’s prime minister, Shinzo Abe, overcome domestic interest-group resistance to reforming his nation’s sclerotic economy.

Those arguments persuaded bipartisan majorities of the Republican-controlled Congress to empower Mr. Obama’s negotiating team with so-called “fast-track” authority this year, and, as predicted, that vote helped win substantial new access to the Japanese and other markets for U.S. producers, as well as provisions on the environment and labor rights -including Vietnam’s first acceptance of possible independent trade unions.

In granting the administration fast-track authority, Congress rejected claims from a legion of critics to the effect that the TPP would sell out U.S. workers, the environment or even public health. In fact, the tentative deal would ensure that a controversial dispute arbitration system is more transparent and cannot be used by tobacco makers to escape member nations’ tough regulations. The U.S. team also struck a compromise designed to protect the legitimate intellectual property interests of American drugmakers without depriving poor nations of access to life-saving medicine.

It’s good that the critics lost the fast-track debate in Congress; but it’s not bad we had that debate, because it helped U.S. negotiators identify areas of legitimate concern and, accordingly, areas where the deal could incorporate those concerns. What’s emerged from the talks suggests that the TPP will indeed live up to Mr. Obama’s promise of a “21St-century” agreement: one that anchors the United States in a key region for decades to come, while increasing the scope of trade policy beyond just tariffs.

Difficult as it has been to reach this point, the last leg-final passage for the TPP in both houses of Congress during an election year could prove even more difficult. Republican Donald Trump and Independent-running-as­ Democrat Bernie Sanders have been whipping up protectionist sentiment against the TPP even before they knew what would be in it. Over the course of the next few months, the public and Congress will have an opportunity to pore over the pact. If its details prove to be as advertised, people are likely to conclude that the benefits of the deal outweigh its risks. For now, though, it’s enough to note the fact that Washington can still get something done, and to celebrate that.”

On October 7th, Hilary Clinton, however, announced her opposition to the TPP in an interview with Judy Woodruff for PBS’s “News Hour” program. She stated:

“What I know about it, as of today, I am not in favor of what I have learned about it. I don’t believe it’s going to meet the high bar I have set.”

She cited weakness on currency manipulation and failures with the FTA with Korea. While Secretary of State, Clinton had predicted TPP would be the “gold standard” of free trade agreements and firmly supported it numerous times, but the pressure of the primary, in particular, attacks by Bernie Sanders have pushed her more to the left of the Party and to oppose the Agreement. Labor unions, whose endorsements she is seeking, are united against it, as are the vast majority of Congressional Democrats. Only 28 House Democrats, and 13 in the Senate, voted for the fast-track bill.

On October 7th, in response to Hilary Clinton’ s statement on TPP, Paul Ryan, Chairman of House Ways and Means, stated on MSNBC:

“I wrote TPA so that Congress would have the tools and the public would have the ability to see what’s in this agreement. I am for free trade agreements, but I’m for very good free trade agreements. I have yet to decide… if this is a very good free trade agreement because I haven’t read it yet, so I just do not know the answer to your question, Chuck. But I’m holding judgment; I’m hopeful, but there are some concerns I have with some of the provisions in here, and quite frankly, we want to see what it is on net,…but it’s going to take some time to scrub through this agreement, to render final judgment.”

“I find it interesting that a person who is seeking to run for the Presidency of the United States, who was in favor of it before, say Hillary Clinton, that she hasn’t even read yet. It’s an enormous agreement and I think we need to be cautious about it. I think we need to do our jobs and read what’s in here.”

For Ryan’s full statement, see http://www.msnbc.com/mtp-daily/watch/ryan-backs-mccarthy-despite-benghazi-slip-540513347596.

On October 8, 2015, the Washington Post in an editorial stated that Hilary Clinton’s stance on the TPP was “disappointing”:

“Bowing to pressure from the Democratic Party’s ascendant protectionist wing, would-be presidential nominee Hillary Clinton has come out against President Obama’s freshly negotiated Trans-Pacific Partnership (TPP) trade agreement. The most hopeful thing to be said about this deeply disappointing abandonment of the president she served, and the internationalist tendency in Democratic ideology she once embodied, is that it is so transparently political. There is no way that Ms. Clinton can oppose the 12-nation deal on its merits.

In part, that’s because she doesn’t know all the details, as she acknowledged. More to the point, the reasons she offered for her view could not have been convincing, even to her. There was nothing in the deal about alleged currency manipulation by U.S. trading partners, she complained. Yet the biggest manipulator, China, isn’t a party to the pact. As the Obama administration argued, trade pacts by definition deal with tariffs and the like, not monetary policy; currency rules might have been construed to limit the Federal Reserve’s options unduly. . . .

And of course, Ms. Clinton’s opposition to the TPP flies in the face of her repeated statements to the opposite effect when she was Mr. Obama’s secretary of state — and after. . . .Ms. Clinton understood then, the TPP was not only about economics but also about geopolitics.

It’s particularly crucial to Mr. Obama’s essential effort to strengthen U.S. ties to Japan and other East Asian nations, thus counterbalancing China, a “rebalance” for which Ms. Clinton once proudly claimed some authorship.

To be sure, Ms. Clinton salted her anti-TPP statement with qualifiers . . .

And so on. In other words, there is still a chance that later on, if or when she’s president, and it is to her advantage, she may discover some decisive good point in the TPP that would let her take a different position without, technically, contradicting herself. Cynical? Perhaps, but as we said, that’s the hope.”

For full editorial, see https://www.washingtonpost.com/opinions/ms-clinton-avoids-the-hard-choice-on-the-trans-pacific-partnership/2015/10/08/a795a0cc-6df6-11e5-9bfe-e59f5e244f92_story.html

On October 9th, John Brinkley at Forbes in article entitled Hillary Clinton’s Flip-Flop On TPP Comes Amid Shift In Washington On Free Trade, stated:

“To borrow a phrase from Alice in Wonderland, the politics of trade are getting curiouser and curiouser.

Shortly after the 12 governments that are parties to the Trans-Pacific Partnership announced they had arrived at a deal, Hillary Clinton announced that she opposed it. The timing suggests that she came out against it not because she thought it was, on balance, a bad deal for Americans, but because she determined that supporting it would cost her more votes than opposing it would.

Now, all three major Democratic presidential candidates – Clinton, Vermont Sen. Bernie Sanders and former Maryland Gov. Martin O’Malley – are against the TPP, which is one of President Obama’s signature foreign policy goals. Sanders and O’Malley have always opposed free trade. Clinton had always supported it – until she became a presidential candidate.

Earlier, two Republican senators who historically have voted in favor of free trade agreements said they weren’t so sure about this one. . . .

These position changes don’t represent a sea-change in the way politicians view free trade. Hatch and McConnell objection to sections of that offend the corporate CEOs and country club Republicans they so nobly represent.

But it does seem that the spectrum of American support for free trade is getting narrower. It used to be that almost all congressional Republicans and most moderate Democrats were reliable yes votes for free trade agreements. Not anymore.

Tea Party Republicans oppose the TPP and free trade in general. But now, their animus seems to be seeping into the mainstream of the Republican Party. Pro-labor Democrats have opposed free trade all the way back to NAFTA. But now, some of the more moderate members of the Democratic Party are starting to look askance at the TPP.

The first sign of this appeared in June, when the House passed a Trade Promotion Authority bill last June by only eight votes.

Optimists hope the 219-211 vote by which the House voted to approve TPA will hold up for the TPP vote. Maybe it will, but the TPP vote will take place in an election year and the TPA vote didn’t. . . .

A long-term reason is that the anti-free trade forces are better at selling their case to the American public than the pro-free trade camp is. The former appeals to their emotions, the latter to their intellects. . . .

So, you can see why pro-trade Democrats who voted for TPA might be reluctant to support the TPP. And, they have an easy way out: their access to the TPP text was restricted during the negotiations. When the final text is posted publicly, they can read it and say, “OMG, I didn’t know THAT was in there!”

“Those of us who think this (agreement) is good were late the party,” Rosenberg said. Not only were they late, they didn’t bring anything good to eat or drink.

“The chances of our losing this have to be a clear and present danger for all of us,” he said.”

For the full article, see http://www.forbes.com/sites/johnbrinkley/2015/10/09/politics-of-trade-arent-what-they-used-to-be/print/.

During the Democratic debate on October 13, 2015, Hilary Clinton stated that she had read the TPP, which created a lot head scratching at the White House because the final TPP Agreement has not been released to the public and some aspects, such as currency manipulation, are still being negotiated.

President Obama has been clear on his support for the Agreement:

“When more than 95 percent of our potential customers live outside our borders, we can’t let countries like China write the rules of the global economy. We should write those rules, opening new markets to American products while setting high standards for protecting workers and preserving our environment.”

One surprise came on October 5, 2015 when the Treasury announced that, in addition to lowering trade barriers, the 12 Trans-Pacific Partnership member nations would “strengthen macroeconomic cooperation, including on exchange rate issues, in appropriate fora.” The 12 countries are discussing a possible arrangement for senior finance ministry and central bank officials to meet periodically. As indicated in more detail below, Congress put considerable pressure on the Obama administration last spring to insist on an enforceable currency provision in the trade pact. But the administration and the Federal Reserve fought back, saying that it might someday be used against American policy makers to limit their flexibility to set short-term interest rates and adopt other monetary measures.

At the same time, US trade officials have suggested that the TPP could be a model for an eventual deal with China. China has emerged as the largest foreign investor in many Asian countries as well as the biggest exporter to them, and that has given China a stake in greater openness and an interest in TPP. See Article below from Chinese Trade lawyer about TPP.

On October 6, 2015, The Wall Street Journal in an editorial entitled The Pacific Trade Stakes stated:

“it would be an historic loss if the pact failed because U.S. negotiators bowed too far to protectionist forces, as some early signals suggest TPP will eliminate or reduce about 18,000 tariffs, taxes and non-tariff barriers like quotas, and there’s no denying the pro-growth gains, especially for U.S. goods and services. America already has low tariffs on most products, so this will do more to open up the foreign markets to which 44% of U.S. goods exports now flow.

The U.S. enjoys big comparative advantages in agriculture (soybeans, fruit, corn) and high-value manufacturing like aerospace, computer equipment, auto parts, organic chemicals and more recently oil and gas. Other domestic winners include software, insurance and finance.

Planks that deal with non-discriminatory market access for investment and cross-border services are also useful, as is a provision to protect the free movement of data and information as digital markets mature. TPP includes innovative mechanisms to promote the development of production and supply chains, such as requiring some yarns and fabrics for apparel to be sourced from a TPP member. . . .

No labor or environmental safeguards can win over the Bernie Sanders left, while the Donald Trump right doesn’t care about specifics like IP. Their opposition is implacable and will be amplified by the presidential campaign.

To ratify the pact, President Obama really needs the support of free traders like Orrin Hatch, who said TPP “appears to fall woefully short.” We hope he’s wrong and that the Administration negotiated enough liberalization to deserve his support. Yet the Utah Senator and the three other bipartisan chairmen and ranking members of the Senate Finance and Ways and Means committees joined on a letter last week importuning negotiators “to take the time necessary to get the best deal possible for the United States.” .

If the Administration prioritized speed over substance to get TPP done on Mr. Obama’s watch and capitulated too soon on biotech and elsewhere, the danger is that free traders will defect—and there is little margin for error. The fast-track trade promotion bill passed the House 218-206 and the Senate 60-38.

TPP probably won’t come to a vote until after the 2016 election. Congress should use the time to carefully vet the chapters and ensure that the pact complies with the 150 or so congressionally mandated “negotiating objectives” built into fast track. Mr. Obama will also need to start persuading the Congress with more than his usual Mr. Congeniality routine.

Nine and a half of every 10 of the world’s consumers resides somewhere other than America, so arrangements like the TPP that break down obstacles to trade and investment are crucial to prosperity at home. The question is whether this TPP is the best the U.S. can do.”

INDIA MOANS THAT IT IS OUT AND CHINA WANTS IN

Meanwhile India moans that it is out, but China wants in. On October, 6, 2015, the Wall Street Journal also reported in an article about India lagging other nations in lowering trade barriers and the impact of the TPP on India:

“As more of its biggest trading partners stitch together their economies into low-tariff blocs, India risks getting edged out of key markets at a time when Prime Minister Narendra Modi is trying to rev up economic growth and further integrate his country into global supply chains.

A senior official in India’s Commerce Ministry said Tuesday that New Delhi didn’t want to join the new partnership and is worried the deal could slow WTO trade negotiations.

“WTO will lose much of its steam because the U.S. won’t have the appetite for it anymore” as it focuses on the Trans-Pacific Partnership, the official said. “Nothing of the development agenda in the current round of talks [in the WTO] will be taken seriously.” . . . .

The Trans-Pacific Partnership, if approved by member governments, could make India less competitive in some of the world’s largest markets. A study last year by the Indian Institute of Foreign Trade found that the pact would harm India’s exports, particularly in textiles, clothing and leather products, as countries such as Vietnam and Malaysia get cheaper access to the U.S. and other markets covered by the deal. But the negative fallout would be limited, the researchers said, because India already has tariff agreements with several partnership nations, including Japan and Malaysia. . . .”

The Wall Street Journal also reported on October 5th that the TPP was a setback for China:

“China had been invited to join the trade group, but Beijing has been reluctant to comply with many of the required rules, such as opening up the financial sector. By not being a founding member, experts say, China misses the opportunity to help shape an important pillar of the global trading system—a priority for President Xi Jinping.

“The key is whether China’s domestic reforms will be enough or sufficient. If they are not, it will have to follow the U.S. and lose its chance with the TPP to help make the rules,” said Shi Yinhong, director of the Center on American Studies at Renmin University.

The trade deal is expected to help blunt Beijing’s efforts to chart its own course for the region. . . .

The world’s second-largest economy also misses out on a grouping that includes many technologically advanced countries at a time when it is working hard to introduce high tech innovation, analysts said. And its economy needs the pressure of foreign competition to give its stalled domestic reform agenda a push, as with the productivity burst China enjoyed after joining the World Trade Organization in 2001, they added.

Two years ago, Mr. Xi announced a broad overhaul to give markets greater sway in an effort to ward off a slowdown and shift the economy to services and consumption and away from industry. Restructuring, however, has been spotty, delayed by opposition from state companies, by the sharpness of the deceleration, corporate and local government debt and excess capacity in housing and industry. . . .

Beijing could face significant internal and external hurdles if it eventually moves to join the trade bloc, said University of Chicago professor Dali Yang, especially given concern among some that it hasn’t always followed the rules since joining the WTO. Even inside China, there is growing recognition that China’s somewhat capricious system—where regulations can be applied arbitrarily and state-owned companies still dominate large swaths of the economy—makes membership unlikely soon, he added.

“The Chinese economy needs a jolt. It really needs reform,” Mr. Yang said. “Many feel the TPP was borne out of a frustration after the WTO, that China went back on its word in telecommunication, for instance, by not letting foreigners have a major stake.”

On October 8th Commerce Minister Gao Hucheng of MOFCOM, China’s Ministry of Commerce, stated that China will evaluate the impact of the TPP based on the official text of the treaty and hopes it will complement other agreements, stating:

“China hopes the TPP pact and other free trade arrangements in the region can boost each other and contribute to the Asia-Pacific’s trade, investment and economic growth.

Chinese officials have stated that they would need to see the agreement enter into force and be in effect for several years before deciding whether it would be worthwhile for China to make all the legal and policy changes necessary to meet the commitments in the agreement and attempt to accede to the TPP.”

On October 6, 2015, in the attached article entitled Trans-Pacific Partnership and China’s Trade Strategy,Trans-Pacific Partnership and China’s Trade Strategy _ Zhaokang JIANG _ Link , Zhaokang Jiang, a well-known Chinese trade lawyer, states:

“As the result of a high-standard, ambitious, comprehensive agreement promoting economic growth; enhancing innovation, productivity and competitiveness; raising living standards; reducing poverty in our countries; and promoting transparency, good governance, and enhancing labor and environmental protections, the TPP will be an important step toward the ultimate goal of open trade and regional integration across the region and setting the example rules for the global commerce. . . .

The current TPP members cover 40% of the global trade, and 36% of the world GDP. Once the pact is ratified and signed into laws by the members for implementation, more regional economies such as Korea, Philippines, Thailand, and Taiwan will have a chance to join. The TPP will also serve as a good example for additional trade negotiations, such as the Transatlantic Trade and Investment Partnership (“TTIP”), and even the WTO further negotiations. Since international trade is intertwined, the long term significance of the TPP shall not be downplayed, even for the non-member economies and other regions.

Since 1980’s, China has been the beneficiary and contributing party of trade globalization, liberalization and regional economic boom, and shall continue to welcome opportunities and accept the challenges in positive and active thinking, decision-making and behavior. In addition to the bilateral trade pacts, we believe China should seize this chance and embrace the TTP to more deeply participate in the regional trade arrangement, play more significant roles and enjoy more benefits. China should review and study the pact diligently and carefully and prepare to negotiate and join the regional trade deal for a beneficial trade growth.

At the same time, China can use this to adopt best practices for domestic reforms as they did in 2000 when it negotiated the WTO entry deal.

While details of the TPP are emerging in the near future, in additional to the general principles of rule of law, transparency, nondiscrimination, national treatment, the most-favored nation treatment, “minimum standard of treatment”, “negative list”, and due process, the Chinese side at least needs to focus the following key areas, for which the Chinese rules may have significant gaps . . . .

China, as the second largest economy of the world, is left out of the landmark trade deal, but the door is still open, and the future is in the hands of the Chinese leadership.

We hope China will take this rare opportunity in decades to review and accept the internationally recognized values, rules, and procedures for free and fair trade, enhance the trade, economic and legal reforms in China, collaborate with the trade partners, overcome the difficulties of economic and social changes, and finally reach the goal of being a nation of sustainable development, modernization, rule of law and democracy for the better-off of the people.”

TRANS PACIFIC PARTNERSHIP FINALIZED IN ATLANTA ROUND

On October 5, 2015, in Atlanta, Georgia, Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Vietnam and Malaysia, announced the agreement on the Trans-Pacific Partnership, which will link up 40 percent of the world’s economy, following an exhausting round of last-minute negotiations that stretched over the weekend.

The scheduled two day session was extended by three days to deal with a number of contentious issues, including commercial exclusivity for biologic pharmaceuticals, automotive issues and market access for dairy products.

President Obama cannot sign the Agreement for a minimum of 60 days after the Agreement is published publicly. Congress cannot consider and pass the Agreement for a minimum of 30 days, after the 60 days, which places Congressional passage possibly in January. The process formally begins when President Barack Obama notifies Congress that he intends to sign the agreement and publishes it. From there, the administration will continue working to brief lawmakers on the contents of the agreement.

In response to the Agreement, Senate Finance Committee Chairman Orrin Hatch stated:

“A robust and balanced Trans-Pacific Partnership agreement holds the potential to enhance our economy by unlocking foreign markets for American exports and producing higher-paying jobs here at home. But a poor deal risks losing a historic opportunity to break down trade barriers for American made products with a trade block representing 40 percent of the global economy. Closing a deal is an achievement for our nation only if it works for the American people and can pass Congress by meeting the high-standard objectives laid out in bipartisan Trade Promotion Authority. While the details are still emerging, unfortunately I am afraid this deal appears to fall woefully short. Over the next several days and months, I will carefully examine the agreement to determine whether our trade negotiators have diligently followed the law so that this trade agreement meets Congress’s criteria and increases opportunity for American businesses and workers. The Trans-Pacific Partnership is a once in a lifetime opportunity and the United States should not settle for a mediocre deal that fails to set high-standard trade rules in the Asia-Pacific region for years to come.”

Emphasis added.

Predictably, as soon as the deal was announced, Democratic Senator Bernie Sanders, who is running for President and bound at the hip with the labor unions, stated that the new trade deal was “disastrous,” and that he would work to defeat it. As Sanders further stated:

Wall Street and other big corporations have won again. It is time for the rest of us to stop letting multinational corporations rig the system to pad their profits at our expense. In the Senate, I will do all that I can to defeat this agreement. We need trade policies that benefit American workers and consumers, not just the CEOs of large multinational corporations.

On October 5th, Chairman Paul Ryan of the House Ways and Means Committee issued a press release, stating:

“A successful Trans-Pacific Partnership would mean greater American influence in the world and more good jobs at home. But only a good agreement—and one that meets congressional guidelines in the newly enacted Trade Promotion Authority—will be able to pass the House. I am reserving judgment until I am able to review the final text and consult with my colleagues and my constituents. In particular, I want to explore concerns surrounding the most recent aspects of the agreement. I’m pleased that the American people will be able to read it as well because TPA requires, for the first time ever, the administration to make the text public for at least 60 days before sending it to Congress for consideration. The administration must clearly explain the benefits of this agreement and what it will mean for American families. I hope that Amb. Froman and the White House have produced an agreement that the House can support.”

On October 4th and 5th, the United States Trade Representative issued the attached summary of the Trans Pacific Partnership. Summary of the Trans-Pacific Partnership Agreement _ United States Trade Rep  Some of the salient parts of the Summary are as follows:

Summary of the Trans-Pacific Partnership Agreement

On October 4, 2015, Ministers of the 12 Trans-Pacific Partnership (TPP) countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam – announced conclusion of their negotiations. The result is a high-standard, ambitious, comprehensive, and balanced agreement that will promote economic growth; support the creation and retention of jobs; enhance innovation, productivity and competitiveness; raise living standards; reduce poverty in our countries; and promote transparency, good governance, and enhanced labor and environmental protections. We envision conclusion of this agreement, with its new and high standards for trade and investment in the Asia Pacific, as an important step toward our ultimate goal of open trade and regional integration across the region.

KEY FEATURES

Five defining features make the Trans-Pacific Partnership a landmark 21st-century agreement, setting a new standard for global trade while taking up next-generation issues. These features include:

Comprehensive market access. The TPP eliminates or reduces tariff and non-tariff barriers across substantially all trade in goods and services and covers the full spectrum of trade, including goods and services trade and investment, so as to create new opportunities and benefits for our businesses, workers, and consumers.

Regional approach to commitments. The TPP facilitates the development of production and supply chains, and seamless trade, enhancing efficiency and supporting our goal of creating and supporting jobs, raising living standards, enhancing conservation efforts, and facilitating cross-border integration, as well as opening domestic markets.

Addressing new trade challenges. The TPP promotes innovation, productivity, and competitiveness by addressing new issues, including the development of the digital economy, and the role of state owned enterprises in the global economy.

Inclusive trade. The TPP includes new elements that seek to ensure that economies at all levels of development and businesses of all sizes can benefit from trade. It includes commitments to help small- and medium-sized businesses understand the Agreement, take advantage of its opportunities, and bring their unique challenges to the attention of the TPP governments. It also includes specific commitments on development and trade capacity building, to ensure that all Parties are able to meet the commitments in the Agreement and take full advantage of its benefits.

Platform for regional integration. The TPP is intended as a platform for regional economic integration and designed to include additional economies across the Asia-Pacific region.

SCOPE

The TPP includes 30 chapters covering trade and trade-related issues, beginning with trade in goods and continuing through customs and trade facilitation; sanitary and phytosanitary measures; technical barriers to trade; trade remedies; investment; services; electronic commerce; government procurement; intellectual property; labour; environment; ‘horizontal’ chapters meant to ensure that TPP fulfils its potential for development, competitiveness, and inclusiveness; dispute settlement, exceptions, and institutional provisions.

In addition to updating traditional approaches to issues covered by previous free trade agreements (FTAs), the TPP incorporates new and emerging trade issues and cross-cutting issues. These include issues related to the Internet and the digital economy, the participation of state-owned enterprises in international trade and investment, the ability of small businesses to take advantage of trade agreements, and other topics.

TPP unites a diverse group of countries – diverse by geography, language and history, size, and levels of development. All TPP countries recognize that diversity is a unique asset, but also one which requires close cooperation, capacity-building for the lesser-developed TPP countries, and in some cases special transitional periods and mechanisms which offer some TPP partners additional time, where warranted, to develop capacity to implement new obligations.

SETTING REGIONAL TRADE RULES

Below is a summary of the TPP’s 30 chapters. Schedules and annexes are attached to the chapters of the Agreement related to goods and services trade, investment, government procurement, and temporary entry of business persons. In addition, the State-Owned Enterprises chapter includes country-specific exceptions in annexes.

    • Initial Provisions and General Definitions

Many TPP Parties have existing agreements with one another. The Initial Provisions and General Definitions Chapter recognizes that the TPP can coexist with other international trade agreements between the Parties, including the WTO Agreement, bilateral, and regional agreements. It also provides definitions of terms used in more than one chapter of the Agreement.

    • Trade in Goods

TPP Parties agree to eliminate and reduce tariffs and non-tariff barriers on industrial goods, and to eliminate or reduce tariffs and other restrictive policies on agricultural goods. The preferential access provided through the TPP will increase trade between the TPP countries in this market of 800 million people and will support high-quality jobs in all 12 Parties. Most tariff elimination in industrial goods will be implemented immediately, although tariffs on some products will be eliminated over longer timeframes as agreed by the TPP Parties. The specific tariff cuts agreed by the TPP Parties are included in schedules covering all goods. The TPP Parties will publish all tariffs and other information related to goods trade to ensure that small- and medium-sized businesses as well as large companies can take advantage of the TPP. They also agree not to use performance requirements, which are conditions such as local production requirements that some countries impose on companies in order for them to obtain tariff benefits. In addition, they agree not to impose WTO-inconsistent import and export restrictions and duties, including on remanufactured goods – which will promote recycling of parts into new products. If TPP Parties maintain import or export license requirements, they will notify each other about the procedures so as to increase transparency and facilitate trade flows.

On agricultural products, the Parties will eliminate or reduce tariffs and other restrictive policies, which will increase agricultural trade in the region, and enhance food security. In addition to eliminating or reducing tariffs, TPP Parties agree to promote policy reforms, including by eliminating agricultural export subsidies, working together in the WTO to develop disciplines on export state trading enterprises, export credits, and limiting the timeframes allowed for restrictions on food exports so as to provide greater food security in the region. The TPP Parties have also agreed to increased transparency and cooperation on certain activities related to agricultural biotechnology.

    • Textiles and Apparel

The TPP Parties agree to eliminate tariffs on textiles and apparel, industries which are important contributors to economic growth in several TPP Parties’ markets. Most tariffs will be eliminated immediately, although tariffs on some sensitive products will be eliminated over longer timeframes as agreed by the TPP Parties. The chapter also includes specific rules of origin that require use of yarns and fabrics from the TPP region, which will promote regional supply chains and investment in this sector, with a “short supply list” mechanism that allows use of certain yarns and fabrics not widely available in the region. In addition, the chapter includes commitments on customs cooperation and enforcement to prevent duty evasion, smuggling and fraud, as well as a textile-specific special safeguard to respond to serious damage or the threat of serious damage to domestic industry in the event of a sudden surge in imports.

    • Rules of Origin

To provide simple rules of origin, promote regional supply chains, and help ensure the TPP countries rather than non-participants are the primary beneficiaries of the Agreement, the 12 Parties have agreed on a single set of rules of origin that define whether a particular good is “originating” and therefore eligible to receive TPP preferential tariff benefits. The product-specific rules of origin are attached to the text of the Agreement. The TPP provides for “accumulation,” so that in general, inputs from one TPP Party are treated the same as materials from any other TPP Party, if used to produce a product in any TPP Party. The TPP Parties also have set rules that ensure businesses can easily operate across the TPP region, by creating a common TPP-wide system of showing and verifying that goods made in the TPP meet the rules of origin. Importers will be able to claim preferential tariff treatment as long as they have the documentation to support their claim. In addition, the chapter provides the competent authorities with the procedures to verify claims appropriately.

    • Customs Administration and Trade Facilitation . . . .

To help counter smuggling and duty evasion, the TPP Parties agree to provide information, when requested, to help each other enforce their respective customs laws.

    • Sanitary and Phytosanitary (SPS) Measures

In developing SPS rules, the TPP Parties have advanced their shared interest in ensuring transparent, non-discriminatory rules based on science, and reaffirmed their right to protect human, animal or plant life or health in their countries. The TPP builds on WTO SPS rules for identifying and managing risks in a manner that is no more trade restrictive than necessary. . . .

    • Technical Barriers to Trade (TBT)

In developing TBT rules, the TPP Parties have agreed on transparent, non-discriminatory rules for developing technical regulations, standards and conformity assessment procedures, while preserving TPP Parties’ ability to fulfill legitimate objectives. They agree to cooperate to ensure that technical regulations and standards do not create unnecessary barriers to trade. . . .

    • Trade Remedies

The Trade Remedies chapter promotes transparency and due process in trade remedy proceedings through recognition of best practices, but does not affect the TPP Parties’ rights and obligations under the WTO. The chapter provides for a transitional safeguard mechanism, which allows a Party to apply a transitional safeguard measure during a certain period of time if import increases as a result of the tariff cuts implemented under the TPP cause serious injury to a domestic industry. These measures may be maintained for up to two years, with a one-year extension, but must be progressively liberalized if they last longer than a year. . . .

    • Investment

In establishing investment rules, the TPP Parties set out rules requiring non-discriminatory investment policies and protections that assure basic rule of law protections, while protecting the ability of Parties’ governments to achieve legitimate public policy objectives. . . .

TPP Parties adopt a “negative-list” basis, meaning that their markets are fully open to foreign investors, except where they have taken an exception (non-conforming measure) in one of two country specific annexes: (1) current measures on which a Party accepts an obligation not to make its measures more restrictive in the future and to bind any future liberalization, and (2) measures and policies on which a Party retains full discretion in the future. . . .

    • Cross-Border Trade in Services

Given the growing importance of services trade to TPP Parties, the 12 countries share an interest in liberalized trade in this area. TPP includes core obligations found in the WTO and other trade agreements . . . .

    • Financial Services

The TPP Financial Services chapter will provide important cross-border and investment market access opportunities, while ensuring that Parties will retain the ability to regulate financial markets and institutions and to take emergency measures in the event of crisis. The chapter includes core obligations found in other trade agreements . . . . In addition, the TPP includes specific commitments on portfolio management, electronic payment card services, and transfer of information for data processing.

The Financial Services chapter provides for the resolution of disputes relating to certain provisions through neutral and transparent investment arbitration. It includes specific provisions on investment disputes related to the minimum standard of treatment, as well as provisions requiring arbitrators to have financial services expertise, and a special State-to-State mechanism to facilitate the application of the prudential exception and other exceptions in the chapter in the context of investment disputes. . . .

    • Temporary Entry for Business Persons

The Temporary Entry for Business Persons chapter encourages authorities of TPP Parties to provide information on applications for temporary entry, to ensure that application fees are reasonable, and to make decisions on applications and inform applicants of decisions as quickly as possible. TPP Parties agree to ensure that information on requirements for temporary entry are readily available to the public, including by publishing information promptly and online if possible, and providing explanatory materials. The Parties agree to ongoing cooperation on temporary entry issues such as visa processing. Almost all TPP Parties have made commitments on access for each other’s business persons, which are in country-specific annexes.

    • Telecommunications

TPP Parties share an interest in ensuring efficient and reliable telecommunications networks in their countries. . . .

    • Electronic Commerce

In the Electronic Commerce chapter, TPP Parties commit to ensuring free flow of the global information and data that drive the Internet and the digital economy, subject to legitimate public policy objectives such as personal information protection. The 12 Parties also agree not to require that TPP companies build data centers to store data as a condition for operating in a TPP market, and, in addition, that source code of software is not required to be transferred or accessed. The chapter prohibits the imposition of customs duties on electronic transmissions, and prevents TPP Parties from favoring national producers or suppliers of such products through discriminatory measures or outright blocking. . . .

    • Government Procurement

TPP Parties share an interest in accessing each other’s large government procurement markets through transparent, predictable, and non-discriminatory rules. In the Government Procurement chapter, TPP Parties commit to core disciplines of national treatment and non-discrimination. They also agree to publish relevant information in a timely manner, to allow sufficient time for suppliers to obtain the tender documentation and submit a bid, to treat tenders fairly and impartially, and to maintain confidentiality of tenders. . . ..

    • Competition Policy

TPP Parties share an interest in ensuring a framework of fair competition in the region through rules that require TPP Parties to maintain legal regimes that prohibit anticompetitive business conduct, as well as fraudulent and deceptive commercial activities that harm consumers. . . . TPP Parties agree to adopt or maintain national competition laws that proscribe anticompetitive business conduct and work to apply these laws to all commercial activities in their territories. . . .

The chapter is not subject to the dispute settlement provisions of the TPP, but TPP Parties may consult on concerns related to the chapter.

    • State-Owned Enterprises (SOEs) and Designated Monopolies

All TPP Parties have SOEs, which often play a role in providing public services and other activities, but TPP Parties recognize the benefit of agreeing on a framework of rules on SOEs. The SOE chapter covers large SOEs that are principally engaged in commercial activities. Parties agree to ensure that their SOEs make commercial purchases and sales on the basis of commercial considerations, except when doing so would be inconsistent with any mandate under which an SOE is operating that would require it to provide public services. They also agree to ensure that their SOEs or designated monopolies do not discriminate against the enterprises, goods, and services of other Parties. Parties agree to provide their courts with jurisdiction over commercial activities of foreign SOEs in their territory, and to ensure that administrative bodies regulating both SOEs and private companies do so in an impartial manner. TPP Parties agree to not cause adverse effects to the interests of other TPP Parties in providing non-commercial assistance to SOEs, or injury to another Party’s domestic industry by providing non-commercial assistance to an SOE that produces and sells goods in that other Party’s territory. TPP Parties agree to share a list of their SOEs with the other TPP Parties and to provide, upon request, additional information about the extent of government ownership or control and the non-commercial assistance they provide to SOEs. There are some exceptions from the obligations in the chapter, for example, where there is a national or global economy emergency, as well as country-specific exceptions that are set out in annexes.

    • Intellectual Property

TPP’s Intellectual Property (IP) chapter covers patents, trademarks, copyrights, industrial designs, geographical indications, trade secrets, other forms of intellectual property, and enforcement of intellectual property rights, as well as areas in which Parties agree to cooperate. The IP chapter will make it easier for businesses to search, register, and protect IP rights in new markets, which is particularly important for small businesses.

The chapter establishes standards for patents, based on the WTO’s TRIPS Agreement and international best practices. On trademarks, it provides protections of brand names and other signs that businesses and individuals use to distinguish their products in the marketplace. The chapter also requires certain transparency and due process safeguards with respect to the protection of new geographical indications, including for geographical indications recognized or protected through international agreements. These include confirmation of understandings on the relationship between trademarks and geographical indications, as well as safeguards regarding the use of commonly used terms. . . .

In addition, the chapter contains pharmaceutical-related provisions that facilitate both the development of innovative, life-saving medicines and the availability of generic medicines, taking into account the time that various Parties may need to meet these standards. . . .

Finally, TPP Parties agree to provide strong enforcement systems, including, for example, civil procedures, provisional measures, border measures, and criminal procedures and penalties for commercial-scale trademark counterfeiting and copyright or related rights piracy. In particular, TPP Parties will provide the legal means to prevent the misappropriation of trade secrets, and establish criminal procedures and penalties for trade secret theft, including by means of cyber-theft, and for cam-cording.

    • Labour

All TPP Parties are International Labour Organization (ILO) members and recognize the importance of promoting internationally recognized labour rights. TPP Parties agree to adopt and maintain in their laws and practices the fundamental labour rights as recognized in the ILO 1998 Declaration, namely freedom of association and the right to collective bargaining; elimination of forced labour; abolition of child labour and a prohibition on the worst forms of child labour; and elimination of discrimination in employment. They also agree to have laws governing minimum wages, hours of work, and occupational safety and health. These commitments also apply to export processing zones. The 12 Parties agree not to waive or derogate from laws implementing fundamental labour rights in order to attract trade or investment, and not to fail to effectively enforce their labour laws in a sustained or recurring pattern that would affect trade or investment between the TPP Parties. In addition to commitments by Parties to eliminate forced labour in their own countries, the Labour chapter includes commitments to discourage importation of goods that are produced by forced labour or child labour, or that contain inputs produced by forced labour, regardless of whether the source country is a TPP Party.

Each of the 12 TPP Parties commits to ensure access to fair, equitable and transparent administrative and judicial proceedings and to provide effective remedies for violations of its labour laws. They also agree to public participation in implementation of the Labour chapter, including establishing mechanisms to obtain public input.

The commitments in the chapter are subject to the dispute settlement procedures laid out in the Dispute Settlement chapter. To promote the rapid resolution of labour issues between TPP Parties, the Labour chapter also establishes a labour dialogue that Parties may choose to use to try to resolve any labour issue between them that arises under the chapter. This dialogue allows for expeditious consideration of matters and for Parties to mutually agree to a course of action to address issues. The Labour chapter establishes a mechanism for cooperation on labour issues, including opportunities for stakeholder input in identifying areas of cooperation and participation, as appropriate and jointly agreed, in cooperative activities.

    • Environment

As home to a significant portion of the world’s people, wildlife, plants and marine species, TPP Parties share a strong commitment to protecting and conserving the environment, including by working together to address environmental challenges, such as pollution, illegal wildlife trafficking, illegal logging, illegal fishing, and protection of the marine environment. The 12 Parties agree to effectively enforce their environmental laws; and not to weaken environmental laws in order to encourage trade or investment. . . .

The chapter is subject to the dispute settlement procedure laid out in the Dispute Settlement chapter. . . .

    • Cooperation and Capacity Building . . ..
    • Competitiveness and Business Facilitation

The Competitiveness and Business Facilitation chapter aims to help the TPP reach its potential to improve the competitiveness of the participating countries, and the Asia-Pacific region as a whole. . . .

    • Development

The TPP Parties seek to ensure that the TPP will be a high-standard model for trade and economic integration, and in particular to ensure that all TPP Parties can obtain the complete benefits of the TPP, are fully able to implement their commitments, and emerge as more prosperous societies with strong markets. . . .

    • Small- and Medium-Sized Enterprises

TPP Parties have a shared interest in promoting the participation of small- and medium-sized enterprises in trade and to ensure that small- and medium-sized enterprises share in the benefits of the TPP. . . .

    • Regulatory Coherence

TPP’s Regulatory Coherence chapter will help ensure an open, fair, and predictable regulatory environment for businesses operating in the TPP markets by encouraging transparency, impartiality, and coordination across each government to achieve a coherent regulatory approach. . . .

    • Transparency and Anti-Corruption

The TPP’s Transparency and Anti-Corruption chapter aims to promote the goal, shared by all TPP Parties, of strengthening good governance and addressing the corrosive effects bribery and corruption can have on their economies. . . .

    • Administrative and Institutional Provisions

The Administrative and Institutional Provisions Chapter sets out the institutional framework by which the Parties will assess and guide implementation or operation of the TPP, in particular by establishing the Trans-Pacific Partnership Commission, composed of Ministers or senior level officials, to oversee the implementation or operation of the Agreement and guide its future evolution. This Commission will review the economic relationship and partnership among the Parties on a periodic basis to ensure that the Agreement remains relevant to the trade and investment challenges confronting the Parties.. . .

    • Dispute Settlement

The Dispute Settlement chapter is intended to allow Parties to expeditiously address disputes between them over implementation of the TPP. TPP Parties will make every attempt to resolve disputes through cooperation and consultation and encourage the use of alternative dispute resolution mechanisms when appropriate. When this is not possible, TPP Parties aim to have these disputes resolved through impartial, unbiased panels. The dispute settlement mechanism created in this chapter applies across the TPP, with few specific exceptions. . . .

Should consultations fail to resolve an issue, Parties may request establishment of a panel, which would be established within 60 days after the date of receipt of a request for consultations or 30 days after the date of receipt of a request related to perishable goods. Panels will be composed of three international trade and subject matter experts independent of the disputing Parties, with procedures available to ensure that a panel can be composed even if a Party fails to appoint a panelist within a set period of time. These panelists will be subject to a code of conduct to ensure the integrity of the dispute settlement mechanism. . . .

To maximize compliance, the Dispute Settlement chapter allows for the use of trade retaliation (e.g., suspension of benefits), if a Party found not to have complied with its obligations fails to bring itself into compliance with its obligations. Before use of trade retaliation, a Party found in violation can negotiate or arbitrate a reasonable period of time in which to remedy the breach.

    • Exceptions

The Exceptions Chapter ensures that flexibilities are available to all TPP Parties that guarantee full rights to regulate in the public interest, including for a Party’s essential security interest and other public welfare reasons. This chapter incorporates the general exceptions provided for in Article XX of the General Agreement on Tariffs and Trade 1994 to the goods trade-related provisions, specifying that nothing in the TPP shall be construed to prevent the adoption or enforcement by a Party of measures necessary to, among other things, protect public morals, protect human, animal or plant life or health, protect intellectual property, enforce measures relating to products of prison labour, and measures relating to conservation of exhaustible natural resources. . . .

In addition, it specifies that no Party is obligated to furnish information under the TPP if it would be contrary to its law or public interest, or would prejudice the legitimate commercial interests of particular enterprises. A Party may elect to deny the benefits of Investor-State dispute settlement with respect to a claim challenging a tobacco control measure of the Party.

    • Final Provisions

The Final Provisions chapter defines the way the TPP will enter into force, the way in which it can be amended, the rules that establish the process for other States or separate customs territories to join the TPP in the future, the means by which Parties can withdraw, and the authentic languages of the TPP. It also designates a Depositary for the Agreement responsible for receiving and disseminating documents.   . . .

THREE CHINA CANARDS AND INTERNATIONAL TRADE VICTIMHOOD

In light of President Xi’s recent trip to the United States and the many arguments thrown at China by the Press and US Politicians, it is time to look at the three major trade/economic attacks against China in detail: cyber- attacks, currency manipulation and dumping. When one digs down, one finds that the arguments are based on misunderstandings and misperceptions and often are not based on complete or actual facts. There are a lot of holes in the US arguments.

In fact, often these arguments are the pot, the United States, calling the kettle, China, black or in Chinese, the crow calling the pig black. What the US accuses the Chinese government of doing, the US government itself is doing against China and other countries.

In truth, the Chinese government can take actions, which are totally unfair, but US government officials should get their facts right and make sure that the attacks on China are based on actual economic reality and the US Government’s actual position.

More importantly, the problem with these attacks is that they lead to a US mindset among companies and unions of globalization/international trade victimhood. The whole world and especially China is out to get the US and we US companies and US workers cannot compete with imports into the US because all are unfairly traded so let’s put up protectionist walls.

This mindset, however, leads to corrosion of a company’s competitive instincts and makes them less able to compete in the modern world and US market.   Protectionism leads to the decline of the US industry and the loss of jobs. As President Reagan so eloquently put it the attached June 28, 1968 speech on international trade, BETTER COPY REAGAN IT SPEECH:

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

Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. . . .

Emphasis added.

As indicated below, this last paragraph would appear to fit exactly the Steel Industry.

The inconvenient truth for a Donald Trump and the Republican protectionists is that President Ronald Reagan, who Republicans hold up as their icon, was a true free trader and not a false prophet. So let’s look at these three arguments in detail.

CYBER-ATTACKS

As stated more below, although the US Press, including Forbes, Wall Street Journal, and the New York Times along with a number of US politicians, including Senators McCain and Ayotte, vehemently attack China for its cyber- attacks, when one digs down it turns out that part of the problem is the United States.

As indicated below, on September 29, 2015, in response to specific questions from Senator Manchin in the Senate Armed Services Committee, James R. Clapper, Director of National Intelligence, testified that China cyber- attacks to obtain information on weapon systems are not cyber- crime. It is cyber espionage, which the United States itself engages in. As Dr. Clapper stated both countries, including the United States, engage in cyber espionage and “we are pretty good at it.” Dr. Clapper went on to state that “people in glass houses” shouldn’t throw stones. See http://www.armed-services.senate.gov/hearings/15-09-29-united-states-cybersecurity-policy-and-threats at 1hour 8 minutes to 10 minutes.

In response to a specific question from Senator Ayotte, Director Clapper also specifically admitted that the attack on OPM and theft of US government employee data is state espionage and not commercial activity, which the US also engages in. See above hearing at 1 hour 18 and 19 minutes.  

During the same hearing, Administration officials acknowledged that the recent Cyber Agreement with China is a good first step.

What does this mean? It means that the US government never asked China for a comprehensive agreement to stop cyber hacking, because the US government is engaged in cyber espionage too and “we are pretty good at it. . . . People in glass houses…”. This illustrates the hypocrisy of much of the political attacks on China regarding cyber-attacks on US security interests and OPM, which are based on incorrect definitions as set down by the US government itself.

What the US Government did demand on the threat of economic sanctions was for the Chinese government to stop cyber-attacks on commercial interests, including the theft of intellectual property. The Chinese government agreed, not only because of the threats of economic sanctions, but also because they realize how important the US China economic/trade relationship is for China, the Chinese people and the entire World.

Although the Press reports that the cyber- attacks still continue, as President Xi specifically mentioned, the Chinese government cannot unilaterally stop all private cyberattacks that come from China, just as the US government cannot unilaterally stop all private cyber- attacks from the US. These are criminal acts.

At the Armed Services hearing, Senator McCain stated that he was astonished at the statement by Director Clapper. What is astonishing is that high level Senators, who launched cynical attack after attack on the Chinese government, do not know the position of their own government and the distinction between state espionage and commercial cyber- attacks. The Senators do not realize or do not want to acknowledge that the pot (the US) is calling the kettle (China) black.

Recently, in an October 6, 2015 article on Energy Wire, entitled “DOE cold case shows limits of U.S.-China cyber cooperation” at http://www.eenews.net/stories/1060025891[10/6/2015 10:41:38 AM] about the Justice Department accusing Chinese officials in the People’s Liberation Army of hacking, Robert Cattanach, co-chairman of the cybersecurity practice group at Dorsey, stated with regards to the provisions in the China Cyber Agreement:

“to end “cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors” . . . the framework’s omissions are telling. “The U.S. clearly signaled that it was still fine for China to do whatever it wished in the area of national security cyberespionage – and the subtext there is, because we’re doing it, too. Problems come up right away, however, due to the fact that “it’s not at all clear where the dividing line is between ‘acceptable’ cyber hacking and ‘unacceptable’ cyber hacking,”

CURRENCY MANIPULATION

The same problem exists with currency manipulation. First, the general definition of currency manipulation is that a country artificially lowers the value of its currency, to undervalue the currency, so as to have a competitive advantage and encourage exports.

But the problem with this issue is that like cyber-attacks there is no internationally approved definition of currency manipulation, and both the Obama Administration, including President Obama and Secretary of Treasury Lew, along with free trade Senators and Congressmen are worried that without an internationally approved definition, currency manipulation could be used to retaliate against the United States. Remember the Federal Reserve’s Policy of Quantitative Easing.

Regarding China, originally, when the argument was first made in 2004, the Chinese Yuan was worth about 8.2 or 8.3 to the dollar, making the Chinese yuan relatively weak as compared to the US dollar. Since 2004 because of the Currency manipulation argument, China has allowed the Yuan to float within in very short range and gradually strengthened the Chinese yuan to 6.35 yuan today.

Keep in mind that China is worried about strengthening its currency too much, not because of the United States, but because of its Asian competitors. Vietnam, for example, exports more furniture and other products as compared to China because its wages are lower than China. Much of the textile business has now left China to go to Bangladesh, where wages are much lower than China.

For more than 10 years, the US Steel Industry and the Unions have been using the currency manipulation to attack China. But another inconvenient truth is that on May 26, 2015, the International Monetary Fund (“IMF”) determined that China’s currency is no longer unvalued. The IMF specifically stated:

“On the external side, China has made good progress in recent years in reducing the very large current account surplus and accumulation of foreign exchange reserves. . . .While undervaluation of the Renminbi was a major factor causing the large imbalances in the past, our assessment now is that the substantial real effective appreciation over the past year has brought the exchange rate to a level that is no longer undervalued.

In addition, the major argument of many Democratic Senators and Congressmen and even some Republicans is that the Trans Pacific Partnership is not a good deal because there are no enforceable rules against currency manipulation. But the inconvenient truth is that enforceable provisions were not in the Bill because Democratic President Obama and Democratic Secretary of Treasury Lew threatened to veto the TPA bill if enforceable provisions were included.

On May 22, 2015, on the Senate floor during the debate on Trade Promotion Authority (“TPA”) Senator Hatch made a very strong argument against the Currency Amendment proposed by Senators Stabenow and Portman, which would have required enforceable provisions on currency manipulation, stating that the President will veto the TPA bill and if passed could lead to international sanctions against the United States by international tribunals. See Testimony of Senators Wyden and Hatch at http://www.c-span.org/video/?326202-1/us-senate-debate-trade-promotion-authority&live.

As Senator Hatch stated:

Mr. President, I want to take some time today to talk about proposals to include a currency manipulation negotiating objective in trade negotiations and the impact this issue is having on the debate over renewing Trade Promotion Authority, or TPA.

Currency manipulation has, for many, become the primary issue in the TPA debate. . . .

However, I want to be as plain as I can be on this issue: While currency manipulation is an important issue, it is inappropriate and counterproductive to try to solve this problem solely through free trade agreements. . . .

But, first, I think we need to step back and take a look at the big picture. I think I can boil this very complicated issue down to a single point: The Portman-Stabenow Amendment will kill TPA.

I’m not just saying that, Mr. President. It is, at this point, a verifiable fact.

Yesterday, I received a letter from Treasury Secretary Lew outlining the Obama Administration’s opposition to this amendment. The letter addresses a number of issues, some which I’ll discuss later. But, most importantly, at the end of the letter, Secretary Lew stated very plainly that he would recommend that the President veto a TPA bill that included this amendment.

That’s pretty clear, Mr. President. It doesn’t leave much room for interpretation or speculation. No TPA bill that contains the language of the Portman-Stabenow Amendment stands a chance of becoming law. . . .

at this point, it is difficult – very difficult, in fact – for anyone in this chamber to claim that they support TPA and still vote in favor of the Portman-Stabenow Amendment. The two, as of yesterday, have officially become mutually exclusive. . . .

But, regardless of what you think of Secretary Lew’s letter, the Portman-Stabenow Amendment raises enough substantive policy concerns to warrant opposition on its own. Offhand, I can think of four separate consequences that we’d run into if the Senate were to adopt this amendment, and all of them would have a negative impact on U.S. economic interests.

First, the Portman-Stabenow negotiating objective would put the TPP, agreement at grave risk, meaning that our farmers, ranchers, and manufactures – not to mention the workers they employ – would not get access to these important foreign markets, resulting in fewer good, high-paying jobs for American workers.

We know this is the case, Mr. President. Virtually all of our major negotiating partners, most notably Japan, have already made clear that they will not agree to an enforceable provisions like the one required by the Portman-Stabenow Amendment. No country that I am aware of, including the United States, has ever shown the willingness to have their monetary policies subject to potential trade sanctions. Adopting this amendment will have, at best, an immediate chilling effect on the TPP negotiations, and, at worst, it will stop them in their tracks.

If you don’t believe me, then take a look at the letter we received from 26 leading food and agriculture organizations . . . urging Congress to reject the Portman-Stabenow amendment because it will, in their words, “most likely kill the TPP negotiations” Put simply, not only will this amendment kill TPA, it will very likely kill TPP as well.

Second, the Portman-Stabenow Amendment would put at risk the Federal Reserve’s independence in its ability to formulate and execute monetary policies designed to protect and stabilize the U.S. economy. While some in this chamber have made decrees that our domestic monetary policies do not constitute currency manipulation, we know that not all of our trading partners see it that way.

Requiring the inclusion of enforceable rules on currency manipulation and subsequent trade sanctions in our free trade agreements would provide other countries with a template for targeting U.S. monetary policies, subjecting our own agencies and policies to trade disputes and adjudication in international trade tribunals. We have already heard accusations in international commentaries by foreign finance ministers and central bankers that our own Fed has manipulated the value of the dollar to gain trade advantage.

If the Portman-Stabenow language is adopted into TPA and these rules become part of our trade agreements, how long do you think it will take for our trading partners to enter disputes and seek remedies against Federal Reserve quantitative easing policies? Not long, I’d imagine.

If the Portman-Stabenow objective becomes part of our trade agreements, we will undoubtedly see formal actions to impose sanctions on U.S. trade, under the guise that the Federal Reserve has manipulated our currency for trade advantage. We’ll also be hearing from other countries that Fed policy is causing instability in their financial markets and economies and, unless the Fed takes a different path, those countries could argue for relief or justify their own exchange-rate policies to gain some trade advantage for themselves.

While we may not agree with those allegations, the point is that, under the Portman-Stabenow formulation, judgments and verdicts on our policies will be taken out of our hands and, rather, can be rendered by international trade tribunals. . . .

Put simply, we cannot enforce rules against unfair exchange rate practices if we do not have information about them. Under the Portman-Stabenow Amendment, our trading partners are far more likely to engage in interventions in the shadows, hiding from detection out of fear that they could end up being subjected to trade sanctions.

Mr. President, for these reasons and others, the Portman-Stabenow Amendment is the wrong approach. Still, I do recognize that currency manipulation is a legitimate concern, and one that we need to address in a serious, thoughtful way.

Toward that end, Senator Wyden and I have filed an amendment that would expand on the currency negotiating objective that is already in the TPA bill to give our country more tools to address currency manipulation without the problems and risks that would come part and parcel with the Portman-Stabenow Amendment. . . .

Why are enforceable provisions against currency manipulation wrong? Because all of “international/WTO” trade law is based on reciprocity. What the United States can do to other countries, those countries can do back to the United States. In effect, if enforceable currency manipulation provisions had been included in the TPP, the United States could be hoisted by its own petard, killed by its own knife.

That is the reason Senator Orrin Hatch, Chairman of the Senate Finance Committee, and Congressman Paul Ryan, Chairman of the House Ways and Means Committee, are so concerned about currency manipulation. Currency manipulation is a negotiating objective as set forth in the TPA. But enforcing currency manipulation is a problem because there is no internationally accepted definition of currency manipulation. When the US Federal Reserve used quantitative easing in the last financial crisis, was that currency manipulation? Could other countries retaliate against the US for using quantitative easing? That is the fear of free traders. In international trade what goes around comes around.

Currency manipulation was include in the Trade Promotion Authority bill that was passed by Congress and signed into law, but there were no enforceable provisions. The specific provision in the TPA states in part:

“Foreign Currency Manipulation—The principal negotiating objective of the United States with respect to unfair currency practices is seek to establish accountability through enforceable rules, transparency, reporting, monitoring, cooperative mechanisms, or other means to address exchange rate manipulation involving protracted large scale intervention in one direction in the exchange markets and a persistently undervalued foreign exchange rate to gain an unfair competitive advantage in trade over other parties to a trade agreement consistent with existing obligations of the United States as a member of the International Monetary Fund and the World Trade Organization.”

Emphasis added.

In the TPP Agreement, which was concluded in Atlanta, in a currency manipulation side deal, apparently the nations pledged not to devalue their currencies in such a way as to gain an edge on their competitors, but it will not have any enforcement provisions. Country representatives will meet at least once a year to discuss the commitments and to try to coordinate macroeconomic policies.

The specific details of the currency manipulation side agreement are still being negotiated so it is difficult to believe that Hilary Clinton has actually read the Agreement, when it has not been finalized yet.

The side agreement, however, apparently centers around three key commitments countries would undertake as part of this side deal. First, the TPP countries would commit to not devalue their currencies so as to make their exports cheaper. Second, they would upgrade the transparency of their respective monetary policies and decision-making. Finally, the countries would set up a multilateral forum to discuss exchange rate policies and broader macroeconomic issues.

It is not clear, however, how often officials would meet in this configuration, or at what level. Government sources, however, indicate that the TPP countries are very close to coming to an agreement on these points and are entering a technical review of the side deal.

On the day the TPP agreement was announced, Treasury released a joint statement by the TPP countries:

“We are pleased to announce today that we are working to strengthen macroeconomic cooperation, including on exchange rate issues, in appropriate fora. The work to be undertaken reflects our common interest in strengthening cooperation on macroeconomic policies, and will help to further macroeconomic stability in the TPP region as well as help ensure that the benefits of TPP are realized. Keeping in mind the diverse circumstances of the TPP countries, we are currently undertaking a technical review.”

On October 19, 2015, Treasury Secretary Lew stated that the TPP provides a “very powerful set of tools,” with tough provisions to get participating countries to “keep their word” on currency.

It is interesting to note that on Tuesday, September 22, 2015, in his Seattle speech, President Xi of China specifically agreed to a similar provision:

“We will stick to the purpose of our reform to have the exchange rate decided by market supply and demand and allow the RMB to float both ways. We are against competitive depreciation or a currency war. We will not lower the RMB exchange rate to boost exports. To develop the capital market and improve the market-based pricing of the RMB exchange, is the direction of our reform. This will not be changed by the recent fluctuation in the stock market.”

In other words, China has agreed to abide by the same currency manipulation deal struck in the TPP Agreement.

But that brings us to another problem, recently China allowed the Yuan to float and it lost 2 to 3% of its value and immediately the China critics in the United States cried currency manipulation. As stated above, the International Monetary Fund has already determined that the Chinese RMB is not undervalued. If anything, with the very difficult economic situation in China right now, the Chinese RMB may be overvalued. In fact, if Chinese RMB were actually floated on the market, there might be a sharp decline.

The natural economic course is for currencies to become weaker when economies become weaker. The IMF has already determined that China’s currency is not undervalued. But right now, China’s economy is going through a downturn.

As Treasury Secretary Lew stated on October 19th regarding China’s currency:

“There’s still room for the renminbi to appreciate. Right now, there’s downward pressure on the renminbi. Some of it is as a result of the policies that they made and the way they announced them over the summer. We have to make sure that China understands that it’s very important that they need to keep their commitment to let the renminbi go up as well as down.”

On October 1, 2015, the Wall Street Journal on its front page, reported “A Painful Quarter for Markets” stated:

“Stocks had their worst quarter since 2011 amid growth worries as daily swings grew bigger as investors fretted over China while a commodity selloff [in part because of China] and rising junk-bond yields added to the anxiety.”

On October 7, 2015, the Wall Street Journal reported that “Chinese Central bank interventions” to shore up the yuan ate into China’s foreign-exchange reserves in September, stating.:

“The People’s Bank of China on Wednesday said currency reserves fell $43.3 billion in September to $3.51 trillion as more funds left the country, the fifth consecutive monthly drop but a less sharp one than the record $93.9 billion plunge the previous month. That came after the central bank first devalued the yuan in a mid-August surprise and then saw itself forced to step up selling of dollar assets, particularly U.S. Treasuries, to prevent a free fall in the currency. . . .”

On October 7th, the Wall Street Journal further reported that, “Once the Biggest Buyer, China Starts Dumping U.S. Government Debt Shift in Treasury holdings is latest symptom of emerging-market slowdown hitting global economy”. The Article states:

“Central banks around the world are selling U.S. government bonds at the fastest pace on record, the most dramatic shift in the $12.8 trillion Treasury market since the financial crisis.

Sales by China, Russia, Brazil and Taiwan are the latest sign of an emerging-markets slowdown that is threatening to spill over into the U.S. economy. Previously, all four were large purchasers of U.S. debt. . . .

In the past decade, large trade surpluses or commodity revenues permitted many emerging-market countries to accumulate large foreign-exchange reserves. Many purchased U.S. debt because the Treasury market is the most liquid and the U.S. dollar is the world’s reserve currency. . . .

But as global economic growth weakened, commodity prices slumped and the dollar rose in anticipation of expected Federal Reserve interest-rate increases, capital flowed out of emerging economies, forcing some central banks to raise cash to buy their local currencies.

In recent months, China’s central bank in particular has stepped up its selling of Treasuries. The People’s Bank of China surprised investors by devaluing the yuan on Aug. 11. The heavy selloff that followed—triggered by concerns that Beijing would permit more weakening of the yuan to help spur growth—caught officials at the central bank somewhat off guard, according to the people.

To contain the selloff, the PBOC has been buying yuan and selling dollars to prevent the yuan from weakening beyond around 6.40 per dollar. Internal estimates at the PBOC show that it spent between $120 billion and $130 billion in August alone in bolstering the yuan’s value, according to people close to the central bank.”

On October 20, 2015, it was reported that total capital outflows from China could have been as high as $850 billion from the start of 2015 to the end of September. This estimate assumes China has had to sell foreign exchange reserves ($329 billion until the end of September, mostly in U.S. Treasuries) to keep the exchange rate stable.

Does this sound like a country that is intentionally trying to undervalue its currency to get a competitive advantage? In fact, China is spending 100s of billions of dollars to prevent the exchange rate from falling by keeping its currency strong and not undercutting the dollar. Why? To keep up the standard of living of its people and to avoid the currency manipulation argument aimed at China by the United States.

Many China critics point to China as the second largest economy, but that is a distortion. When looked at the GDP on a per capita/per person basis, China is much lower. As reported by the International Monetary Fund, the United States is ranked number 10 with a per capita GDP of $54,370GDP, where China is ranked number 88 with a per capita income of $13, 224 after the Maldives. See https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita#List_of_countries_and_dependencies.

China is the largest country in the World by population with 1.376 billion. The United States has a population of 321 million. See https://en.wikipedia.org/wiki/List_of_countries_and_dependencies_by_population. In fact, according to the World Economic Forum, when it comes to competitiveness, the United States ranks number 3 and China ranks number 28 after Israel, but before Estonia. See http://reports.weforum.org/global-competitiveness-report-2014-2015/rankings/; Global Competitiveness http://reports.weforum.org/global-competitiveness-report-2015-2016/economies/#economy=USA.

Why is this important? Because as President Xi recently stated in Seattle, China is still a developing country and it has 100s of millions of people in poverty. As President Xi stated:

“At the same time, we are civilly-aware that China is still the world’s largest developing country. Our per capita GDP is only two-thirds that of global average and one-seventh that of the United States, ranking around 80th in the world. By China’s own standard, we still have over 70 million people living under the poverty line. If measured by world bank standard, the number would be more than 200 million. . . .”

President Xi went on to state that his focus has to be development and raising the standard of living for his people:

“I know that we must work still harder before all our people can live a better life. That explains why development remains China’s top priority. To anyone charged with the governance of China, their primary mission is to focus all the resources on improving people’s living standard and gradually achieve common prosperity.”

The bottom line is that the Chinese leadership knows that it is still a developing country and it needs the relationship with the US to continue to lift is population out of poverty. But China also knows that the US China relationship must be a win-win relationship in which the United States also benefits. That is the reason the US is exporting close $200 billion in exports to China.

On September 26, 2015, while in Beijing I went to a Supermarket in the Guomao, Business District of Beijing. The “Ole” supermarket chain was having a major sales event of US agricultural products, selling US pork, apples, potatoes, seafood, wine, cheese, grapes and raisins. SMALL LARGE POSTERThe event was sponsored by USDA, US Commercial Service, US Pork Producers, US Meat, US raisins, Alaska Seafood, Washington Apples, US Potatoes, California Grapes and Raisins. USSPONSORSI was the only foreigner in the supermarket and the checkout girls had little US flags on their lapel.SM GIRL

 

 

 

The US China Trade relationship is also why China was quickly willing to negotiate and come to agreement with the United States on Cyber Attacks and Currency manipulation. But willingness to negotiate and discuss the issues is not good enough for the protectionist forces in the United States.

DUMPING

But if cyber-attacks and currency manipulation do not work, the US press and politicians can always argue that the United States is a dumping ground for Chinese products. In fact, the United States presently has antidumping orders blocking more than $20 billion in imports from China, all based on fake numbers.

Antidumping orders cover products as diverse as Furniture ($1 billion), almost all steel products (billions), Solar Cells and Solar Panels ($4 billion), Aluminum Extrusions, including aluminum auto parts, curtain walls, the sides of buildings and lighting equipment (billions), Tires ($7 billion), and Paper (billions), not to mention food products, such as honey, garlic, crawfish and shrimp.

Dumping is generally defined as selling products in the United States at lower prices than in the home/China market or below the fully allocated cost of production. But as readers of this blog know, in contrast to almost every country in the World, including Iran, Syria, Russia, and Ukraine, the Commerce Department considers China to be a nonmarket economy country and refuses to look at actual prices and costs in China. Instead Commerce constructs a cost from consumption factors in China and multiplies those factors times surrogate values, which it obtains from import statistics in five to 10 different countries.

But those surrogate countries can change from preliminary to final determinations and from initial investigation to the multiple review investigations against Chinese products. In the Hardwood Plywood case, for example, Commerce used import statistics in Philippines in the Preliminary resulting in a 0% antidumping rate, and then in the final determination switched to import statistics in Bulgaria, resulting in a 57% antidumping rate. In a Mushrooms review investigation, Commerce switched from India, which it had used in more than five past review investigations, to Columbia and the rate went from single digits to over 400% because of surrogate values for cow manure and hay from Columbia Import statistics.

If you think about it, how much cow manure and hay is imported into Columbia. Because Commerce’s almost always relies on import statistics in one of the 5 to 10 different countries, it always uses inflated surrogate values because imports by definition must be higher priced than the domestic product. By using hyper-inflated surrogate values, it is always easy to find dumping rates against China, but they are not based on reality.

With regards to Countervailing Duty orders against China, Commerce refuses to use benchmark prices in China to value the subsidies. As explained more below, this refusal along with the Commerce Department’s decision that every raw material product supplied by every state-owned company is subsidized, has led to a major loss for the United States at the WTO overturning dozens of Commerce Department CVD determinations for violations of the WTO’s Countervailing Duty Agreement.

More importantly, US importers pay antidumping and countervailing duties, not Chinese companies, and when antidumping and countervailing duties go up in administrative review investigations, US importers are retroactively liable for the difference plus interest.  Thus an importer can wake up one morning when an antidumping rate has gone from 0 to 157% and owe millions in retroactive antidumping duties to the US government.  But since Commerce does not use real prices and costs in China and can switch from surrogate country to surrogate country, the Chinese companies cannot know whether they are dumping and what the rate will be and neither can the US importers.  Thus the Commerce Department fiction exposes US importers to potentially millions of dollars in retroactive liability through no fault of the importer.  Thus, when antidumping and countervailing duty orders are issued against China, over time all imports of the specific product stop because importers are scared of the huge risk that could bankrupt their company if they import under an antidumping or countervailing duty order against China.

But the real problem with these three attacks on China is that it encourages a mindset among US producers and US workers of Globalization/International Trade Victimhood, which corrodes the competitive spirit. This phrase was not coined by me, but by the Mid Atlantic Trade Adjustment Assistance Center, which uses the term in a video about how four US companies used the TAA for Companies program to save their business — http://mataac.org/howitworks/.

Moreover, we have a perfect experiment/example to make this point—the US steel industry. This Industry has had some form of protection from steel imports under US antidumping and countervailing duty laws and other trade statutes for 40 years. Is the Steel industry thriving? Is it expanding with all the protection from imports that it has received? No, the industry continues to decline even though US Steel companies and the Unions have spent tens of millions of dollars in legal fees and to keep political pressure up on Congress and the Government.

When I first started work at the International Trade Commission in 1980, there were numerous large steel companies with production operations all over the United States, including Bethlehem Steel, Jones & Laughlin and Lone Star Steel. Those companies had 40 years of protection from steel imports, but that did not stop the decline of the industry.

But what the Steel industry and the Union wants and Congress is prepared to give is more protection from steel and other imports by making it easier to bring antidumping and countervailing duty cases and win them at Commerce and the ITC. The decision apparently is let’s simply build the protectionist walls higher. The scary point is that in many ways the US Steel industry and the Unions have an inordinate impact on US trade policy because of their power in the Democratic party.

But the crown jewels of US manufacturing are not the Steel Industry, but the US High Tech industry, which is among the most efficient in the World. As the Democratic opposition to the TPP indicates, many Democrats in Congress are willing to sacrifice the very successful new High Tech industry, which employs numerous workers, for the benefit of the much older and smaller US Steel industry when the total employment in the US Steel industry is less than one high tech company!

What is the answer to this import problem? Not more protection. Instead, I firmly believe the answer lies in the small program—the TAA for Companies (also called TAA for Firms or TAAF). This is a $12 million program, which helps small and medium size business (SMEs) and helps them adjust to import competition.  The Northwest Trade Adjustment Assistance Center (“NWTAAC”), which I have been working with, has an 80% survival rate since 1984, which is certainly a much higher survival rate than US antidumping and countervailing duty cases. If you save the company, you save the jobs that go with the company and all the tax revenue paid into the Federal, State and Local governments.  This is the Transformative Power of TAA for Companies.  TAA for Companies does not cost the government money.  It makes money for the government.

Recently, I have learned that sometimes larger companies through this program can obtain access to more funds to help them adjust and get out of Globalization /International Trade victimhood. The Congress supplies $450 million to retrain workers in the TAA for Workers program, but only $12 million to help the companies adjust. But if you save the company, you save the jobs that go with that company.

Moreover, the TAA video, http://mataac.org/howitworks/, describes one US company, which uses steel as an input, and was getting smashed by Chinese imports. After getting into the program, not only did the company become prosperous and profitable, it is now exporting products to China. This is the transformative power of TAA for Companies and the more important point of changing the mindset from Globalization/International Trade victimhood of US companies and workers so that they become internationally competitive in the World market.

All US antidumping and other trade cases can do is slow the decline in an industry. The only program that cures the disease is the TAA for Companies program . As Ronald Reagan predicted in his attached 1986 speech, BETTER COPY REAGAN IT SPEECH, the problem with antidumping and countervailing duty cases is that they do not work and they invite retaliation:

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

But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.

Blaming international trade and other countries and bringing trade case does not solve the business problems of these companies. All the trade cases do is slow the decline and prolong the agony, because the company and the workers have not changed their mindset.

One Economic Development Council here in Washington State has the motto Compete Every Day, with Every One in Every Country Forever. That is the type of mindset that turns companies around. That is the type of mindset TAA for Companies promotes, not US Antidumping and Countervailing Duty laws.

IMPORT ALLIANCE FOR AMERICA

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

There are approximately 130 antidumping and countervailing duty orders against various products from China, but approximately 80 of the orders cover raw material inputs, such as chemicals, metals and steel, which are used in downstream production. Through these orders we spread the Globalization victimhood disease affecting the upstream industry to the higher value added, higher profit downstream industries because the downstream companies cannot compete with Chinese and other foreign companies that have access to the lower cost raw materials.

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

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

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

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

On November 17 and 18, 2015, importers in the Alliance will be meeting Congressmen and Congressional Trade Staff in Washington DC to discuss these issues. See the attached announcement. FINAL IAFA_November2015_Flyer The Alliance welcomes all US importers and downstream companies, If you are interested in this effort, please feel free to contact the Import Alliance or myself directly.

IMPRESSIONS OF CHINESE PRESIDENT XI’S TRIP TO THE US—VIEWS FROM BEIJING

During most of September I was in China, and in Beijing during the key week of September 21 to 26th. Watching the US press and listening to US politicians in Washington DC during President Xi’s visit as compared to the Press in China was like watching people on different planets. In the United States, news outlets and politicians were very bellicose, very cynical, and expecting China simply to trick the US and out negotiate them. Shades of Donald Trump. In direct and distinct contrast, China was having a love fest with the United States.

In the United States, especially before and after the Washington DC trip, commentators and newspapers attacked China on cyber-hacking, currency manipulation, foreign policy and every other rock that could be thrown at China.

During that same week that President Xi was in China, Chinese speaking television was running a TV series to every day Chinese, somewhat like Roots, entitled Life and Death Commitment. The series was about how during the War against Japan, which became the Second World War, 100s if not 1,000s of Chinese peasants gave their lives to protect a specific American Flying Tiger pilot that had been shot down. The series showed entire villages and families executed by the Japanese for refusing to reveal the whereabouts of the American pilot. What made the series so powerful is that it is based on a true story.

I realized how powerful an impact this series was having on Chinese people because on Friday September 25th while climbing a mountain at the Red Snail Temple outside Beijing with a Group of Chinese, at a pavilion we ran into a Chinese peasant looking for plastic bottles. He immediately asked the Chinese in my Group, where is the foreigner from. They answered United States and he got excited and said “Flying Tiger”.

As President Xi mentioned in his Seattle speech, China will not forget the sacrifice of American lives in World War 2 against Germany and Japan. Even before World War 2, however, there were many examples of the United States coming to the aide of China. In the early 1900s, the United States was the only foreign country to pay China back for money paid as reparations by the Chinese government as a result of the Boxer rebellion. The US used the Chinese reparations money to establish a famous Chinese university and hospital in Beijing and send Chinese to study in the US. In other words, based on history, the Chinese truly like Americans, and that is a fundamental reason and basis for future US/China cooperation.

In contrast, I was told by one Chinese that Russia and China simply use each other. There is no trust between China and Russia. In the early 1950, because Chairman Mao refused to follow the commands of Joseph Stalin, Russia pulled out of China, destroying all the instruction books to the machinery, rail cars and other products provided to China. That action plus the Great Leap Forward led to a famine in China in which millions died. Chinese do not forget.

In contrast to Washington DC, high tech companies and businessmen in Washington State were very welcoming to President Xi, listening to his every word, because for Washington State China is its largest export market with $20 billion in exports every year to China and that is not just Boeing airplanes.

US High tech companies are making billions in China selling their products and consumer technology to China. Qualcomm’s income was $10 billion with $5 billion coming from China. On the plane to China, I sat next to a Marketing official from a large high tech company that was selling touch screen products to China. He told me that he was on the plane to China every other week.

While in China, on the CCTV English channel I saw one US Administration official stating that we see the US China relationship is “too big to fail”. At least someone in the US government and Obama Administration understands the importance of the US China relationship. In the Bush Administration, Treasury Secretary Paulson stated that he believed the US China relationship was the most important economic relationship in the World.

During my trip to Beijing, Chinese English TV was following the President Xi trip closely putting specific emphasis on the dialogue between the United States. I became convinced that China truly believes in a Win Win situation for China and the United States and that is not just a slogan.

Before President Xi’s trip to China, one article featured a panda and Uncle Sam walking arm and arm together. On September 27, the Chinese Global Times reported on the front page:

China and the US have agreed to continue building a new model for major country relationship based on mutual cooperation. . . .Aside from agreeing to build a new model for major-country relationship, the two countries said they would maintain close communication and exchanges at all levels, further expand practical cooperation at bilateral, regional and global levels and manage differences to a constructive way to achieve new concrete results in Sino-US relations. . . .

Another article in the Global Times urged the United States to reciprocate China’s goodwill. But the cynicism of many in the US press and US politicians seemed to undercut much of the Chinese goodwill.

President Xi’s US trip started well in Seattle. On Tuesday, September 22, 2015, at a speech in Seattle, Henry Kissinger introduced President Xi by stating that his vision of a Win Win scenario, which emphasizes the economic interdependence of China and the United States based on mutual interests and importance of the economic development of the other country was very important. Kissinger specifically stated that partnership between two potential advisories can replace antagonism between them.

As President Xi further indicated in his speech, he understands how important the US China relationship is and his government will do everything in their power to maintain it. President Xi specifically stated in Seattle:

. . . Washington is the leading state in U.S. exports to China and China is the No. 1 trading partner of the Port of Seattle. Washington and Seattle have become an important symbol of the friendship between Chinese and American people and the win-win cooperation between the two countries. As the Chinese saying goes, the fire burns high when everyone brings wood to it. It is the love and care and hard work of the national governments, local authorities, friendly organizations, and people from all walks of life in those countries that have made China-U.S. relations flourish. . . .

Ladies and gentlemen, dear friends. Since the founding of the People’s Republic, especially since the beginning of reform and opening up, China has set out on an extraordinary journey. The Chinese of my generation have had some first-hand experience. Toward the end of the 1960s, when I was in my teens, I was sent from Beijing to work as a peasant in a small village, where I spent seven years. At that time, the villagers and I lived in earth caves and slept on earth beds. Life was very hard. There was no meat in our diet for months. . . .

At the spring festival earlier this year, I returned to the village. It was a different place now. I saw black top roads. Now living in houses with bricks and tiles, the villagers had Internet access. Elderly folks had basic old-age care, and all villagers had medical care coverage. Children were in school. Of course, meat was readily available. This made me kindly aware that the Chinese dream is, after all, a dream of the people.

We can fulfill the Chinese dream only when we link it with our people’s yearning for a better life.

What has happened in [my village] is but a microcosm of the progress China has made through reform and opening up. In a little more than three decades, we have turned China into the world’s second largest economy, lifted 1.3 billion people from a life of chronic shortage, and brought them initial prosperity and unprecedented rights and dignity.

This is not only a great change in the lives of the Chinese people, but also a huge step forward in human civilization, and China’s major contribution to world peace and development.

At the same time, we are civilly-aware that China is still the world’s largest developing country. Our per capita GDP is only two-thirds that of global average and one-seventh that of the United States, ranking around 80th in the world. By China’s own standard, we still have over 70 million people living under the poverty line. If measured by world bank standard, the number would be more than 200 million. . . .

During the past two years, I have been to many poor areas in China and visited many poor families. I wouldn’t forget the look in their eyes longing for distant, happy life.

I know that we must work still harder before all our people can live a better life. That explains why development remains China’s top priority. To anyone charged with the governance of China, their primary mission is to focus all the resources on improving people’s living standard and gradually achieve common prosperity. To this end, we have proposed the two centenary goals mentioned by Dr. Kissinger, namely to double the 2010 GDP and per capita income of the Chinese and complete the building of a moderately prosperous society by 2020 and to build a prosperous, strong, democratic … harmonious, modernist socialist country that realizes the great renew of the Chinese nation by the middle of the century.

Whatever we do now is aimed at fulfilling these goals. To succeed in completing the building of a moderately prosperous society in all respects, we must comprehensively deepen reform, advance the law-based governance, and apply strict … discipline. That is what our proposed 4-pronged strategy is all about. . . .

China’s economy will stay on a steady course with fairly fast growth. The Chinese economy is still operating within a proper range. It grew by 7 percent in the first half of this year, and this growth rate remains one of highest in world. It has not come by easily, given the complex and volatile situation in world economy. At present, all economies are facing difficulties, and our economy is also under downward pressure. But this is only a problem in the course of progress. It will take … steps to achieve stable growth, deepen reform, adjust structure, improve livelihood, and prevent risks while strengthening and innovating macro-regulation to keep the growth at medium-to-high rate.

Currently, China is continuing to move forward in this new type of industrialization, digitalization, urbanization, and agricultural modernization. With a high savings rate, a huge consumption potential, a hard working population, and a rising proportion of middle income people — now we have 300 million middle income earnings in China — China enjoys enormous space … to grow in terms of market size and potential. China will focus more on improving the quality and efficiency of economic growth, and accelerating the shift of growth model and adjustment in economic structure. I will lay greater emphasis on innovation and consumption-driven growth — in this way, we will solve the problem of unbalanced, uncoordinated, and unsustainable development, and enable the Chinese economy to successfully transform itself and maintain strong momentum of growth.

Recent abnormal ups and downs in China’s stock market has caused wide concern. Stock prices fluctuating accordance with your inherent laws and it is the duty of the government to ensure an open, fair, and just market order and prevent massive panic from happening. This time, the Chinese government took steps to stabilize the market and contain panic in the stock market, and thus avoided the systemic risk. Mature markets in various countries have tried similar approaches. Now, China’s stock market has reached the phase of self-recovery, and self-adjustment.

On the 11th of August, China moved to improve its RMB central parity quotation mechanism, giving the market a greater role in determining the exchange rates. Our efforts have achieved initial success in correcting the exchange rate deviation. Given the economic and financial situation at home and abroad, there is no basis for continuous depreciation of the RMB. We will stick to the purpose of our reform to have the exchange rate decided by market supply and demand and allow the RMB to float both ways. We are against competitive depreciation or a currency war. We will not lower the RMB exchange rate to boost export. To develop the capital market and improve the market-based pricing of the RMB exchange, is the direction of our reform. This will not be changed by the recent fluctuation in the stock market.

The key to China’s development lies in reform. Our reform is aimed at modernizing the country’s governance system, and governance capabilities so that the market can play a decisive role in the allocation of resources. The government can play a better role and there is faster progress in building the socialist market economy, democracy, advanced culture, harmonious society, and soundly environment. . . .

We have the results and guts to press ahead, and take reform forward. We will stick to the direction of market economy reform and continue to introduce bold and result-oriented reform measures concerning the market, taxation, finance, investment and financing, pricing, opening up, and people’s livelihood.

China will never close its open door to the outside world. Opening up is a basic state policy of China. Its policies that attract foreign investment will not change, nor will its pledge to protect legitimate rights and interests of foreign investors in China, and to improve its services for foreign companies operating in China. We respect the international business norms and practice of non-discrimination, observe the …principle of national treatment commitment, treat all market players — including foreign-invested companies — fairly, and encourage transnational corporations to engage in all forms of cooperation with Chinese companies.

We will address legitimate concerns of foreign investors in timely fashion, protect their lawful rights and interests, and work hard to provide an open and transparent legal and policy environment, an efficient administrative environment, and a level playing field in the market, with a special focus on IPR protection so as to broaden the space of cooperation between China and the United States and other countries.

China will follow the basic strategy of the rule of law in governance. Law is the very foundation of governance. We will coordinate our efforts to promote the rule of law in governance and administration, for the building of the country, the government and society on solid basis of the rule of law, build greater trust in judicial system, and ensure that human rights are respected and effectively upheld. China will give fair treatment to foreign institutions and foreign companies in the country’s legislative, executive, and judicial practices. We are ready to discuss rule of law issues with the U.S. side in the spirit of mutual learning for common progress.

China is a staunch defender of cybersecurity. It is also a victim of hacking. The Chinese government will not, in whatever form, engage in commercial thefts or encourage or support such attempts by anyone. Both commercial cyber theft and hacking against government networks are crimes that must be punished in accordance with law and relevant international treaties. The international community should, on the basis of mutual respect and mutual trust, work together to build a peaceful, secure, open, and cooperative cyberspace. China is ready to set up a high-level joint dialogue mechanism with United States on fighting cyber crimes. . . .

China will continuing fighting corruption. As I once said, one has to be very strong if he wants to strike the iron. The blacksmith referred to here is the Chinese communist party. The fundamental aim of the party is to serve the people’s heart and soul. The party now has over 87 million members and unavoidably, it has problems of one kind or another. If we let these problems go unchecked we will risk losing the trust and support of the people. That is why we demand strict enforcement of party discipline as the top priority of governance. In our vigorous campaign against corruption, we have punished both tigers and flies —corrupt official — irrespective of ranking, in response to our people’s demand. This has nothing to do with power struggle. In this case, there is no House of Cards. . . .

China will keep to the path of peaceful development. We have just celebrated the 70th anniversary of the victory of the Chinese people’s resistance against Japanese aggression and the world anti-fascist war.

An important lesson history teaches us is that peaceful development is the right path, while any attempt to seek domination or hegemony through force is against the historical trend and doomed to failure.

The Chinese recognized as early as 2,000 years ago that though a country is now strong, bellicosity will lead to its ruin. China’s defense policy is defensive in nature and its military strategy features active defense. Let me reiterate here that no matter how developed it could become, China will never seek hegemony or engage in expansion.

To demonstrate our commitment to peaceful development, I announced not long ago that the size of China’s military will be cut by 300,000. China is ready to work with other countries to build a new type of international relations with win-win cooperation at its core, replacing confrontation and domination with win-win cooperation and adopting a new thinking of building partnerships so as to jointly open a new vista of common development and shared security.

As far as the existing international system is concerned, China has been a participant, builder, and contributor. We stand firmly for the international order and system that is based on the purposes and principles of the UN charter. . . .

China has benefitted from the international community and development, and China has in turn made its contribution to global development. Our Belt and Road initiative, our establishment of the Silk Road fund, and our proposal to set up the AAIB, are all aimed at helping the common development of all countries, rather than seeking some kind of spheres of political influence. The Belt and Road initiative is open and inclusive; we welcome participation of the U.S. and other countries, and international organizations.

We have vigorously promoted economic integration in the Asia Pacific and the Free Trade area of the Asia Pacific in particular because we want to facilitate the shaping of a free, open, convenient, and dynamic space for development in the Asia Pacific. We … for an outlook of common, comprehensive, cooperative, and sustainable security because we want to work with other countries in the region and the rest of the international community to maintain peace and security in the Asia Pacific.

Ladies and gentlemen, dear friends. In our Sunnylands meeting in 2013, President Obama and I reached the important agreement to jointly build a new model of major country relationship between the two countries.

This was a major strategic choice we made together on the basis of historical experience, our respective national conditions and the prevailing trend of world. Over past two years and more, the two sides have acted in accordance, with the agreement steadily moving forward by actual coordination and cooperation in various fields, and made important progress. We worked hand-in-hand to cope with aftermath of international financial crisis and promoted global economic recovery. We deepened pragmatic exchanges and cooperation in all fields, which brought about tangible benefits to the two people’s. Last year, actual trade, two-way investment stock, and total number of personnel exchanges all hit a record high. . . .

As an old Chinese saying goes, peaches and plums do not talk, yet a path is formed beneath them. These worthy fruits of cooperation across the Pacific Ocean speaks eloquently to the vitality and potential of China-U.S. relations.

This leads to the question: What shall we do to advance the new model of major country relationship between China and the U.S. from a new starting point and how we can work together to promote world peace and development. The answer is to stick to the right direction of such a new model of relationship and make gradual, solid progress.

An ancient Chinese said, after taking into account the past, the future, and the normal practices, a decision can be made.

A number of things are particularly important for our efforts. First, we must read each other’s strategic intentions correctly. Building a new model of major country relationship with the United States that features no confrontation, no conflicts, mutual respect and willing cooperation is the priority of China’s foreign policy. We want to deepen mutual understanding with the U.S. on each other’s strategic orientation and development path. We want to see more understanding and trust; less estrangement and suspicion in order to … misunderstanding and miscalculation.

We should strictly base our judgment on facts, lest we become victim to hearsay, paranoid, or self-imposed bias. … Should major countries time and again make the mistakes of strategic miscalculation, they might create such traps for themselves.

Second, we must firmly advance win-win cooperation. Cooperation is the only right choice to bring about benefits, but cooperation requires mutual accommodation of each other’s interest and concerns, and the quest of the great common ground of converging interest. If China and the U.S. cooperate well, they can become a bedrock of global stability and a booster of world peace. Should they enter into conflict or confrontation, it would lead to disaster for both countries and the world at large.

The areas where we should and can cooperate are very broad. For instance, we should help improve the global governance mechanism and work together to promote sustained growth of world economy and maintain stability in the global financial market.

We should conclude as soon as possible a balanced and high quality BIT, deepen the building of a new type of mill-to-mill relations, expand pragmatic cooperation on clean energy and environmental protection, strengthen exchanges in law enforcement, anti-corruption, health, and local affairs, and tap the corporation potential in infrastructural development. We should deepen communication and cooperation at the United Nations A-PEC, G-20, and other multi-electoral mechanisms, as well as our major international and regional issues and global challenges so as to make a bigger contribution to world peace, stability, and prosperity.

Third, we must manage our differences properly and effectively. As a Chinese saying goes, the sun and moon shine in different ways yet their brightness is just right for the day and night, respectively. It is precisely because of so many differences that the world has become such a diverse and colorful place, and that the need to broaden common ground and iron out differences has become so important. A perfect, pure world is non-existent, since disagreements are a reality people have to live with. China and the U.S. do not see eye to-eye on every issue and it is unavoidable that we may have different positions on some issues. What matters is how to manage the differences and what matters most is that we should respect each other, seek common ground while reserving differences, take a constructive approach to understanding … and spare no effort to turn differences into areas of cooperation.

Fourth, we must foster friendly sentiments among the peoples. People-to-people relations underpin state-to state relations. Though geographically far apart, our peoples boast a long history of friendly exchanges.

Some 230 years ago, Empress of China, a U.S. merchant ship, sailed across the vast oceans to the shores of China. Some 150 years ago, tens of thousands of Chinese workers joined their American counterparts in building the Transcontinental Pacific Railway. Some 30 years ago, China and the United States, as allies in World War II, fought shoulder-to-shoulder to defend world peace and justice. In that war, thousands of American soldiers laid down their precious lives for the just cause of the Chinese people.

We will never forget the moral support and invaluable assistance the American people gave to our just resistance against aggression and our struggle for freedom and independence. The Chinese people have always held American entrepreneurship and creativity in high regards. . . .

I believe it’s always important to make an effort to get deep a understanding of the cultures and civilizations that are different from our own. The Chinese character Ren, or people, is in a shape of two strokes supporting each other. The foundation of the China-U.S. friendship has its roots in the people and its future rests with the youth. . . .

Ladies and gentlemen. Dr. Kissinger wrote in his book, World Order, that, and I quote, each generation will be judged by whether the greatest and most consequential issues of the human condition have been faced.

And Martin Luther King said, ‘the time is always right to do the right thing. Today we have come once again to a historical juncture. Let us work together to bring about an even better future for China-U.S. relations and make an even greater contribution the happiness of our two people’s and well-being of the world.”

For the full text of President Xi’s speech, see http://www.globaltimes.cn/content/944177.shtml and http://www.chinadaily.com.cn/world/2015xivisitus/2015-09/24/content_21964069.htm To see the entire speech, go to https://www.youtube.com/watch?v=P9aQPvus8Tw.

After Seattle, President Xi flew to Washington DC.   Although Washington State is not wallowing in international trade victimhood, Washington DC is not Washington State. Just as President Xi Jinping arrived in Washington DC, John Brinkley at Forbes illustrated the hard line on China stating:

Xi Jinping In Washington: No Glad Tidings From The East

WASHINGTON — It’s hard to recall a visit to Washington by a head of state that has aroused as much apprehension and preoccupation as that of Chinese President Xi Jinping, who arrived here Thursday night.

Given the abundance of requests and demands that await him here, you might expect him to be wearing a red suit and a long white beard. But Xi has not come bearing gifts.

Issue No. 1 for the Obama administration is Chinese hacking.

China is the most prolific source of cyber-attacks against the U.S. government and business sector and it costs the U.S. economy billions of dollars every year, according to FBI Director James Comey. Xi has expressed a willingness to combat it, but he denies that his government has anything to do with it. He says China too is a victim of cyber-attacks.

Maybe so, but that’s like saying Microsoft is threatened by Atari.

Last Spring, Chinese hackers broke into the U.S. General Services Administration’s servers and stole Social Security numbers, fingerprints and other identifying data on about 4 million current and former government employees.

President Obama is incensed about this and is expected to read the riot act to Xi. Given the pervasiveness of the problem, though, even Xi’s best efforts are not going to solve it or even make a dent in it anytime soon.

China also leads the world in counterfeiting of consumer products and intellectual property theft. It accounts for 50% to 80% of all IP theft from the United States, according to the Commission on the Theft of American Intellectual Property.

Since arriving in Seattle on Tuesday, Xi has been getting an earful about this and he’ll get more when he comes to Washington, D.C.  . . .

China recently devalued its currency, the renminbi, against the dollar and that caused the American anti-trade camp to scream bloody murder. They said it was a blatant ploy to make Chinese exports to the U.S. cheaper and U.S. exports to China more expensive. A gazillion American jobs would be lost as a result.

They couldn’t have been more wrong. Xi said in a speech in Seattle on Tuesday that the renminbi had been devalued “in order to stabilize the market and contain panic in the stock market,” not to increase exports. “We are against competitive depreciation or a currency war,” he said. “We will not lower the RMB exchange rate to boost exports.” We should take him at his word.

China’s human rights performance continues to be deplorable, but Xi doesn’t seem willing to acknowledge this. His predecessors, when criticized about human rights violations, usually said: mind your own business. Xi’s rhetoric has not been much of an improvement. In Seattle, he said the government would “ensure that human rights are respected and effectively upheld.” Isn’t that comforting? . . . .

One might expect a meeting between the leaders of the world’s two largest economies to produce some tangible outcomes. Don’t bet on it. More likely, they’ll say they had “frank and fruitful” discussions, made “good progress” (isn’t all progress good?), and agreed on “a way forward.”

Making measurable progress on cyber-attacks and intellectual property theft will take years, maybe decades.

Unlike other heads of state, Xi considers his country to be America’s equal. So, he won’t be cowing to Obama or expressing contrition.

On the bright side, Xi is hell-bent on stamping out corruption in his government. That might be a better reason for hope than anything that might transpire during his two days in Washington.

For full article, see http://www.forbes.com/sites/johnbrinkley/2015/09/25/xi-jinping-in-washington-no-glad-tidings-from-the-east/.

The Brinkley Article was followed by strong US press attacks on the Cyber Agreement between the US and China. On September 26, 2015, the International New York Times in an Editorial stated as follows:

DOUBLE TALK FROM CHINA

The Xi government has a long way to go in protecting the rights of foreign companies and fighting cybercrime. . . .

Chinese officials are believed to be behind some of the .many cyberattacks against American companies and government agencies. Some of these hackers clearly work for the government and are stealing corporate secrets to help Chinese companies, American officials and cybersecurity experts say. Mr Xi’s government denies that it is involved in the attacks.

Aside from cybersecurity issues, the Xi government has also proposed regulations that could make it impossible for American technology companies to operate there. They would be forced to store data about Chinese customers in China and provide the Chinese government backdoor access to their systems and encrypted communications.

Mr. Xi and his officials need to realize that trade and investment has to be a two-way street. Many Chinese firms are trying to expand by acquiring companies, real estate and other assets in the United States and elsewhere. But if the Xi government continues to put up roadblocks to foreign companies, China cannot expect the-rest of the world to open its doors to more investment without reciprocity.

On September 27, 2015, the Wall Street Journal stated in an editorial:

The Obama-Xi Cyber Mirage

A digital arms deal that is full of promises but no enforcement.

Not long before Xi Jinping’s state visit to Washington last week, the Obama Administration leaked that it might sanction Chinese companies and individuals for digitally plundering U.S. trade secrets and intellectual property. That followed an April executive order that declared “significant malicious cyber-enabled activities” to be a “national emergency” punishable by visa bans, asset freezes and other means.

“We’re not going to just stand by while these threats grow,” one Administration official told the Washington Post at the time. “If you think you can just hide behind borders and leap laws and carry out your activities, that’s just not going to be the case.”

Well, never mind. On Friday Presidents Xi and Obama announced a new cyber-agreement that is supposed to put the unpleasantness to rest. A White House fact sheet notes that both sides agreed that “neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.”

Other steps include information exchanges; legal cooperation in investigating cybercrimes “in a manner consistent with their respective national laws”; a “high-level joint dialogue mechanism” with regularly scheduled meetings; a “hotline for the escalation of issues”; and a U.N.-influenced effort to “further identify and promote appropriate norms of state behavior in cyberspace.”

All of this is an elaborate way of saying that the two sides agreed to nothing. Though Mr. Obama hailed the deal for creating “architecture to govern behavior in cyberspace that is enforceable and clear,” it transparently is neither. Mr. Xi still insists that his government “does not engage in theft of commercial secrets in any form,” or encourage Chinese companies to do so, as he told The Wall Street Journal last week. So what’s the problem?

As for enforceability, the line about abiding by “respective national laws” gives the game away. In China the Communist Party is by definition above the law, as are the companies and entities it controls. If Mr. Xi won’t admit to the problem, his minions won’t either. Knowing this, U.S. officials will also be reluctant to disclose much of what they know about Chinese cyber-espionage abuses lest they compromise U.S. sources and methods.

All of this means the Chinese are unlikely to be deterred from engaging in the kind of cybertheft that has served them so well, such as the 2007 hack of one of the military contractors building the F-35 fighter jet, which allowed the Chinese to develop the copycat J-20 and J-31 stealth planes. Other victims of suspected Chinese cyberespionage include Canada’s once-giant Nortel Networks, which was driven into bankruptcy in 2009 partly due to the hacking, as well as media companies like Bloomberg and this newspaper.

The agreement gives Mr. Xi the opportunity to play the diplomatic games China has specialized in for years regarding the South China Sea, known to Beijing-watchers as “talk and take.” In the South China version, Beijing has become adept at negotiating endlessly with its Asian neighbors over disputed claims and codes of conduct—all while seizing control of disputed reefs, building islands, and interfering in maritime traffic. To adapt Clausewitz, diplomacy for the Chinese is the continuation of cyberespionage by other means.

The agreement also ignores China’s cyberassaults on U.S. government targets, such as last year’s mega-hack of the Office of Personnel Management. Washington may have good reasons not to codify principles that would prohibit the U.S. from responding to such an attack, but if so it would be good to know if the Administration is forgiving the OPM hack.

In his press conference with Mr. Xi, Mr. Obama said the U.S. would use sanctions and “whatever other tools we have in our tool kit to go after cybercriminals, either retrospectively or prospectively.” But nearly seven years into his Presidency, Mr. Obama isn’t famous for follow through.

The cyber accord looks like another case of Mr. Obama claiming an imaginary moral high ground that sounds tough but is likely to be unenforceable. Expect more digital theft until Beijing pays a price for it, presumably in a future U.S. Administration.

But on September 29, 2015, in response to specific questions from Senator Manchin in the Senate Armed Services Committee, James R. Clapper, Director of National Intelligence, testified that China cyber- attacks to obtain information on weapon systems are not cyber- crime. It is cyber espionage, which the United States itself engages in. As Dr. Clapper stated both countries, including the United States, engage in cyber espionage and “we are pretty good at it.” Dr. Clapper went on to state that “people in glass houses” shouldn’t throw stones. See http://www.armed-services.senate.gov/hearings/15-09-29-united-states-cybersecurity-policy-and-threats at 1 hour 8 minutes to 10 minutes.

In response to a question from Senator Ayotte, Director Clapper also specifically admitted that the attack on OPM and theft of US government employee data is state espionage and not commercial activity, which the US also engages in. See above hearing at 1 hour 18 and 19 minutes. This illustrates the hypocrisy of much of the political attacks on China regarding cyber-attack on OPM, which are based on incorrect definitions as set down by the US government itself.

Senator McCain stated that he was astonished by Director Clapper’s statements. What is astonishing is the at Senior Senators, such as John McCain, which have engaged in relentless attacks on China, do not know the specific policy of the United States government.

During the same hearing, in response to questions from Senator Hirano of Hawaii, Administration officials stated that the Cyber Agreement with China will be very helpful if the Chinese government live up to it. As Senator Hirano stated, now we have an agreement between the US and China to talk about it. The officials stated that the Agreement is a confidence building measure because it requires annual meetings at the very high ministerial level between the United States and China at which the US Attorney General and Head of Homeland Security will participate. In other words, according to Administration officials this is a good first step.

What does this mean? It means that the US government never asked China for a comprehensive agreement to stop cyber hacking, because the US government is engaged in cyber espionage too and “we are pretty good at it. . . . People in glass houses…”. The US government may have already hacked the Chinese government and obtained all the personal information on their government workers. We simply do not and cannot know.

But more importantly, the US government did not request the Chinese government to agree to stop all cyber-attacks on the US government. What the US Government did demand on the threat of economic sanctions was for the Chinese government to stop cyber-attacks on commercial interests, including the theft of intellectual property. The Chinese government agreed, not only because of the threats of economic sanctions but also because they realize how important the US China economic/trade relationship is for China, the Chinese people and the entire World. This Agreement is not just a President Xi face saving gesture. The Chinese government and people understand how important the US China economic relationship is, even if many in the US Congress and US government do not understand the reality of the situation.

What did the Chinese government specifically agree to do on Cyber crime?

As the attached September 25, 2015 White House Fact Sheet Press related to President Xi’s visit,FACT SHEET_ President Xi Jinping’s State Visit to the United States _ whiteh , states:

FACT SHEET: President Xi Jinping’s State Visit to the United States

On September 24-25, 2015, President Barack Obama hosted President Xi Jinping of China for a State visit. The two heads of state exchanged views on a range of global, regional, and bilateral subjects. President Obama and President Xi agreed to work together to constructively manage our differences and decided to expand and deepen cooperation in the following areas: . . .

  • Cybersecurity

The United States and China agree that timely responses should be provided to requests for information and assistance concerning malicious cyber activities. Further, both sides agree to cooperate, in a manner consistent with their respective national laws and relevant international obligations, with requests to investigate cybercrimes, collect electronic
evidence, and mitigate malicious cyber activity emanating from their territory. Both sides also agree to provide updates on the status and results of those investigation to the other side, as appropriate.

o The United States and China agree that neither country’s government will conduct or knowingly support cyber-enabled theft of intellectual property, including trade secrets or other confidential business information, with the intent of providing competitive advantages to companies or commercial sectors.

o Both sides are committed to making common effort to further identify and promote appropriate norms of state behavior in cyberspace within the international community. The United States and China welcome the July 2015 report of the UN Group of Governmental Experts in the Field of Information and Telecommunications in the Context of
International security, which addresses norms of behavior and other crucial issues for international security in cyberspace. The two sides also agree to create a senior experts group for further discussions on this topic.

o The United States and China agree to establish a high-level joint dialogue mechanism on fighting cybercrime and related issues. China will designate an official at the ministerial level to be the lead and the Ministry of Public Security, Ministry of State Security, Ministry of Justice, and the State Internet and Information Office will participate in the dialogue. The U.S. Secretary of Homeland Security and the U.S. Attorney General will co-chair the dialogue, with participation from representatives
from the Federal Bureau of Investigation, the U.S. Intelligence Community and other agencies, for the United States. This mechanism will be used to review the timeliness and quality of responses to requests for information and assistance with respect to malicious cyber activity of concern identified by either side. As part of this mechanism, both sides agree to establish a hotline for the escalation of issues that may arise in the course of responding to such requests. Finally, both sides agree that the first
meeting of this dialogue will be held by the end of 2015, and will occur twice per year thereafter.

The fact sheet lists other very important areas for further cooperation and discussion, including Nuclear Security, Strengthening Development Cooperation, 2030 Agenda for Sustainable Development. Food Security, Public Health and Global Health Security, and Humanitarian Assistance and Disaster Response. In addition, with regards to Strengthening Bilateral Relations, China and the United States agreed specifically with regard to Military Relations:

Building on the two Memoranda of Understanding on Confidence Building Measures (CBMs) signed by the United States and China in November 2014, the two sides completed new annexes on air-to-air safety and crisis communications. The two sides committed to continue discussions on additional annexes to the Notification of Major Military Activities CBM, with the United States prioritizing completion of a mechanism for informing the other party of ballistic missile launches. The U.S. Coast Guard and the China Coast Guard have committed to pursue an arrangement whose intended purpose is equivalent to the Rules of Behavior Confidence Building Measure annex on surface-to-surface encounters in the November 2014 Memorandum of Understanding between the United States Department of Defense and the People’s Republic of China Ministry of National Defense.

In other words, in distinct contrast to Russia, the Chinese government agreed to hold periodic high level meetings at the ministerial level to discuss cyber- crime and military issues with the United States. Does this sound like a country that wants to invade other countries and follow Vladimir Putin in a military expansion?

EXIM BANK MAY RISE FROM THE DEAD THROUGH AN EXTRAORDINARY MEASURE IN THE HOUSE OF REPRESENTATIVES

On October 9, 2015, Republican House Members took a drastic measure filing a discharge petition to fast-track the EX-Im Bank bill to the floor of the US House. The EX-Im Bank provides export financing and credit terms to help US companies export products to other countries. The help provided by the EX-Im Bank is mirrored by export financing and credit terms provided by numerous foreign countries, including the EC, Japan, Korea and China.

To save the Ex-Im Bank, 50 Republicans in the House joined with almost the entire Democratic Caucus to file the discharge petition. This rarely used procedural mechanism allows Representatives in the House to bypass both committees and the leadership to call up legislation signed by a majority of the House. This is procedural measure in the House that was last executed 13 years ago and only five times in the last eight decades.

Congressman Denny Heck of Washington State that led the charge on the Democratic side and is a member of the New Democratic Coalition stated, “This is a once-in-a-generation thing.”

Since 218 members signed the petition, that means a majority of Congressmen support the bill and it should pass on October 26.

Once the Bill passes the House, however, it still has to jump over hurdles in the Senate, which has no equivalent process to quickly force a vote in the upper chamber. Although some have speculated that the Senate will not bring up the bill because Republican Senate Majority leader Mitch McConnell does not personally support the bill, McConnell has also stated that he knows that a majority of the Senators that support the Ex-Im Bank have the votes to pass the bill. In fact, the passage of the TPA through the Senate happened only because Washington State Democratic Senators Patty Murray and Maria Cantwell along with Republican Senator Lindsay Graham obtained an agreement from Mitch McConnell for a vote on the Senate floor on Ex-Im bank in exchange for their vote on TPA. Once bipartisan majorities are established in both the House and Senate, final passage should be only a matter of time.

The broader significance of the move is that dozens of House Republicans dared to try it at all and push back the conservative Republicans, who for purist free market ideological reasons have blocked the EX-Im bank.

The little-known lending agency has long supported U.S. jobs by helping companies find markets overseas, but conservatives have turned its demise into a rallying cry against corporate welfare. Jeb Hensarling, the Republican chairman of the Financial Services and Ohio Congressman, has made it a personal mission to kill the bank.

As the three Republican members that led the discharge movement, Stephen Fincher, R-Tenn., Adam Kinzinger, R-Ill., and Chris Collins, R-N.Y., stated that they simply had no choice but to pursue the drastic parliamentary move:

“This Republican-led petition is a procedure to stand up to Washington’s broken system that is killing thousands of American jobs and jeopardizing thousands more. Our constituents expect us to fight for them and get the job done, but Congress has failed to even hold a vote to reform and reauthorize the Ex-Im Bank.”

Republican and Democratic Representatives have been under intense pressure from business groups complaining that the expiration of the bank’s charter has resulted in job losses for companies big and small.

It is ironic that a Congressman from Ohio, which is hurting for manufacturing and other jobs, is the one leading the charge to stop the Ex-Im Bank, which will result in thousands of jobs leaving the United States.

Because of the failure to authorize the Ex-IM Bank and its U.S.-based export credit financing, General Electric Co. stated that it would be forced to move 500 turbine manufacturing jobs to China and Europe. The failure to reauthorize the Ex-Im Bank may also explain Boeing’s recent announcement to assemble airplanes in Tianjin, China.

Ideological purity, just like protectionism, destroys jobs in the United States. Just because a Conservative minority with an ideological purity agenda decides the United States should not provide such export financing does not mean that the EC, China, India, Japan, Korea and other countries will make the same decision. A decision not to authorize the Ex-Im Bank simply makes the United States not competitive with other countries. Just as US companies must meet the challenges of global competition so must the United States Government.

TRADE

WTO GIVES UNITED STATES DEADLINE TO SOLVE CVD PROBLEM IN MANY CASES AGAINST CHINA

On October 9, 2015, the World Trade Organization (“WTO”) gave the US government an April 1, 2016 deadline to comply with a WTO decision overturning 17 US countervailing duty determinations against China, including cases against Solar Cells and Solar Products, Wind Towers, Oil Country Tubular Goods, and other Steel cases. The Arbitrator specifically stated:

In the light of the … considerations relating to the quantitative and qualitative aspects of implementation in the present case, and the margin of flexibility available to the implementing member within its legal system, the arbitrator considers that the particular circumstances of this case justify a reasonable period of time for implementation close to the 15-month guideline.

The WTO overturned the Commerce Department CVD decisions on several grounds, but one of the more important was the decision/presumption that Chinese state-owned companies enterprises are “public bodies” under WTO rules. Therefore, according to Commerce, when a Chinese company purchases a raw material input from such state-owned company, by definition the product is subsidized. In contrast, the WTO ruled that the key criterion for evaluating public bodies is not state ownership but whether the entities in question have the authority to carry out governmental functions.

The WTO panel decision in its July 2014 decision found the US Commerce Department in violation of the Subsidies Agreement based on several different principles, including State-Owned Companies and the failure to consider benchmarks in China to value the subsidy. The US appealed, but the WTO Appellate Panel not only affirmed the panel report, but found many other problems with the Commerce Department determinations

On determining the time for Commerce to comply with the WTO determinations, the WTO arbitrator did not have much sympathy for the Commerce Department argument that it should be given more time to comply with the determination, stating:

It is to be recalled that the implementing member is expected to use all available flexibilities within its legal system to ensure ‘prompt compliance’ with the DSB’s recommendations and rulings. Prioritizing these investigations reflects the exercise of a flexibility that is available to the USDOC and which it is expected to utilize.

THE ONGOING STEEL CASES

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

THE OCTG STEEL STORY — COURT OF INTERNATIONAL TRADE OVERTURNS COMMERCE OCTG DETERMINATION AGAINST KOREA

One of the more interesting cases is the appeal of the Commerce Department’s determination against Korea in the Oil Country Tubular Goods (“OCTG”) case. The OCTG story starts with the US OCTG industry along with the union bringing an antidumping case against China. Since Commerce does not real use real numbers in China cases, it was easy to wipe out $4 billion in Chinese imports by using import statistics in India as surrogate values and coming up with rates ranging from 32 to almost 100%. The Chinese left the US market because of the artificial antidumping rates.

The US Steel Industry and the Union assumed that US companies would get the Chinese tonnage that was blocked by the Commerce Department order and, of course, that is not what happened. Instead, OCTG producers in Korea, India, Taiwan, Philippines, Saudi Arabia, Ukraine, Thailand and Turkey replaced the Chinese. Saying that this was unfair and accusing the other companies of dumping, in 2013 the US OCTG industry and Steel Union brought another round of antidumping and countervailing duty cases against these countries.

But since the countries are market economy countries, the Commerce Department had to use real prices and costs in the countries in question to determine whether dumping is taking place. So what were the Antidumping rates in the attached February 2014 preliminary determination fact sheet, OCTG PRELIMINARY AD DETERMINATION FACT SHEET,  in the new round of OCTG cases—Korea 0%, India 0% for the company that cooperated, Philippines 8.9%, Saudi Arabia 2.92%, Taiwan 0 and 2.65%, Thailand 118% because they did not cooperate, Turkey 0% and 4.87%, Ukraine 5.31%, and Vietnam 9.57%.

The OCTG case against Korea, in particular, was a very difficult problem for the US Steel industry and Union because if the 0% Korean Preliminary Determination had remained, no antidumping order would be issued against Korean OCTG and they would have been free to continue shipping substantial quantities to the US market. Moreover, the Korean producers were the ones that took most of the Chinese market share.

In looking at these rates, however, one has to keep these cases in perspective. The first OCTG case against Korea was filed in 1983 to 1984. How do I know, because the first OCTG cases were my cases as a line attorney at the US International Trade Commission. The point is that market economy companies can use computer programs to run their prices and costs and make sure they are not dumping and “dump proof” the company. Since the Korean steel companies know that they will be targeted with these cases, this is just what they did.

This is not gaming the system. The Antidumping and Countervailing are unfair trade statues, and the companies simply eliminated their unfair acts.

As a result of the February 2014 preliminary determinations, predictably the US OCTG Industry and Union were outraged and went to Congress. On June 25, 2014 at a hearing in front of the Senate Finance Committee, the most powerful trade committee in the US Congress, the Industry and Union screamed about unfairness. See http://www.finance.senate.gov/hearings/hearing/?id=e2227102-5056-a032-5262-9d177c5f753f Move the buffering slider to minute 41 when the hearing starts. There is a recess in the hearing so you need to move the buffering slider to 1 hour 47 minutes when the hearing resumes.

During the Senate Finance Committee hearing, Senators called for aggressive trade enforcement in antidumping and countervailing duty cases, including Steel and in particular Oil Country Tubular Goods (“OCTG”), and against China. The Senators described the importance of the legislation they have introduced to stop transshipment and make sure that antidumping and countervailing duty laws are enforced.

The two most prominent witnesses at the Senate Finance Committee were Leo Gerard, International President of the United Steel Workers, and Mario Longhi, President of the United States Steel Corporation. Mr. Gerard proudly claimed at the hearing that the USW has brought antidumping and countervailing duty cases blocking billions of dollars in imports from China.

The hearing was stacked with US producers and a union complaining about China and other countries. No US importers were allowed to testify and present the other side of the argument. When Congress decides to listen to only one side of the trade argument, there is no fair and balanced portrayal of trade problems. The trade war simply gets worse and everyone loses.

At the hearing, Leo W. Gerard, International President, United Steelworkers (“USW”), stated:

USW members and non-union workers alike know firsthand the pain inflicted by foreign predatory, protectionist and unfair trade practices. In industry after industry, they have seen other nations target the U.S. market to fuel their own economic policies, to create jobs for their people and capture the dollars of our consumers. These practices have increasingly resulted in the downsizing of manufacturing and the loss of good family supportive jobs, as companies have offshored and outsourced their production.

The USW has been as successful as it can be in its efforts to counter unfair trade, but it’s a losing game. Indeed, the only way we win is by losing. Lost profits, lost jobs, closed factories, hollowed out communities – that is the price the trade laws demand to show sufficient injury to provide relief. In the year or more it takes to bring a trade case and obtain relief, foreign companies can continue to flood the market. By the time that relief may be provided, the industry is often a shadow of its former self, too many workers have lost their jobs and their families and the communities in which they live have paid a heavy, and often irrevocable, price. . . .

First, as many of the Members of the Committee know, the USW is fighting to ensure that the Department of Commerce carefully review the facts in the Oil Country Tubular Goods (OCTG) case in which they issued a preliminary finding that imports from South Korea would not be subject to dumping margins. We believe this preliminary finding is flawed. Indeed, Senators sent a letter to the Administration asking for a careful review and that effort was mirrored by more than one-third of the House joining in that call. . . .

The second issue, and a critical one, is the issue of currency manipulation. China is the worst culprit, but other nations are following their lead. China has been able to essentially subsidize its exports and tax imports into its market through currency cheating.

Mario Longhi, President, United States Steel Corporation, stated:

. . . . The approach and manner in which foreign companies are dumping thousands of tons of products into the U.S. market leads business leaders such as me to conclude that American steel companies are being targeted for elimination. . . .

Let me illustrate for you how this harm occurs. . . . A year ago, U. S. Steel and other domestic Oil Country Tubular Goods (OCTG) producers filed a trade case against nine countries based on the enormous 113-percent increase of imported OCTG products into this market between 2010-2012. Primarily South Korean companies are the main violators, but companies from India, Vietnam, Turkey and several other countries also dump very significant volumes. . . .

China tried to do the same thing in 2008. We fought and won an OCTG dumping case in 2009, but not before many facilities were idled, thousands of steelworkers lost their jobs, and our communities and our families sustained significant and long-lasting injury.

After we won the case, Chinese producers essentially abandoned the U.S. OCTG market, a clear sign that they could not compete when the playing field was leveled.

As the American economy and our energy demands rebounded, American steel companies spent billions of dollars to improve OCTG facilities across the country. In the past 5 years, U. S. Steel spent more than $2.1 billion across our facilities, $200 million on new facilities at our Lorain Tubular Operations in the last two years alone. However, the respite for the OCTG industry from illegally dumped products was short-lived. Foreign producers quickly seized this opportunity and began flooding our market.

The only difference between 2009 and today is that South Korean and other foreign OCTG producers are cleverer. South Korean companies are effectively targeting our market since they do not sell this product in their own home market or (in substantial volumes) to other nation. Over 98% of what is produced in South Korea is exported directly to the U.S.

Earlier this year, the Department of Commerce issued disappointing preliminary findings that failed to recognize and punish illegally dumped South Korean products. After decades of dumping practice, it appears that these companies have learned to circumvent our trade laws and illegally dump massive amounts of steel products in this market with ease and agility.

So it is not surprising that in advance of the impending final decision by the Department of Commerce, last month, the total OCTG imports hit a high of 431,866 net tons, a 77.4% percent change year/year. The South Koreans exported to the U.S. nearly 214,000 net tons of OCTG in May, an increase from the monthly average of 27,000 net tons in the prior 12 months. They are trying to dump as much product as they can before the final ruling.

The South Korean gamesmanship of our system of laws is disquieting. Their efforts are unchecked and repugnantly effective. . . .

So with enormous Congressional pressure on Commerce, in the final determination the rates for the Korean companies went to 9 to 15%. The only problem for US Steel and the Unions is that Commerce Department determinations can be appealed to the Court of International Trade. It is now clear that the only one who gamed the US trade laws was US Steel itself.

In the attached final determination, factsheet-multiple-octg-ad-cvd-final-071114, to push Korean antidumping rate up, instead of using the actual lower profit rates for Korean OCTG producers and Korean sales of other comparable steel products of about 5 to 6%, which Commerce used in the preliminary determination, Commerce used a 26.11% profit for Tenaris, SA (Tenaris), an Argentinian global producer and seller of OCTG, as described in a research paper prepared by a student at the University of Iowa School of Management. Sounds reasonable right?

On September 2, 2015, in the attached Hu Steel v. United States and US Steel et al., CIT KOREA OCTG, Judge Restani in the Court of International Trade reversed the Commerce Department’s determination in the OCTG from Korea case. Judge Restani first noted:

When using constructed value to calculate the normal value, the constructed value is to include “the actual amounts incurred and realized by the specific exporter or producer being examined . . . for selling, general, and administrative expenses, and for profits, in connection with the production and sale of a foreign like product, in the ordinary course of trade, for consumption in the foreign country.” 19 U.S.C. § 1677b(e)(2)(A). If such data is unavailable, however, Commerce must resort to one of three alternatives for calculating an appropriate amount for selling, general, and administrative expenses, and profits:

(i) the actual amounts incurred and realized by the specific exporter or producer being examined in the investigation or review for selling, general, and administrative expenses, and for profits, in connection with the production and sale, for consumption in the foreign country, of merchandise that is in the same general category of products as the subject merchandise,

(ii) the weighted average of the actual amounts incurred and realized by exporters or producers that are subject to the investigation or review (other than the exporter or producer described in clause (i)) for selling, general, and administrative expenses, and for profits, in connection with the production and sale of a foreign like product, in the ordinary course of trade, for consumption in the foreign country,
or

(iii) the amounts incurred and realized for selling, general, and administrative expenses, and for profits, based on any other reasonable method, except that the amount allowed for profit may not exceed the amount normally realized by exporters or producers (other than the exporter or producer described in clause (i)) in connection with the sale, for consumption in the foreign country, of merchandise that is in the same general category of products as the subject merchandise, [i.e., what is commonly referred to as the “profit cap.”] . . . .

For the Preliminary Determination, Commerce considered three possible options for CV profit: . . . “[(1)] the 5.3% profit reflected in the audited financial statements for seven Korean OCTG producers, [(2)] the profit earned by HYSCO on its home market sales of non-OCTG pipe products, and [(3)] the 26.11% profit for Tenaris, SA (Tenaris), an Argentinian global producer and seller of OCTG,” as described in a research paper prepared by a student at the University of Iowa School of Management.

The Court noted that the domestic industry’s petition itself used a profit number of 7.19 and 7.22%

Judge Restani went to state that US Steel, in effect, gamed the system because it submitted the Tenaris number in the Iowa Student study after the preliminary determination during the final investigation in such a way that the Korean producers could not provide alternative evidence to rebut the Tenaris number:

In conclusion, the court determines that this was not a simple technical violation that can be overlooked, but rather plaintiffs were substantially prejudiced by Commerce’s acceptance and use of U.S. Steel’s untimely submitted new factual information. On remand, Commerce may simply remove this information from the record and reconsider its CV profit determination based on the information that was submitted in accordance with the regulatory deadlines.

Alternatively, Commerce must determine if and how, at this late date, the prejudice caused by accepting the Tenaris financial statement in violation of the regulations can be rectified.

In a footnote, Judge Restani also stated:

Moreover, this appears to be the first time that Commerce had relied upon a CV profit source that was not based on either production or sales in the home market. . . . The court recognizes that Commerce might have legitimate justifications for this departure, but it does not change the fact that Commerce used data that was submitted late to come to a conclusion that was seemingly at odds with its prior practice, with the result being a large increase in the respondents’ dumping margins sufficient to support an order. This is a make or break issue and Commerce should do its utmost to be fair in such circumstances.

Finally Judge Restani also reversed the Commerce Department because it refused to consider the “Profit Cap” in the statute which limits the profit amount so as not to “exceed the amount normally realized by exporters or producers (other than the exporter or producer described in clause (i)) in connection with the sale, for consumption in the foreign country . . . .” Judge Restani stated:

Even when the record evidence is deficient for the purposes of calculating the profit cap, Commerce must attempt to calculate a profit cap based on the facts otherwise available, and it may dispense with the profit cap entirely only if it provides an adequate explanation as to why the available data would render any cap based on facts available unrepresentative or inaccurate.

The use of an appropriate profit cap seems especially important in this case. The goal in calculating CV profit is to approximate the home market profit experience of the respondents. . . . The profit data imbedded in Tenaris’s financial statement does not appear to be based on any sales or production in Korea. It therefore appears to be a relatively poor surrogate for the home market experience. Additionally, record evidence suggests that Tenaris is a massive producer of OCTG with production and associated services around the world. . . . Record evidence also suggests that Tenaris’s profits are among the highest in the world and that this profit figure is due in large part to Tenaris’s sales of unique, high-end OCTG products and global services. . . .

The Korean producers, on the other hand, appear to be rather modest in comparison, both in the size of their operations and in the products and services they offer. . . . As Commerce recognized in the preamble to its own regulations, “the sales used as the basis for CV profit should not lead to irrational or unrepresentative results.” . . . It appears that dispensing with the profit cap requirement entirely in this case could run the risk that the CV profit rate will be unrepresentative of the respondents’ expected home market experience.

This case is a major defeat for the US Steel industry. We still have to wait and see what Commerce does on remand but if they do what they did in the original preliminary determination, the antidumping order will be lifted on OCTG from Korea.

WELDED LINE PIPE FROM KOREA AND TURKEY

On October , 2015, in the attached fact sheet, factsheet-multiple-welded-line-pipe-ad-cvd-final-100615, the Commerce Department announced the preliminary determination in Welded Line Pipe from Korea and Turkey. The Antidumping rates for the Korean companies range from 2.53% to 6.19%. The antidumping rates for Turkey range from 6 to 22.9%.

Commerce also terminated the Countervailing Duty investigation against Korea because it found the subsidies were de minimis.

COLD ROLLED STEEL PRODUCTS FROM BRAZIL, CHINA, INDIA, JAPAN, KOREA, RUSSIA AND UNITED KINGDOM

On September 10, 2015, the US International Trade Commission (“ITC”) issued a preliminary affirmative injury determination and now the case continues at the Commerce Department.

OTHER TRADE CASES AGAINST CHINA

ACTIVATED CARBON

On October 2, 2015, the Commerce Department issued the attached final determination in the 2013 to 2014 antidumping review investigation. Activated Carbon 13-14 AR Decision Memo Final Results AD AR 10-2-15 Activated Carbon 13-14 AR Final Results AD AR 10-5-15 The Antidumping Rates range from 0% to $1.05 a kilogram and increased because Commerce switched surrogate countries from Philippines to Thailand.

SOLAR CELLS

Although there are rumbles of possible negotiations of a US China agreement on Solar Cells and Solar Product, there is no concrete evidence of an actual agreement yet.

As stated before, the real victims of US China Trade War and Antidumping and Countervailing Duty cases are upstream and downstream US producers. Of the approximately 130 antidumping and countervailing duty orders against China, approximately 80 of them are raw material inputs, such as chemicals, metals and steel.

In the Solar Cells/Solar Products case, the real victims are the upstream producers, world class US producers of polysilicon, which goes into Chinese and other solar cells. Because, as President Reagan predicted, China reacted to the US Solar Cells/Solar Products cases by bringing their own case against $2 billion in US exports of polysilicon, major US producers, such Dow and REC Silicon, are in serious trouble.

On September 23, 2015, the Montana Standard reported that REC Silicon in Moses Lake, Washington may have to close its production facility:

REC Silicon — which has a production plant near Butte — could lay off 400 workers at its plant in Moses Lake, Washington, if a snarl over Chinese-imposed tariffs isn’t resolved soon.

It’s unclear exactly how the Moses Lake layoff would affect the Butte REC plant, which employs 260 full-time workers about five miles southwest of town. But a company spokeswoman said Moses Lake will “likely” suffer the majority of cuts, if it comes to that.

The potential cuts — and possible shut-down of the Moses Lake plant — are due to a four-year solar trade dispute between China and the United States.

In the Article, Francine Sullivan, REC counsel and vice president of legal and business development, stated:

There are no confirmed layoffs in Butte. “It’s not a shut-down notice, but if the trade case continues, we may be forced to close down Moses Lake. We haven’t made a final decision about Moses Lake. . . . putting the Moses Lake plant at risk because 80 percent of the plant’s polysilicon goes to customers in China.

Tore Torvund, REC Silicon CEO stated that they were looking for a US China Solar agreement every day:

We are at a critical juncture. We are looking at this every day. If we can’t get a resolution in the short term, we will be faced with this tough decision.”

Sullivan further stated:

It’s logical that most of the costs will come out of Moses Lake. We’ll look to do anything we can to keep the plant alive.

BOLTLESS STEEL SHELVING

On October 21, 2015, Commerce published in the Federal Register the attached antidumping and countervailing duty orders in the Boltless Steel Shelving Units from China case, STEEL SHELVING AD ORDER STEEL SHELVING CVD ORDER.

PET RESIN FROM CHINA

In the attached fact sheet, PET RESIN PRELIM CHINA, the Commerce Department issued a preliminary determination in Certain Polyethylene Terephthalate Resin from China and a number of other countries. Although the antidumping rates for the other countries were in the single digits, based on surrogate values from import statistics in Thailand, the Commerce Department found antidumping rates ranging from 125.12 to 145.94% for the Chinese companies.

In deciding to use Thailand as the surrogate country, Commerce looked at a list of the following potential surrogate countries: Bulgaria, Ecuador, Romania, South Africa, Thailand, and Ukraine.

OCTOBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On October 1, 2015, Commerce published the attached Federal Register notice, OCT REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Barium Carbonate, Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers.

For those US import companies that imported Barium Carbonate, Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers from China during the antidumping period October 1, 2014-September 30, 2015 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. In the recent Solar Cells 2012-2013 final review determination, for example, the following Chinese companies were determined to no longer be eligible for a separate antidumping rate and to have the PRC antidumping rate of 238.95%:

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

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On July 30, 2015, OFAC issued an Advisory, entitled “Obfuscation of Critical Information in Financial and Trade Transactions Involving the Crimea Region of Ukraine,” to call attention to practices that have been used to circumvent or evade the Crimean sanctions. While billed as an “Advisory,” the agency’s release stands as a warning to the financial services and international trade sectors of their obligation to implement adequate controls to guard against such evasive practices and ensure compliance with their obligations under the Crimean sanctions.

On May 21, 2015, the Commerce Department filed changes to the export rules to allow unlicensed delivery of Internet technology to Crimea region of Ukraine, saying the change will allow the Crimean people to reclaim the narrative of daily life from their Russian occupants. Under a final rule, which is attached to my blog, www.uschinatradewar.com, individuals and companies may deliver source code and technology for “instant messaging, chat and email, social networking” and other programs to the region without first retaining a license from the federal government, according to Commerce’s Bureau of Industry and Security.

Commerce stated:

“Facilitating such Internet-based communication with the people located in the Crimea region of Ukraine is in the United States’ national security and foreign policy interests because it helps the people of the Crimea region of Ukraine communicate with the outside world.”

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached to my blog are copies of the PowerPoint or the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. In addition, the blog describes the various sanctions in effect against Russia.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank. The “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions can be found at www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx.

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which is attached to my blog, which President Obama signed into law on December 19, 2014. Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

“At this time, the Administration does not intend to impose sanctions under this law, but the Act gives the Administration additional authorities that could be utilized, if circumstances warranted.”

The law provides additional military and economic assistance to Ukraine. According to the White House, instead of pursuing further sanctions under the law, the administration plans to continue collaborating with its allies to respond to developments in Ukraine and adjust its sanctions based on Russia’s actions. Apparently the Administration wants its sanctions to parallel those of the EU. As President Obama stated:

“We again call on Russia to end its occupation and attempted annexation of Crimea, cease support to separatists in eastern Ukraine, and implement the obligations it signed up to under the Minsk agreements.”

Russia, however responded in defiance with President Putin blasting the sanctions and a December 20th Russian ministry statement spoke of possible retaliation.

One day after signing this bill into law, the President issued an Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (the “Crimea-related Executive Order”). President Obama described the new sanctions in a letter issued by the White House as blocking:

New investments by U.S. persons in the Crimea region of Ukraine

Importation of goods, services, or technology into the United States from the Crimea region of Ukraine

Exportation, re-exportation, sale, or supply of goods, services, or technology from the United States or by a U.S. person to the Crimea region of Ukraine

The facilitation of any such transactions.

The Crimea-related Executive Order also contains a complicated asset-blocking feature. Pursuant to this order, property and interests in property of any person may be blocked if determined by the Secretary of the Treasury, in consultation with the Secretary of State, that the person is operating in Crimea or involved in other activity in Crimea.

The EU has also issued sanctions prohibiting imports of goods originating in Crimea or Sevastopol, and providing financing or financial assistance, as well as insurance and reinsurance related to the import of such goods. In addition, the EU is blocking all foreign investment in Crimea or Sevastopol.

Thus any US, Canadian or EU party involved in commercial dealings with parties in Crimea or Sevastopol must undertake substantial due diligence to make sure that no regulations in the US or EU are being violated.

CUSTOMS, LACEY ACT VIOLATIONS AND PRODUCTS LIABILITY

JUSTICE DEPARTMENT ANNOUNCES THAT LUMBER LIQUIDATORS PLEADS GUILTY TO CUSTOMS AND LACEY ACT VIOLATIONS AND AGREES TO PAY MORE THAN $13 MILLION IN FINES

On October 22, 2015, the Justice Department announced that Lumber Liquidators has pled guilty to a felony conviction for import of illegal timber from China and agreed to pay at $13 million penalty, the largest fine ever under the Lacey Act. In the attached announcement, Lumber Liquidators Inc. Pleads Guilty to Environmental Crimes and Agrees to, the Justice Department states:

Virginia-based hardwood flooring retailer Lumber Liquidators Inc. pleaded guilty today in federal court in Norfolk, Virginia, to environmental crimes related to its illegal importation of hardwood flooring, much of which was manufactured in China from timber that had been illegally logged in far eastern Russia, in the habitat of the last remaining Siberian tigers and Amur leopards in the world. . . .

Lumber Liquidators was charged earlier this month in the Eastern District of Virginia with one felony count of importing goods through false statements and four misdemeanor violations of the Lacey Act, which makes it a crime to import timber that was taken in violation of the laws of a foreign country and to transport falsely-labeled timber across international borders into the United States. The charges describe Lumber Liquidators’ use of timber that was illegally logged in Far East Russia, as well as false statements on Lacey Act declarations which obfuscated the true species and source of the timber. This is the first felony conviction related to the import or use of illegal timber and the largest criminal fine ever under the Lacey Act.

“Lumber Liquidators’ race to profit resulted in the plundering of forests and wildlife habitat that, if continued, could spell the end of the Siberian tiger,” said Assistant Attorney General John C. Cruden for the Justice Department’s Environment and Natural Resources Division. “Lumber Liquidators knew it had a duty to follow the law, and instead it flouted the letter and spirit of the Lacey Act, ignoring its own red flags that its products likely came from illegally harvested timber, all at the expense of law abiding competitors. Under this plea agreement, Lumber Liquidators will pay a multi-million dollar penalty, forfeit millions in assets, and must adhere to a rigorous compliance program. We hope this sends a strong message that we will not tolerate such abuses of U.S. laws that protect and preserve the world’s endangered plant and animal species.” . . .

“Companies knowingly accepting illegally sourced materials need to recognize there are far-reaching consequences to their actions,” said Special Agent in Charge Clark E. Settles of U.S. Immigration and Customs Enforcement’s (ICE) Homeland Security Investigations (HSI) Washington, D.C. “In this case, in addition to violating U.S. customs law, Lumber Liquidators contributed to the potential eradication of an endangered species simply to increase profit margins.” . . . .

According to a joint statement of facts filed with the court, from 2010 to 2013, Lumber Liquidators repeatedly failed to follow its own internal procedures and failed to take action on self-identified “red flags.” Those red flags included imports from high risk countries, imports of high risk species, imports from suppliers who were unable to provide documentation of legal harvest and imports from suppliers who provided false information about their products. Despite internal warnings of risk and noncompliance, very little changed at Lumber Liquidators.

For example, Lumber Liquidators employees were aware that timber from the Russian Far East was considered, within the flooring industry and within Lumber Liquidators, to carry a high risk of being illegally sourced due to corruption and illegal harvesting in that remote region. Despite the risk of illegality, Lumber Liquidators increased its purchases from Chinese manufacturers using timber sourced in the Russian Far East. . . .

Under the plea agreement, Lumber Liquidators will pay $13.15 million, including $7.8 million in criminal fines, $969,175 in criminal forfeiture and more than $1.23 million in community service payments. Lumber Liquidators has also agreed to a five year term of organizational probation and mandatory implementation of a government-approved environmental compliance plan and independent audits. In addition, the company will pay more than $3.15 million in cash through a related civil forfeiture. The more than $13.15 million dollar penalty is the largest financial penalty for timber trafficking under the Lacey Act and one of the largest Lacey Act penalties ever.

IP/PATENT AND 337 CASES

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

On August 21, 2015, Lusida Rubber Products, Inc. filed the attached trade secret unfair competition case against Point Industrial, LLC, Zu Guo 16 (Michael) Xu, Wei Wei (Jackie). Lusida Shanghai complaint

On August 28, 2015, Willis Electric Co., Ltd. filed the attached patent case against Polygroup Limited (Macao Commercial Offshore), Polygroup Macau Limited (BVI), and Polytree (H.K.) Co. Ltd. POLYGROUP

On September 8, 2015, Blizzard Entertainment, Inc., and Valve Corporation filed the attached copyright case against Lilith Games (Shanghai) Co. Ltd., uCool, Inc., and uCool Ltd. BLIZZARD COPYRIGHT

On September 11, 2015, Segway Inc., Deka Products Limited Partnership and Ninebot (Tianjin_ filed the attached patent complaint against Inventist, Inc. Segway v Inventist complaint

ANTITRUST

There have been developments in the antitrust area.

CHINA ANTI-MONOPOLY CASES

T&D JANUARY REPORT

In September and October T&D also sent us their attached August and September reports on Chinese competition law, T&D Monthly Antitrust Report of August 2015 TD Monthly Antitrust Report of September 2015.

SECURITIES

Securities Update October 2015

Recent Developments in Chinese Reverse Mergers and Corporate Governance

A decade after the heyday of “reverse mergers” of Chinese companies who entered the U.S. securities market through U.S. registered companies, some of these deals are beginning to unravel. There are recent federal enforcement actions and prosecution of some key persons who arranged such deals. The U.S. government alleges that the participants violated U.S. securities law by engaging in practices that misrepresented the actual value of the company’s stocks and personally profiting from such practices.

On September 10, 2015, the U.S. Attorney’s Office in Manhattan announced criminal charges against Benjamin Wey, a New York-based financier.[1] Wey gained a reputation for orchestrating reverse mergers of Chinese companies with publicly traded companies in the United States in order to sell securities in the United States. The charges against Wey include wire fraud, securities fraud, and money laundering. Wey allegedly conspired with family members and a Swiss stock broker to control large blocks of stocks in companies that he helped to engage in reverse mergers from 2007 to 2011. He allegedly manipulated the prices of those stocks in order to sell his shares at a significant profit. U.S. federal agents arrested Wey during a dawn raid on his home, and he posted bail for $10 million, secured in part by his $2 million house.

Also on September 10, 2015, the U.S. Securities and Exchange Commission (SEC) issued an order against Shawn A. Becker, an unlicensed broker who participated in the reverse merger of several Chinese firms (China Auto Logistics Inc., Guanwei Recycling Corp., and Kandi Technologies Corp.).[2] These companies entered the U.S. securities market through an engineered acquisition of a U.S. shell company. Becker allegedly drove up the closing price of the company’s unregistered stocks (a practice called, “marking the close”), in order to induce investors to purchase the stocks from 2009 to 2012.

Becker allegedly profited from the arrangement by taking commission from the sales of the pink-sheet stocks, while the principals of the shell company profited by offloading their shares in the company.[3] Under the terms of Becker’s settlement and the S.E.C. order, he is barred from participating in brokerage activities. In order to apply to engage in brokerage services, he would first need to disgorge profits and satisfy any arbitral awards against him as a result of his activities.

There are also developments involving allegations of corporate misgovernance by some companies. On September 30, 2015, Focus Media of Shanghai, a major Chinese digital display advertising company, agreed to a $55.6 million settlement with the SEC.[4] The U.S. government alleges that Focus Media failed to disclose the fact that the company sold shares in a subsidiary to company insiders at a favorable price several months before they resold these shares to a private equity firm at six times the previous price. The investigation allegedly uncovered deficiencies in the company’s books and records for documentation regarding these transactions. It appears that the circumstances of the transactions may not have been properly disclosed to the company’s board of directors. SEC thus accused Focus Media and its Chief Executive Officer, Jason Jiang, with providing materially inaccurate information to the board of directors regarding the transactions and with failure to maintain books and records as required by securities law. Focus Media agreed to pay $34.6 million in penalties. Jiang agreed to pay $21 million in penalties, disgorgement of profits, and pre-judgment interest. The SEC order further notes that Jiang’s liability is a personal debt that is not dischargeable in bankruptcy.

Like Focus Media, some other companies also face accusations that they did not properly maintain books and records. In a recently filed case in the Delaware Court of Chancery, stockholders allege that China Integrated Energy, a Delaware company that registered its common stock with the SEC in 1999, has failed to make required annual and periodic financial disclosures for the years 2012 through 2015.[5] In 2014, the company filed an annual Form 10-K statement that disclosed the fact that the company’s shares fell from $8.30 per share in 2010 to $0.80 per share in 2011. The plaintiffs seek access to the company’s books and records under Delaware law.

These developments involving Chinese companies in the United States come at a time of increasing regulatory scrutiny of the securities market in China. Because of the recent upheavals in stock prices in China, the Chinese government directly intervened in the markets by prohibiting the sales of stocks by major shareholders who hold more than 5% of common stock in companies for a period of six months. The China Securities Regulatory Commission recently announced eight penalty cases against persons who violated that order, totaling RMB 22 million (U.S. $4.5 million) in fines.[6]

FOREIGN CORRUPT PRACTICES ACT

Recently, Dorsey& Whitney LLP issued its attached September 2015 Anti-Corruption Digest,AntiCorruptionDigestSept2015. The Digest states with regards to China:

China

Continental, the German supplier of automobile parts, is reported to have replaced its tire sales management team in China due to allegations of corruption. The new management, which has been in charge since July, is said not to be commenting on the matter while the investigation is in process.

The matter reportedly involves allegations that members of the previous management team gained financial benefits on a personal level through business deals conducted by the company. Further reports state that the extent to which the former employees allegedly enriched themselves is currently unknown.

SECURITIES COMPLAINTS

On September 29, 2015, Malcolm Cork, Vision Capital Advantage Fund LP, et al filed the attached complaint against China Integrated Energy, Inc. in Delaware Court alleging that the company had failed to make required annual and periodic financial disclosures for the years 2012 through 2015. DELAWARE COMPLAINT CHINA ENERGY

On October 5, 2015, Gary Buelow filed the attached partial class action securities case against Alibaba Group Holding Ltd., Jack Ma and a number of banks and securities companies. BUELOWSMA

On October 9, 2015, Guangyi Xu filed the attached class action securities case against China Cache International Holdings Ltd., Song Wang, Jing An, and Ken Vincent Qingshi Zhang. CHINA CACHE CASE

On October 21, 2015 Rustem Nurlybayev filed the attached partial class action securities case against Alibaba Group Holding Ltd., Jack Ma and a number of banks and security companies. RUSTEMSMALL

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

Best regards,

Bill Perry

[1] B. Van Voris, “New York Global Group’s Wey Charged in Reverse-Merger Fraud,” Bloomberg Business, Sept. 10, 2015, available at http://www.bloomberg.com/news/articles/2015-09-10/new-york-global-group-founder-charged-with-securities-fraud.

[2] In the Matter of Shawn A. Becker, No. 3-16805 (S.E.C. Sept. 10, 2015), available at http://www.sec.gov/litigation/admin/2015/34-75891.pdf.

[3] A. Wolf, “Ex-Stock Broker Sanctioned Over Reverse Merger Scheme,” Law360, Sept. 10, 2015, available at http://www.law360.com/articles/701620/print?section=securities.

[4] E. Beeson, “China’s Focus Media, CEO Settle With SEC For $55.6M,” Law360, Sept. 30, 2015, available at http://www.law360.com/articles/709353/print?section=securities; see In the Matter of Focus Media Holdings, Ltd., No. 3-16852 (S.E.C. Sept. 30, 2015), available at http://www.sec.gov/litigation/admin/2015/33-9933.pdf.

[5] Verified Complaint, Cork v. China Integrated Energy, Inc. (Del. Ch. Ct. Sept. 29, 2015).

[6] A. Rubeinstein, “China Imposes $4.5M In Fines In Illegal Trading Crackdown,” Law360, Sept. 30, 2015, available at http://www.law360.com/articles/709035/print?section=securities.

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE , TAA, 337/IP, ANTITRUST AND SECURITIES

US Capitol South Side Fountain Night Stars Washington DC TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER NOVEMBER 25, 2014

DECEMBER 12, 2014 UPDATE–SOLAR NEGOTIATIONS AND NEW SOLAR ANTIDUMPING AND COUNTERVAILING DUTY CASE IN CANADA

Dear Friends,

On January 21st, I will be speaking at the Brooklyn Law School in New York City on US China Trade Disputes. The invitation to the speech is set forth below.

I look forward to seeing any of my friends at the speech.

Best regards,

Bill Perry

Wednesday, January 21, 2015 * Subotnick Center, 250 Joraelmon Street * Brooklyn Law School

2 FREE CLE credits

Two judges from the US Court of International Trade * partners from two leading law firms handling China trade disputes * professors from four law schools * former chairman of Federal Trade Commission * former congressman focused on US-China trade * former general counsel of MasterCard

REGISTRATION PROGRAM RECEPTION
5:30 PM 6-8 PM 8 PM onward

WELCOME Professor Nicholas W. Allard

Joseph Crea Dean and Professor of Law, Brooklyn Law School

INTRODUCTION

Professor Robin Effron

Co-Director, Dennis J. Block Center for the Study of International Business Law, Brooklyn Law School

FIRST PANEL: PURE TRADE DISPUTES

MODERATOR

Geoffrey Sant, Esq.

Adjunct Professor, Fordham Law School

Special Counsel, Dorsey & Whitney LLP

PANELISTS

The Honorable Donald Pogue

Senior Judge, US Court of International Trade

Professor Bill Kovacic

Global Competition Professor, George Washington Law School

Former Chairman of Federal Trade Commission

  

Bill Perry, Esq.

Partner, Dorsey & Whitney LLP

Formerly in Office of General Counsel, US International Trade Commission; Office of Chief Counsel and Office of Antidumping Investigation, U.S. Department of Commerce

Don Bonker

Executive Director, APCO Worldwide, Inc.

Former US Congressman (D-WA); former Chairman of Subcommittee on International Economic Policy and Trade

SECOND PANEL: DISPUTES BETWEEN TRADE PARTNERS

MODERATOR

  1. Augustine Lo, Esq.

Dosey & Whitney LLP

PANELISTS

Chris Cloutier, Esq.

Partner, King & Spalding LLP

Former Acting Deputy Director of Trade Remedy Compliance, US Department of Commerce (at US Embassy in Beijing, China)

Professor Thomas Lee

Leitner Family Professor of International Law, Fordham Law School

Noah Hanfft, Esq.

President; CEO of International Institute for Conflict Prevention and Resolution

Former General Counsel of MasterCard

Professor Zhao Yun

Director of the Center for Chinese Law, University of Hong Kong

CLOSING REMARKS The Honorable Claire Kelly

Judge, US Court of International Trade

Trustee, Brooklyn Law School

RECEPTION

8 PM onward

THIS EVENT IS FREE, BUT RSVPS ARE REQUIRED

RSVP to events@cblalaw.org

About the Program The United States and China are major trading partners. Trade issues between the two nations take center stage as leaders negotiate new trade treaties and struggle to resolve disputes under existing legal frameworks. Brooklyn Law School and the Chinese Business Lawyers Association present an evening of dialogue among leading practitioners and professors who will examine current issues in trade disputes between the U.S. and China.

Sponsored by the Dennis J. Block Center for International Business Law, Chinese Business Law Association (CBLA), ABA Section of International Law, and the Trade Secrets Institute(TSI).

WE EXPECT ALL SEATS TO BE RSVP’D.  TO ATTEND, PLEASE RSVP AS SOON AS POSSIBLE TO events@cblalaw.org OR TO www.brooklaw.edu/tradedisputes

For directions, please visit: www.brooklaw.edu/directions

Thank you!

Geoffrey Sant, Director

Chinese Business Lawyers Association

This course provides two (2) CLE credits in the State of New York. Partial credit is not available. The credits are transitional and non-transitional and the category is Professional Practice.

US CHINA SOLAR NEGOTIATIONS

Several companies have asked me about a possible US-China settlement in the Solar Cells/Solar Products cases.  Today, December 12th, USTR Michael Froman acknowledged that Washington and Beijing have held talks about the Solar cases for “some time”.  During a conference call with Reporters, Froman stated that a stable environment for trade in solar products and polysilicon would have three components.  The first is to ensure that trade laws are being enforced. The second and third components are to enable the further deployment of clean technology and address issues like climate change, and “to maintain world class industries in both our countries to manufacture these important products.”

But knowledgeable people stated that talks have slowed in recent weeks, following a period of intense engagement prior to President Obama’s state visit to China in November, which ended without an agreement.  A major reason for this failure is because SolarWorld Americas, the petitioner in the U.S. trade remedy cases, stated that it could not accept the parameters that Chinese producers were willing to offer, and the U.S. government was unwilling to push the company to give ground.  In contrast to Europe, Canada, many other countries and even China, the United States does not have a public interest test in its US antidumping and countervailing duty laws and, therefore, the US government has less power to push a settlement.

The deadline for Commerce to accept a potential agreement to suspend the ongoing antidumping (AD) or countervailing duty (CVD) cases against Chinese solar panels has long passed. Thus settling the dispute will require a broader agreement, such as in 2006 U.S.-Canada Softwood Lumber Agreement, under which Canada agreed to impose export taxes and/or quotas on its exports of softwood lumber to the United States, in return for the U.S. government stopping the collection of trade remedy duties on those products.

SolarWorld has stated that it could accept a package that would do away with the various trade cases if four key conditions were met. The first three are that the agreement be enforceable by Commerce, set a floor price on imports of Chinese solar cells, and include a quantitative restriction on the volume of imports. The fourth condition is that the floor price on imports of Chinese solar cells be indexed to the market price for polysilicon.  Knowledgeable sources, however, have said that the floor price is key sticking point.

Commerce Secretary Penny Prtizker also stated that she did not expect the final Solar Products determination to have any impact on the JCCT negotiations, which will soon take place in Chicago.

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

CANADA SOLAR CASE

An importer has contacted me about a new Solar Module and Panel Antidumping and Countervailing Duty Petition filed in Canada. On December 5, 2014, the Canadian government initiated the investigation. See the attached petition and announcement of the Canadian government.  CANADIAN SOLAR COMPLAINT CANADIAN SOLAR ANNOUNCEMENT

The Solar Trade War with China is now beginning to follow a similar pattern with other trade wars against Chinese products. An antidumping/countervailing duty case is filed in the US or the EU followed by many, many cases around the World.

In the early 1990s, a US antidumping case was brought against Garlic from China. I represented a number of US importers in the case and tried to represent the Chinese exporters/producers. In a very unusual situation, an official at the Chinese Chamber of Commerce refused to let any Chinese company respond to the US antidumping case and since the Chamber controlled export licenses, the official had the power to stop participation.

As a result, the Commerce Department levied antidumping duties of 376% against Chinese garlic, and that antidumping order is in place today, almost 20 years after the petition was filed.  But that was not the worst part of the case, the Garlic case spread to numerous other countries, including EU, India, Japan, Korea, Brazil, Mexico and other countries. Pretty soon 20 to 30 countries had trade orders against Chinese garlic blocking all exports of Chinese garlic, and Chinese garlic prices dropped like a rock. Garlic was very cheap in Beijing.

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

If anyone has any questons about this case or the ongoing US Solar Cells and Solar Products case, please feel free to contact me.

If anyone wants specific help on the Canadian case, please let me know and I will put them in touch with Canadian trade counsel.

NOVEMBER 25, 2014 POST

There have been major developments in the trade politics, trade, trade agreements, trade adjustment assistance, 337/IP, US/Chinese antitrust, and securities areas.

This month the blog post has grown substantially because there have been so many developments in the trade and political area, especially with regards to China.

TRADE POLITICS AND TRADE AGREEMENTS WITH CHINA

THE REPUBLICAN WAVE ELECTION CHANGES THE TRADE POLITICAL LANDSCAPE IN WASHINGTON DC

No matter whether you are a Republican or a Democrat, in looking at trade issues, including the trade laws and the relationship between the US and China, one must deal with political reality in Washington DC. Elections have consequences, and the November 4th Republican wave election will have consequences for years to come.

Not only did the Republicans take the Senate, but no one expected the Republicans to take 8 seats with potentially another coming from Louisiana so Republicans at the end of January 2015 will control the Senate 53 or 54 to 47 or 46.

In the House of Representatives with 5 races still undecided Republicans gained 12 sets. They now hold 245 seats to 187. One can see how the political map has changed in the House by looking at http://www.politico.com/2014-election/results/map/house/. In the House, the United States has turned into a red Republican sea.

As it stands now, this is the largest Republican majority since 1946. If 3 of the 5 outstanding House seats go Republican, it will be the largest Republican majority since the 1930s under Herbert Hoover, before Franklin Delano Roosevelt was President. To say that this election was historic is an understatement.

As Dana Milbank, a Washington Post columnist, who is not viewed as a Republican/conservative partisan, states in his November 14th Washington Post column:

“There are five 2014 House races still to be decided before we can answer the question of historical interest:

Was this the worst election for House Democrats since 1928? Or was it merely their worst since 1946?

Either way, the results do not reflect well on the House Democratic leader, Nancy Pelosi – a conclusion that seems to have escaped Nancy Pelosi.

“I do not believe what happened the other night is a wave”, the former speaker informed Politico. . . . She preferred to describe what happened in the House elections as an “ebb tide.”

If Democrats lose three of the five undecided races, they will have ebbed all the way back to the day Herbert Hoover won the Presidency. To fail to see that as a wave, Pelosi must be far out to sea.”

The 2014 election for Democrats was not a wave. It was a tsunami, and now the political reality has changed dramatically in Washington DC. The most dramatic impact will be in the trade area because that is the one area that Senate and House Republicans can work on together with President Obama.

As indicated below, under the Trade Agreements discussion, President Obama’s problem in the Trade area is not with the Republicans, but with the Democrats. Although many Democrats want to call themselves progressive, because of substantial Union support, a number of powerful Democrats do not want progress on trade. They are opposed to Free Trade Agreements that lower barriers to imports. In fact, several Democrats want to raise barriers to imports.

Most Republicans are not opposed to the Free Trade Agreements because they firmly believe that Free Markets will result in more business and a substantial increase in economic activity for US companies and more jobs for US workers.

On November 5th the day after the election, many former US government officials were predicting that Trade Promotion Authority (“TPA”), which will lead to the Free Trade Agreements, such as the Trans Pacific Partnership (“TPP”), would be one of the first issues taken up by the new Republican majority.   TPA is the centerpiece of the administration’s trade policy, as it will set forth negotiating priorities for the next several years.

While a bipartisan TPA bill emerged earlier this year, Senate Majority Leader Harry Reid, D-Nev refused to introduce the bill on the floor. The change of the majority to the trade-friendly Republicans removes that problem.

According to former United State Trade Representative (“USTR”) Clayton Yeutter, with the Obama administration pushing for a final 12-nation Trans-Pacific Partnership as soon as possible, securing TPA will be the number one objective and will likely rise to the top of the Republican agenda. As former USTR Yeutter stated:

“The challenge will be to get fast-track done as early as possible and I believe that all the folks in congressional leadership positions understand that fully. I would look for it to be one of the very first issues on the Congressional agenda next year.”

Present USTR Michael Froman also expressed optimism, stating:

“I think ultimately this is an area where there’s a lot of bipartisan support for trade. It’s one of the areas that cuts across party lines, one area that we think we can make progress in, and we look forward to working with Congress after the election on Trade Promotion Authority and on our trade agenda more generally, in a way that has broad bipartisan support.”

In addition, the new Chairman of the Senate Finance Committee will be Republican Senator Orrin Hatch of Utah and he has a close working relationship with the present Chairman, Democratic Sen. Ron Wyden of Oregon. As indicated in past newsletters, Senator Hatch has been very open about the need to pass TPA through the Congress and he will be very active on this issue.

The chances of passing a fast-track bill in the upcoming lame-duck session of Congress are slim because the objective according to recent reports is to end the session on December 11th.  In the new Congress, however, TPA will be very important because Republicans have publicly warned the Administration not to conclude the TPP talks before TPA is concluded. As indicated below, without TPA no final deal will be concluded because countries like Japan and Canada will not put their best proposals on the table.  Japanese Prime Minister Shinzo Abe, for example, in particular, will be reluctant to strike a deal if there is a chance it could be altered legislatively at a later date.

As former USTR Yeutter stated:

“It will be exceedingly difficult to wrap up TPP without TPA. Abe and Japan don’t want to have to make tough political decisions twice.”

As a further example, in the attached e-mail, WAYS AND MEANS TRADE A PLUS on November 13, 2014, the House Ways and Means Committee released an article by Bryan Riley from The Hill stating:

Free Trade is a Winner in Recent Elections

By Bryan Riley, The Hill contributor

Riley is the Heritage Foundation’s Jay Van Andel Senior Policy Analyst in Trade Policy.

In Georgia, Iowa, Massachusetts and North Carolina, the midterm elections proved that candidates shouldn’t be afraid to talk about the benefits of trade. They also demonstrated that candidates tempted to employ protectionist scare tactics in their campaigns should think twice.

In Iowa, Republican Senate candidate Joni Ernst’s campaign argued: “Congressman [Bruce] Braley’s Anti-Free Trade Votes are bad for Iowa Farmers.”

According to Politico: Iowa Republicans, in one of the tightest Senate races in the country, are trying to capitalize on Democratic Rep. Bruce Braley’s record of voting against trade agreements to help hand their candidate, Joni Ernst, the victory. Braley, whose state is heavily dependent on farm exports, voted against free trade pacts with South Korea, Colombia and Panama in 2011, even after President Barack Obama’s administration re-negotiated several provisions to round up more Democratic support. “The South Korean trade deal was huge,” Agriculture Secretary Bill Northey told POLITICO in an interview. “Everyone knew it was a clear, clear win for agriculture and it would have been a terrible not to have it. For him to vote against that I just think is a major red flag.”

Ernst defeated Braley, 52.2 percent to 43.7 percent.

In North Carolina’s Senate race, Democratic incumbent Kay Hagan said:

“Unfair trade agreements have contributed to the loss of more than 286,000 North Carolina manufacturing jobs in the last decade — the fourth-largest decline in the nation. It is time we start protecting jobs here at home.” Her campaign spokesman added: “Kay opposed trade agreements that ship North Carolina jobs overseas because she will always put North Carolina jobs first.”

Her Republican opponent, Thom Tillis, disagreed: “As agriculture exports increase, Thom believes we must promote policies that make trade with other nations free and efficient in order to stimulate our economy and allow North Carolina farmers and ranchers to expand their businesses.”

Tillis defeated Hagan, 49.0 percent to 47.3 percent.

In Massachusetts, the Democratic Governors Association released an ad attacking Republican gubernatorial candidate Charlie Baker: “Baker won the Outsourcing Excellence Award at the ‘Oscars of Outsourcing’ for his work destroying jobs here at home.” Baker replied that outsourcing some jobs to India allowed Massachusetts insurer Harvard Pilgrim to save thousands of jobs at home. Former Massachusetts Attorney General Thomas F. Reilly (D) called the outsourcing attacks “exactly the kind of nonsense that drives people away from the political process.”

Baker defeated Democrat Martha Coakley, 48.5 percent to 46.6 percent.

In Georgia, Democratic senatorial hopeful Michelle Nunn attempted to smear her Republican opponent David Perdue for outsourcing jobs to other countries: “David Perdue, he’s not for you,” her ad proclaimed. When a reporter asked Perdue to defend his use of outsourcing, he replied: “Defend it? I’m proud of it. … It’s the lack of understanding of the free enterprise system that I’m running against here.”

Perdue beat Nunn, 53.0 percent to 45.1 percent.

After the Massachusetts and Georgia elections, Computerworld reported:

“Offshore outsourcing fails as election issue: A longtime Democratic bludgeon isn’t enough to move needle.” In contrast, candidates who embraced the benefits of trade, like Joni Ernst and Thom Tillis, emerged victorious.

Promoting free trade is good economics, too. A comparison of trade policy around the world, developed by the Heritage Foundation and The Wall Street Journal in the annual Index of Economic Freedom, shows a strong correlation between trade freedom and prosperity.

Washington Post columnist Steven Pearlstein observed that outsourcing saves U.S. businesses and consumers billions of dollars each year:

“Those savings and those extra profits aren’t put under the mattress. Most of it is spent or invested in the United States in ways that are hard to track but have surely created hundreds of thousands of jobs in other companies and other industries. Those who hold those jobs would have no reason to know that they are beneficiaries of the process of outsourcing and globalization. But in a very real sense, they are.”

Most economists agree that criticizing trade is bad policy. Last week’s election results suggest it may be bad politics, too.

But as also indicated below, that is where Trade Adjustment Assistance for Firms/Companies comes into play.  Trade Agreements are a result of Government action that will change the market, not only around the World but also in the United States. With market barriers dropping in a number of different countries, many US competitive companies will see their exports increase.  Experts predict that the TPP, for example, could increase economic activity by $1 trillion.

But this Government action will also change the US market place, and a number of US companies will face a market that has completely changed, a trade tsunami created by Government action.  Because Government action has created the trade tsunami, the Government has an obligation to help companies adapt to the new marketplace conditions.  When I say companies, I mean not just the management, but the workers in the company too.

As explained more below, the Government has a responsibility to help US companies swim in the new competitive marketplace sea that has been created by the Trade Agreements.

FORMER CONGRESSMAN DON BONKER’S CHINA DAILY ARTICLE ON THE IMPACT OF THE ELECTION ON US CHINA RELATIONS

APCO Executive Director Don Bonker, a former Democratic Congressman and an expert on the political issues in US China Trade Relations, published the following November 7th article in the China Daily on the election, which can be found at http://usa.chinadaily.com.cn/us/2014-11/07/content_18881045.htm.  Don puts the November 4th election into a historical perspective:

Election results a mixed blessing for China

By Don Bonker (China Daily USA)

Republicans exceeded early predictions scoring big time in Tuesday’s election, taking full control of the US Senate, increasing their margin in the House of Representatives along with many victories across the country.  For the next two years, the United States will have a truly divided government with the Republicans claiming a new mandate to push an alternative agenda.

While many factors were in play in the 2014 election (Obama’s poor ratings, huge amounts of campaign spending, etc), the fundamentals in recent history clearly favored the Republican Party.  The party of whoever occupies the White House in mid-term elections suffers nominal loses of Senate and House seats and predictably weakens the President’s political standing. As we are reminded by David Schanzer and Jay Sullivan in the New York Times, “This is a bipartisan phenomenon; Democratic presidents have lost an average of 31 House seats and between 4-5 Senate seats in mid-terms; Republican presidents have lost 20 and 3 seats respectively.”

How will the election results affect the US-China relationship?

Neither Republicans nor Democrats have well-defined or predictable policies toward China. In recent years, a small group in Congress has attacked China on a select number of issues but such actions are not part of either Congressional leader’s agenda.  Existing Federal laws, such a CFIUS, provide opportunities for a single Congressman to go after China, often to lend support to a company in his state.

Republicans, known to be pro-trade and pro-business, taking control of the Senate should be a healthy sign in building closer relations with China, especially since governors in their states are leading trade missions to China, seeking Chinese investments and pursuing markets for their exporting companies.

However, individual Republican Senators have sent letters to CFIUS and other Federal agencies opposing China-related investments and transactions. Many senior Republicans in Congress have expressed skepticism over China due to its government’s Communist Party control, reported human rights concerns, US support of Taiwan and Japan, China’s military build-up, economic espionage and geopolitical or national security threats that could put pressure on the Obama Administration to be more assertive with China.

Several well-positioned Republican Congressmen have caused the biggest headaches for China. The issue, or fear, is rooted in cybersecurity threats and economic espionage that has led to Congressional investigations and legislation that greatly restrict China companies, such as Huawei and ZTE, from having access to telecommunication and related technology markets in the US. The two Congressmen who were responsible for these actions are retiring at the end of this year. The question is whether their replacements will continue such policies.

A related concern is the so-called Tea Party’s growing influence that has put Republican Congressional leaders in a difficult position given the Tea Party’s enduring political base and its extreme views on major issues (education and trade). It will likely affect the China relationship in negative ways, particularly on trade (“protect American jobs”) and on cyber and economic espionage issues.

The Democrats have their own agenda which occasionally proves hostile to China. Several occupy leadership positions on committees that preside over government agencies and assert their political clout to press for higher import tariffs and related trade restrictions. This has more to do with politics than economics, particularly in the election season when labor unions pressure, if not intimidate Democratic candidates to “protect American jobs”. Such protectionist policies are now prompting China to take reciprocal actions that may be placing China and America on the path of a trade war.

Despite the encouraging bilateral discussions on the Bilateral Trade Agreement (BIT), there is no guarantee what happens once it arrives on the doorstep of the US Capitol.

Overall, the newly established Congress preparing for 2015 may be more favorable to China given the departures of some if its Capitol Hill critics, but a great deal of anxiety about China will continue – mistrust, economic and security threats and China’s economy surpassing the US’ in the foreseeable future.

In the Senate, the Republicans taking control will create a different political paradigm but with little indication on how it will play out over the next two years. The new political alignment will offer a narrow window for Congressional Republicans to provide stronger leadership and promote their own agenda and could result in more favorable actions (approval of TPP and TTIP trade pacts).

But that is in the short-term. It is unlikely the Republicans maintain the Senate majority in the 2016 elections, but the House of Representatives will comfortably stay in Republican control (given the shape of Congressional districts) for some time into the future. With a Democrat occupying the White House this will likely guarantee continued gridlock in Washington for the next decade.

The 2016 presidential election may be more favorable to Democrats for the same reasons the Republicans scored well this year. Barack Obama is not on the ballot and the Democrats will be far more unified (under Hillary Clinton) than the Republicans (the party may likely be split).

In 2016, the Republicans will have 23 Senate positions on the ballot compared to 10 for Democrats (also likely retirements/resignations). And the voter turn-out will jump back to 53 percent, which greatly favors Democrats in presidential elections. So whether political history will prevail and the Democrats re-take the Senate in 2016 or Republicans will defy the odds and remain in power is the big question going forward.

BILATERAL US CHINA TRADE AGREEMENTS

APEC AND PRESIDENT OBAMA’S TRIP TO BEIJING

Right after the mid-term elections, President Obama made a major trip to Beijing, China for the Asian Pacific Economic Cooperation (“APEC”) meeting.  As indicated below, President Obama’s Administration had set a target date for completing the Trans Pacific Partnership (“TPP”) talks at the APEC meeting. That did not happen, but there were several historic agreements that did come out of the meetings with the US and Chinese Government.

In the attached White House Statement and Fact Sheet, WHITE HSE STATE CHINA VISIT PRESS CONF CHINA US the US and Chinese governments announced that China will now grant 10 year visas to US businessmen and tourists and that there will be enhanced enforcement against counterfeit goods.

During the attached Joint Press Conference, the two Presidents announced a new Information Technology Agreement (ITA) and an agreement on Climate Change. President Obama stated that a strong, cooperative relationship with China is at the heart of the United States’ policy to Asia, and stated that the United States needs the world’s second-largest economy and the most populous nation on Earth as its partner in order to lead in addressing global challenges. As President Obama stated, “[I]t is a fact that when we work together, it’s good for the United States, it’s good for China, and it is good for the world.”

President Xi Jinping of China made several important points in response to questions, but several of the most important are:

“The strategic significance of China-U.S. relations is on the rise. . . . Both President Obama and I believe that when China and the United States work together, we can become an anchor of world stability and a propeller of world peace. China stands ready to work with the United States to firm up our confidence, exercise our wisdom, and take action to strengthen our coordination and cooperation bilaterally, regionally and globally; and to effectively manage our differences on sensitive issues so that we can make new gains in building the new model of major-country relations between China and the United States, which serves the fundamental interests of our two peoples and the people elsewhere in the world.

China and the United States have different historical and cultural traditions, social systems, and faces of development. So it’s natural that we don’t see eye to eye on every issue. But there have always been more common interests between China and the United States than the differences between us. Both sides respect each other’s core interests and major concerns and manage our differences in a constructive fashion, full dialogue and consultation so as to uphold the overall interests of stable growth of China-U.S. relations. . . .

China and the United States are different countries in the world. It’s perfectly normal for there to be different views expressed about us in the international media. And I don’t think it’s worth fussing over these different views. And I don’t see any of the regional free-trade arrangements as targeting against China. China is committed to open regionalism. And we believe the various regional cooperation initiatives and mechanisms should have positive interaction with each other, and that is the case at the moment.”

On Tuesday November 12th, President Obama’s state visit to China ended with the ITA and Climate agreements, joint pledges to continue talks on a bilateral investment treaty (BIT), a new international deal curbing export credits, and continued dialogue regarding their persisting differences over the use of agricultural biotechnology.

President Obama had planned to press China on several other issues, including alleged discriminatory enforcement of its anti-monopoly law (AML), intellectual property (IP) protections, including cyber theft of IP, and China’s slow approval process for biotechnology traits. Only biotechnology, however, was addressed in a White House fact sheet on U.S.-China economic relations, stating:

“The United States and China reached consensus to intensify science-based agricultural innovation for food security. The United States and China commit to strengthen dialogue to enable the increased use of innovative technologies in agriculture.”

At the Press Conference, President Obama stated that he did address IP, “I stressed the importance of protecting intellectual property as well as trade secrets, especially against cyber-threats.”

The other major announcement that came out of Obama’s visit to China was in the area of climate change. On that issue, the two sides reached an agreement on the targets for the cuts they will make to carbon emissions post-2020.

Last week CSPAN, the US Public Affairs station, did a 45 minute interview with Dorsey Partner, Tom Lorenzen on the US China Climate Change agreement. Until joining Dorsey in 2013, Tom was at the Justice Department from 2004 where he was the Assistant Chief in the U.S. Department of Justice’s Environment and Natural Resources Division (ENRD). During that time, he supervised the federal government’s legal defense of all Environmental Protection Agency rules, regulations and other final actions judicially reviewable under the various federal pollution control statutes. See the video at http://www.c-span.org/video/?322770-3/washington-journal-thomas-lorenzen-uschina-carbon-reduction-deal.

On November 12th, the China Daily stated with regards to the Information Technology Agreement (ITA):

“The two countries reached a breakthrough on Tuesday in Beijing to accelerate the expansion of the World Trade Organization’s Information Technology Agreement (ITA), which could help eliminate $1 trillion in tariffs on high-tech product sales globally. The deal would allow the “swift conclusion” on talks to enlarge the ITA at the WTO meeting in Geneva later this year.”

USTR Michael Froman stated in Beijing that it was good news for US companies that are keen to see global tariffs further cut on products such as medical equipment, GPS devices, video game consoles and next generation semiconductors.  The agreement now covers more than $4 trillion in annual trade.

With regards to ITA, the US government announced on November 10th that it had convinced China to eliminate tariffs on tech goods like advanced semiconductors and medical devices. The Chinese government has agreed to U.S. demands to eventually eliminate tariffs on advanced semiconductors known as MCOs, magnetic resonance imaging (MRI) machines, and high-tech testing equipment, but the deal does not include tariff elimination on flat-panel displays.

But the Agreement between China and the United States in the High Tech area will lead to additional negotiations with other countries at the WTO in Geneva, which are scheduled to resume in December. The ITA negotiations broke down in November 2013, after the U.S. and other participants rejected China’s tariff offer as insufficient. Since then, the U.S. and European Union have been trying to persuade China to come back to the table with a better offer.

The agreement between the U.S. and China does not mean the ITA talks are concluded. The two parties will now have to go back to the more than two-dozen other participants – including the European Union, Japan and South Korea – to negotiate a final ITA package. But sources in Geneva are cautiously optimistic that the deal could move forward. The expanded ITA would also eliminate import duties on a range of additional technology products including high-tech medical devices, video cameras, and an array of high-tech ICT testing instruments.  A White House fact sheet stated that the expansion of the ITA pact would eventually eliminate tariffs on roughly $1 trillion in annual global sales of information technology products and boost the annual global GDP by an estimated $190 billion.

On November 14th it was reported that sources in Geneva predicted that the ITA agreement could result in a final deal this December. Although other countries are not expected to block the deal, other countries will push for changes. EU Trade Commissioner Cecilia Malmstrom stated that she welcomed the U.S.-China understanding and that the EU “[intends] to take all necessary steps to finalize the agreement in the coming weeks.”

If the agreement is completed, it will take very little for the U.S. to implement the lowered tariffs. This is because Congress had already authorized further tariff reductions when it passed the Uruguay Round Agreements Act in 1994. This is in contrast to the TPP and the Transatlantic Trade and Investment Partnership (“TTIP”), which are two new agreements that would require congressional authorization before they went into effect.

On November 12th, President Obama and President Xi also announced an agreement to speed up talks on a comprehensive Bilateral Investment Treaty (“BIT”), which is considered to be the foundation for future United States-China trade agreements. At the Press Conference President Xi announced that “We agreed to accelerate the negotiations of the BIT, and we will make efforts to reach agreement on the core issues and the major articles of the treaty text.” The two countries also agreed to “work together to promote innovation in agriculture and food security.”

Trade pundits were reporting that the Republican victory along with the movement in Beijing will give a much-needed boost to the WTO and Obama’s ambitious trade agenda. This has led to a bullish optimistic attitude about the next two years of trade policy.

As indicated below, this victory in Beijing with the close of the APEC meeting was followed on November 13th by a break through with India on the Trade Facilitation Agreement (“TFA”), which the Indian Government had held up on food security grounds.  On November 13th U.S. and Indian trade officials announced they had reached a deal to end the impasse over the WTO trade facilitation Agreement.  Under the deal, India agreed to drop its opposition to the trade facilitation pact in exchange for a commitment from the U.S. to keep in place a so-called peace clause that would shield developing countries’ food security programs from legal challenges until the WTO agrees on a new set of rules governing those programs.

Numerous observers, including new European Union Trade Commissioner Cecilia Malmstrom, hailed the bilateral agreement as a boost for the WTO, which had been criticized as irrelevant as a forum for global trade talks in light of the trade facilitation breakdown. Commissioner Malmstrom stated, “I am particularly pleased today as the breakthrough gives new momentum to the WTO and restores trust among members and the credibility of multilateral trade negotiations.”

TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND—NO FINAL DEAL AT APEC MEETING IN BEIJING

TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

As mentioned in past newsletters, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP), Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations and the WTO.  The TPP is a free trade agreement being negotiated by officials from the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These trade negotiations could have a major impact on China trade, as trade issues become a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

As mentioned in prior newsletters, on January 29, 2014, the day after President Obama pushed the TPA in his State of the Union speech in Congress, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

But then came the November 4th Republican wave election changing the Trade Politics dramatically in Washington DC.  Elections have consequences and in 2015 Republicans will take the Senate and increase their numbers in House.

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

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

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

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track.  But to date no details have been given about exactly what Smart Track will mean, and the Republican victory on November 4th probably means that Smart Track will be washed away by the Republican wave.

On July 17th, all Republican members of the House Ways and Means Committee sent the attahed letter to USTR Froman, HOUSE REPS WAYS MEANS, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Now the story continues . . . .

On October 15th in Tokyo, acting Deputy U.S. Trade Representative Wendy Cutler emerged from four days of meetings in Tokyo stating that both sides are working “as hard and creatively as possible” to resolve their bilateral issues. She went on to state:

“We were encouraged by the progress we made this week during our negotiations, but we need to underscore that the issues before us are tough. The issues range from achieving meaningful market access across all agricultural products to establishing a strong and effective dispute settlement mechanism in the auto sector.”

The difficult negotiating areas include five agricultural categories—rice, wheat and barley, beef and pork, dairy products and sugar—as well as autos and auto parts.

After ending the talks with his counterpart, Japanese negotiator Hiroshi Oe added, however, that both sides have “mountains of work to do. We are far from saying, ‘We did it.’ We still have the most difficult areas that have yet to be resolved.”

The U.S.-Japan meetings closed just a day after Mexico’s top trade official, Mexican Economy Minister Ildefonso Guajardo, speaking in Washington, D.C. made clear that the rest of the TPP countries view the US Japan negotiations as a critical step toward progress in the full negotiations,  “It is clear for anybody that knows about trade negotiations that if these two big trading partners, Japan and the U.S. do not come to an agreement, it has domino consequences on the rest of the 12 countries.”

But then came Sidney and then Beijing with no breakthrough in part because of no TPA Agreement.

Meanwhile, on October 16th, according to analysis of the document by Public Citizen, it was reported that a leaked draft of the TPP Intellectual Property Chapter obtained by WikiLeaks could lead to delayed access to pharmaceutical drugs in a dozen countries, including the U.S., and would contradict White House policies aimed at cutting Medicare and Medicaid costs. According to Public Citizen, at issue in the draft is a U.S. proposal to give an advantage to the pharmaceutical industry and “provide long automatic monopolies for biotech drugs or biologics” contradicting the pledge included in past White House budgets to shorten the same monopoly periods to reduce cost burdens on Medicare and Medicaid.

Public Citizen said it remains concerned that these provisions would give large brand-name drug firms a way to “impose rules” on Pacific Rim economies that “will raise prices on medicine purchases for consumers and governments. If the TPP is ratified with this U.S.-proposed provision included, Congress would be unable to reduce monopoly periods without risking significant penalties and investor-state arbitration.”

In Sidney the leaked IP draft resulted in a number of civil society organizations and Australian lawmakers voicing opposition to the deal citing many trouble spots.  A group of Australian politicians along with public health and copyright experts convened at Australia’s Parliament house lawn to condemn possible TPP trade-offs as talks resumed in Canberra.  Australian green party Sen. Peter Whish-Wilson stated that “the leaked documents indicate that the government is on course to hand over protections for human rights, public health, the environment and Internet freedom.”

On October 24th, in a letter six Congressmen, including Sens. Ron Wyden, D-Ore., Orrin Hatch, R-Utah, Jay Rockefeller, D-W.V., and John Thune, R-S.D., the ranking members of the Senate Finance and Commerce committees, stated that USTR Michael Froman should oppose any proposals in the TPP negotiations that would needlessly limit internet traffic, including the cross-border transfer, storage or processing of data, and protect the unfettered transfer of commercial data and digital trade.  According to the letter, eight countries, including TPP members Mexico and Vietnam, have or are considering policies to limit their Internet traffic.

As a result of all these concerns, Rep. Sander Levin, D-Mich, ranking Democratic Congressman on the House Ways and Means Committee, traveled to Sydney, Australia, to closely observe the status of the TPP talks. Levin took the unusual step of arranging meetings with trade ministers from the TPP nations during their Oct. 25-27 session in an effort to gather more information about TPP’s more contentious unsettled areas. Levin, who is from Detroit, has long been an advocate of the U.S. automotive industry, which has been blocked out of the Japanese market for decades. More broadly, Levin also called for the final TPP to bind its member countries to upholding the highest possible environmental, labor and human rights protections.

On October 27th in Sidney, Australia trade ministers for countries negotiating the TPP hailed “significant progress” in the talks during their three-day meeting in Australia, but stopped short of announcing a breakthrough.  Opening the meeting, USTR Michael Froman stressed that the outstanding TPP issues are among the most contentious in the agreement, but that negotiators have taken efforts to ensure that they are resolved as smoothly as possible.  President Obama had targeted the APEC meeting in Beijing on November 10th as a “deadline” to conclude the negotiations, but critical to the conclusion of the 12-nation TPP talks are the bilateral deliberations between the U.S. and Japan, which also continued in Australia.

After returning from Sidney, Congressman Levin expressed his concern about the current status of the TPP talks in Australia calling for more transparency in negotiations and an increased focus on its details.  Levin stated that “it is “vital to have an open door for a broad understanding and involvement on how they should be resolved, with increased transparency.”

Levin said that although a compromise he helped negotiate, referred to as the “May 10 agreement,” had significantly improved the TPP in the realms of workers’ rights, environmental protections and access to medicines, it is “vital that TPP build on them, not weaken them.” Levin noted the opportunities and challenges inherent with the diversity of economies represented within the TPP membership, pointing out Malaysia’s and Vietnam’s “very different” economies from the U.S.

On October 27th, following the negotiations in Sidney, the Ministers and Heads of Delegation for the TPP countries issued the attached statement, TPP ACTUAL JOINT STATEMENT AUSTRALIA, which provides in part:

“We consider that the shape of an ambitious, comprehensive, high standard and balanced deal is crystallizing. We will continue to focus our efforts, and those of our negotiating teams, to consult widely at home and work intensely with each other to resolve outstanding issues in order to provide significant economic and strategic benefits for each of us. We now pass the baton back to Chief Negotiators to carry out instructions we have given.”

On October 30, 2014, despite a push from numerous business groups, it was reported that it would be very difficult to pass TPA in the lame duck session, which is the time between the election on November 4th and the inauguration of the new Congress in January 2015.

On October 31st, USTR Mike Froman made clear that the 12 nations negotiating the TPP deal did not expect a final deal at the Asia-Pacific Economic Cooperation (“APEC”) conference in Beijing. As Froman stated:

“No, we do not expect to have a final agreement on TPP at APEC. All the TPP leaders will be present, so it will be a good opportunity to have conversations with each other about TPP, about whatever outstanding issues are left … and to give more political impetus to getting it done.”

Froman said that negotiators are still at work on the deal:

“We are making very good progress in closing out issues, narrowing the differences on remaining issues but we still have a ways to go and we are going to continue to work. We think the substance of the negotiation ought to drive the timetable. We’re not going to live by an arbitrary deadline but we are all focused on getting it done as soon as possible.”

On November 6th, after the election, business Leaders announced that they were increasing pressure to take up the TPA during the lame duck, but Mike Dolan, Teamsters’ legislative representative, said that fast track “won’t go anywhere during Lame Duck.” A broad coalition of labor, consumer groups sent over half a million petition signatures to Congress opposing TPA for the pending TPP.

In response to a question about the chance for a vote in the remaining weeks of the current Congress, Senate Finance Committee ranking Republican Orrin Hatch (R-Utah) stated, “Whether that happens during the lame duck is ultimately up to Democratic leadership.” Senator Hatch also stated that he believes there would be strong support to pass trade promotion authority in the “lame duck” session of Congress if Senate Democratic leaders decide to allow a vote. Senator Hatch, the new Chairman of the Senate Finance Committee, introduced the TPA bill along with former Senate Finance Chairman Max Baucus, now the U.S. ambassador to China, and House Ways and Means Chairman Dave Camp, R-Mich.

On November 10th in Beijing President Barack Obama and the leaders of the other 11 countries negotiating the TPP stated that a final agreement is now “coming into focus,” but declined to set a firm deadline for the completion of the talks. The 12 leaders, meeting on the sidelines of the APEC summit in Beijing, issued a joint statement commending the progress made by their negotiating teams over the past several weeks and kept up the pressure to finalize the TPP in the near future. The leaders stated:

“With the end coming into focus, we have instructed our ministers and negotiators to make concluding this agreement a top priority so that our businesses, workers, farmers and consumers can start to reap the real and substantial benefits of the TPP agreement as soon as possible.”

On November 11th, John Ivison, a Canadian reporter, issued an opinion piece in the National Post of Canada stating that any “‘significant progress’ made on the Trans-Pacific Partnership trade deal is pure bureaucratic BS.” See http://fullcomment.nationalpost.com/2014/11/11/john-ivison-any-significant-progress-made-on-the-trans-pacific-partnership-trade-deal-is-pure-bureaucratic-bs/.

As Ivison stated:

Trade sources suggest two major problems with negotiations that run contrary to the sunny optimism of the official statement.

One is that the Americans have approached the talks on a bilateral basis, preferring to hammer out deals country by country. “This is a typical U.S. approach, trying to run it like a hub-and-spoke negotiation,” said Mr. Clark.

Without knowing the outcome of talks between the two largest TPP participants — the U.S. and Japan — no one else has tabled a serious offer.

“Things are no closer than they were six months ago. No country will make an offer setting the starting point for ‘level of ambition’ without knowing the ambition levels of the U.S. and Japan.  You only give further from your first offer,” said one person with knowledge of the negotiations.

The second impediment to real progress is lack of Trade Promotion Authority — fast-track — on the part of President Barack Obama. No one wants to strike a deal that then becomes a bargaining chip in the internecine politics between the president and Congress.

There have been some suggestions that the newly empowered Republicans in the Senate might offer fast-track authority, in return for the president giving the Keystone XL pipeline the green light. But for now, President Obama cannot sign off on a deal using his executive authority.

Canada’s intransigence on supply management of poultry and dairy is likely to become a problem at some point.

In Beijing, TPP trade ministers highlighted the four areas where issues remain unresolved in the proposed deal: intellectual property, state-owned enterprises, the environment and investment. The ministers called intellectual property “one of the most complex and challenging areas of the agreement.”

On November 13th, over 200 business groups sent a letter to leaders of both the House and Senate, urging them to pass a new fast-track trade bill during the lame-duck legislative session this year. Specifically, the Trade Benefits America Coalition sent the letter urging passage of bipartisan Trade Promotion Authority (TPA) legislation to House Speaker John Boehner, R-Ohio, Senate Majority Leader Harry Reid, D-Nev., House Majority Leader Nancy Pelosi, D-Calif., and Senate Minority Leader Mitch McConnell, R-Ky., on behalf of more than 200 U.S. associations and companies including the American Farm Bureau, National Foreign Trade Council and National Association of Manufacturers.  The letter concluded, “With 95 percent of potential customers outside the United States and more than one in five American jobs supported by trade, we need to seize on opportunities — such as ongoing and future U.S. trade agreements — to expand U.S. commerce with other countries.”

On November 15th President Obama vowed to continue pushing toward a swift TPP deal, which he said has the potential to yield a “historic” trade deal. At the G20 meeting Obama stated:

“It is our chance to put in place new, high standards for trade in the 21st century that uphold our values. It’s about a future where instead of being dependent on a single market, countries integrate their economies so they’re innovating and growing together. That’s what TPP does. That’s why it would be a historic achievement.”

On November 18th, Prime Minister Abe in Japan called a snap election on December 14th to seek a mandate for his economic decisions, but this too will complicate the TPP negotiations.

On November 18th Deputy USTR Robert Holleyman stated that the U.S. is seeking provisions in the TPP requiring civil and criminal responses to the theft of trade secrets. As Holleyman stated:

“Many in this room have certainly paid attention to the damage that’s being caused by the theft of valuable trade secrets in foreign marketplaces. And in the TPP agreement, we’re seeking both civil and criminal responses to this problem, including to the issue around the growing problem of cyber-theft of trade secrets.”

TTP FOR CHINA??

But what about China? Could it eventually join the TPP?

On October 15th, the Peterson Institute for International Economic (”IIE”) released a study touting the benefits of a theoretical free trade agreement between China and the United States, including increased income and export gains, while also acknowledging that such an agreement could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span.

There are clear signs that China is interested in joining TPP. Citing an unnamed high-ranking U.S. official, Bergsten of IIE said “not a week goes by” that the administration does not receive an inquiry from China about TPP. But China has not officially sought entry into the initiative because it believes it would be denied at this stage in the negotiations. U.S. officials have made clear they want to close the deal with the current 12 participants.

The study predicts that a comprehensive agreement between China and the U.S. would create income gains for the U.S. of up to $130 billion while creating $330 billion in income gains for China. Under the agreement, the U.S. is projected to achieve export gains of $373 billion, and China — $472 billion. Similarly, U.S. exports to China would increase 108 percent and Chinese exports to the U.S. would increase 40 percent, according to the study.

But the study also finds that if a bilateral agreement is reached, the U.S. would suffer “adjustment costs” in the magnitude of 50,000 to 100,000 U.S. workers losing their jobs each year over a 10-year period. In other words, the deal could cost the U.S. economy up to a million job losses over a decade.

That is where Trade Adjustment Assistance for Companies comes into play. The Peterson study contends that because the economic benefits equate to roughly $1.25 million in national income gains per job lost, the U.S. should consider policy alternatives to offset job loss rather than simply abandon an FTA with China. Such alternatives could include a bolstered trade adjustment assistance program, lengthy phase-ins of the liberalization of sensitive sectors, and larger wage-loss insurance and training and relocation programs.

Over the past year, China has undergone a radical shift in its stance on TPP because Beijing realizes it stands to suffer financial losses if it is not a member of the agreement, according to the authors of the study. The study claims that if TPP is concluded, China would lose $82 billion in gross domestic product and $108 billion in export revenue due to diverted trade flows.

CHINA AUSTRALIA FTA

To add more fuel to the fire, on November 17th, Australia and China signed a free trade agreement to allow greater Australian agricultural exports and greater investment in China and increased Chinese exports to Australia. According to the Australian Prime Minister, the Agreement is predicted to add billions to the Australian economy create jobs and drive higher living standards.

Prime Minister Tony Abbott stated:

“It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment. Australian households and businesses will also reap the benefits of cheaper goods and components from China, such as vehicles, household goods, electronics and clothing, placing downward pressure on the cost of living and the cost of doing business.”

When the deal takes effect, more than 85 percent of Australian goods exports will be tariff free and that number will climb to 95 percent. Those goods were previously saddled with tariffs of up to 40 percent. US companies that attempt to export products to China can face very high tariffs, some in the 40 to 60 plus percent range.

China, meanwhile, will face less scrutiny in its investments in Australia per the deal. The Chinese government told Australia it estimates it will spend $1.3 trillion over the next decade in investments in Australia.

TTIP FTA WITH EUROPE

Meanwhile the TTIP FTA with Europe moves forward on November 16th with President Obama and prominent EU leaders ordering their respective negotiating teams to continue negotiations. A Joint Statement provides:

“We remain committed, as we were when we launched these negotiations in June 2013, to build upon the strong foundation of our six decades of economic partnership to promote stronger, sustainable and balanced growth, to support the creation of more jobs on both sides of the Atlantic and to increase our international competitiveness.”

But former USTR Clayton Yeutter predicted that despite the problems, the negotiations would likely finish up after Obama leaves office in early 2017. As Yeutter stated:

“There were a lot of miscalculations as to how long TTIP was going to take. This is not a negotiation that’s going to conclude anytime soon. In my view there is no practical chance of doing it during the Obama presidency.”

On November 18th the new EU Trade Commissioner Cecilia Malmstrom responded to criticisms that the TTIP will only serve the interests of large multinational Corporations by stating that the Agreement must benefit consumers:

“Trade agreements can lower prices, widen choice and create high-quality jobs. TTIP must do exactly that.”

Malmstrom also called for the negotiations to be more transparent, stating that the agreement needed input from “the whole range of civil society groups: trade unions, business associations, environmental organizations and, of course, consumers.”

INDIA BILATERAL DEAL WITH THE US MOVES TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI FORWARD

Many World Trade Organization (“WTO”) and US officials have warned that India’s decision to block the implementation of the Trade Facilitation Agreement (“TFA”) negotiated in Bali has had a “freezing effect” on the WTO’s work in a number of different areas. But after substantial pressure from the APEC countries, India and the US announced a breakthrough in the negotiations over the Agreement.

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India as a result of food security initiatives.

On September 30th, in his first meeting with President Obama, although indicating that a solution should come soon, Indian Prime Minister Modi reaffirmed his government’s position linking the WTO Trade Facilitation Agreement with support for the deal to act on food security issues.

On October 16, WTO Director-General Roberto Azevêdo reported to the Trade Negotiations Committee:

As a result we missed the deadline for the adoption of the protocol of amendment on the Trade Facilitation Agreement, which was the first deadline that Ministers set us in Bali. I said at the time that I feared there would be serious consequences. . . . as I feared, this situation has had a major impact on several areas of our negotiations. It appears to me that there is now a growing distrust which is having a paralyzing effect on our work across the board. . . .

it is my feeling that a continuation of the current paralysis would serve only to degrade the institution — particularly the negotiating function. . . . This could be the most serious situation that this organization has ever faced. I have warned of potentially dangerous situations before, and urged Members to take the necessary steps to avoid them. I am not warning you today about a potentially dangerous situation — I am saying that we are in it right now.

At the Trade Negotiations Committee meeting, Deputy USTR and U.S. ambassador to the WTO Michael Punke slammed India and the other opponents of the TFA protocol for perpetuating an “unnecessary and counterproductive crisis.” Those members’ inability to concede their position on food security has “significantly undermined” the entire Bali package and may doom any prospects for a “fully multilateral agreement.”

Although some of the trade pundits were suggesting that India be dropped off the back of the bus and the TFA move forward without India, others indicated that the real role of the TFA was symbolic—a way to get the WTO negotiating function going again.

On October 31st, Director-General Roberto Azevêdo reported to heads of delegations that there had been progress, and on November 10th, Azevedo asked APEC members, who were meeting in Beijing, to help push the TFA Agreement through. On that same day trade ministers for the 21 APEC countries, including China, vowed to throw their full weight behind resolving the current stalemate in the World Trade Organization surrounding the implementation of a trade facilitation agreement and the expansion of a tariff-cutting pact. In the attached statement released in Beijing, APEC ANNOUNCEMENT BALI TPP, the APEC Ministers stated:

2014 APEC Ministerial Meeting

  1. We, the Asia-Pacific Economic Cooperation (APEC) Ministers, met on 7-8 November 2014, in Beijing, China. The meeting was co-chaired by H.E. Wang Yi, Minister of Foreign Affairs of the People’s Republic of China, and H.E. Gao Hucheng, Minister of Commerce of the People’s Republic of China. . . .
  1. We welcome the participation in the meeting of the Director General of the WTO . . . .
  1. We reaffirm our confidence in the value of the multilateral trading system and stand firmly to strengthen the rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system as embodied in the WTO.
  1. We highly commend the Bali Package achieved at the 9th Ministerial Conference (MC9) in Bali, Indonesia. We express our grave concern regarding the impasse in the implementation of the Trade Facilitation Agreement (TFA) which has resulted in stalemate and uncertainties over other Bali decisions. These developments have affected the credibility of the WTO negotiating function. In finding solutions to the implementation of the Bali decisions, APEC will exert creative leadership and energy together with all WTO members in unlocking this impasse, putting all Bali decisions back on track, and proceeding with the formulation of Post-Bali Work Program, as a key stepping stone to concluding the Doha Round.
  1. Bearing in mind that open markets are vital for economic growth, job creation and sustainable development, we reaffirm our commitment and recommend that our Leaders extend a standstill until the end of 2018, and roll back protectionist and trade-distorting measures. We remain committed to exercising maximum restraint in implementing measures that may be consistent with WTO provisions but have a significant protectionist effect and to promptly rectifying such measures, where implemented. In this context, we support the work of the WTO and other international organizations in monitoring protectionism.

Emphasis added.

Significantly, India is not a member of APEC, and the ministers’ statement made clear that they would exhaust all resources in order to convince New Delhi to change its stance and enable the WTO to carry on with its more substantive work.

On November 12th, in Beijing President Obama expressed optimism saying that he was “actually confident that there’s an opportunity for us to resolve them fairly soon.”

On November 13th, the US and India announced that they had reached an agreement to move the TFA forward. Under the bilateral deal, India agreed to drop its opposition to the TFA to streamline international customs procedures while the U.S. agreed to leave a so-called peace clause shielding India’s food stockpiling measures from legal challenges in place until the WTO crafts a permanent solution on that issue.

On November 14th Azevedo predicted that the implementation of a deal streamlining global customs procedures would earn quick approval from the WTO members within two weeks following the Indian government’s move to drop its opposition to the pact.

On November 16, the G-20 leaders in Australia welcomed “the breakthrough” between the U.S. and India that would allow for the “full and prompt” implementation of the TFA. The leaders also pledged to implement other agreements in Bali and swiftly define “a WTO work program on the remaining issues of the Doha Development Agenda to get negotiations back on track,” which it said would “be important to restore trust and confidence in the multilateral trading system.”

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL—RESPONSE TO OPPOSING ARGUMENTS

As stated in my last newsletter and in my October blog post, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which is presently funded at $16 million nationwide. With only a relatively small part of that low budget, the Northwest Trade Adjustment Assistance Center (“NWTAAC”) has been able to save 80 percent of the companies that participated in the program since 1984.

In my last newsletter and my blog, I also argued that President Reagan himself indirectly approved of the TAA for Firms/Companies (“TAAF”) program because it does not interfere with the market in any ways and yet has been able to save a number of US companies. In fact, the TAA programs could be funded by the over $1 billion collected every year by the US government in antidumping and countervailing duties.

But there are two programs. The first program is the $500 million to $1 billion program of TAA for workers and then there is the $16 million TAAF program for companies. Congress should consider reworking the two programs to accomplish the objective of saving the jobs and the companies that are hurt by trade liberalization. There needs to be more coordination between the two programs.

One way to adjust the programs is put the TAAF for Companies program first and give it more funding so it can help larger companies, such as Steel and Tire Companies, where more jobs are located. TAAF for Companies could be used to create a program where the best of technologies and advisory services could be brought to bear to help US companies challenged by globalization and trade liberalization. The Worker program then comes afterwards, after the jobs have been lost. Data that is needed for the Worker program can be supplied as part of the Company program.

But several questions have been raised that need to be answered.

  1. Isn’t TAAF for Companies crony capitalism?

Many opponents might argue that TAAF for Companies is simply crony capitalism. Under the TAAF program, however, very little money actually goes to the companies. Most of the money goes to business consultants that can help the company change its business model or change its marketing strategy.

In fact, as it stands now, the Program only provides $75,000 in matching funds, which means the Company itself must put in the matching $75,000. Although relatively small, the Federal money has been critical in helping US companies develop a strategy to deal with the new import competition in the market place and adjust to market conditions.

The TAAF program also cannot provide hard assets to the company, just business strategy advice and help on soft projects, such as help designing a marketing website, developing software for the company in its production process or designing a dam for an Idaho sheep farm. This is not corporate welfare because the company has to put much of its own assets in both money and labor into the assistance.

WTO also does not consider this a subsidy. No money or assets go to the company. The amount is low and does not harm international trade.

Although the TAAF program could be strengthened so that it could provide TAA for larger companies, such as Steel and Tire companies, the matching funds provision and the limitation on providing only soft projects and consulting is important so that the program cannot be targeted as simply another government subsidy.

TAAF for companies is not another Solyndra program.

  1. Isn’t TAA for Firms/Companies picking winners and losers in the market?

Any company that has been injured by imports/is being impacted by trade competition can apply to enter the program. At its core, the TAAF for companies program provides advice to the company on how to swim in the newly competitive marketplace from business experts, who know how to turn a company around.

In addition, the initial write up of the application is done by experts at TAA Centers around the country, who work with the companies at the local level on a one to one basis to develop a plan to fit the specific needs of the company. Because the program is implemented at the local level by neutral officials, there is no picking winners and losers. Although the final adjustment plan must be approved at Commerce, by that time the politics has been bled out of the situation and the question is can the company meet the criteria in the statute.

  1. Why shouldn’t TAA money go to workers and not companies?

TAA for firms/companies is not TAA for management. The company includes both the management and the workers. If you talk to workers, which have been hit by trade competition, they would rather have their job then just take assistance from the Federal Government.

Although Unions have pushed unfair trade cases, in fact, many of these unfair trade cases do not work. They do not protect the companies, and more importantly the workers from import competition. It is impossible to bring antidumping and countervailing duty cases against every country in the World.

I have met workers at a company that has been saved by the TAA for Firms/Companies program, which helped the company adjust its business plan to compete in the new trade impacted market. The worker in question had been at the factory for over 30 years and was very grateful that the program had saved his job.

In fact, the split between workers and management may be one of the problems that should be addressed by TAA. Often with the small companies, however, the employees and management have been together for years and look upon each other as one in the same. They are all in the company boat together.

Also TAA for Firms/Companies is not an entitlement, a net flow out of the US government. The TAAF program keeps the company alive and keeps the taxes from the company and the company’s management and workers flowing to the US and State Treasuries, which is money going into the US and State treasuries. That is real bank for the buck.

  1. Why can’t Private Investment/Equity funds pick up the slack and thus there is no need for TAA for Firms/Companies?

Private investment companies are often targeting short term profits so if the company cannot achieve short term profits, the company is closed and the assets are sold. Mitt Romney’s company, Bain Capital LLC, invested substantial money into GS Industries, the parent company of Georgetown Steel.  Although Bain made money, it did so by cutting more than 1,750 jobs, closing a division that had been around for 100 years and eventually Georgetown Steel sank into bankruptcy.

TAAF for companies is working long term to save the company and the jobs that go with that company. This is the only long term assistance program in the US government. So the short term profitability of the company is not the issue. The issue is can the company be turned around so that it can become profitable and very profitable in the long term.

Private Equity Firms and TAAF have very different objectives.

  1. What makes TAA for Firms/Companies different from other Economic Assistance to US companies?

TAAF for companies is a trade program, not just a Government assistance program. Trade problems for companies often happen because Government action has changed the US market, be it a free trade agreement, such as the TPP, or a change in government regulations, which has exposed the US companies to import competition.

Since the Government has created the problem in the short term by its own action, it has a responsibility to help US companies and workers that have been impacted by this Government action.

Under the Constitution Congress controls trade, not the President. TAAF is a program that was started to allow Congress and the Administration to negotiate international trade deals, which help the US economy as a whole, but have the effect of creating winners and losers in the US market.

To help building public support for these Free Trade Agreements, TAA has been provided to companies and workers to help them adjust to increased import competition. Although over time, the TAAF for companies program has declined in funding, with the new trade agreements, such as the TPP and the TTIP, the program needs to be built up again to help companies that have been hurt by changes in the US trade laws, which encourage US exports, but also imports from other countries. As stated at the top of this newsletter, trade is a two way street.

In addition, the TAAF program is the only long term assistance program in the US, and it monitors the companies to make sure they implement the plans that they have agreed to.

  1. The TAAF Program Is Too Small To Be Effective

The $16 million TAAF program may be small, but it is very effective.  Since 1984, NWTAAC has been able to save 80% of the companies in the program.

The 2013 NWTAAC report from Commerce points out that all the companies that entered the program since 2011 are still alive today.

In fact, TAAF should be expanded so it can help larger companies, such as Steel and Tire companies, deal with increased competition in the US market as trade agreements reduce barriers to imports.

  1. Why help old line US industries and companies that technology and changing trade patterns have left behind and should die a natural death?

This is the basic creative destructionism argument from famous Harvard economist, Joseph Schumpeter, and it is true if companies do not change with changing market conditions, they will die a natural death.

But TAAF for companies gives companies the opportunity to change and adapt to the changing market conditions. Many TAAF employees that have been working at the Centers for years firmly believe that any company that enters the program can be helped. It may be a new marketing strategy or a change in company equipment, or improvements in their business strategy.  The staff has seen too many success stories to not believe in the power of the program.

In Seattle we had a company making ceramic flowerpots that was being injured by imports of flower pots from Mexico. The company came into the program and as a result started producing ceramic molds for titanium parts for Boeing.  Changing the business plan is one of the best strategies to keep the company alive and the jobs that go with that company.

TAA REAUTHORIZATION NEEDED BY DECEMBER 31ST

On November 20th, in the attached announcements CONGRESS E-MAIL Reauthorize Trade Adjustment Assistance Before It Expires on December 31 REAUTHORIZATION SEAL, House and Senate Democrats urged Congress to reauthorize TAA before it expires December 31st. Although the emphasis is on the TAA for Workers program, the Reauthorization would also apply to TAA for firms/companies. As it stands now, as of January 1, 2015, TAA will no longer be able to provide trade adjustment assistance to new companies that want to enter the program. If TAA for Companies is not reauthorized by June 1, 2015, all the TAAC centers around the country will close their doors and the program will cease to exist.

As indicated below, funding TAA is the essence of compassionate conservatism.

CONGRESSIONAL E-MAIL NOTICES

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

From: The Honorable Adam Smith Sent By: Mina.Garcia@mail.house.gov Bill: H.R. 4163 Date: 11/20/2014

November 20, 2014

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

Dear Colleague,

We write to draw to your attention to five stories that illustrate the importance of reauthorizing the Trade Adjustment Assistance (TAA) program. TAA provides financial support and re-employment training for workers whose jobs are lost due to trade. It also provides assistance to U.S. companies that have been injured by imports so they can continue to remain competitive and not resort to mass lay-offs or closures.  Funding for service workers expired at the end of 2013. Funding for the remainder of the program – which supports manufacturing workers, farmers, ranchers, fishermen, and firms – will expire on December 31 unless we act to renew it.

In 2013, 100,000 workers qualified for TAA and the results prove the program’s success.  More than 75% of workers who completed the program found jobs within six months, and of those, 90% were still employed a year later.  More than 75% of workers who completed training in 2013 received a degree or industry-recognized credential.   Here are five TAA success stories:

  •  A 74 year-old Seattle die forging firm experienced trade impact and entered the Trade Adjustment Assistance for Firms program (TAAF) in the mid 2000’s. With the assistance of the Northwest Trade Adjustment Assistance Center (NWTAAC), the firm implemented a strategy of adopting certain innovations to develop capabilities in advance of competitors worldwide. NWTAAC assisted the firm in three ways that relied heavily on outside expertise: implementation of a data management system; commercialization of a new alloy; and a revision of the Firm’s website. Two years after completing TAAF, the Firm has increased employment by 11% and sales by 141%.
  •  Rodney Cox worked for 13 years on machinery, most recently at a local hospital in rural Oregon.  He was laid off in September 2010 and could not find another job.  With only a GED, he realized he would need more education to make the wage he had earned as a millwright.  Working with a TAA case manager, he opted to attend a community college that offered an Associate’s degree in Biomedics.  His TAA benefits allowed him to live, temporarily, near the training facility 177 miles away from his home (and family).  Rodney earned his degree and accepted a position as a Bio-Medical Equipment Technician.  He is earning a wage higher than what he earned when he was a millwright.  Of TAA, Rodney said, “Things couldn’t have worked out better for me.  My case managers helped me every step of the way.  I was hired two days after I moved back home with my family.”
  •  Kim Franklin is a single mother with two children.  She worked for a manufacturing company.  When she was laid off, she could not find a similar job.  She realized she needed to consider a new career and to get new skills. Through TAA, she completed Medical Assistance training.  She is now employed as a medical assistant at a health clinic in her community.
  •  Juan Bustamante worked as a machine operator in California for over 11 years making aluminum rims for cars.  When the nearby car facility moved operations out of the country, Juan – and 300 of his colleagues – lost their jobs.  Through TAA, Juan was able to obtain remedial education in English, Math, and Speech at the Los Angeles Valley College Job Training Center.  After completing the coursework, Juan qualified for the Transportation Metro Bus Operator Bridge Training Program.  After completing that program, he received a position with LA Metro and has full benefits.
  •  Judith Fischer worked for a publishing firm in New York and lost her job.  Through TAA, she explored career options and decided to pursue occupational therapy, concentrating on the psychological effects of diminished quality of life issues.  She earned an Associate’s Degree and received a job as a Community Rehabilitation Instructor and Case Manager, working with the developmentally disabled.  Judith plans to pursue a Master of Science in Social Work.  Of her new career, Judith said that it is “rewarding in every way, especially being able to connect with these children and I feel all the love they have to give.”

These examples demonstrate that TAA helps workers find new jobs and firms stay in business when they face new competition from abroad. We urge you to extend the program before it expires on December 31.

/s/                                                                             /s/ SANDER LEVIN                                                         ADAM  SMITH Member of Congress                                                   Member of Congress

/s/                                                                             /s/ CHARLES B. RANGEL                                               DEREK KILMER Member of Congress                                                   Member of Congress

/s/ RON KIND Member of Congress

 United States Congress

SECOND CONGRESSIONAL NOTICE

FOR IMMEDIATE RELEASE

Thursday, November 20, 2014

Contact: Rep. Smith- Ben Halle, (202) 570-2771

            Rep. Levin- Caroline Behringer, (202) 226-1007

            Rep. Kilmer- Jason Phelps  (202)-225-3459

            Rep. Rangel- Hannah Kim, (202)-225-4365

House Dems Urge Congress to Reauthorize TAA Before it Expires December 31st

Washington, D.C.- Today, Senator Sherrod Brown introduced a Senate companion bill to the Trade Adjustment Assistance (TAA) Act of 2014, introduced by Representatives Adam Smith (D-WA), Sander Levin (D-MI), Derek Kilmer (D-WA), and Charles B. Rangel (D-MI). These bills would renew TAA, which is set to expire on December 31, 2014. Reps. Smith, Levin, Rangel, and Kilmer released the following statement calling for the immediate passage of the TAA:

“It is critical that Congress pass Trade Adjustment Assistance legislation before it expires at the end of the year. Both the House and Senate TAA bills provide critical work training, income support, and health care to help dislocated American workers transition and learn new skills for new careers in competitive industries.  This vital assistance helps American workers and businesses adapt and compete in a rapidly evolving world economy.”

Background: Congress created the TAA program in 1962 in response to the loss of jobs among hard-working Americans as a result of increasing global competition, as well as to promote American competitiveness.  TAA benefits have several components: training assistance, income support while in training, and job search and relocation assistance.  The program assists workers dislocated by the elimination of tariffs and other barriers to trade.  Additional programs assist farmers, fishermen, and firms with the development and implementation of business plans to enable them to regain a competitive foothold. Click here for the full text of the Trade Adjustment Assistance (TAA) Act of 2014.

TAA by the numbers:

  • 2,192,910:  The number of workers served by TAA since it was created in 1974
  • 104,158:  The number of workers eligible to apply for TAA in 2013
  • 50:  The number of states with workers eligible for TAA benefits in 2013
  • 75%: The percentage of TAA workers who got a job within six months of finishing the program
  • 90%: The percentage of those TAA workers who remained employed at the end of the year

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

THE MAGNESIUM CASE — WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US PRODUCERS

As stated in numerous past newsletters, market economy for China is important for US end user production companies. The importance of market economy for the United States is illustrated by the Magnesium from China antidumping case. Recently a large Western company came to me because they were thinking of exporting Chinese magnesium to the United States to help the US magnesium die casting industry. But after discussions, at least in the short term, the company gave up because there is no longer a viable magnesium die casting industry in the United States. The Antidumping Order on Magnesium from China has killed the downstream industry.

In antidumping cases Commerce does not use actual prices and costs in China to determine whether a company is dumping. Dumping is defined as selling at prices in the United States below prices in the home market or below the fully allocated cost of production.

As mentioned before, however, in contrast to Japan, Korea, India, Iran and almost every other country in the World, China is not considered a market economy country in antidumping cases. Commerce, therefore, refuses to look at actual prices and costs in China to determine whether a Chinese company is dumping. Instead Commerce constructs a cost for the Chinese company by taking consumption factors from the Chinese producer for all inputs used to produce the product in question, including raw materials, energy, and labor, and then goes to a Third Surrogate Country to get Surrogate Values often from Import Statistics in the surrogate country to value those consumption factors.

In the past Commerce looked for surrogate values in only one country, India, but recently Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and those countries and import values can change from annual review investigation to annual review investigation.

Thus, it is impossible for the Chinese company to know whether it is dumping because it cannot know which surrogate value that Commerce will pick to value the consumption factors and thus the US importer cannot know whether the Chinese company is dumping.

In the Magnesium from China antidumping case, one of the key inputs is electricity. Electricity from hydro power in China, where many of the Chinese companies are located, can be as low as 3 cents a kilowatt hour. The average electricity cost in the US is 6 cents a kilowatt hour. What price did Commerce use as a surrogate value for electricity in the recent Magnesium review investigation? 7 cents a kilowatt hour.

This is very important because as of February 2014, there were 121 Antidumping and Countervailing Duty orders. 75 of those orders are for raw material products, such as metals, chemicals and steel, which go into downstream US production.

The Commerce Department has broad discretion to determine surrogate countries and values and their choices can change from annual review investigation to annual review investigation, exposing US importers to millions of dollars in retroactive liability based on a process, which is inherently arbitrary, because Commerce does not look at actual prices and costs in China.

Not only is there a problem with retroactive liability for US importers, US end user companies are often blocked from using the competitive Chinese raw material input, which, in turn, exposes the US downstream producers, such as foundries, automobile and chemical producers, to competition from Chinese companies and foreign companies that do have access to the lower cost raw materials. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

One example of the devastating impact of the US Antidumping Law is the impact of the US Magnesium from China antidumping case on the US Magnesium Die Casters. As the North American Die Casting Association stated in June 2010:

North American Die Casting Association

June 7, 2010 ·

NADCA Supports Magnesium Die Casters with a Filing to Help Lift Tariffs

May 27, 2010 by NADCA in NADCA News Wheeling, IL

NADCA recently filed a response to the International Trade Commission (ITC) in hopes to help lift ITC’s tariffs on imported magnesium alloy. Since many die casters have been harmed by the excessive prices being charged by the sole magnesium alloy producer in the U.S., NADCA has filed this response in regards to the Sunset Review of this particular ITC tariff. . . .

NADCA is concerned about magnesium die casters having access to alloy magnesium in the U.S. at globally competitive prices. The antidumping duty orders effectively bar Russian and Chinese alloy magnesium from the U.S. market. Prices for alloy magnesium are higher in the U.S. than elsewhere due to the antidumping duty orders currently in place in the U.S. but not in other major consumer markets.

The lack of effective competition in the U.S. market ― there is only one significant U.S. producer of alloy magnesium, US Magnesium LLC ― has harmed die casters since the imposition of the antidumping duty orders in 2005. NADCA estimates that as many as 1,675 direct jobs and 8,000 supporting jobs have been lost in the die casting industry due to the imposition of these orders.

US Magnesium has not made significant efforts to maintain or increase its sales of alloy magnesium in the U.S. since the imposition of the antidumping duty orders. For example, US Magnesium has not joined in efforts initiated by magnesium end-users to develop new uses of magnesium.

Thus an antidumping order to protect more than 450 production jobs in Utah has resulted in the loss of 9,657 jobs in the downstream market.

What did the ITC do in the face of this argument?

Left the antidumping order against magnesium from China in place for another five years.

Now in 2014, what has been the effect of the ITC’s decision to leave the Antidumping Order on Chinese Magnesium in place—more closed companies and more lost jobs. In 2004-2005 43 US companies sold magnesium die castings in the US market.   According to NADCA, less than 12 US companies now produce magnesium die castings in the United States.

NADCA estimates that 31 US companies have ceased pouring magnesium in the United States because of the antidumping order against magnesium from China.  US companies, such as Lunt in Illinois, simply went out of business because of the Magnesium from China Antidumping order. In 2010, when NADCA did the survey, it estimated a job loss of 1,675 direct jobs. Now the jobs loss has swelled to over 2,000 and closer to 10,000 supporting jobs.

12 companies have survived because they fall into two categories. The major market for magnesium die casting is auto parts. The first set of companies use the magnesium die castings that they produce ( i.e. Honda).

The second set of US companies are those strong in other metals, such as aluminum, and have shifted from producing magnesium die castings to aluminum die castings.

Where did the magnesium jobs and companies go? Many companies and projects simply moved to Mexico or Canada.

Many OEM magnesium auto parts manufacturers moved all their production to Mexico. Five Tier 1 steering wheel manufacturers, for example, have magnesium die casting and wheel assembly plants in Mexico, including TRW, AutoLiv, Takata, Key Safety Systems and Neaton.

The other impact of the antidumping order on Magnesium from China has been to push North American car companies away from magnesium auto parts, necessary for light weight cars, especially powertrain, mainly because of the supply uncertainty.   Lack of access to 80% of the world’s production of magnesium in China and not having globally priced metal inputs is a huge risk to car companies. Magnesium powertrain die casters, such as Spartan, have simply switched to aluminum further reducing magnesium die casting capacity and expertise in the US.

This further diminishes US auto makers acceptance of magnesium auto parts.  This US situation greatly contrasts with Europe where magnesium powertrain components are more than 50% of the magnesium auto applications. EU OEMs are much more advanced at building lighter cars now than their US peers.

Now NADCA has given up because it is “simply too difficult to fight city hall”. My potential client also told me that it was just not worth it to fight the Magnesium antidumping order because the downstream market for the product had simply died in the United States.

The Antidumping law in truth is a jobs destroyer, not a jobs creator.

THE WOODEN BEDROOM FURNITURE ANTIDUMPING CASE—NO HELP TO THE DOMESTIC INDUSTRY BUT 100S OF MILLIONS OF DOLLARS IN RETROATIVE LIABILITY FOR US IMPORTERS AND BANKRUPTCIES

On November 18, 2014, in Mark David, a Division of: Baker, Knapp & Tubbs, Inc. et al v. United States, CIT MAOJI, the Court of International Trade (“CIT”) affirmed a Commerce Department decision of a 216% rate for Maoji, a major Chinese exporter, in the Wooden Bedroom Furniture case creating probably 10s of millions of dollars in retroactive liability for US importers.

In that decision, Judge Tsoucalis stated:

“Maoji does not dispute that they failed to participate fully in the review, and that they therefor can be subjected to an AFA rate. The issue before the court is instead whether Commerce’s application of the 216.01% PRC-wide AFA rate to Maoji was reasonable. Plaintiff argues that the 216.01% PRC-wide AFA rate was neither reliable nor relevant. . . . According to Plaintiff, Commerce applied an “outdated” and “unsupported” margin that did not reflect Maoji’s commercial reality. . . .

Plaintiff does not appear to dispute Commerce’s finding that Maoji failed to rebut the presumption of government control in the Final Results. During the review Maoji notified Commerce that it was not practicable for it to provide a response to the Section D questionnaire or the supplemental Section A questionnaire. . . . Commerce determined that Maoji was a part of the PRC-wide entity. . . . Because Maoji failed to respond to Commerce’s questionnaires regarding its separate rate eligibility during the review, Commerce reasonably concluded that Maoji failed to demonstrate its absence of government control. . . .

Unlike Orient in Lifestyle I, here, Maoji failed to qualify for separate rate status. As a result it received the PRC-wide AFA rate. Because Maoji was part of the PRC-wide entity, Commerce was not required to calculate a separate AFA rate relevant to Maoji’s commercial reality. . . . Commerce was only required to corroborate the rate to the PRC-wide entity. . . . Therefore, Plaintiff’s reliance on Lifestyle I is misplaced. Lifestyle I does not call into question the PRC-wide rate as applied to the PRC-wide entity, rather it only discredits its application to Orient, which successfully established the absence of both de jure and de facto government control.”

Several years ago, an importer asked me to meet with Maoji in Shanghai and talk to them about the Wooden Bedroom Furniture case. From talking to the importer, I knew that Maoji was exporting a lot of furniture from different Chinese manufacturers and asked the Manager from Maoji, what would happen if Commerce picked Maoji as a mandatory respondent in the review investigation and it had to report factors of production/consumption factors from all Maoji’s suppliers? Instead of replying, the Manager got mad and started yelling at me, “Who told you we would have to supply production information for all our suppliers?” End of conversation.

In this case, apparently Maoji could not supply its response to Section D of the questionnaire because it was not practicable. Section D of the questionnaire requires the exporters to report consumption factors for its wooden bedroom furniture suppliers/producers. Too many producers apparently did not want to cooperate with Maoji and supply their production information.

But now all the importers that imported from Maoji are exposed to retroactive liability of 216% on imports. Based on my past experience, this means that importers will owe millions and possibly 10s of millions of dollars on these imports.

A month ago while in Beijing during a meeting with the Chamber of Light Industrial Products, a Chinese Chamber official told me that he regarded the Wooden Bedroom Furniture case as a victory for Chinese companies. My response was that this same case has created retroactive liability of close to, if not more than, $1 billion for US importers. Last year, exports of furniture from Vietnam went by exports of furniture from China. So if the Wooden Bedroom Furniture case was a victory, I would hate to see a loss. In fact, this case has been a disaster.

But this case along with the comments of the Chamber official indicate that Chinese companies simply do not understand the impact of these cases on US importers and in some cases, simply do not care. I have met with company owners in High Point, North Carolina, who have seen their entire $50 million dollar blow up because they had the temerity to import Chinese wooden bedroom furniture from China under an antidumping order.

The irony of the Wooden Bedroom Furniture case is illustrated by the December 2010 ITC determination in the Wooden Bedroom Furniture from China Sunset Review investigation, where ITC Commissioner Pearson stated the antidumping order has not helped the US industry:

this investigation . . . raises some troubling questions. . . . This industry would have faced difficulties during the period of review under any circumstances, given the depth of the recession and its extensive effects on the housing market. But even before the recession began, the industry was not apparently gaining much benefit from the imposition of the order. The domestic industry’s market share continued to decline after the order, as did production, capacity utilization, and employment. In the long run the domestic industry might have been expected to struggle to retain any benefits from this order as importers and retailers sought supply in other, lower-cost markets outside China. But the record here suggests that the domestic industry gained little even before those adjustments began to be made. . . .

I am mindful that the law does not require that an antidumping order or countervailing duty order be shown to benefit the domestic industry in order to reach an affirmative finding in a five-year review. . . .In this particular investigation, additional costs and distortions have been added by the use of the administrative review and settlement process, with little evidence that these distortions have yielded any benefits to the industry overall, the U.S. consumer, or the U.S. taxpayer.

So if the antidumping order does not benefit the US industry, why doesn’t the US industry simply lift the order? Two reasons, first the US industry and the lawyers representing the industry have made money from private settlements with Chinese companies and US importers. Second, although the AD order may not have helped the US industry directly, it has had the effect of eliminating a number of the US industry’s direct competitors, which are US importers forcing them into bankruptcy because they imported furniture under an antidumping order against China.

IMPORT ALLIANCE FOR AMERICA

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

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

Recently, the Import Alliance established its own website. See http://www.importallianceforamerica.com.

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

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for the Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226. The PowerPoint we used to describe the Import Alliance, the specific provisions in the US China WTO Agreement and the Trade War in general is attached FINAL BEIJING IMPORT ALLIANCE POWERPOINT.

TRADE

SOLAR CASES—POSSIBLE SCOPE EXPANSION TO INCLUDE PANELS PRODUCED IN CHINA AND TAIWAN FROM THIRD COUNTRY SOLAR CELLS AND SEPARATE RATES PROBLEM

SOLAR PRODUCTS

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%. On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

Posted on my October blog post are the Commerce Department’s Factsheet, Federal Register notice, Issues and Decision memo from the Antidumping Preliminary Determination along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, which will help importers understand what products are covered by this case. Also attached to the October blog post is the ITC scheduling notice for its final injury investigation in the Solar Products case. The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce, which is posted on my blog, expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department. Although some preliminary discussions have been held, no Agreement has been released for comment as required by the Antidumping and Countervailing Duty law.

Meanwhile, the case moves on and expands. In an October 3, 2014 memo, which is posted in my October post, on its own motion Commerce has proposed to expand the scope of the Solar Panels case to cover all panels produced in Taiwan and China from third country solar cells.

On October 16, 2014, on behalf of two importers that import solar panels with third country solar cells in it, we filed a brief to argue that a change this late in the Solar Products investigation expanding the products subject to investigation violates due process because of the lack of notice to US importers and Chinese exporter and producers. The problem with changing the scope this late in the antidumping and countervailing investigation is that Commerce Department’s record is now closed and those Chinese companies that exported solar panels with third country solar cells in them along with the US companies that import those products have no opportunity to prove that the Chinese companies are separate and independent from the Chinese government. The Chinese companies, therefore, will automatically get an antidumping rate of 167%.

Moreover, the entire antidumping and countervailing duty proceedings at Commerce as well as the injury investigation at the US International Trade Commission (“ITC”) are based on the premise that the products covered by this investigation are solely those solar panels that have solar cells wholly or partially produced in the subject countries, Taiwan or China. If Commerce accepts the proposal, that will no longer be the case. The Solar Products cases will cover Chinese and Taiwan solar panels with third country solar cells in them when there is no specific determination at the Commerce Department that those Chinese and Taiwan solar panels with third country solar cells, in fact, were dumped or that the Chinese companies producing those panels received subsidies and no determination at the ITC that the solar panels with third country solar cells in them caused injury to the US industry.

One reason that Commerce may have decided to expand the scope is because the AD and CVD orders will be difficult to administer and enforce. It will be difficult for Customs officials at the border to determine where the components of a solar cell in a particular panel from China or Taiwan originated. But that is a problem with the scope in Solar World’s initial petition that it filed in this case. Substantially changing the game at this stage in the proceedings raises enormous due process questions in this proceeding.

We now await the Commerce Department’s final determination on December 16th.

SOLAR CELLS—THE SEPARATE RATES ISSUE

On November 20, 2014, in the attached Jiangsu Jiansheng Photovoltaic Technology Co., Ltd. v. United States decision, CIT JIANGSU SEPARATE RATES, the Court of International Trade (“CIT”) granted the Commerce Department’s request to take another look at the separate rates issue regarding certain “state-owned” Chinese companies. In doing so the Court stated that even though there was a possibility of government influence that was not enough to deny a Chinese company separate rates. As indicated below, this decision seems to be at odds with the Diamond Sawblades case and the Tetrafluoroethane case.  As the Court stated:

“Specifically, SolarWorld argues that Commerce gave insufficient weight to evidence that Chinese laws permit the government to intervene in Chinese companies’ operations in a variety of ways. But by definition, the laws of an NME country will generally permit the government of such country to intervene in the operations of its companies. Thus to require NME companies to prove complete legal autonomy would introduce an internal inconsistency into the analysis. Instead, as Commerce explained in this case, the agency determines whether the legal possibility exists to permit the company in question to operate as an autonomous market participant, notwithstanding any residual authority for potential governmental intervention, and if so, whether that company should be exempted from the NME system-wide analysis because it in fact managed its production, pricing, and profits as an autonomous market participant. Here, Commerce first determined that, as a matter of de jure possibility, the respondents in question could have acted as sufficiently autonomous market participants to deserve separate rates; then, having made this threshold determination, Commerce determined that the evidence in the record reasonably supported the conclusion that these respondents in fact did act sufficiently autonomously in terms of managing production and profit and setting prices during the POI.

Commerce requests and is granted permission to reconsider the record evidence regarding whether certain respondents were sufficiently autonomous from the Chinese government in the conduct of their export activities as to qualify for rates separate from the PRC-wide entity. In doing so, Commerce need not require proof of complete freedom from any mere legal possibility of government control. . . .

Commerce has determined that the weight of the evidence suggests the contrary conclusion, and SolarWorld has not pointed to any specific nonspeculative evidence to cast doubt upon this determination. Accordingly, because Commerce has considered and relied upon sufficient evidence to reasonably support the agency’s conclusion that the respondents in question were sufficiently autonomous from government control over their export activities to qualify for a separate rate, and because SolarWorld presents no specific evidence to impugn these reasonable determinations Commerce’s findings with regard to these separate-rate recipients are supported by substantial evidence.. . . ,

SolarWorld also argues that Commerce’s decision to grant separate-rate status to these respondents was arbitrary because, in the past, Commerce has denied such status to respondents who submitted ownership evidence that was later contradicted at verification. But the issue presented here is not analogous to the prior decisions on which SolarWorld relies because the respondents in those cases had submitted ownership information that was contradicted at verification, whereas here there was no similar impeachment of any of the evidence submitted by the challenged separate-rate recipients . . . .

Essentially, SolarWorld believes that the potential for governmental control through such managers or board directors categorically precludes a finding that such companies in fact acted autonomously in conducting their own export activities. The core of SolarWorld’s argument is that these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI.

Fundamentally, SolarWorld’s arguments regarding the de facto autonomy of the challenged separate-rate recipients suffer from the same analytical defect as its arguments regarding de jure autonomy – namely that, in an NME country, there will usually be state involvement and authority to intervene in these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI. . . .

But this fact alone does not necessarily lead to the conclusion that all NME producers and exporters should be categorically treated as in fact setting their prices according to some centralized strategy. Here, each of the challenged separate-rate recipients submitted evidence that “(1) [t]heir [export prices] are not set by, and are not subject to, the approval of a governmental agency; (2) they have authority to negotiate and sign contracts and other agreements; (3) they have autonomy from the government in making decisions regarding the selection of management; and (4) they retain the proceeds of their export sales and make independent decisions regarding the disposition of profits or financing of losses.” Moreover, “[a]ll of the separate rate respondents at issue reported that neither SASAC nor the government was involved in the activities of the board of directors.”

Footnotes omitted, emphasis added.

TETRAFLUORETHANE CASE—COMMERCE FINDS VERY HIGH ANTIDUMPING MARGINS, BUT ITC SAYS NO INJURY AND DISMISSES THE ENTIRE CASE

On October 15, 2014 in the attached fact sheetfactsheet-prc-1112-Tetrafluoroethane-ad-cvd-final-101514, Commerce found dumping and countervailable subsidization of Imports of 1,1,1,2-Tetrafluoroethane from the People’s Republic of China with antidumping rates for all of China of 280%, in part, by refusing to give Chinese state-owned companies their own antidumping rates. Such a high antidumping rate meant that all 1,1,1,2-tetrafluoroethane from China would be excluded from the US market.

On November 12, 2014, however, the US International Trade Commission based on a 4-2 vote in the attached fact sheet, ITC NO INJURY VOTE TETRFLUORETHANE, determined that the US industry was not injured by reason of imports of 1,1,1,2-Tetrafluorethane from China. The case, therefore, is dismissed and no antidumping and countervailing duty orders will be issued.

CAFC SAWBLADES CASE—NO SEPARATE ANTIDUMPING RATES FOR CHINESE STATE OWNED COMPANIES

On October 24th, in the attached one-sentence opinion, DIAMOND SAWBLADES CAFC DECISION, the Court of Appeals for the Federal Circuit (“CAFC”) in Advanced Technology & Materials Co. v. United States affirmed a decision by the CIT that found Chinese diamond saw blade companies had not done enough to show their independence from China’s government to deserve their own anti-dumping order rates, overturning 20 years of past cases by the Commerce Department. The CAFC affirmed the Commerce Department’s determination to provide Advanced Technology a 164.1 percent margin as the China-wide rate, not the 2.82 percent rate that had been assigned to them separately.

As stated in the September newsletter, in response to the CIT decisions in the Diamond Sawblades case, which are attached to my September blog post, Commerce is making it more difficult for Chinese state owned companies that are under the supervision of the PRC’s State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) to get their own separate antidumping rate. Commerce continued that position in the 1,1,1, 2 Tetrafluoroethane from China case, but ITC threw out the case for no injury.

TIRES FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE

Although Senator Kay Hagan sent a letter to Commerce regarding the Tires case, she lost her reelection fight in North Carolina to Republican Tom Tillis apparently, in part, because of her position on trade issue. But there will still be substantial political heat on the Commerce Department over the Tires case.

On November 22, 2014, Commerce announced its preliminary determination in the Tires countervailing duty investigation.  Attached are the Federal Register notice and Commerce Department factsheet  factsheet-prd-passenger-vehicle-light-truck-tires-cvd-prelim-112414 Tires PRC CVD Prelim FR as signed (3). The CVD rates ranged from moderate to very high, with the average rate being moderate.  GITI Tire (Fujian) Co., Ltd. and certain cross-owned companies received 17.69%; Cooper Kunshan Tire Co., Ltd and certain cross-owned companies 12.50%; Shandong Yongsheng Rubber Group Co., Ltd. 81.29% and all other Chinese exporters receiving a rate of 15.69%.

Commerce has found critical circumstances applying countervailing duties to imports 90 days prior to the preliminary determination to cover imports as early as late August.  As it stands now, imports since late August will now be covered by the Countervailing Duty case exposing importers to millions of dollars in retroactive liability.

ALUMINUM EXTRUSIONS

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On the other hand Senator Mitch McConnell sent a May 8th letter about circumvention of the aluminum extrusions antidumping order followed by a letter from Senator Orrin Hatch. Senator Mitch McConnell in January will be the Senate Majority leader as the ranking Republican in the Senate, and Senator Orrin Hatch will be the new Chairman of the Senate Finance Committee. So both Senators will have enormous influence in the new Congress.

On September 4, 2014, Assistant Secretary for Enforcement and Compliance Paul Piquado in a letter posted on my October blog post assured the lawmakers that the agency is “committed to the robust enforcement of the trade remedy laws” to help provide U.S. firms and workers the opportunity to “compete on a level playing field.”

CARBON AND ALLOY STEEL WIRE ROD FROM CHINA FINAL ANTIDUMPING DETERMINATION

On September 2, 2014, in a factual statement, which is posted on my September blog post, the Department of Commerce (Commerce) announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of carbon and certain alloy steel wire rod from the People’s Republic of China (China).  Since the Chinese companies failed to respond to the Commerce Department’s questionnaire, they received a preliminary dumping margin of 110.25 percent with the separate rate steel companies receiving a preliminary dumping rate of 106.19 percent.

Because no Chinese companies participated in the initial investigation, on November 13, 2014, in the attached fact sheet, factsheet-prc-carbon-certain-alloy-steel-wire-rod-ad-cvd-final-111314, Commerce announced its final determination finding dumping and Countervailable Subsidization of Imports of Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China. Commerce handed out 110.25 percent “adverse facts available” anti-dumping duty rates, countervailable subsidies ranging from 178.46 percent for Hebei Iron & Steel to 193.31 percent for Benxi Steel. All other Chinese producers not named were assessed a CVD rate of 185.89.

The agency found critical circumstances that warranted remedial, retroactive duties to be paid by US importers for imports of carbon steel wire rod three months prior to the Commerce Department’s preliminary determination from all Chinese companies in the CVD investigation and all but three Chinese exporters in the AD investigation.

ITC AFFIRMATIVE FINAL INJURY DETERMINATION MONOSODIUM GLUTAMATE FROM CHINA

On November 17, 2014, in the attached Federal Register notice, ITC MONOSODIUM Glutamate, the ITC determined that the US industry was materially injured by reason of imports of monosodium glutamate from China and Indonesia and antidumping and countervailing duty orders will be issued in that case.

COMMERCE DEPARTMENT AFFIRMATIVE PRELIMINARY ANTIDUMPING DETERMINATION—DOMESTIC DRY SEA CONTAINERS FROM CHINA

On November 20, 2014, in the attached fact sheet, factsheet-prc-53ft-domestic-dry-containers-ad-prelim-112014, Commerce announced its affirmative preliminary antidumping determination in the 53-foot domestic dry containers (domestic dry containers) from China case finding dumping margins ranging from 24.27% to 153.24%.

NOVEMBER ANTIDUMPING ADMINISTRATIVE. REVIEWS

On November 3, 2014, Commerce published in the Federal Register the attached notice, NOV REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Certain Cut-to-Length Carbon Steel Plate, Certain Hot-Rolled Carbon Steel Flat Products, Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Diamond Sawblades and Parts Thereof, Fresh Garlic, Lightweight Thermal Paper, Paper Clips, Polyethylene Terephthalate Film, Sheet and Strip, Pure Magnesium in Granular Form, Refined Brown Aluminum Oxide, Seamless Carbon and Alloy Steel Standard Line, and Pressure Pipe, Seamless Refined Copper Pipe and Tube.

The specific countervailing duty cases are:

Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Lightweight Thermal Paper, Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe.

For those US import companies that imported Carbon Steel Plate, Coated Paper, Diamond Sawblades, Garlic and the other products listed above from China during the antidumping period November 1, 2013-October 31, 2014 or during the countervailing duty review period of 2013 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. Recently in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

On October 30, 2014, in the attached notice, OCT REVEW INVESTIGATIONS, based on requests in September, Commerce initiated several review investigations against a substantial number of Chinese companies in the Lined Paper Products, Kitchen Appliance Shelving and Racks, Certain New Pneumatic Off-The-Road Tires, Freshwaters Crawfish Tailmeat, and Narrow Woven Ribbons with Woven Selvedge cases.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST MELAMINE FROM CHINA

On November 12, 2014, Cornerstone Chemical Company filed a new antidumping and countervailing duty petition against Melamine from China and Trinidad and Tobago.  The petition alleges antidumping rates of 263.76 to 374.14 on imports of Chinese melamine.

Melamine is “a fine, white crystalline powder that is used primarily to manufacture amino resins, the major end uses of which include surface coatings, laminates, molding compounds, paper treatment, adhesives, and textile-treatment applications in the automotive, appliance, dinnerware, furniture, fabric, and wood paneling industries.

Attached are  a short version of the petition along with an Extract which includes a list of the Chinese companies and US Import Companies that are the targets of this case,  Petition on Melamine from PRC & Trinidad and Tobago ExtractPage1. The targeted Chinese companies are listed below.

Allied Chemicals Inc. China, Anhui Garments Shoes & Caps Industrial Group Co. China, Anhui Jinhe Industrial Co., Ltd., Anhui Sunson Chemical Group Co., Ltd., ChemChina, China Haohua (Group) Corp., Chengdu Yulong Chemical Co., Ltd., CNPC Urumqi Petrochemical General Factory, CNSG Anhui Hong Sifang Co., Ltd., Dalian Rion Chen Intl. Trade Co. Ltd. China, Dezhou Defeng Chemical Co., Ltd., Far-Reaching Chemical Co., Ltd. China, Forwarder Chinese, Fujian Sangang (Group), Full Shine Group Co., Ltd. China, Future Foam Asia Inc. China, Hebei Jinglong Fengli Chemical Co., Ltd., Hefei Tianfeng Import & Export Co Ltd China, Henan Jinshan Chemical Group Co., Ltd., Henan Yuhua Fine Chemical Co., Ltd., Henan Zhongyuan Dahua Group Co., Ltd., Holitech Technology Co., Ltd. China, Hubei Huaqiang Chemical Group Co., Ltd., JianFeng Chemicals, Jiangsu Heyou Group Co., Ltd., Jiangsu Sanmu Group Corporation, Kaiwei Investment Group, Kingboard (Panyu Nansha) Petrochemical Co., Ltd., M And A Chemicals Corp China, Nanjing Deju Trading Co Ltd China, Nanjing Jinxing Petrochemical Enterprise, Nantong Zixin Industrial Co., Ltd., OCI Trading (Shanghai) Co., Ltd. China, Panjin Zhongrun Chemical Co., Ltd., Puyang San’an Chemical Co., Ltd., Qingdao Shida Chemical Co., Ltd. China, Shandong Jinmei Mingshui Chemical Co., Ltd., Shandong Liaherd Chemical Industry Co. Ltd., Shandong Luxi Chemical Co., Ltd., Shandong Sanhe Chemical Co., Ltd., Shandong Shuntian Chemical Group Co. China, Shandong Xintai Liaherd Chemical Co., Ltd., Shandong Yixing Melamine Co., Ltd., Shanxi Fenghe Melamine Co., Ltd., Shanxi Tianze Coal Chemical Group Co., Ltd., Sichuan Chemical Works Group Ltd., Sichuan Golden-Elephant Sincerity Chemical Co., Ltd., Sichuan Meifeng Group Co., Ltd., Sichuan Jade Elephant Melamine Scientific and Technological Co., Ltd., Sinopec Jinling Petrochemical Co., Ltd., Well Hope Enterprises Limited, Xinji Jiuyuan Chemical Co. Ltd. China, Zhejiang Fuyang Yongxing Chemical Co., Ltd., Zhejiang Medicines & Health Product Imp. & Exp. Co. Ltd. China, Zhongyuan Dahua Group Company Ltd China, Zhucheng Liangfeng Chemical Co., Ltd.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached are a copy of the powerpoint for the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE

There is a great deal of confusion and uncertainty surrounding business with Russian companies. As sanctions continue to expand against Russia, any company interested in doing business with Russia must constantly check the regulations and hire legal counsel. Every single transaction with Russian entities is a potential target of the sanctions, and, therefore, any US company interested in doing business with Russia must be extremely vigilant. The US regulations mirror regulations in Canada and the EU, but there are differences.

There are two groups of US regulations. The most powerful regulations are administered by Treasury—Office of Foreign Assets Control (“OFAC”). A second group of regulations have been issued by the Commerce Department’s Bureau of Industry and Security (BIS) blocking exports of certain energy-sector technologies.

With regards to the sanctions administered by OFAC, US Presidential Executive Orders 13660, 13661, and 13662 define how U.S. Government will identify targets of sanctions (e.g., financial services, energy, metals and mining, engineering, and defense sectors and government agencies and officials). The specific OFAC regulations regarding Ukraine are set forth in 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting transactions with specific persons and entities. The regulations have been posted on my blog, but they do change as the sanctions evolve.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). A US person must also block the property or interest in property of SDNs that they hold or that is located in the United States. The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank.

On July 29, 2014, OFAC issued a new “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions. See: www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx. U.S. persons are prohibited from engaging in certain transactions with persons and entities on the SSI List, but are not required to “freeze” or “block” property or interests in property of such persons and entities as if they were SDNs.

Thus companies or persons on the SSI list may become named SDNs in the future. SSI and SDN Lists are not static but evolving. Lists will likely expand and have expanded based on Russian behavior in Ukraine. Everything could change overnight. Do not rely on a dated list. Keep checking. www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx

On September 11, 2014, the US and the European Union announced new restrictions on Russian access to capital market. The new sanctions target Russian financial, energy and defense companies and make it more difficult to make loans to the five Russian state-owned banks, by tightening debt financing restrictions by reducing the maturity period of the new debt issued by those institutions from 90 days to 30 days. The companies targeted in the new round of OFAC sanctions include OAO Gazprom, Roseneft, Lukoil OAO, pipeline operator, Transneft, and Rostec, a Russian institution dealing in industrial technology products, along with the nation’s largest financial institution, Sberbank of Russia.

OFAC also added another set of Commerce export restrictions on certain oil development technologies by broadening the scope of the items that are banned and adding Gazprom, Lukoil and three other energy firms to the list of specifically banned export destinations.

On November 11, 2014, the White House indicated that the latest fighting between the Ukraine, which has been triggered by Russian aid to the separatists, is likely to trigger another round of sanctions. Deputy National Security Adviser Ben Rhodes stated, “What Russia will find is, if they continue to do that, it’s a recipe for isolation from a broad swath of the international community.”

Putin’s isolation was indicated by his presence at the G20 talks in Australia, where he was given a very “frosty” reception, which, in part, led to a decision to leave the talks early.

CUSTOMS

We have observed many instances where Customs is cracking down on imports of Chinese solar panels with third country solar cells in them. Customs forces the company to provide extensive documentation to prove that the third country solar cells are actually in the Chines solar panels. Many importers are not able to comply and face antidumping rates as high as 250% on imports.

IP/PATENT AND 337 CASES

337 CASES

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

SUPREMA CASE—INDUCED PATENT INFRINGEMENT 337 CASES

On October 15th, the ITC filed the attached brief, ITC COMMISSION BRIEF, at the Court of Appeals for the Federal Circuit (“CAFC”) in the En Banc appeal in the Suprema Inc. V. US International Trade Commission case. In the prior panel decision, the CAFC held that the ITC could not use induced patent infringement to issue an exclusion order because at the time of the infringement, the imported products did not directly infringe the patents in question. The imported products infringed the patent only after arriving in the United States and being combined with other products in the United States. The ITC asked the entire CAFC to review the panel determination, and the CAFC agreed to an en banc proceeding before all the CAFC judges.

In the brief the ITC argues that the case will have “significant implications for patent holders that rely on inducement liability for protection of their inventions, especially those that hold claims to inventive methods and those that operate industries in the United States.”

The Commission went on to state in the brief:

“Appellants contend that when Congress prohibited the importation of “articles that—infringe” a patent under section 337, Congress meant to excuse the importation of articles intended to induce patent infringement. There is absolutely no support in the language of the statute or the legislative history of section 337 for Appellants’ construction. The importation of “articles that—infringe” via inducement under § 271(b) of the Patent Act is no less prohibited by section 337 than the importation of “articles that—infringe” directly under § 271(a).

The legislative history of the Tariff Act makes clear that it was intended to prevent “every type and form of unfair practice” in the importation of goods. . . . From the beginning, courts understood inducement of patent infringement to be an unfair practice within the scope of the Act. . . .

The only way the Court could adopt Appellants’ interpretation of section 337 would be to ignore the Patent Act, the language of section 337, the intent of Congress, and decades of established practice. This the Court should not do.

To prove the importation of “articles that—infringe” via inducement under section 337 requires proof of three essential elements: (1) importation of an article that is the means of infringement; (2) an intent that the imported article be used to infringe a patent, or willful blindness to infringement; and (3) an act of direct infringement involving the article. . . . The record on review contains substantial evidence of each element. . . .”

The US Government through the Justice Department filed the attched Amicus Brief, US GOVERNMENT SUPREMA BRIEF, which states in part:

Congress charged the International Trade Commission (“Commission” or “ITC”) with the responsibility to exclude from the United States “articles that . . . infringe a valid and enforceable United States patent.” 19 U.S.C. § 1337(a)(1)(B)(i). The Commission reasonably interprets that statutory command to prohibit the importation not merely of fully assembled patented inventions, but of all articles for which infringement liability may be imposed under the Patent Act. No one disputes that, in an ordinary civil action for infringement in district court, a person who imports articles in an intentional scheme to induce infringement of a patent within the United States “shall be liable as an infringer.” 35 U.S.C. § 271(b). The Commission sensibly construes Section 337 in pari materia with that undisputed interpretation of the Patent Act, treating the articles imported in such an infringing scheme as “articles that . . . infringe.”

The Commission acted well within its discretion in adopting that construction of the Tariff Act. The Commission has no choice but to exercise interpretative judgment in applying Section 337(a)(1)(B)(i). As appellants recognize . . ., nothing in the Tariff Act defines the phrase “articles that . . . infringe.” Nor do the patent laws speak in terms of infringing “articles.” Under the Patent Act, persons infringe, not things.  The article by itself cannot literally “infringe” under Section 271 any more than a tract of land can trespass. Thus, in enacting Section 337(a)(1)(B)(i), Congress necessarily expected and intended that the Commission would interpret “articles that . . . infringe” in a manner that appropriately translates the domestic in personam liability provisions of the Patent Act into the in rem framework of exclusion proceedings under the Tariff Act.

The Commission’s construction of Section 337 reasonably resolves that conceptual dilemma by construing the phrase “articles that . . . infringe” to encompass any article whose importation would support infringement liability under the Patent Act, including articles imported for the purpose of inducing patent infringement. That interpretation is consistent with the plain language of both Section 337 and Section 271(b) and with the underlying policies and purposes of the trade laws.

And it has the significant benefit of preventing importers from evading the prohibitions of the Tariff Act through “the most common and least sophisticated form of circumvention, importation of the article in a disassembled state.”

There is little doubt, moreover, that the Commission’s interpretation best effectuates Congress’s intent in 1988 when it enacted Section 337(a)(1)(B)(i). . . . In an uncodified portion of the 1988 legislation, Congress expressly found that Section 337 “has not provided United States owners of intellectual property rights with adequate protection against foreign companies violating such rights,” and declared that the purpose of the 1988 legislation was “to make [Section 337] a more effective remedy for the protection of United States intellectual property rights.”. . . .

That statutory declaration of purpose is impossible to reconcile with the panel’s view that Congress intended to render the Commission “powerless to remedy acts of induced infringement.” . . . By the time of the 1988 amendments, the Commission had for many years construed Section 337 to prohibit, as an unfair trade practice, the active inducement of patent infringement in the United States. It is difficult to imagine why a Congress seeking to enhance the protection of intellectual property rights in Commission proceedings would simultaneously have acted to strip the Commission of its power to redress such infringement.

And it is even more doubtful that Congress would have done so silently and obliquely, without any explanation or even acknowledgment in the legislative history. Congress does not, as the Supreme Court has observed, “hide elephants in mouseholes.” . . . .

In sum, the Commission construes Section 337 to provide remedies against the same forms of infringement at the border that district courts are empowered to redress through in personam infringement actions within the United States. Because that interpretation is reasonable and consistent with “the language, policies and legislative history” of the Tariff Act, it is entitled to deference. . . .

In addition, the atthached briefs were filed by ITC Trial Lawyers Association and Nokia in support of the ITC, ITC TLA Suprema BRIEF Nokia Suprema BRIEF.

SECTION 337 COMPLAINTS

NEW 337 COMPLAINT AGAINST FOOTWARE PRODUCTS FROM CHINA

On October 14th, Converse Inc. filed a new 337 IP case against footwear products/sneakers from China for infringement of Converse’s registered and common law trademarks. Relevant parts of the petition are posted on my October blog post along with the ITC notice. The respondent companies are set forth below:

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Footwear Products . The proposed respondents are: Skechers U.S.A., Inc., Manhattan Beach, CA; Wal-Mart Stores, Inc., Bentonville, AR; A-List, Inc., d/b/a Kitson, Los Angeles, CA; Aldo Group, Canada; Brian Lichtenberg, LLC, Los Angeles, CA; Cmerit USA, Inc., d/b/a Gotta Flurt, Chino, CA; Dioniso SRL, Italy; Edamame Kids, Inc., Canada; Esquire Footwear, LLC, New York, NY; FILA U.S.A., Inc., Sparks, MD; Fortune Dynamic, Inc., City of Industry, CA; Gina Group, LLC, New York, NY; H & M Hennes & Mauritz LP, New York, NY; Highline United LLC d/b/a Ash Footwear USA, New York, NY; Hitch Enterprises Pty Ltd d/b/a Skeanie Unit 3, Australia; Iconix Brand Group, Inc., d/b/a Ed Hardy, New York, NY; Kmart Corporation, Hoffman Estates, IL; Mamiye Imports LLC d/b/a Lilly of New York, Brooklyn, NY; Nowhere Co., Ltd. d/b/a Bape, Japan; OPPO Original Corp., City of Industry, CA; Orange Clubwear, Inc., d/b/a Demonia Deviant, Westminster, CA; Ositos Shoes, Inc., d/b/a Collection’O, South El Monte,CA; PW Shoes Inc., Maspeth, NY; Ralph Lauren Corporation, New York, NY; Shenzhen Foreversun Industrial Co., Ltd (a/k/a Shenzhen Foreversun Shoes Co., Ltd), China; Shoe Shox., Seattle, Washington; Tory Burch LLC, New York, NY; Zulily, Inc., Seattle, Washington; Fujian Xinya I & E Trading Co., Ltd., China; Zhejiang Ouhai International Trade Co., Ltd., China; and Wenzhou Cereals Oils & Foodstuffs Foreign Trade Co., Ltd., China.

On November 12, 2014, the ITC in the attached notice instituted the 337 case against Footwear from China, ITC INSTITUTION CONVERSE CASE. Chinese companies must respond to the complaint in about 30 days. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

On the same day that Converse filed the section 337 case, it also filed a trademark complaint for damages in the Federal District Court in Brooklyn, which is attached to my October blog post.

NEW 337 CASE AGAINST SEMICONDUCTOR CHIPS FROM TAIWAN AND HONG KONG

On November 21, 2014, Samsung Electronics Co., Ltd. and Samsung Austin Semiconductor,LLC filed a section 337 case against Graphics Processing Chips, Systems on a Chip. The respondent companies are listed below:

NVIDIA Corporation, Santa Clara, California; Biostar Microtech International Corp.. Taiwan; Biostar Microtech (U.S.A.) Corp., City of Industry, California; Elitegroup Computer Systems Co. Ltd., Taiwan; Elitegroup Computer Systems, Inc., Newark, California; EVGA Corp., Brea, California; Fuhu, Inc., El Segundo, California; Jaton Corp., Fremont, California; Mad Catz, Inc., San Diego, California; OUYA, Inc., Santa Monica, California; Sparkle Computer Co., Ltd., Taiwan; Toradex, Inc., Seattle, Washington; Wikipad, Inc., Westlake Village, California; ZOTAC International (MCO) Ltd., Hong Kong; ZOTAC USA, Inc., Chino, California.

PATENT AND IP CASES IN GENERAL

INTERDIGITAL WINS JURY CASE AGAINST ZTE

On October 28, 2014, in the attached jury form, ZTE Verdict, a Delaware federal jury determined that smartphones made by Chinese company, ZTE, infringed three patents of InterDigital Communications. The Jurors also determined that ZTE failed to prove the patents obvious. This jury verdict came after a series of setbacks for InterDigital, which lost a series of cases, including a 337 case at the ITC.

InterDigital creates revenue by licensing thousands of patents it develops to various high tech companies and filing cases against companies, such as ZTE and Nokia, that refuse to pay licensing fees.

MADE IN THE USA—FTC AND CALIFORNIA FALSE ADVERTISING PROBLEM

Recently cases involving the Made in US requirement have increased because of stricter requirements by the State of California. FTC guidelines state that an unqualified “Made in USA” label can go on any goods that are “all or virtually all” made domestically in the United States, but the words “virtually all” are open to interpretation based on the specific facts of the case.

But California has stricter guidelines than the FTC requiring the entire product to be made in the US. If even one small part of a product is foreign, California state law says calling the product “Made in the USA” amounts to false advertising. This law has provoked a number of consumer/class action lawsuits filed in California against US manufacturers and retailers.

The California law was passed in 1961 to shield domestic producers from competitors who might get a pricing edge by using large amounts of cheap imported parts to manufacture goods labeled “Made in USA.” The problem is that it has become increasingly difficult to avoid using at least some imported content in a US product.

COURT REFUSES TO DISMISS JEANS CASE AGAINST NORDTROM AND MADE IN USA JEANS

On October 27th, in the attached David Paz v. AG Adriano Goldschmeid Inc. et al, JEANS COURT ORDER, a California Federal Judge refused to dismiss a case for falsely marketing jeans as Made in USA, which they actually contain foreign parts. The Judge stated:

“Although the laws set out different standards for the use of “Made in U.S.A.” labels, it would not be impossible for Defendants to comply with both laws. Outside California, Defendants could use the “Made in U.S.A.” labels, but inside California, they could not. This may be burdensome for Defendants, but it is not impossible for them to do so.” . . .

LAND’S END

On October 29th in the Elaine Oxina v. Lands’ End Inc. case, Elaine Oxina  filed a new Made in USA class action case against clothing retailer Lands’ End Inc. accusing the company of labeling foreign-made apparel as produced in the U.S., a tactic that a California consumer alleges has allowed the business to sell items at a higher price. The complaint alleges:

“Consumers generally believe that ‘Made in USA’ products are of higher quality than their foreign-manufactured counterparts. Due to Defendants’ scheme to defraud the market, members of the general public were fraudulently induced to purchase Defendant’s products at inflated prices.”

The complaint says that Oxina purchased a necktie from Lands’ End’s online store under the assumption that the product was produced domestically. The necktie “was described using the ‘Made in U.S.A.’ country of origin designation, when the product actually was made and/or contained component parts made outside of the United States.”

The complaint also states that an inspection of a fabric tag attached to the necktie revealed that the item “is wholly made” in China. The complaint asserts claims against Lands’ End for false advertising and violations of California’s business code, adding that the alleged damages are in excess of $5 million.

Many retailers are now facing class actions over California’s tough “Made in the USA” labeling law. Retailers are allegedly selling apparel marketed as being American-made, but including foreign-made fabrics, zippers, buttons, rivets and other components.

The lawsuits also illustrate why California differs from the Federal Trade Commission, which also oversees product labeling but has a more relaxed position that is followed by other states. Unlike California, which says every component must be domestic, the FTC allows for some flexibility, saying a “Made in the USA” label can be used if “all or virtually all” of a specific product is made domestically. Getting every component of a piece of clothing from the U.S. has become increasingly difficult as business supply chains have become global.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE AND TAIWAN COMPANIES

On October 22, 2014, in the attached complaint, CHINA COY SUES US COY PATENT INFRINGE, a Chinese company sued Dongguan Prestige Sporting Products Co., Ltd. V. Merits Co. Ltd., a Chinese company, and Merits Health Product Inc., a Florida corporation, for patent infringement of a folding seat rack.

On October 30, 2014, in the attached compliant, CHINA TRADEMARK CASE, Samsung Techwin America, Inc. filed a grey market trademark case against Xtreme Micro LLC and Zhangzhou Peiyu Jinhe Trading Co., Ltd.

On November 5, 2014, Robert Bosch filed the attached patent case, NINGBO WINDSHIELD WIPER CASE, for wiper blades against Ningbo Xinhai Aiduo Automobile Wiper Blade Manufactory Co., Ltd.

On November 7, 2014, Aztrazeneca Pharmaceuticals LP and Astrazeneca UK Ltd. filed the attached pharmaceutical patent case, TAIWAN PHARMA COMPLAINT, against a Taiwan company, Pharmadax USA, Inc., Pharmadax Inc., and Pharmadax Guangzhou Inc.

On November 10, 2013 Dura-Lite Heat Transfer Products Ltd., a Canadian corp., Glacier Radiator Manufacturing Ltd., and Philip Lesage filed the attached patent case, ZHEJIANG MACHINERY, against Zhejiang Yinlun Machinery Co., Ltd. and Yinlun USA, Inc.

On November 14, 2014, the attached complaint, CHANGZHOU KAIDI, was filed by Linak A/S and Linak U.S., Inc. v. Changzhou Kaidi Electrical Co. and Kaidi LLC for patent infringement of innovative electric linear actuator systems for use in many product sectors, including hospital and healthcare equipment.

On November 17, 2014, Tenax SPA filed the attached trademark case, WUHAN TRADEMARK against Wuhan Keda Marble Protective Materials Co., Ltd. for imports of adhesive resins.

PRODUCTS LIABILITY

On October 17, 2014, Joan Kazkevicius filed the attached products liability case, CHINA PRESSURE COOKER CASE, regarding pressure cookers against HSN, Inc., HSNI LLC, W.P. Appliances, Inc., Wolfgang Puck Worldwide, Inc., W.P. Productions, Inc., Zhanjiang Hallsmart Electrical Appliances Co., Ltd., and Guangdong Chuang Sheng Stainless Steel Products Co., Ltd.

FOOD AND FDA RESTRICTIONS

US LIFTS RESTRICTIONS ON CHICKEN AND CITRUS IMPORTS

Despite objections from public consumer groups, on November 5th, the U.S. Department of Agriculture’s Food Safety and Inspection Service stated that it had certified four Chinese poultry product producers to export processed chicken products to the U.S. The USDA accepted the certification of the facilities to export chicken products as long as they are heat-treated or cooked and made from birds originally slaughtered in the U.S. or another approved country such as Canada. The facilities still must be certified for this purpose by Chinese authorities.

The irony is that the Chinese government continues to block US chicken using its antidumping law.

Despite objections from US citrus growers, the U.S. Department of Agriculture (USDA) has proposed to open the continental United States to imports of citrus fruits from China. US citrus companies argue that the Chinese imports could introduce devastating pests to U.S. orchards and invite heavy economic competition from subsidized Chinese farmers.

SEAFOOD

On November 12th, the FDA announced that it may decrease port-of-entry inspections of farm-raised seafood from China and increasingly entrust Chinese authorities with verifying that the country’s aquaculture exports are free of illegal animal drug residues.

CHINESE RESTRICTIONS ON US FOOD PRODUCTS

On Aug. 22, 2014, Agriculture Secretary Tom Vilsack announced that California citrus farmers will be able to resume exports to China this season. A series of scientific exchanges between the USDA’s Animal and Plant Health Inspection Service (APHIS) and China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) resulted in an agreement for California citrus to again be exported to China. APHIS and USDA’s Foreign Agricultural Service worked closely with the U.S. citrus industry to ensure the successful outcome.

In April 2013, California-origin citrus was suspended from entering the Chinese market due to interceptions of brown rot (Phytophthora syringae), a soil fungus that affects stored fruit. Over the next year, USDA worked with China to address China’s plant health concerns and reopen the market for California citrus exports.

In a statement following the USDA announcement, Western Growers Association Executive Vice President Matt McInerney said China was the third-largest market for California citrus exports before the ban. The USDA release said California citrus exports have a total annual value of $30 million.

On September 15th, it was announced that USDA and USTR officials were in Beijing to discuss the implementation of the Trade Facilitation Agreement (TFA) and in particular a meeting of the sanitary and phytosanitary (SPS) working group of the U.S.-China Joint Commission on Commerce Trade (JCCT), where the agenda will likely touch upon issues like China’s ban on U.S. beef and its regulatory process for approving biotechnology traits. China closed its beef market to U.S. exports due to a 2003 outbreak of bovine spongiform encelopathy (BSE) – or “mad cow” disease — and has since set a number of preconditions for opening it, including a U.S. livestock traceability system.

CHINA LIFTS RESTRICTIONS ON WASHINGTON APPLES

On October 31, 2014, in the attached statement from Washington State, CHINA LIFTS WASHINGTON APPLE SUSPENSION, Agriculture Secretary Tom Vilsack announced that China is lifting its suspension of red and golden delicious apple imports from Washington State. The Chinese market for Washington apples was valued at $6.5 million in calendar year 2011.

In 2012, China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) suspended access for Washington red and golden delicious apples due to the repeated interception of three apple pests AQSIQ considers significant: speck rot, bull’s-eye rot, and Sphaeropsis rot. To lift this suspension, USDA’s Animal and Plant Health Inspection Service (APHIS) worked with the U.S. apple industry to develop additional safeguarding measures that address China’s concerns about these pests. Some of these new measures include cold storage of apples and visual inspection of apples prior to shipping to ensure there is no evidence of disease.

CHINESE INVESTMENT AND PRODUCTION IN UNITED STATES

See the very powerful video about Chinese investment in the US creating 70 to 80,000 US Production Jobs. The investment is in the billions and includes textiles.

http://money.cnn.com/video/news/economy/2014/10/23/we-the-economy-made-by-china-in-america.cnnmoney/index.html?iid=HP_River

ANTITRUST—SOLAR AND MAGNESITE

There have been major developments in the antitrust area both in the United States and in China.

SOLAR ANTITRUST CASE DISMISSED

On November 3, 2014, a Federal Judge in Michigan, in the attached opinion, ACTUAL ORDER DISMISS CHINESE SOLAR ANTITRUST CASE, dismissed a $950 million antitrust lawsuit accusing several Chinese solar panel producers of participating in a price-fixing scheme by finding that the US company have failed to establish standing. The US Judge ruled that the Chinese companies did not have the power to set up barriers to entry into the solar panels market and therefore could not eventually charge supracompetitive prices to recoup losses from selling solar panels at below cost in order to gain market share. As the Judge stated: “The court finds that plaintiff has failed to allege a dangerous probability of recoupment and, therefore, has failed [to] allege antitrust standing.”

On November 17th, in the attached complaint, RECONSIDERATION SOLAR CHINA PRICE FIX, Energy Conversion Devices Inc. urged a Michigan federal judge on Friday to reconsider his decision. ECD accused the Chinese companies of orchestrating a complex price-fixing scheme to sell inferior solar panels in the U.S. at artificially low prices by dumping their products in the US and thereby achieve market domination. The Judge’s original dismissal opinion had found that below-cost pricing alone is not enough to prove antitrust injury.

NEW MAGNESIUM ANTITRUST COMPLAINT

In response to the Court order dismissing the Magnesium Antitrust case, with options to amend the complaint, which is attached to my last blog post, on November 3, 2014, Animal Science Products, Inc., Resco Products, Inc., and S&S Refractories filed the attached new antitrust complaint, NEW MAGNESIUM COMPLAINT. The complaint, which will be attached to my blog, is against Chinese magnesium companies, Xiyang Fireproof Material, Co., Ltd., Sinosteel Corp., Sinosteel Trading Co., Liaoning Jiayimetals & Minerals Co., Ltd., Liaoning Foreign Trade General Corp., Liaoning Jinding Mangnesite Group., Dalian Golden Sun Import & Export Corp., Haicheng Houying Corp., Ltd., and Haicheng Huayu Group Import & Export Co., Ltd, Haicheng Pailou Magnesite Ore Co., Ltd. and Yingkou Huachen (Group) Co., Ltd.

AUTO NEWS — CONFESSIONS OF A PRICE FIXER

On November 16, 2014 Auto News published an interesting article “Confessions of a Price Fixer”. See http://www.autonews.com/article/20141116/OEM10/311179961/confessions-of-a-price-fixer

The article described how a Japanese executive used to the comfortable expat life, was one of dozens of white collar criminals arrested and jailed for what has become the largest price fixing antitrust case brought by the US Justice Department. The article goes on to state that the Japanese executive’s guilty plea and prison time came with a special offer from the Japanese company for which he fixed the prices. You get to keep your job after you leave prison and the company “will support me for the rest of my life.”

Today, the Japanese executive has spent his time in prison, but is now back at work at the company. But that situation is not unusual, the unwritten rule in Japanese culture is that the Japanese executive gets rewarded for not spilling the beans and cooperating with the Government’s investigation.

In America, the case has already made history with record fines more than $2.4 billion. 31 auto parts suppliers, mostly Japanese, have pled guilty to prices for parts from wire harnesses to wiper switches. Forty-six individuals, almost exclusively Japanese, have been charged. No one has challenged the charges in court; 26 individuals agreed to prison instead. Another 20 have yet to enter pleas or are otherwise ignoring their indictments.

But most the executives are still employed by their companies, even though the executives were indicted by the U.S. government on felony charges, which carry a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.

The corporate leniency has become a major international issue as U.S. Assistant Attorney General William Baer warned that his antitrust division would consider probation and corporate monitors for companies harboring sensitively placed executives who have not answered the charges against them.  As one Justice Department official stated, “A U.S. company would never keep employing those individuals. In the United States, the first thing they would want to do is fire everybody. But that’s not the instinct at Japanese companies.”

The Japanese company did play tough pressuring the Japanese executive to plead guilty because a company can expect lower fines if it cooperates promptly.

In exchange, the company would take care of his family while he was in jail and find a position for him after he was freed.

Price fixing in Japan is an administrative crime and there is no real enforcement in the criminal area, but Japanese companies and executives have become very afraid. Now the Japanese companies are facing private triple damage actions brought by angry consumers.

CHINA ANTI-MONOPOLY CASES

Although this issue was raised by President Obama at the meetings with the Chinese government officials in Beijing, nothing of substance was reported

T&D MICROSOFT ARTICLE

In the October 2014 report on Chinese antitrust law by the Chinese T&D Law Firm, T&D Monthly Antitrust Report of September 2014, Chinese antitrust lawyer John Ren had this to say about the allegation that the Chinese Anti-Monopoly law discriminates against foreign companies:

NDRC Responded to the Query about Unfair Anti-Monopoly Practices: All People Are Equal before Law

October 30, 2014

The Anti-Monopoly Law has been effective since 2008 and was reinforced with respect to law enforcement in 2013, and then several significant anti-monopoly actions caused great sensations this year. Throughout this period, all circles have increasingly focused on ruling markets by law, breaking down monopoly privilege, and ensuring fair competition among market players. In the meantime, law enforcement with regard to anti-monopoly has drawn great attention.

Recently, several foreign-funded enterprises and foreign brands have been under investigation, and some wonder “whether China’s anti-monopoly undertaking only focuses on foreign-funded companies and is thus unfair”. Concerning this situation, Li Pumin, Secretary General of NDRC (National Development and Reform Commission), stressed in today’s “NDRC with regard to Acceleration of Building Rule of Law Authorities” press conference that all people are equal before the law, and anyone violating Chinese law shall be punished, whether they are foreign-funded or domestic companies.

He pointed out that China’s anti-monopoly law enforcement was not just targeting foreign-funded enterprises; NDRC, in line with the Anti-Monopoly Law, enforced the law with regard to those enterprises and actions restraining fair competition, which involved not only domestic enterprises but also foreign-funded enterprises.

”The Anti-Monopoly system has been rigorously designed. A vast number of large enterprises are involved, various market players are concerned about the system, and NDRC has been promoting the system, as well. In the past few years, NDRC kept summing up and exploring, and has enacted regulations on anti-price monopolies and procedure of administrative execution regarding anti-price monopoly” said Li Kang, the Chief in Laws and Regulations Department of NDRC, in regard to the work that NDRC has done in improving anti-monopoly law enforcement.

Li Kang pointed out that anti-monopoly law enforcement shall be quantified, standardized, and elaborated upon, aiming at ensuring fair, just and open anti-price monopoly enforcement. He stated further that NDRC will expand the anti-monopoly law in both substantive and procedural aspects to raise its enforceability, and in the meantime will confine and normalize NDRC’s law enforcement activities. . . .

SECURITIES

CHINESE COMPANY PUDA COAL DEFAULTS IN SECURITIES CASE

On November 18, 2014, in In re: Puda Coal Inc., a Federal District Court entered the attached default judgment, DEFAULT JUDGMENT PUDA COAL. against Chinese company Puda Coal Securities Inc., which had been sued by an investor class, for selling its sole asset to a private equity firm without telling investors for months and lying about in its IPO plans.

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

DORSEY ANTICORRUPTION DIGEST 0CTOBER 2014

The attached Dorsey’s October 2014 Anticorruption Digest, Anti_Corruption_Digest_Oct2014, had this to say about China:

“National Development and Reform Commission

According to reports, Liu Tienan, former deputy of the National Development and Reform Commission, confessed in court to taking bribes from various companies, including a Toyota Motor Corporation joint venture. The court said that: “The oral representation made by the defendants Liu Tienan on the allegations is: I have taken the initiative to confess to these facts of the allegations.”

He and his son, Liu Decheng, were reportedly charged with taking $5.8 million in bribes. Reports indicated that Mr. Decheng collected most of the bribe money. The allegations indicate that between 2002 and 2011, Mr. Tienan took bribes to facilitate project approvals and filings for a number of companies such as Nanshan Group, Ningbo Zhongjin Petrochemical Co Ltd, Guangzhou Automobile Group, Guangzhou Toyota Motor Co Ltd and Zhejiang Hengyi Group. Mr. Tienan also reportedly aided in the approval procedures for several projects from Guangzhou Automobile Group, which in return hired his son as a special Beijing representative for one of the Group’s subsidiaries.

Mr. Tienan could face life imprisonment. However, reports indicated that he is more likely to receive a lesser sentence as a result of his confession.

Reports indicate that Mr. Tienan was fired from the National Development and Reform Commission after Caijing magazine’s deputy editor Luo Changping accused him of corruption, loan fraud and counterfeiting his degree.

Pharmaceutical sector

Last month, GSK was fined $489 million in China for corruption there. Further to the Changsha Intermediate People’s Court in Hunan province’s verdict, GSK’s Chief Executive, Sir Andrew Witty, reportedly said that: “Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people. GSK fully accepts the fact and evidence of the investigation, and the verdict of the Chinese judicial authorities. Furthermore, GSK sincerely apologizes to the Chinese patients, doctors and hospitals and to the Chinese government and the Chinese people. GSK deeply regrets the damage caused.”

In the wake of the Chinese case, other major drugmakers have also been under increased review. It has been reported that Sanofi, the French drugmaker, informed US authorities that it was investigating allegations of employees paying bribes to healthcare professionals in the Middle East and East Africa to persuade them to prescribe its drugs.”

APEC RESOLUTION

At the end of the APEC meeting in Beijing, the APEC members issued the following resolutions about foreign corrupt practices:

“Anti-Corruption

  1. We resolve to strengthen pragmatic anti-corruption cooperation, especially in key areas such as denying safe haven, extraditing or repatriating corrupt officials, enhancing asset recovery efforts, and protecting market order and integrity.
  1. We endorse the Beijing Declaration on Fighting Corruption (Annex H), the APEC Principles on the Prevention of Bribery and Enforcement of Anti-bribery Laws, and the APEC General Elements of Effective Corporate Compliance Programs.
  1. We welcome the establishment of the APEC Network of Anti-Corruption and Law Enforcement Agencies (ACT-NET) with the finalization of its Terms of Reference. We expect to deepen international cooperation, information and intelligence exchange and experience sharing among anticorruption and law enforcement practitioners from APEC member economies through the ACT-NET and other platforms.
  1. We appreciate the efforts of the Anti-Corruption and Transparency Working Group in collaborating with other APEC fora to improve transparency in this region.”

JUSTICE DEPARTMENT SPEECH ON FCPA

On November 19, 2014 Assistant Attorney General Leslie R. Caldwell in the attached speech, DOJ FCPA STATEMENT, spoke about the Foreign Corrupt Practices Act:

“At the Criminal Division, we are stepping up our efforts in the battle against corruption, at home and abroad. . . .

More relevant to this audience, we are also deeply committed to fighting corruption abroad. Now, more than ever, we are bringing to justice individuals and corporations who use foreign bribery as a way to gain a business advantage. In part, we are doing this using the tools and methods that have made our past enforcement efforts so successful – FCPA prosecutions and penalties. . . .

And now we also are prosecuting the bribe takers, using our money laundering and other laws. And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities. . . .

We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.

Another big change – one that has been building for years but now has really developed momentum – is that we increasingly find ourselves shoulder-to-shoulder with law enforcement and regulatory authorities in other countries. Every day, more countries join in the battle against transnational bribery. And this includes not just our long-time partners, but countries in all corners of the globe.

Together with our foreign law enforcement and regulatory partners we are taking a truly global approach to rooting out international corruption. And make no mistake, this international approach has dramatically advanced our efforts to uncover, punish and deter foreign corruption. . . .

Since 2009, we have convicted more than 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against more than 50 companies with penalties and forfeiture of approximately $3 billion. Twenty-five of the cases involving individuals have come since 2013 alone. And those are just the cases that are now public. . . .

Fighting corruption is not a choice we have made. It is, increasingly, a global imperative. Given the critical nature of this mission, we are bringing more resources to bear than ever before – and we will continue doing so. We have achieved significant successes using our traditional FCPA enforcement tools. We are building on those successes and continuing to evolve our enforcement efforts. Especially with the power of so many countries now standing by our side, we are determined to use every lawful means available to hold the perpetrators of corruption to account. . . .”

SECURITIES COMPLAINTS

In the attached complaint on October 28, 2014, Dragon State International Inc. filed a class action securities case against Keyuan Petrochemicals, Inc., Chenfeng Tao, and Aichun Li.  KEYUAN PETROCHEMICAL

In the attached complaint, PINGYUAN FISHING, on November 24, 2014, Tyler Warriner fled  a class action securities case against Pingtan Marine Enterprise Ltd., Xinrong Zhou, Roy Yu, Jin Shi, and Xuesong Song.

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

Best regards,

Bill Perry

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—JUNE 18, 2014

Dear Friends,

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

TRADE

SOLAR CASES

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice are attached.  CVD PRELIM FED REG factsheet-prc-crystalline-silicon-photovoltaic-prod-cvd-prelim-060314

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

ALUMINUM EXTRUSIONS—CAFC OVERTURNS COMMERCE

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

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

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

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

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

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

As the CAFC stated:

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

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

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

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

REVERSED AND REMANDED”

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

AD ORDERS ON FRONT SEATING VALVES AND HEDP ACID LIFTED

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

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

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

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

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

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

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

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

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

Now the story continues . . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

JUNE ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

In the recent final determination in the Wood Flooring Case, for example, although the rates were very low for many Chinese exporters, only 5%, 20 Chinese exporters had their rates go to 58% because they did not participate in the review investigation and did not file a no shipment certification, separate rate application or separate rate certification at the Commerce Department.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

Two Congressmen have now agreed to meet importers in the New Jersey/NY area and in the Long Beach area to listen to their grievances regarding the US antidumping and countervailing duty laws. We are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

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

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

CUSTOMS—FALSE CLAIMS ACT

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

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

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

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

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

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

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

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

June 10, 2014 update

Areas Cleared for Geoduck Export to China

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

PATENT/IP AND 337 CASES

337 CASES

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

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

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

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

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

BANKING

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

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

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

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

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

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

ANTITRUST

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

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

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

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

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

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

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

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

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

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

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

 

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

COMPLAINTS

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

CHINA ANTITRUST CASES

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

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

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

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

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

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

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

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

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

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

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

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

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

“Sen. Sherrod Brown:

Question 6

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

Answer

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

 

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

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

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

“Johnson Controls Discloses FCPA Investigation in China

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

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

Avon Settles FCPA Allegations for $135 Million

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

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

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

SEC Threatens Enforcement Action against Qualcomm

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

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

Goldman Sachs Being Probed For Hiring Practices

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

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

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

Hong Kong

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

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

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

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

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

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

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

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

SECURITIES COMPLAINTS

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

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

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

Best regards,

Bill Perry

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—MARCH 7, 2014

Dear Friends,

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

TRADE

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

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

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

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

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

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

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

As the ITC stated in its atached preliminary staff report:

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

ITC PRELIMINARY OCTG MANY COUNTRIES Pub4422 OCTG pdf

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

To summarize, on January 9, 2014, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014,. HOUSE FAST TRACK BILL  The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Small businesses also stand to gain from freer trade. Large firms often find a way to work around foreign trade barriers, but tariffs are often a deal-breaker for small companies. Creating new trade agreements would significantly help the U.S.’s 300,000 small exporters. . . .

But to tackle any of these inequalities, Congress must first approve TPA. . . .Without TPA, U.S. exports will remain at a profound disadvantage. Renewing TPA would help restore fair competition in trade—and put economic growth in the U.S. ahead of partisan politics.”

 

On February 24th, it was reported that the US and Japan were not able to reach agreement in the most recent TPP negotiations.  In attached letter dated February 21st, Grassley-Bennet-Letter-to-Froman-Japan-TPP-2-21-14-2 a bipartisan group of senators urged the U.S. not to close TPP negotiations unless Japan agrees to drop protection for certain agricultural products.  Specifically, 18 senators led by Sens. Charles Grassley, R-Iowa, and Michael F. Bennet, D-Colo., told U.S. Trade Representative Michael Froman that they were concerned that Japan had not yet made an offer in the course of the TPP negotiations to open up its agriculture sector without exceptions. The senators said that allowing special treatment for some of Japan’s agricultural products may undermine U.S. efforts to secure more access to the agriculture markets in the 11 other countries involved in the TPP.

As the Senators stated:

“We write to express our concerns that Japan has not yet made a comprehensive offer on agricultural products as part of the Trans-Pacific Partnership (TPP) negotiations. We believe that this situation could undermine the Administration’s goal of significantly increasing market access for U.S. agricultural products in TPP party countries.

In previous trade negotiations, the United States requested and received full and comprehensive liberalization in the agricultural sector from both developed countries like Japan as well as developing countries. By requesting special treatment for its agricultural sector in the TPP, Japan may upset the careful balance of concessions that the eleven economies involved in the negotiations have achieved. If Japan continues to insist on protecting certain agricultural products, other countries with sensitivities in the agricultural sector may make similar demands.

As intended, the TPP will facilitate additional trade relationships with Asia-Pacific countries and set an important precedent for future trade agreements. Most immediately, a positive outcome with Japan on sensitive agricultural products will buoy the prospects for reaching an acceptable agreement with the EU in the Transatlantic Trade and Investment Partnership negotiations.

The market access package that the Administration negotiates with Japan has the potential to support billions of dollars in future exports and hundreds of thousands of jobs. For this reason, we seek assurances from you that the U.S. will not close the TPP negotiations without an acceptable comprehensive agreement with Japan to eliminate tariff and non-tariff barriers in agriculture.”

 

In the last week in February, USTR Froman went to Singapore to meet with trade ministers from the 11 other TPP countries — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The ministerial meeting was the first since December, when the TPP countries stated they could not wrap up negotiations by the end of 2013.

At the Singapore meeting, the two countries that had problems were Japan and Canada.  The TPP discussions ended February 25th with no agreement although gaps on unresolved issues had narrowed, and the 12 countries in the talks remain “fully committed” to closing a deal.

The U.S. has pushed for greater access to the Japanese agriculture market, while Japan has sought to keep tariff and other trade protections on certain agricultural products, such as rice, wheat and pork.

On March 3rd it was reported that representatives of the US dairy industry were losing patience with Japan and Canada and their failure to fully open their markets to foreign dairy productions.  The concern was so high that they raised the issue of closing the talks without Japan and Canada.  Apparently, in Singapore, not only the United States, but the rest of the countries were increasingly impatient with Japan and Canada.

After the close of a TPP ministers’ meeting in Singapore, the National Milk Producers Federation and the U.S. Dairy Export Council issued a joint statement calling for negotiators to ramp up the pressure on Japan and Canada to secure full tariff elimination on dairy products.

“It is time to finish the Trans-Pacific Partnership negotiations, including resolving the treatment of agricultural trade,” USDEC President Tom Suber said. “The principle of creating comprehensive market access is too important to this and future trade agreements. Therefore, if Japan and Canada are not committed to this goal, we need to move forward without them.”

Recently, in Washington DC, government sources indicated that if there is no movement from the two countries, the TPP should be finalized without Japan and Canada.

The two US Dairy groups also reiterated their longstanding demands that a final TPP deal include effective disciplines for applying sanitary and phytosanitary measures that are science based and enforceable and prevent restrictions on the use of common food products.

The Congressional problem is most apparent in the debate over whether to include currency manipulation restrictions in the TPP.  Dire warnings over misaligned currency creating unfair advantages in exports have become a rallying cry for US industries.  It appears quite likely that any bill providing trade promotion authority will insist that the TPP and any other trade agreement include a provision addressing the use of monetary policy or other methods to promote exports through currency manipulation.

Numerous countries participating in the TPP negotiations, however, have already taken a strong stance against the inclusion of any provision on currency, and the Obama administration is on record opposing the provisions for that reason.

Obama wants the Trade Agreements, but not if they conflict with a more immediate political goal, preserving the Senate in the mid-term 2014 for the Democrats.  That balancing act has marked Mr. Obama’s approach since 2008. To persuade union voters who blame globalization for stagnant wages, Obama the candidate spoke of renegotiating the North American Free Trade Agreement. Then, as President, he dropped the idea.

As a fallback strategy, Mr. Obama and his aides now aim to flip the situation around. They hope to persuade lawmakers to grant that authority after midterm elections by showing them a tentative Asia deal.  That would leave little time for action before the 2016 presidential primary season — which, if 2008 is any guide, will probably increase Democratic resistance.

During my recent trip to Washington, I began to see a more optimistic view of the Trade Talks.  Congressional staffers and commentators stated that Sen. Reid’s position on trade is well known and that he has a decades-long record of opposition to trade agreements.  His current stance is completely consistent with that record.  But Reid could have stopped the ratification of recent free-trade agreements with South Korea, Colombia and Panama, but he did not.

One reason is China.  While China is not part of the TPP, hopefully the TPP will create rules, which can used to restrain some of the Chinese actions in the future. People familiar with the negotiations say China is watching closely, consulting with players at the table and lobbying through its proxies against proposed new standards for state-owned enterprises.  New rules ratified in the Trans-Pacific Partnership would set a minimum expectation for any future, broader deal that might one day include China, such as an all-Asia free-trade zone.

USTR ISSUES ANNUAL TRADE REPORT TO CONGRESS

On March 3rd, the USTR issued its annual trade report to Congress.  Chapter I The Presidents Trade Policy Agenda  In its summary, the USTR stated that concluding the TPP and the TTIP with Europe were two primary objectives:

Conclude the Ambitious Trans-Pacific Partnership Negotiations . . .

TPP will expand U.S. trade with dynamic economies throughout the rapidly growing Asia-Pacific region. Experts estimate that economies around the Pacific Rim will continue to grow faster than the world average, elevating income levels and creating increased market opportunities. Along with the United States, TPP partners now include Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. . . . According to an analysis supported by the Peterson Institute for International Economics, a successful TPP agreement would provide global income benefits of an estimated $223 billion per year, by 2025, while potentially expanding annual U.S. exports by $124 billion. TPP countries also account for 28 percent of global marine catch and over a third of global timber production, thus providing a meaningful opportunity to advance environmental stewardship efforts in the region.

The entry of Japan, the world’s third-largest economy, into TPP negotiations in July 2013 has further expanded the commercial impact of the TPP agreement.

Advance Negotiations with the European Union in the Transatlantic Trade and Investment Partnership

On June 17, 2013 President Obama and EU leaders announced that the United States and the EU would launch negotiations on a comprehensive trade and investment agreement to strengthen a partnership that already supports $1 trillion in annual two-way trade, nearly $4 trillion in investment, and roughly 13 million direct jobs – the Transatlantic Trade and Investment Partnership (T-TIP) agreement.

This year, we expect to make significant progress in the T-TIP negotiations. After three negotiating rounds in the latter half of 2013, the Administration plans to maintain a similar pace for the talks in 2014.

On March 4th, House Ways and Means Committee Chairman Dave Camp (R-MI) released the following statement in response to the President’s 2014 Trade Agenda:

Camp: “I welcome the Administration’s focus on developing new markets for goods and services produced by U.S. manufacturers, service providers, and farmers, as well as on ensuring that our trading partners play by the rules. In particular, I hope that we can conclude the Trans-Pacific Partnership shortly with those countries now willing, ready, and able to meet its ambitious obligations. We must increase market access for goods, services, and agriculture products, as well as secure enforceable rules related to issues such as intellectual property protection, disciplines on state-owned enterprises, restraints on localization barriers, investor-state dispute settlement, cross-border data flows, and disciplines on sanitary and phytosanitary barriers. . . .

“While the Agenda fails to address the problem of currency manipulation, it otherwise generally meets the objectives set in the bipartisan, bicameral Trade Priorities Act. That legislation also provides the necessary tools to address the unfairness and distortion caused when countries manipulate their currencies to gain a trade advantage.

“TPA is my top trade priority because it opens new markets and establishes enforceable rules for our trading partners, creating new U.S. jobs and economic activity. The President will not be able to conclude and implement any of the trade negotiations set forth in his Agenda without TPA. That’s why I was so surprised to see TPA barely mentioned in the document. In addition, while I welcome the transparency measures outlined in the Agenda, our bipartisan bill goes considerably further in setting out requirements for the Administration to consult with Congress and share timely and detailed information – another reason why I am seeking rapid bipartisan consideration of this bill. TPA is necessary to set out the negotiating objectives that Congress defines as vital, establish the terms for Congressional consultations during the negotiations, and retain for Congress the final say in consideration of implementing bills after the negotiations.

SOLAR CELLS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN

Attached is my latest article on the Solar Cell/Products Wars with China in the Solar Industry Magazine.  PERRY ARTICLE SOLAR INDUSTRY MAGAZINE

As mentioned in previous newsletters, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  See the attached initiation notice, factsheet-multiple-solar-products-initiation-012313 which includes the scope of the merchandise, the specific products covered by the new antidumping and countervailing duty investigations.

Many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases.

In the attached February 5, 2014 letter to President Obama, SOLAR WORLD LETTER Solar World, the Petitioner in the Solar Cells and Solar Products cases, stated that it “remains open to any prospective resolution that promises to hold China accountable to trade agreements and laws that enable fair trade. “

On February 14, 2014, as indicated in the attached announcement, ITC AFFIRMATIVE PRELIM SOLAR PRODUCTS CASE.htm the US International Trade Commission (“ITC”), four Commissioners voting, reached an affirmative preliminary injury determination finding that there is a reasonable indication that a U.S. industry is materially injured by reason of imports of certain crystalline silicon photovoltaic products from China that are allegedly subsidized and from China and Taiwan that are allegedly sold in the United States at less than fair value.

In response to the ITC vote, on February 19, 2014, MOFCOM stated that the ITC failed to consider the facts in determining that Chinese solar products had caused “substantial damage” to the U.S. domestic industry.   MOFCOM in particular pointed out that solar products “originated in China bring huge commercial benefits and job opportunities for the upstream and downstream industries of the U.S.”

MOFCOM went on to emphasize that solving trade disputes through dialogue and negotiations is the best way to solve the Solar problems between the US and China.

As mentioned in previous newsletters, the ITC’s standard in a 45 day preliminary injury investigations in antidumping and countervailing duty cases is very low.  To find a “reasonable indication” of material injury or threat of material injury all the Commissioners have to find is that more evidence will be discovered in a final injury investigation  Thus, the ITC decision was simply to continue the investigation and not that that Chinese imports caused substantial damage to the US industry.

Also as mentioned in previous newsletters, there is no public interest test and end user companies do not have standing in US antidumping and countervailing duty cases.  Thus, the ITC cannot consider whether the Chinese imports are providing substantial benefits to downstream industries or consumers in its determination.

On a recent trip to Washington DC, several knowledgeable sources stated that there is still no real movement at the Commerce Department on a Suspension Agreement in the Solar Cells/Products cases.  This would indicate that although there has been a lot of talk, there is still no action.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

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

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

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

CHINESE ANTIDUMPING CASE—DRY CLEANING CHEMICALS FROM THE US

On February 20th, it was reported that China has imposed provisional anti-dumping duties ranging from 33 percent to more than 76 percent on dry cleaning chemicals from the U.S. and Europe after finding the imports were sold at unfair prices and were injuring Chinese producers.  More specifically, MOFCOM announced that it would level antidumping duties on imports from the US and Europe of perchlorethylene, a chemical sometimes referred to as tetrachloroethylene, and used as a solvent in the dry cleaning industry.

According to MOFCOM, U.S.-based Dow Chemical Co., PPG Industries Inc., Axiall Corp. and Occidental Chemical Corp. all face 76.2 percent dumping margins under the provisional Chinese duty order.

CUSTOMS

EXECUTIVE ORDER TO STREAMLINE TRADE 

On February 19th, President Obama signed the attached executive order executive order to speed up the creation of a single, electronic portal for businesses to submit information related to shipments that cross U.S. borders, a move intended to save time and money for importers and exporters.

The executive order calls for the development, by the end of 2016, of an International Trade Data System that would allow businesses to provide import and export data to the U.S. government through a “single window,” according to a fact sheet put out by the White House. The changes are expected to cut processing and approval times “from days to minutes” for shipments coming to and leaving the U.S.

CUSTOMS FRAUD—LIABILITY OF INDIVIDUAL OWNERS AND EMPLOYEES

There has been a recent development at the Court of Appeals for the Federal Circuit (“CAFC”) regarding the liability of individuals for Customs violations with a CAFC decision to hold an en banc review by the entire Court of its July 30, 2013 decision in United States v. Trek Leather, Inc.  United States v. Trek Leather, Inc., 724 F.3d 1330 (CAFC 2013) In that case a three judge panel in the CAFC based on a 2-1 decision determined that corporate officers of an “importer of record” are not directly liable for penalties under § 1592(c)(2) “absent piercing Trek’s corporate veil to establish that Shadadpuri was the actual importer of record, as defined by statute, or establishing that Shadadpuri is liable for fraud under §1592(a)(1)(A), or as an aider and abettor of fraud.”

On March 5, 2014 the CAFC issued the attached orderTREK LEATHER CASE accepting the US Government’s petition for a rehearing en banc, which means a hearing before all eleven judges of the CAFC.  The CAFC ordering the parties to file briefs on the following issues:

A) 19 U.S.C. § 1592(a) imposes liability on any “person” who “enter[s], introduce[s], or attempt[s] to enter or introduce” merchandise into United States commerce by means of fraud, gross negligence, or negligence by the means described in § 1592(a). What is the meaning of “person” within this statutory provision?  How do other statutory provisions of Title 19 affect this inquiry?

B) If corporate officers or shareholders qualify as “persons” under § 1592(a), can they be held personally liable for duties and penalties imposed under § 1592(c)(2)

and

(3) when, while acting within the course and scope of their employment on behalf of the corporation by which they are employed, they provide inaccurate information relating to the entry or introduction of merchandise into the United States by their corporation? If so, under what circumstances?

C) What is the scope of “gross negligence” and “negligence” in 19 U.S.C. § 1592(a) and what is the relevant duty? How do other statutory provisions in Title 19 affect this inquiry?

In its request for the rehearing, the Government stated:

“The panel’s decision provides a roadmap for importers to negligently violate the customs laws; one individual can transact the same importing business using multiple shell companies as importers of record, allowing evasion of personal liability for duties and penalties in all but the most egregious situations.”

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA—NOW TRANSSHIPMENT

With regards to the Chinese ban on shellfish from the West Coast, on January 31st it was reported that the Chinese government wants to send an audit team to the US to check how seafood is tested.  In the meantime, they would not relax the ban on the West Coast shellfish.

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

The ban has seriously hurt the Pacific Northwest shellfish industry, blocking imports to the major market for geoducks right before Friday’s observance of Chinese New Year.

In Early February it was reported that the ban on Pacific Coast shellfish is still in place as the US government had received a letter from China stating the fact.

See the attached article and a link to a report by Chinese television on the Geoduck problem http://pugetsoundblogs.com/waterways/2014/01/23/chinese-tv-discusses-shellfish-import-ban/#axzz2v8CrqCIY

A local Washington newspaper reported that one Indian tribe was able to get around the Chinese ban on shellfish imports by shipping the geoducks to Hong Kong and Canada.  One Tribal Fisheries Manager stated that Buyers were able to get around the ban “by going through Canada and Hong Kong to get restricted American geoducks to China. .  . Some of the buyers are Canadian.  They end up buying product, crossing the border and shipping to China that way . . .Other buyers have been able to get product to Hong Kong and over to China. . . The buyers themselves are figuring out ways to get product to China.”

The problem is that these schemes are considered transshipment, and the US government and US Congressmen have been complaining about this unfair practice in Chinese food imports for many, many years.

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

What goes around does indeed come around.

PATENT/IP AND 337 CASES

ITC IS MAKING IT MORE DIFFICULT FOR PATENT TROLLS

In a Jan. 9 decision clearing Hewlett-Packard Co. and others of infringement, the ITC reversed long-standing precedent and held for the first time that in order to use licensing activities to satisfy the domestic industry requirement for suing at the ITC, nonpracticing entities (“NPES”) must prove that there are products that practice the patent.

The Commission specifically stated in the order:

“We affirm the ALJ’s application of his ground rules to find that TPL failed to demonstrate the existence of articles practicing the mapping patents.  . . .  Because TPL did not demonstrate the existence of articles practicing the mapping patents, it cannot demonstrate the existence of a domestic industry.”

In this decision the ITC reversed long-standing precedent and held for the first time that in order to use licensing activities to satisfy the domestic industry requirement for suing at the ITC, NPES must prove that there are products that practice the patent.

The ITC had previously held that licensing alone could satisfy the requirement, regardless of whether licensees used the patents in their products. Proving the existence of products covered by the patents may be difficult for NPES and could discourage them from suing at the ITC.  Those NPES that do not keep close watch on whether the invention is being practiced will have a much more difficult time meeting the domestic industry requirement at the ITC.

ITC REQUESTS EN BANC REHEARING AT CAFC OF SUPREMA DECISION

On February 21, 2014, the ITC requested at the Court of Appeals for the Federal Circuit (“CAFC”) a panel rehearing or a rehearing en bank of the CAFC December 13th decision in Suprema v.International Trade Commission.  In Suprema, the CAFC by a split vote vacated the exclusionary order in Certain Biometric Scanning Devices, Inv. No. 337-TA-720, holding that “an exclusion order based on a violation of 19 U.S.C. §1337(a)(1)(B)(i) may not be predicated on a theory of induced infringement under 35 U.S.C. §271(b) where direct infringement does not occur until after importation of the articles the exclusion order would bar.”  See previous January Post for a description and copy of the CAFC decision.

In its Brief filed at the CAFC, the ITC argues that this December 13th decision overturns many past 337 decisions and is contrary to CAFC and Supreme Court precedent stating:

By holding that “there are no ‘articles that . . . infringe’ at the time of importation when direct infringement has yet to occur”, the panel overlooked Supreme Court precedent that culpability for induced infringement is independent from direct infringement and attaches at “the distribution of the tool intended for infringing use.” . . . The panel also overlooked this Court’s precedent that liability for infringement by inducement attaches “as of the time the acts were committed, not at some future date” of direct infringement. . . .

By interpreting 19 U.S.C. § 1337(a)(1)(B)(i) to reach only articles that directly infringe at the time of importation, the panel overlooked decades of precedent affirming Commission orders that exclude articles proven to indirectly infringe under 35 U.S.C. §§ 271(b) and (c). . . . Even though it appears that the panel in this case did not intend its decision to preclude an action under section 337 based on contributory infringement, parties in other cases have already argued to this Court that “[t]he reasoning in Suprema also dooms [a] contributory infringement claim” because in such a claim articles do not directly infringe at the time of importation.  . . .

By characterizing the Commission’s order as a “ban [on the] importation of articles which may or may not later give rise to direct infringement” . ., the panel confused the question of an appropriate remedy under 19 U.S.C. § 1337(d) with the question of liability under 19 U.S.C. § 1337(a)(1)(B)(i), in contravention” of past CAFC precedent.

DUPONT TRADE SECRET CONVICTION

As reported in my last newsletter, there is an ongoing jury trial in California Federal District Court regarding the theft of trade secrets from Dupont  by a California businessman and a former DuPont Co. engineer, which were accused of stealing DuPont’s proprietary method of manufacturing titanium dioxide and selling the information to Chinese government-owned companies for $28 million.

On March 5th, the jury found businessman Walter Liew and his company USA Performance Technology Inc. along with  Robert Maegerle, the former DuPont engineer, guilty of conspiracy to commit economic espionage and possession of trade secrets and a number of other charges.

The US Attorney’s office spoke in favor of the decision stating, “Fighting economic espionage and trade secret theft is one of the top priorities of this office and we will aggressively pursue anyone, anywhere, who attempts to steal valuable information from the United States. . .  . As today’s verdict demonstrates, foreign governments threaten our economic and national security by engaging in aggressive and determined efforts to steal U.S. intellectual property. I commend the efforts of the women and men of the FBI and the IRS in protecting America’s businesses and our national security.”

The jury’s verdict came after nearly a week of deliberations, following six weeks of testimony detailing Liew’s efforts to steal DuPont’s secrets and secure contracts with Chinese companies, including Pangang Group Co. and its subsidiaries, to build titanium-dioxide-making factories in China.  The Judge ordered Liew to prison, while Maegerle remains free.  Both are scheduled to be sentenced June 10.

NEW 337 CASE AGAINST CHINESE COMPANIES FOR IMPORTS OF SULFENTRAZONE

Docket No: 3004

Document Type: 337 Complaint

Filed By: Lisa a. Chiarini

Firm/Org: Hughes, Hubbard, & Reed LLP

Behalf Of: FMC Corporation

Date Received: March 5, 2014

Commodity: Sulfentrazone from China

Description:  Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Sulfentrazone, Sylfentrazone Compositions, and Processes for Making Sulfentrazone. The proposed respondents are: Beijing Nutrichem Science and Technology Stock Co., Ltd., China; Summit Agro USA LLC, Cary, North Carolina; Summit Agro North America Holding Corporation, New York, New York; and Jiangxi Heyi Chemicals Co. Ltd., China.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

On February 13, 2014, Back Joy Orthotics filed a patent and copyright case against Forvic International, a Korean company, and Wook Yoon, a Korean national, against imports of back seat supports that are produced in China.  BACKJOY PATENT CASE

On February 17, 2014 Simon Nicholas Richmond filed a patent infringement case against Forever Gifts in Texas and Forever Gifts in China for imports of solar garden lights that allegedly infringe his patent. FOREVER SOLAR POWER GARDEN LIGHTS

On February 6, 2014,AIM IP filed a patent infringement case against Futurewei Technologies dba Huawei.  FUTUREWEI HUAWEI CASE

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

ANTITRUST

VITAMIN C CASE

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

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

CHINA ANTITRUST CASES

Commentators have observed that governments are increasingly using antitrust and other regulatory powers for broader political and economic purposes.

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from China’s National Development and Reform Commission (NDRC). On February 19th, the head of China’s NDRC confirmed that it was investigating Qualcomm and also Interdigtal for potential antitrust violations.  Both companies were raided by Chinese agents in November and have delivered statements to Chinese investigators.  The NDRC said that Qualcomm Inc. was suspected of overcharging and abusing its market position and could face record fines of more than $1 billion.  Any settlement with InterDigital or Qualcomm is likely to include commitments to lower patent licensing fees for Chinese customers.

The NDRC is also looking at drugmaker GlaxoSmithKline and Apple. Apparently, the Chinese government has decided to use the nation’s antitrust laws to level the playing field for all companies.

SECURITIES

TOM GORMAN, DORSEY SECURITIES/SEC EXPERT, INTERVIEWED ON CHINESE TELEVISION

Recently, Tom Gorman, a partner in our Washington DC, who used to work in the Enforcement Division in the Securities and Exchange Commission, was interviewed by Phoenix Television on the refusal of Chinese Auditors to supply the SEC Accounting Documents from Chinese companies and the problems that have come from IPOs/securities listings of Chinese companies in the US.  The link to the interview is

http://video19.ifeng.com/video07/2014/02/09/1691951-102-007-0040.mp4

 FCPA DIGEST

Dorsey has just published its attached Foreign Corrupt Practices Digest.  FCPA DIGEST  With regards to China, the Digest states:

CHINA

Avon Products

Avon Products Inc. estimates a payment of up to $132 million to settle an ongoing corruption investigation. The US Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) alleged that Avon has paid bribes in China and other countries in exchange for permits to sell its products.

It has been reported that following an internal investigation in 2008, Avon discovered that questionable payments and gifts of millions of dollars have been made to officials in China, Brazil, Mexico, Argentina, India and Japan. In 2011, Avon fired four executives, including the general manager and the finance chief of the company’s China unit.

Since 2008, the company has reportedly spent about $340 million in legal and other costs. The investigation is ongoing.

 JPMorgan

It has been alleged that a top Chinese regulator, Xiang Junbo, with interests in the insurance sector, asked Jamie Dimon, the chief executive of JPMorgan, for a favor to hire a young job applicant.

JPMorgan reportedly secured a number of business deals with Chinese insurance companies following Mr. Dimon’s meeting with Mr. Xiang.

US authorities are investigating whether hiring at JPMorgan and other banks was done for the purposes of securing contracts with Chinese companies.

 Former Minister of Public Security

It is reported that Mr. Zhou Yongkang, former member of the Politburo Standing Committee and Minister of the Public Security, is being investigated for alleged corruption.

The investigation is reportedly part of a wider national anti-corruption campaign particularly targeted at current and former executives of the China National Petroleum Corporation.

It has been reported that Mr. Yongkang is under house arrest. Investigations are still pending.

COMPLAINTS

On February 4, 2014, a class action securities case was filed Rodney Omanoff et al. v. Patrizio & Zhao, Xinggeng John Zhao for misstating the financial information of Keyuan Petrochemicals, Inc.,  a Nevada corporation, headquartered in China.  KEYYUAN PETROCHEMICALS

On February 6, 2014, the US Government, Securities and Exchange Commission/SEC filed an insider trade case against Hao He a/k/a Jimmy He for trading shares of Sina Corporation in Shanghai, China based on inside information.  HAO HE

On February 19, 2014, a class action securities case was filed by Maria Cecilia Ghilardoti against Montaage Technology Group and various Chinese individuals.  Montage Technology is a Caymans Company with substantial semiconductor plants and other operations in China and Hong Kong.  MONTAGE SECURITIES COMPLAINT

On February 20, 2014 Peter Schiff et al filed a class action securities case against China Nutrifruit Group Limited, a Chinese company in Daqing, China.  Schiff v China Nutrifruit Group~

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEFAULT DANGERS, TRANS PACIFIC PARTNERSHIP IN JEOPARDY, TRADE, CUSTOMS ANTITRUST AND SECURITIES

US Capital Pennsylvania Avenue After the Snow Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER

Dear Friends,

There have been some major developments in litigation, including dangers of default judgments, trade, Solar Cells, Chinese Antidumping, patents, US/Chinese antitrust, and securities areas.

January was a very important month for US Trade Policy because of the problems with the Trade Promotion Authority/Fast Track Trade Bill and the Trans Pacific Partnership (“TPP”) and Trans- Atlantic (“TA”) Trade Agreements in Congress.  Literally there have been day to day developments culminating with President Obama’s January 28th State of the Union address followed by the January 29th decision of Senate Majority leader Harry Reid to oppose the Trade Promotion Authority (“TPA”) Bill and the TPP and TA Negotiations.

As described below, Senator Reid’s decision to not allow the TPA bill to be introduced in the Senate may be the day free trade died.  If Senator Reid’s decision becomes final, this will have a dramatic impact on all trade relations, including trade relations with China, as the United States becomes more and more protectionist.

US LITIGATION AGAINST CHINESE COMPANIES—DANGERS OF DEFAULT

Recently through a Chinese law firm a Chinese company approached us because they were facing a US trademark case brought by a competitor in the United States.  The company’s question, why respond?  We are a Chinese company and you cannot catch us and make us pay damages in the United States.

We pointed out that the trademark case in question is a tough case for the Plaintiffs to prove because the trademarks in question are not registered marks and are common law marks.  If the Chinese company fights the case, it would have a good chance of winning the case.  But if the Chinese company defaults, it loses the right to contest the merits of the case.

In antidumping and countervailing duty cases, Chinese companies with US import operations have also told us, “Don’t worry.  We will never pay antidumping and countervailing duties; they cannot catch us in China.”  The times, however, are changing.

In many US cases against Chinese companies in Federal District Court, Plaintiffs are asking for damages, an injunction and punitive damages.  If the Chinese company wants to sell its products in the United States again, it has to fight.  If it does not fight, when the Chinese company sells its products in the United States, those products, including all inventory and accounts receivable, can be attached to satisfy the judgment.

Moreover, when a default judgment is for money damages, the US company is seeking to collect actual damages, interest from the date of the judgment or before, statutory damages, possibly punitive damages and attorney’s fees, which eventually will total millions of dollars.  If the Chinese company has a strong legal argument against the US Plaintiff, when it defaults, the Chinese company loses the right to make those legal arguments.

Moreover, this is no longer the 1990s or even early 2,000s.  Over the last two decades, Chinese companies have grown up and have bank accounts and assets/money and subsidiaries all over the world.  But that means it is easier for US judgment holders to collect money on their default judgments against Chinese companies.

If the Chinese company continues to do business in the US in the face of a default judgment, Plaintiffs can attach the company’s assets.  U.S. Marshalls can show up at a U.S. trade show and take all the company’s trade show materials to satisfy the judgment.  US Marshalls can go to warehouses where the company stores its products and take them.  US plaintiffs can go after the Chinese company’s accounts receivable.  The US Plaintiffs and their US lawyers can attach or garnish the Chinese company’s bank accounts–in the U.S., Hong Kong, the EC, Taiwan and countries all over the World where US judgments are enforceable and also now in China itself.

If the Chinese company banks with a Chinese bank that has a branch in the U.S., such as New York, Plaintiffs will garnish that branch bank and go after the China company’s  assets/bank accounts located in any of the bank’s other branches, wherever located, including China.

In 2010 a US inventor sued Chinese tire companies in Shandong Province for patent infringement and unfair competition in a Federal District Court in Virginia.  The Chinese companies did not fight the case and the Federal District Court entered a default judgment for $26 million.

In September 2013, in the attached complaint TIRES COLLECTION CASE the US law firm and inventor sued the Chinese Industrial and Commercial Bank Branch in New York City, saying give the US Plaintiffs the records and assets of these companies in China to satisfy the US $26 million judgment.  If the Chinese bank branch refuses to pay, the Bank could face fines of $100,000 a day, as an example.

Under the Single Entity Doctrine, US Federal Courts have held that if the Court has jurisdiction over the Chinese bank branch, it has jurisdiction over the bank worldwide.  If a Chinese company has any bank accounts in Chinese banks, such as the Bank of China or the Industrial and Commerce Bank, those banks have branches in New York City and the Chinese company can be attacked through its bank.  We are presently representing a Chinese Bank in a similar case and have 30 lawyers working full time on the case in Guangzhou on discovery.

The point is that Chinese companies can run, but they cannot hide.  If a Chinese company defaults in US litigation, it can be attacked in the US, Hong Kong, Taiwan, EC, Canada and many other countries, and now China through Chinese bank branches in the US.  So when a Chinese company defaults in US litigation, it puts the entire company at risk.

On the other hand, if the Chinese company decides to fight the case and hire a US lawyer, it may be able to pay a small amount of money as compensation or simply change its product or trade dress slightly and settle the entire case.  In many cases, if the Chinese company fights, it may be able to win the entire case and in certain situations get money from the US company bringing the case.

Ignoring US litigation is like picking up the sesame and losing the watermelon.  If the Chinese company does business in the United States and intends to continue to do business in the United States, trying to avoid service or defaulting after service may materially damage its business.  It will certainly materially damage its ability to do business in the United States.  The costs of default may be significant and far greater than that which would be necessary to defend against the US lawsuit.

TRADE

TRADE NEGOTIATIONS—TPP AND BALI/DOHA ROUND

As mentioned in my past newsletter, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA) negotiations with the EC.  Experts have estimated that TPP and TA Agreements could increase global business by several trillion dollars, if they can be concluded and implemented. These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

This rising protectionism in Congress directly threatens the TPP and all future trade deals with China and many other countries.

TPP NEGOTIATIONS MAY END AS SENATOR MAJORITY LEADER HARRY REID REFUSES TO LET THE TPA BILL GET TO THE SENATE FLOOR

As the Doha Round chances went up, the chance of TPP and TA Agreements fell down and may have fallen down completely.  As mentioned in my last post, USTR and US government officials were predicting that the TPP negotiations would conclude at the end of the year with an Agreement.  That is not going to happen.  The Congressional problems regarding the TPP have grown larger and larger and, in fact, may now be insurmountable.

Although the TPP does not include China, China is the elephant in the room and so its presence is very much in the mind of all the negotiators and the political powers in the United States.  The public reaction to TPP and the TPA, which is needed to conclude the TPP agreement, in part, is a reaction to trade with China and is a reflection of public and political attitudes in the United States to trade with China.

In January the TPP and Trans-Atlantic Agreements have created high drama on Capitol Hill as there have been literally day to day developments.

TRADE PROMOTION AUTHORITY (“TPA”)

On January 9, 2014, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014. HOUSE FAST TRACK BILL The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

In introducing the new Trade Priorities Act, Senator Baucus stated that “This is our opportunity to tell the Administration – and our trading partners – what Congress’ negotiating priorities are.  TPA legislation is critical to a successful trade agenda. It is critical to boosting U.S. exports and creating jobs. And it’s critical to fueling America’s growing economy.”

According to Senator Hatch, “Every President since FDR has sought trade promotion authority from Congress because of the job-creating benefits of trade. Renewing TPA will help advance a robust trade agenda that will help American businesses, workers, farmers and ranchers by giving them greater access to overseas markets.”

The TPA Bill set out a clear directive on currency manipulation, provided greater transparency and gave Congress greater oversight of the Administration’s trade negotiations.

Both Senators Baucus and Hatch and Congressman Camp called TPA a “vital tool” as the U.S. continues TPP negotiations as well as free trade TA agreement talks with the European Union (EU).   The National Association of Manufacturers and the National Retail Federation quickly got behind the proposal and urged Congress to quickly pass it

As mentioned in past posts, however, the Administration considers the TPP negotiations to be secret and has not released any official negotiating texts.  Thus opposition is growing in Congress.  In November 2013, a group of over 170 lawmakers in the House sent letters to the President saying they opposed fast-track authority because modern trade agreements affect so many policies under Congress’ purview, and it should have much larger role in shaping the terms of the Agreements.

Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, stated that he was developing alternative legislation

On January 10th, it was reported that with opposition growing in Congress and the upcoming midterm elections, President Obama was going to have to mount a very serious lobbying effort to move the TPA legislation through Congress.  The proposed TPA legislation has drawn strong opposition from labor unions, including the AFL-CIO, which vowed to “actively work to block its passage,” and also environmental groups like the Sierra Club and consumer advocacy groups like Public Citizen.  Many Congressmen and Senators, especially on the Republican side of the aisle, stated that moving the TPA bill through Congress would require a strong lobbying effort on the part of the Obama administration, possibly even including remarks about TPA in the 2014 State of the Union address.

Prospects for a fast-track bill moving forward in 2014 are further complicated by the Congressional elections in November.  The TPA Bill is a test of the administration’s influence and clout on Capitol Hill and right now the Administration’s clout on Capitol Hill is very weak.  The TPA fight is a fight over a number of different issues and the extent to which Congress can influence the negotiating process.

Typically multi-national corporations strongly back free-trade agreements. The Chamber of Commerce, which sometimes spends more than $100 million lobbying a year, and the Business Roundtable, were quick to put out statements supporting the legislation. Also weighing in was a coalition called Trade Benefits America, which includes companies ranging from General Electric Corp. to Wal-Mart Stores Inc.

On January 15th it was reported that President Obama could not find one Democratic Congressman in the House of Representatives to co-sponsor the TPA bill. Meanwhile, the bill’s main Democratic backer in the Senate, Finance Committee Chairman Max Baucus, is retiring from the Senate and on his way out to be Ambassador to China, and key senior Democratic Senators on the committee, including Senator Wyden, its incoming chairman, say they either don’t support the bill or want to change it.

Democratic Reps. George Miller of California, Louise Slaughter of New York and Rosa DeLauro of Connecticut said of the proposed TPA Bill: “Our constituents did not send us to Washington to ship their jobs overseas, and Congress will not be a rubber stamp for another flawed trade deal that will hang the middle class out to dry.”

The free-trade push joins a growing list of policies Obama has championed that are unpopular with Democrats.  Both Republican and Democratic Members complained that the Obama administration’s outreach on trade has been disorganized.

Another Democratic complaint is that the negotiations for both trade deals are confidential and too far along for Congress to play a meaningful role in their outcome. Five influential Senate Democrats told U.S. Trade Representative Michael Froman that they won’t support the trade promotion authority bill without assurances that Congress can hold U.S. trade negotiators “more accountable” during the talks, rather than after a deal is finished and lawmakers can only cast up-or-down votes.

For Republicans, Democrats used pro-trade votes to blast GOP presidential candidate Mitt Romney and House Republicans in the Midwest states and elsewhere as supporters of outsourcing jobs.  According to one GOP leader in the House, given Obama’s political problems within his own party, House Republicans are insisting that Democrats deliver at least 50 votes in support of the bill, including at least one from the party’s leadership, before they’ll bring it to the floor.

On January 16, 2013, the Senate Finance Committee held a hearing on the TPA Bill and the TPP and TA negotiations, but USTR refused to send a witness.  Many industry witnesses did appear, however.  See http://www.finance.senate.gov/hearings/hearing/?id=bd99ab08-5056-a032-523f-27ddae65e3d0 for a video of the hearing.  The failure of USTR to show up at the hearing illustrated the difficulty ahead for the TPP.

At the hearing in the attached statement LARRY COHEN TESTIMONY TPP DIFFICULTY Labor Leader Larry Cohen, President of the Communications Workers of America, a union, spoke against the TPP, stating:

 

“Free trade agreements have been devastating for our balance of trade. In 1993, the year before the North American Free Trade Agreement (“NAFTA”), our trade deficit in goods was -$132 billion or -1.9 percent of our GDP. By 2012, our trade deficit ballooned to -$741 billion or -4.6 percent of our GDP. The growth of our trade deficit to such levels has been a strong drag on our economy and especially in terms of jobs and wages.

And specific trade deals have been most at fault for the increased trade deficit. Here are three examples. In 1993, the U.S. had a trade surplus in goods with Mexico of $1.66 billion. By 1995, just one year after NAFTA, this had changed to a $15.8 billion deficit and by 2012 the deficit with Mexico had increased even further to $62 billion.

Allowing China into the WTO also has been disastrous. The U.S. had a trade deficit in goods with China of $83 billion in 2001 when China was admitted to the WTO. This deficit has ballooned to $315 billion in 2012. And for a most recent example, in just one year after the U.S.-Korea trade agreement took effect, our trade deficit in goods with South Korea increased by $5.5 billion or 46%.

Last year, our federal budget deficit was more than $680 billion. But our trade deficit in goods for 2012 was $741 billion. While a lot of attention in Congress and in Washington, DC has focused on the federal deficit, little attention has been focused on our trade deficit and its negative impact on our economy, jobs and wages. If we had trade deals that actually led to balanced trade, our economy would generate more than 3 million more jobs. Unfortunately, our current model for free trade agreements increases our trade deficits and reduces our employment. . . .

In the economy as a whole, average real weekly take home pay for a U.S. worker today is $637 compared to where it was 40 years ago at $731 a week — $100 less.  . . .

Trade agreements have become the new tool in the arsenal for the unfettered corporate attack on collective bargaining rights. With trade agreements, threats to offshore work and actually offshoring the work in highly unionized industries has increased. The result — the share of the private sector workforce protected by a collective bargaining agreement has declined from a high of 35.7 percent to just 6.6 percent today. This is another direct link cited by most economists as a factor in the rising inequality in our country today.  . . .

In telecommunications, we have seen the virtual elimination of telecom manufacturing equipment in the US, the elimination of a U.S. national company, and hundreds of thousands of lost jobs in that supply chain.  . . .

Many groups representing U.S. consumers are especially concerned with how trade agreements can be used to degrade our food safety protections. Allowing for Fast Track consideration of TPP would further jeopardize the safety of the food consumed in the U.S. Seafood standards in particular could be challenged through the TPP. The FDA has detained hundreds of seafood exports from TPP countries because they were contaminated. For example in Fiscal Year 2012, the FDA detained 206 imported seafood products from Vietnam alone because of concerns including salmonella, e-coli, methyl mercury, filth and residues from drugs that are banned in the U.S.  Currently the FDA is only able to inspect between 1-2 percent of our food imports.  The TPP, by greatly expanding our food imports (especially seafood) would result in an even lower percentage of inspections.  . . . .

Trade agreements are no longer just about tariffs and quotas – they are about the food we eat, the air we breathe, the jobs we hold. Congress needs to have an enhanced and enforceable role in this new era when massive trade agreements can cover so many policy issues. We cannot abdicate the legislative and policy formation process to the USTR and non-elected representatives. Or, we would argue that trade policy should commence with the Congress adopting policy priorities and the countries with whom we will negotiate. It’s clear that this is not what has happened.  . . .

For example, we are concerned that Vietnam has been chosen as a trade partner. In Vietnam which has a population of 90 million people, the minimum wage is $0.28 per hour and the average wage is $0.75 an hour. There is no right to free association or expression. Our own Department of Labor has placed garments made in Vietnam on the federal “Do Not Procure” list for documented use of forced child labor in apparel production.  Vietnam’s extremely low wages, non-existent workers’ rights, and extensive roster of human rights violations will only further exacerbate the already strong downward pressure on U.S. wages.  We should not enter into trade agreements with countries with such records. . . .

Shouldn’t this proposition of including countries with such abysmal records like Vietnams be debated? Shouldn’t the U.S. Congress determine if that approach is appropriate? Shouldn’t the US Trade Representative further consult with Congress as negotiations progress?  . . . .”

 

For more details, see also video on CWA website http://action.cwa-union.org/c/1372/p/dia/action3/common/public/?action_KEY=7357

Yet at the same time, Senator Portman of Ohio, who was formerly USTR under President Bush, noted at the Senate Finance hearing that in terms of exports, in ranking of countries the US rates just above Ethiopia and that 40% of US exports were to countries that had signed trade agreements with the US.

After the hearing, Republicans, including House Speaker Boehner, and free trade Democrats urged President Obama to get more involved saying that the President has to become personally involved in pushing the TPA or the new Bill will simply not pass Congress.  As mentioned, in the House, President Obama faces the problem that not one Democratic Congressman is willing to co-sponsor a TPA Bill.

On January 16th, there were also reports that Congressional Democrats were very upset about the draft environmental provisions of the TPP that had been leaked by Wikileaks.  The draft environmental chapter of the TPP agreement and a report by negotiators from the 12 countries involved in the talks, show that the pact would fall short in enforcing the higher environmental standards of other recent U.S. trade deals. Those pacts threaten sanctions against trading partners that violate international agreements to protect endangered species, prevent overfishing and regulate chemicals that deplete the ozone layer.

Immediately, Sen. Bob Casey (D-Pa.), a member of the Senate Finance Committee, which oversees Trade, stated ““It’s of grave concern. It’s as if our negotiators, decade after decade, have to walk into the door and … say, ‘Yes, we have concerns about leveling the playing field on labor and environment protections,’ but by the end of it, we say, don’t worry about it.”

Although the United States is pushing for robust environmental provisions, apparently the 11 other countries are all opposed to more strict environmental standards.  The inability of the U.S. to secure its key environmental demands made it even more difficult for the TPA bill.

According to Rep. Rosa DeLauro (D-Conn.),” As more information about the Trans-Pacific Partnership being negotiated in secret is revealed, the more the public can see how clearly this potential agreement, which is unprecedented in scope, would not only lead to the outsourcing of jobs, but also harm American consumers and the environment.”   All of this did little to help Obama persuade liberal Democrats on the TPA Bill

On January 17, 2013, it was reported that progressive advocacy groups were ramping up efforts to oppose the TPP and TPA legislation urging their members to push their representatives in Congress to fight the trade policies.

The progressive-leaning Democracy for America sent an email to its members saying they should call their local congressional representatives and urge them to vote down a proposal that would grant trade promotion, or “fast-track,” authority to the Obama administration.

On Monday, January 27th, 550 labor, environmental and consumer advocacy groups, including the United Autoworkers, which provided President Obama critical support on previous trade pacts, such as the South Korea FTA, sent a letter to Congress urging them to reject the fast-track bill.

The email campaign comes two days after a dozen Senators, comprised of 11 Democrats and Sen. Bernie Sanders, an independent from Vermont, wrote to Senate Majority Leader Harry Reid, D-Nev., expressing “deep concern” over the chance that trade promotion authority would be renewed.

JANUARY 28 — STATE OF THE UNION

In response to the Republicans call in Congress for the Administration to do more regarding the TPA bill, President Obama responded in his State of the Union pushing the TPA bill and TPP and the TA Agreements.  President Obama stated:

“We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA”.  Look China and Europe aren’t standing on the sidelines.  Neither should we.”

What was very interesting about this point is that in contrast to almost every other point made in the State of the Union, when President Obama spoke about Trade, the Republicans cheered, but the Democrats in President Obama’s own party were silent.

JANUARY 29TH—THE DAY FREE TRADE MAY HAVE DIED

But the next day, Senator Harry Reid, the Senate Majority Leader, the head Democrat in the Senate, came out against TPA, stating:

“Everyone knows how I feel about this.  Senator Baucus knows.  Senator Wyden knows.  The White House knows.  Everyone would be well-advised to not push this right now.”

As Majority Leader, Senator Harry Reid controls the bills that are allowed on the Senate Floor.  With Senator Harry Reid’s opposition, the TPA bill is dead in the Congress, which means that the President’s trade agenda and his push for these agreements are also dead.  In an ironic point, this situation will probably only change if the Republicans take over the Senate in 2014.

The lawmakers opposed to the TPA Bill argue that in light of the top secret nature of the negotiations, multiparty trade deals go far beyond the scope of the smaller, typically single-nation trade accords that were done in the past.  These new multinational deals affect larger portions of the U.S. and global economies and touch on many policies under Congressional jurisdiction.  Congress, therefore, should have a greater say on trade deals beyond the ability to accept or reject them.

On January 29, 2014, David Bonior, a former Michigan Congressman, who voted for NAFTA, in an article entitled Obama’s Free-Trade Conundrum stated:

 

“But Mr. Obama’s desire for fast-track authority on the T.P.P. and other agreements clashes with another priority in his speech: reducing income inequality.

This month is the 20th anniversary of the North American Free Trade Agreement, which significantly eliminated tariffs and other trade barriers across the continent and has been used as a model for the T.P.P.  Anyone looking for evidence on what this new agreement will do to income inequality in America needs to consider Nafta’s 20-year record. . . .

The result is downward pressure on middle-class wages as manufacturing workers are forced to compete with imports made by poorly paid workers abroad. . . .The shift in employment from high-paying manufacturing jobs to low paying service jobs has contributed to overall wage stagnation. The average American wage has grown less than 1 percent annually in real terms since Nafta, even as productivity grew three times faster. . . .

The Nafta data poses a significant challenge for President Obama. As he said on Tuesday, he wants to battle the plague of income inequality and he wants to expand the Nafta model with T.P.P.  But he cannot have it both ways.”

 

In response to Senator Reid’s statement, it was reported that Sen. John Cornyn  (R., Texas.) stated “You can kiss any new trade deals goodbye. . . I think the majority leader’s focus is on the November elections and he doesn’t want to expose his vulnerable members to controversial votes.”

The latest developments come amid growing skepticism in Japan about the U.S.’s commitment to free trade. “It’s up to the resolve of the U.S. government,” Japan’s economy minister, Akira Amari, told reporters in Tokyo. “If the president comes to the negotiating table with a strong enough determination to wrap it up by spring, other countries will follow suit.”

Sen. Chuck Schumer (D., N.Y.) stated “I think there’s a lot of dubiousness in our caucus to fast track, given that every time we sign a free-trade agreement it seems other countries violate the rules and we don’t”.

Unions opposing the trade deals were happy with the outcome.   According to Larry Cohen, head of the Communications Workers of America, “For those of us who want to have a progressive trade agenda, it means that we’re encouraged.”

On January 30th, House Speaker John Boehner spoke out against President Obama suggesting that he needs to push Senate Majority Leader Harry Reid to get the TPA bill through Congress.

On February 3rd, President Obama met with Senate Majority Leader Harry Reid but the President did not bring up the trade issue and made no effort at the meeting to change Senator Reid’s mind on the TPA bill.

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

According to the report, unions, environmental groups, and political organizations—working under the umbrella site —have nearly 600,000 supporters  and made more than 40,000 phone calls to Congress, opposing the trade measures.

Another political organization, Democracy for America, has obtained 125,000 electronic signatures on a petition requesting that Nancy Pelosi, top House Democrat, follow Senator Reid’s lead and stop the TPA bill in the House.

Many trade experts believe that Senate Majority Leader Harry Reid’s decision not to bring the TPA bill to the Senate Floor casts substantial doubt over the negotiations for the TPP and the TA deals.  Most commentators are stating that all these Agreements are at risk right now.

White House press secretary Jay Carney stated on Wednesday, January 29th,

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

Harry Reid’s decision could be a critical tipping point in US trade policy as the US becomes more and more protectionist.  It took a President Bill Clinton with his tremendous political ability to persuade Democratic Senators and Congressmen “to do the right thing” on NAFTA and enact it into law.  But President Obama is not Bill Clinton.

DOHA ROUND-BALI

As mentioned in the last newsletter, much to the surprise of many Government officials and companies, in December the WTO round in Bali resulted in all the WTO countries agreeing to Trade Facilitation Agreement to modernize customs procedures, as well as provisions on agriculture and economic development.  If there had been no Agreement in Bali, it could very well have meant the end of the multilateral effort to lower trade barriers through negotiations.

On January 7, 2014 WTO Director-General Roberto Azevedo stated:

“Just six weeks ago, the fate of the multilateral trading system hung in the balance. Today, we can talk with confidence about how we can continue to develop and strengthen the system for the future.”

According to Azevedo, the Bali Trade Facilitation Agreement could possibly add as much as $1 trillion to the world’s economy each year.

The question now is what happens in the future.  Most experts believe that the WTO members will in the short term pursue agreements that affect only certain sectors or include only some countries.  Thus, there will probably be sector-by-sector trade negotiations at the WTO.

Agreements affecting trade of environmental goods and services might be one of the likely near-term targets.  But the Trade Facilitation Agreement still must be implemented as the details have to be ironed out, including Customs procedures in developing countries and other issues.  Implementation also means the Agreement must go through Congress and without TPA, it will be difficult for Bali Agreement to get through Congress.

Azevedo himself realizes the problems stating, “The task of strengthening the multilateral system and moving towards delivering on the[Doha Development Agenda] will be difficult, but it is not impossible.”

SOLAR PRODUCTS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN–QUANTITY AND VALUE QUESTIONNAIRE DUE FEBRUARY 13TH AT COMMERCE

Commerce has issued a quantity and value questionnaire in the new Solar Products/Modules/Panels antidumping case/initial investigation against China.  The deadline for the response to the Quantity and Value Questionnaire is February 13, 2014.

Attached are the quantity and value questionnaire and the fact sheet that was issued by Commerce. factsheet-multiple-solar-products-initiation-012313   prc-qv-solar-products-012714

The quantity and value questionnaire requires the Chinese exporter to report all sales during the period April 1, 2013 to September 30, 2013.  Specifically, Commerce is requiring the Chinese exporter to report the total number of modules, panels or laminates during that period, the total number of megawatts, the terms of sale and the total value of sales.

A Chinese exporter/producer must submit a response to this quantity and value questionnaire by February 13th.  If not, it will receive the highest dumping rate of 165%.

SOLAR CELLS REVIEW INVESTIGATION

To further complicate the Solar case, on February 3rd Commerce published in the attached Federal Register notice initiating the first Solar Cells review investigation.  This case will cover imports of Chinese solar cells during the review period.

So to be clear, the Solar Cells Review Investigation covers Chinese solar cells.  The Solar Products new investigation covers imports of Chinese modules and panels with Taiwan and other solar cells in them.

For the first Solar Cells Review Investigation, attached are the notice, in which many Chinese companies are named, and the Quantity and Value questionnaire.  Solar Cells AD CVD Initiation Notice 1st Review (2) SOLAR CELLS REVIEW QV Chinese companies named in the Solar Cells Review investigation need to file the QV questionnaire response on February 19th .   Chinese companies also need to file separate rate applications or certifications on or before April 4, 2014 at Commerce in first review investigation to keep their separate rate from the Solar Cells initial investigation.  Failure to file these documents meand that imports of Chinese solar cells will be assessed a rate of 250%.

Solar Trade problems with China are getting complicated.

SOLAR PRODUCTS INITIAL INVESTIGATION

As mentioned in my last post, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  The Scope of the Merchandise, the specific products covered by the new antidumping and countervailing duty investigations, are described in the attached notice and petition:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

See the injury petition in my last post on this blog.

In the subsequent Commerce Department initiation notice, which is attached, however, in contrast to the petition, solar consumer products are specifically excluded:

“Also excluded from the scope of this investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm2 in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.”

Initiation Notice – Certain Crystalline Silicon Photovoltaic Products 1-24-14

In addition, Commerce reduced the All Others/Facts available rate in the China case from 298% to 165%, but raised the antidumping rate for Taiwan to 75.68% from 39%.  The trade volume is large.  According to Commerce, imports of the subject merchandise from China and Taiwan were valued at $2.1 billion and $513.5 million, respectively.

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days, when the Commerce Department’s preliminary determinations are due on May 30, 2014 (CVD) and July 29, 2014 (AD).  Commerce Department investigations almost always are extended out to the full time.

Chinese companies also must submit their response to the quantity and value questionnaire by February 13th and be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 22nd, the day after the Government was closed, the ITC held a preliminary conference.  The Commission’s preliminary injury determination is due February 14th.

Meanwhile, many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

The Solar Energy Industries Association (SEIA) has announced that it is opposed to the case, calling it an “escalation” of the U.S.-China solar trade conflict.  Experts also stated that the duties could cripple the end user portion of the solar Industry, which is far larger than the domestic production industry.  As the SEIA stated, “From past experiences, we have learned that a conflict within one segment of the solar industry ripples across the entire solar supply chain.”

The market pressure driving solar prices downward is not caused by dumping, but the industry’s efforts to achieve so-called grid parity, where the price for solar power is comparable to that for traditional-source power.  But prices for US oil and natural gas are falling fast.  With falling costs for traditional forms of energy, it is very difficult for solar energy to be competitive.

The effect of this case, however, will be to drive up the costs of solar products,

Although the SEIA and some members of Congress have called for a settlement of the solar trade dispute, Solar World has expressed skepticism about such a deal, making it more difficult to conclude a government to government deal settling the case.  As mentioned in a prior post, there is no public interest standard in US antidumping and countervailing duty law, as compared to EC, Canada and China.  Also End Users have no standing in US antidumping and countervailing duty cases.  Thus it is difficult for the US Government to pressure Solar World to drop its case.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases stating:

 

“The two parties should follow the trend and make efforts to promote cooperation proceeding from the overall interests of clean energy development, so as to ensure the steady development, rather than restricting competition and cooperation by frequently taking trade remedy measures. It is proved that, that U.S. initiated investigations and levy high anti-dumping and countervailing duties in 2011 not only failed to change the situation of poor operation and lacking of competitiveness of its domestic industries, resulting in significant negative impacts on downstream industries including the assembly industry and services sector, but also triggered a worldwide chain reaction of trade disputes on PV products, which caused chaos in the whole industry.  . . .”

 

See attached statement MOFCOM STATEMENT

CURTAIN WALL UNITS ARE COVERED BY THE ALUMINUM EXTRUSIONS CASE

On January 30, 2014, in Shenyang Yuanda Aluminum Industry Engineering Co. v. United States, Judge Eaton in the Court of International Trade affirmed the Commerce Department’s determination that Curtain Wall Units, the sides of buildings, are with the scope of the AD and CVD orders on aluminum extrusions from China.  The Court stated in part;

“Because curtain wall units are “parts for” a finished curtain wall, the court’s primary holding is that curtain wall units and other parts of curtain wall systems fall within the scope of the Orders.”

See the attached decision.  SHENYANG YUANDA

As a result of the Court’s and the Commerce Department’s determination, the sides of buildings from China are now covered by US antidumping and countervailing duty orders with duties as high as over 100 to 300% for certain imports.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

WIRE ROD

On January 31, 2014, a new antidumping and countervailing duty case was filed against carbon steel wire rod from China.  See notice below.

Docket No: 3000

Document Type: 701 & 731 Petition

Filed By: Kathleen Cannon

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: ArceloMittal USA LLC, Charter Steel, Evraz Rocky Mountain Steel, Gerdau Ameristeel US Inc., and Keystone Consolidated Industries Inc, and Nucor Corporation.

Date Received: January 31, 2014

Confidential: Yes

Commodity: Carbon and Certain Alloy Steel Wire Rod

Country: People’s Republic of China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and antidumping duties on Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China.

Status: 701-TA-512 & 731-TA-1248

ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

In February Chinese producers and exporters, US importers and US producers have the opportunity to request an antidumping and/or countervailing duty review investigation of certain outstanding AD and CVD orders by filing a review request at Commerce by the last day of February for the following cases against China :

Period of review ————————————————————————              Antidumping Duty Proceedings

The People’s Republic of China:

Certain Preserved Mushrooms, A-570-851………..     2/1/13-1/31/14

Folding Metal Tables and Chairs \2\, A-570-868…     6/1/12-11/5/12

Frozen Warmwater Shrimp, A-570-893……………     2/1/13-1/31/14

Heavy Forged Hand Tools, With or Without Handles,     2/1/13-1/31/14      A-570-803…………………………………

Small Diameter Graphite Electrodes, A-570-929….     2/1/13-1/31/14

Uncovered Innerspring Units, A-570-928………..     2/1/13-1/31/14

Utility Scale Wind Towers, A-570-981………….    2/13/13-1/31/13

Countervailing Duty Proceedings

The People’s Republic of China:

Utility Scale Wind      2/13/13-12/31/13  Towers, C-570-982.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

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

CHINESE ANTIDUMPING CASE

POLYSILICON

On January 20, 2014, China issued final antidumping and countervailing duties against solar-grade polysilicon imported from the U.S.  Under the Chinese polysilicon antidumping duty order, US companies face dumping rates ranging from 53% to 57%.  On the Countervailing Duty side, US companies face rates from 0 to 2.1%.

On January 26, 2014, MOFCOM announced that given “the special market conditions” it has decided not to carry out antidumping and anti-subsidy measures for the moment.  Apparently, MOFCOM is hoping for a negotiated suspension agreement in the new Solar Products case.

FDA—FOOD PROBLEMS

CHINESE CHICKEN

On December 19, 2013, fourteen Congressmen circulated a letter in Congress asking their Congressional colleagues to ensure Chinese-processed chicken is kept out of the school lunch and other child nutrition programs. The letter also states that chicken slaughtered in China should be banned from the US market.  The letter states:

“It is because we are deeply concerned about the safety of the food served to the American people, especially our children, that we write to express our serious apprehension about the Food Safety and Inspection Service (FSIS) recent decision to allow China to process chicken raised in the United States, as well as Canada and Chile, to then export to the United States. Furthermore, we believe FSIS is likely to eventually allow China to export its own raw poultry to the United States.”

CHINA CHICKEN PROBLEM CONG LETTER

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

On December 5th, the Washington State Government reported that on December 3rd the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Washington, Oregon, and northern California. China reported a shipment of geoduck clams tested high in paralytic shellfish poison (PSP) and arsenic.  See my past post on this blog for more on this fight and the attached announcement.

The ban has already devastated shellfish growers in Washington, Alaska, Oregon and Northern California.  It also affects clams, oysters and other shellfish from U.S. waters.

China is the world’s largest importer of geoducks (pronounced “gooey duck”), with more than half of all the harvest from Washington, British Columbia and Alaska getting shipped to China. With China cut off, there are few places for the harvest to go.

Test results showed that, on average, arsenic was present in the geoduck bodies at a level of 0.327 parts per million (ppm), which falls below China’s legal limit of 0.5 ppm. Arsenic in the actual meat of the geoducks registered at 0.063 ppm, eight times lower than the limit.

On January 9th it was reported that Laboratory tests on Washington State’s exports of geoduck clams, found no evidence of unsafe or excessive levels of arsenic.  Although the test results have been sent to China, to date they have not yet received a response, and the ban remains in place.

The problem, however, arises from US export forms for the geoduck shipment.  The form does not allow for more specificity in identifying the source from which the shellfish were harvested.  While the problem shipments of shellfish came from isolated areas in Washington and Alaska, “Area 67″ encompasses all the coastal regions from Northern California through Alaska’s Pacific Coast. As a result, Chinese authorities were forced to ban shellfish from all of Area 67.

National shellfish programs provide forms that set forth specific shippers and harvest locations, which allow the governmental authorities to easily trace shipments back to specific shippers and harvest locations. If there’s a contamination problem domestically, shellfish growers can easily isolate the problem instead of shutting down the entire industry.

The World Health Organization is said to be considering setting safe levels for
inorganic arsenic in food in the .2-.3 ppm range in 2014. The Washington geoduck claims that tested high for inorganic arsenic in China, however, were harvested from a tract of land managed by the Department of Natural Resources that has since been closed. The tract is within the shadow of a copper smelter that was operated near Tacoma for 100 years.   According to Marian Abbett, manager of the Tacoma smelter clean up for the Washington Department of Ecology, “Well we know that arsenic levels are elevated in the surface soils in that area.  Soil samples from the surrounding land show levels of arsenic between 40 and 200 ppm, though that number does not directly equate to levels of arsenic that will end up in the water, or in shellfish.”

The area was closed to all shellfish harvest until 2007, when the Puyallup Tribe petitioned state agencies to reopen the tract for geoduck harvest. At that time the Department of Health conducted tests on geoduck in the area and found levels of .05 ppm. That’s an order of magnitude below the amount found by the Chinese in October of 2013 and well within the safety parameters set by the Chinese.

However, state agencies have not tested for inorganic arsenic or other metals in shellfish from the area since it was reopened in 2007.

Arsenic is a carcinogen that has also been associated with long-term respiratory effects, disruption of immune system function, cardiovascular effects, diabetes and neurodevelopmental problems in kids.

“There’s no safe level, but at some point you’ve crossed the threshold to being really dangerous and we don’t quite know where that threshold is at this point,” Cottingham said.

But the ban is having a real effect on fishermen in Washington State.  Ninety percent of the geoduck harvested in Washington is sold to China and Hong Kong.

The clams can fetch up to $150 per pound in China, but today the Suquamish tribe is losing $20,000 each day that the ban is in place, but the impacts of the ban are being felt well beyond the reservation. John Jones, another Suquamish diver, stated, “My brothers are from Port Gamble and they’re out of work.  They shut down diving everywhere, not just for us but for the state.”

Although British Columbia in Canada is not affected, the Chinese ban impacts all shellfish throughout Puget Sound, Alaska, Oregon and Northern California.  The shellfish industry in Washington is worth $270 million annually, and China is the biggest market for exports.

This is the broadest shellfish ban China has ever put in place, but it’s not the first time China has banned a major import from the U.S.  Beef imports from the U.S. have been banned for the past ten years. More recently, China rejected about half a million tons of U.S. corn because it contained a genetically modified strain.

Chinese officials have been slow to reveal details of their shellfish testing methods. That’s prompted some to raise concerns about political motivations behind the shellfish ban.

Although there is a possibility that the Chinese are retaliating for past problems with food imports in the US, there is strong evidence that the Chinese have a legitimate problem.  The contaminated geoduck clams were harvested near the former site of a copper smelter in Tacoma, which had leached arsenic into the surrounding area.

Again Chinese problems with US shellfish must be kept in context.  As indicated above, US Congressmen want to ban all chicken processed in China.  Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

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

Trade is a two way street and what goes around comes around.

PATENT/IP AND 337 CASES

INTERDIGITAL SETTLES 337 PATENT CASE WITH HUAWEI

On January 2, 2014, InterDigital Communications Inc. and Huawei Technologies filed a confidential settlement of their 337 patent case over 3G and 4G wireless devices.  Huawei’s antitrust strategy seems to have worked.

CHINESE COMPANY LOOSES 337 RESINS TRADE SECRET CASE

On January 15, 2014, in Certain Rubber Resins and Processes for Manufacturing Same, Investigation No. 337-TA-849, the U.S. International Trade Commission (“ITC”) determined that there was a violation of section 337, 19 USC 1337, because a Chinese chemical maker and other companies had stolen trade secrets covering the recipe for rubber resins held by New York company, Sl Group Inc.  The Commission issued a limited exclusion order for 10-years excluding infringing imports of the Chinese resins into the United States from Sino Legend (Zhangjiagang) Chemical Co. Ltd. and the other named respondent companies in the case.

According to the 337 complaint, although SL Group had closely guarded the formula and the equipment used to create the resin, the manager of Sl Group’s Shanghai chemical plant defected to Sino Legend in 2007 and took the design with him.

The ITC’s ruling is directly contrary to the ruling of a Chinese court, which reached the opposite conclusion and found that there was no misappropriation.  After acquiring the trade secret, Sino Legend has been able to take over about 70% of the Chinese market for the rubber resins in question, which are used in tire production.

In response to the ruling, Sino Legend has stated that the Commission’s ruling will not substantially affect its business because the ITC’s ruling will allow its customers to use all Sino Legend resins in any of their non-U.S. production facilities, and then import those products into the U.S. without restriction.

DUPONT TRADE SECRETS CASE — TITANIUM DIOXIDE

In an ongoing criminal trial in California this month, prosecutors described how an ex-DuPont engineer and two conspirators stole DuPont trade secrets regarding a specific process to produce very high quality titanium dioxide, and sold the designs to Chinese state owned companies earning $28 million.

Chinese-American Walter Liew and his wife, Christina, founded multiple companies in Northern California and hired as a consultant ex-DuPont engineer Robert Maegerle, who knew the process of safely producing massive amounts of titanium dioxide.  Maegerle allegedly shared what he learned building plants for DuPont with the Liews, who used the information to negotiate contracts with Chinese companies, including Pangang Group Co., to build titanium-dioxide-making factories in China. However, both Maegerle and Walter Liew knew Dupont had patented that information and it was confidential.

Titanium dioxide is a white pigment used in everything from iPhone cases to toothpaste.  But it is hot, dirty and dangerous and DuPont figured out a way to make the product commercially viable.  According to the prosecutor, that process is what the Chinese companies wanted.

Maegerle is charged with trade-secrets theft, conspiracy and obstruction of justice.  Christina Liew faces charges of economic espionage, trade-secret theft, and tampering with witnesses and evidence in a separate trial.

Lawyers for the defendants argued that they did not copy DuPont’s factory plans verbatim, but used them as the basis to design around and develop their own production techniques for producing titanium dioxide.

Later in the trial, however, a government expert testified that Dupont fiercely guarded its trade secrets for making high-quality titanium dioxide and that the trade secrets made Dupont the envy of the industry.

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

On December 31, 2013, Laserdynamics filed a patent case against Haier. HAIER PATENT CASE

On January 7, 2014, Bluebonnet Telecommunications filed patent cases against ZTE and Huawei. BLUEBONNETZTE HUAWEI BLUEBONNET

On January 7, 2014, Toyo Tire and Rubber filed a patent case against South China Tire and Rubber Co. TOYO TIRE CASE

On January 10, 2014, Personal Audio filed a patent case against Huawei and ZTE. PERSONAL AUDIO HUAWEI ZTE

On January 10, 2014, Thomas & Betts filed a trademark, unfair competition, case against Zhejiang Shengyu City Fengfan Electrical Fittings Co. TRADEMARK WRENCH ZHEJIANG

On January 13, 2014, Laerdahl Medical filed a patent case against Shanghai Honglian Medical Instrument Development Co. SHANGHAI MEDICAL

On January 13, 2014, ICON Health and Fitness filed a trademark case against Zhongshan Camry Electronics Co. ZHONGSHAN TRADEMARK

On January 14, 2014, Kee Action Sports filed a patent case against Shyang Huei Industrial Co., a Taiwan company. TAIWAN SUN

On January 14, 2014 Toyo Tire and Rubber filed a patent case against Hong Kong Tri-Ace Tire Co and Doublestar Dong Feng Tyre Co. TOYO DONG FENG

On January 16, 2014, Touchscreen Gestures filed patent cases against Huawei and ZTE. TOUCHSCREEN ZTE TOUCHSCREEN HUAWEI

On January 29, 2014, Standard Fiber filed a trade secret case against Shanghai Tianan Home Co, Teetex, LLC, and Anwen “Alvin” Li. SHANGHAI TRADE SECRET

Complaints are posted above.

ANTITRUST

VITAMIN C CASE

As mentioned in my last post, the Vitamin C antitrust case against Chinese Vitamin C companies is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  In addition, the judgment has increased by $4 million, specifically $4,093,163.35, to $158 million, specifically $158,203,163.35, to pay the Plaintiffs’ legal fees. FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

JUSTICE IS GETTING TOUGHER ON INTERNATIONAL CARTELS DEMANDING JAIL TIME FOR FOREIGN EXECUTIVES

There are reports that in 2013 and now 2014 the Justice Department has ramped up its enforcement in international cartels/price fixing antitrust cases looking for more prison sentences for foreign executives involved in these cartels.

On January 30th, Bill Baer, the Assistant Attorney General for the Antitrust Division gave the attached speech to the New York State Bar Association in which he described in detail international antitrust enforcement, including increased enforcement of antitrust cases against international cartels, and the DOJ’s increased cooperation with Chinese antitrust authorities.  BILL BAER DOJ STATEMENT ANTITRUST ENFORCEMENT The Assistant Attorney General stated:

 

“With those preliminary observations in mind, let me focus on the progress antitrust enforcement has made these last five years. President Obama promised during his first campaign that his administration would vigorously enforce the antitrust laws.  He pledged to “step up review of merger activity,” “take aggressive action to curb the growth of international cartels,” and ‘ensure that the benefits of competition are fully realized by consumers.’

“I think the record shows the Antitrust Division has followed through on the President’s pledge. Criminal enforcement provides an excellent starting point. We continue to vigorously pursue and prosecute international and domestic cartels. Since January 2009, we have filed 339 criminal cases, a more than 60 percent increase over the prior five years. We secured $4.2 billion in criminal fines in that period. . . .

Effective cartel enforcement requires holding accountable both corporations and the senior executives who orchestrate their unlawful conduct. We have charged 109 corporations with criminal antitrust violations since 2009. We have ensured that those corporations have paid appropriate—and stiff—criminal fines, and those 109 corporations together have paid the highest five-year fine total in division history. The division also charged 311 individuals with antitrust crimes during the past five years.

Experience teaches that the threat of prison time is the most effective deterrent against criminal antitrust violations. We seek sentences commensurate with the economic harm caused by the perpetrators. The statistics show that the courts are embracing the effort to hold company executives accountable for their bad behavior. The average prison sentence in our cases has increased from 20 months in the period 2000-09 to 25 months during the years 2010-2013. Of course, we can never know for certain the full deterrent effect of our enforcement efforts. But we do know that self-reporting under our leniency program remains at high levels and that, increasingly, non-U.S. companies are reporting anticompetitive behavior. They are responding to the fact we are prosecuting off-shore conduct with a U.S. impact. In recent years the number of foreign nationals sentenced to U.S. incarceration has increased threefold. The message should be clear: the division will vigorously and successfully prosecute international cartel behavior that harms U.S. consumers regardless of where that conduct takes place. . . .

The division has brought criminal cases in a range of industries over the past several years. One of our most significant ongoing investigations involves the auto parts industry. We are prosecuting price fixing and bid rigging involving a number of parts that were installed in cars sold in the U.S., including wire harnesses, instrument panel clusters, and seatbelts.  . . .

To date, we have charged 24 companies and 26 executives with participating in multiple international conspiracies, and those numbers are sure to grow as the investigation continues.   These charges have resulted in $1.8 billion in criminal fines, including the third-largest criminal antitrust fine ever.   Of the 26 executives charged so far, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements requiring significant sentences.

During the past several years, the division also prosecuted international price-fixing conspiracies involving liquid crystal display panels. These conspiracies hurt U.S. consumers by dramatically inflating prices for computer monitors, notebook computers, and televisions, among other products. In 2012, the division secured convictions of Taiwan-based AU Optronics, its subsidiary, AU Optronics Corp. America, and three former top executives for their participation in such a conspiracy.   The trial against AU Optronics was the first time the division proceeded under the alternative fine statute, 18 U.S.C. § 1571, which allows for fines up to two times the gain or loss resulting from the conduct. The division proved beyond a reasonable doubt to the jury that the combined gains to the participants in the conspiracy were $500 million or more and that the defendants’ conduct accordingly merited a fine exceeding the Sherman Act’s $100 million maximum.   . . .

There is more to come.  . . . There can be little doubt that the division vigorously prosecutes wrongdoers. . . .

During the Obama administration U.S. enforcers have broken new ground in relations with China and India. In the past few years, the division and the FTC have entered into Memoranda of Understanding (MOU) with the Chinese and Indian enforcement agencies.  These MOUs have led to annual bi-lateral meetings between the U.S. antitrust enforcement agencies and agencies from these nations.  Indeed, earlier this month, I attended with Chairwoman Ramirez a bi-lateral meeting with the Chinese authorities in Beijing. We see candid engagement with the Chinese and Indian agencies as important, and we look forward to increased cooperation in the coming years.

Cooperation also plays an important role in our international criminal cartel investigations. Working with competition enforcers in non-U.S. jurisdictions, we share information where we are able; and we can plan coordinated raids around the world, reducing the opportunity for key evidence to go missing or be destroyed. . . .”

 

When foreign corporate executives are found to be guilty of engaging in a cartel to set prices, this is considered a crime of moral turpitude and the foreign executive is barred from entering the US for a minimum of 15 years.  Under a memorandum of understanding between Justice and Immigration and Naturalization Services (“INS”), now Immigration and Customs Enforcement (“ICE”), if the foreign executive pleads guilty and cooperates with authorities, that executive can be exempted from the 15 year exclusion and continue to enter the US.  Antitrust criminal defense attorneys have argued that this exemption is unfair because it places unfair pressure on the foreign executive to forgo their right to trial.

On January 24, 2014, in response to questions from Congress on this issue, Assistant Attorney General Baer stated in the attached response:

 

“In general, moral turpitude has been held to be conduct that is inherently dishonest and contrary to accepted rules of morality and the duties owed between persons or to society in general. Tax fraud, mail fraud, securities fraud, and theft offenses, for example, have been held to be crimes of moral turpitude. Similarly, price-fixing, bid-rigging, and market allocation agreements among companies that hold themselves out to the public as competitors are inherently deceptive and defraud consumers who expect the benefits of competition. Thus, the division’s Memorandum of Understanding (“MOU”) with INS states that INS, now the Department of Homeland Security as successor to INS, considers criminal antitrust offenses to be crimes involving moral turpitude, which may subject an alien defendant to exclusion or deportation.

However, an alien defendant who is convicted of an antitrust offense at trial retains the ability to contest his removability from the United States.

In today’s global marketplace, many culpable executives involved in international cartels affecting U.S. consumers and commerce are foreign nationals. They may live and work outside the U.S., but their cartel conduct affects billions of dollars of U.S. commerce yearly and takes money out of consumers’ pockets. The MOU was drafted in order to allow the Antitrust Division to secure jurisdiction over and cooperation of these foreign nationals in the division’s investigations and prosecutions of international cartels and to hold these foreign nationals accountable for antitrust crimes, just as domestic defendants are held accountable.

The cooperation of defendants receiving immigration relief under the MOU is critical to the division’s ability to investigate and prosecute international cartel activity. A foreign defendant’s willingness to cooperate with the division provides the basis for the waiver of inadmissibility under the MOU, and fulfilling the continuing cooperation requirements with the division is a condition of a defendant’s retention of the waiver. Having cooperating witnesses from multiple companies is essential to fully investigate cartels and to hold responsible individuals at each corporate conspirator accountable.

Moreover, having defendants who have pleaded guilty is important at Antitrust Division trials. Extending the MOU waiver to noncooperating defendants would undermine the incentives provided by the MOU and be unjust to those foreign nationals who are willing to accept responsibility for their criminal conduct, submit to U.S. jurisdiction, cooperate with the division, and serve time in U.S. prison. It would also be unworkable to require pleading foreign defendants to continue their cooperation to maintain the waiver while at the same time giving the MOU waiver to non-pleading defendants who have not accepted responsibility and fully cooperated with the division.”

BAER STATEMENTS TO CONGRESS

CHINA ANTITRUST CASES

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from the NDRC.  China’s National Development and Reform Commission (NDRC) is becoming an increasingly aggressive regulator and is focusing on information technology providers, especially companies that license patent technology for mobile devices and networks.

Apparently, the NDRC is trying to lower domestic costs as China rolls out its faster 4G mobile networks this year.  US -based Qualcomm is scheduled to obtain the vast majority of licensing fees for the chip sets used by handsets in China, the world’s biggest smartphone market in the World.

Under the Chinese antimonopoly law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year.  Qualcomm reportedly earned $12.3 billion in China for its fiscal year ended September 29, or nearly half of its global sales.

Qualcomm is no stranger to substantial fines.  In 2009, South Korea’s Fair Trade Commission fined the company 273 billion won ($252 million), the highest Korean penalty ever against a single company, for abusing its dominant position in CDMA modem chips which were then used in handsets manufactured in Korea.

SECURITIES

SEC DROPS CHINESE AUDIT CASE AGAINST DELOITTE

On January 27th the SEC told the Federal Court that it was dropping its case against Deloitte for failure to turn over audit documents of a Chinese technology company.  The SEC stated that Deloitte was supplying the audit papers to the China Securities Regulatory Commission, which, in turn, was supplying the records to the SEC.

The dismissal of the case, however, will not affect a separate SEC action against the Chinese offices of the Big Four accounting firms for refusing to reveal client documents to the SEC.  An SEC administrative law judge recently ruled that the China based offices are barred from auditing companies that do business in the U.S.

JURY CLEARS CHINESE INVESTMENT ADVISOR SIMING YANG

On January 13th, a jury in the Federal District Court found Chinese investment adviser Siming Yang not guilty on insider trading claims brought by the U.S. Securities and Exchange Commission (“SEC”), but did find Yang guilty for other violations, including making false disclosures to the regulator.

FOREIGN CORRUPT PRACTICE ACT–CORRUPTION ISSUES IN CHINA FOR FOREIGN COMPANIES

On February 4th, Carl Hinze in Dorsey’s Shanghai office published the attached article “Doing business in and with China: Battling a corruption culture by building a compliance culture”.

HINZE ARTICLE FCPA

COMPLAINTS

On January 10, 2014, Deborah Donoghue filed the attached securities case against Secure alert, Short Swing Profits, which are all owned by Sapinda Asia and Lars Windhorst, a Hong Kong Company, for short swing profits. SAPINDA HK

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

Best regards,

Bill Perry

US CHINA TRADE WAR–REAGAN PREDICTED IT, TRADE, CUSTOMS, 337/PATENTS, US CHINA ANTITRUST, AND SECURITIES

Washington Monument After the Snow Washington DCJanuary 3, 2014

“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN , JUNE 28, 1986

Dear Friends,

There have been some major developments in the trade, Customs, patents, US/Chinese antitrust, and securities areas.

In looking at the first posts I wrote on my blog, they were relatively short, but with the US litigation against Chinese companies in the US and the Chinese litigation against US companies growing, the Posts will grow even larger.

As mentioned before, the US China Trade War is expanding into many different areas.  Trade and Customs were simply the first areas of attack.

PRESIDENT RONALD REAGAN PREDICTED TRADE WAR WITH CHINA

My intention was to upload this post to my blog by the end of December.  Unfortunately, did not make it, but while on Christmas break I was at the Ronald Reagan Center in Santa Barbara, California.

In October 1980, I joined the US International Trade Commission (“ITC”) as a staff attorney in the Office of General Counsel and later in the Chief Counsel’s office in the Commerce Department.  During that entire time, Ronald Reagan was President.  During that period, the ITC was also the most free trade Commission in its history as Reagan appointed Commissioner after Commissioner with strong free trade ideologies, such as Susan Liebeler, Anne Brunsdale, and Robert Cass.  From my observation, Ronald Reagan was the most free trade president in my lifetime.  Congress, however, does not like free traders.

While at the Santa Barbara Center, I listened to the attached speech by President Ronald Reagan on international trade and was amazed because he predicted with absolute accuracy the present state of trade relations with China.  REAGAN IT SPEECH  On June 28, 1986 from his California Ranch, President Reagan stated as follows:

 

“Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a  nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.

That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flimflammery in American politics.

But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth. You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start.

We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. They organized the General Agreement on Tariffs and Trade, or GATT, to promote free trade. It hasn’t all been easy going, however. Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively.

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

 

Several thoughts come to mind when reading this speech.  When President Reagan speaks of a “protected industry” that  “is so listless and its competitive instincts so atrophied that it can’t stand up to the competition”, think the US Steel Industry, which has had antidumping and countervailing duty orders in place against steel imports for more than 40 years.  Is Bethlehem Steel alive today?  No, the orders did not work.

Second, President Reagan mentions the Smoot-Hawley Tariff Act.  The real name of that law is the Tariff Act of 1930, and where are the US antidumping and countervailing duty laws to be found—The Tariff Act of 1930.  Yes, many parts of the Smoot Hawley Tariff Act are alive today.

Finally President Reagan truly predicted the Trade War with China, including the Chinese reaction to the Solar Cells antidumping and countervailing duty cases and the other trade cases against China.  The Solar Cells cases against China has led to the Polysilicon antidumping and countervailing duty cases against the US, wiping out $2 billion in US exports to China.  The Section 421 Tires case described below led to Chinese antidumping and countervailing duty cases against automobiles and chicken from the US.

The Trade War with China truly has become a pie fight in the old Hollywood comedies– “Everything and everybody just gets messier and messier,” but the sad part is that it costs jobs.

TRADE

SOLAR CELLS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN

On December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan with alleged antidumping rates of 298%.

The antidumping and countervailing duty petition covers crystalline silicon photovoltaic products, including solar cells, modules and panels,  from China and Taiwan.  The specific products covered by the new antidumping and countervailing duty investigations are:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

“Also excluded from the scope of this investigation are any products covered by the existing antidumping and countervailing duty orders on crystalline silicon photovoltaic cells, whether or not assembled into modules, from the People’s Republic of China- case numbers A-570-979 and C-570-980.”

Attached is a copy of the injury petition.  AD CVD CASE SOLAR WORLD TAIWAN AND CHINA

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days.  Chinese companies also must be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 3, 2014, the US International Trade Commission issued the attached notice regarding the preliminary injury investigation in the new Solar Cells, Modules and Panels case against China and Taiwan.  USITC Solar Panels PRELIMNARY NOTICE  The ITC’s preliminary conference is scheduled for January 21st in Washington DC.

If anyone is interested in participating in the case at the ITC or the Commerce Department, please feel free to contact me.

FIRST SOLAR CELLS CASE–REVIEW REQUESTS

In the first Solar Cells case, the first annual review investigations have just started up, which will determine the actual liability of US importers for antidumping and countervailing duties on their imports.  On December 31, 2013, Solar World and the other US solar cell producers filed the attached letters requesting that the Chinese companies named in the letters be included in the review investigations. AD SolarWorld Review Request-12-31-13 SolarWorld CVD Review Request-12-31-13

If you are a Chinese producer/exporter and you are named in the letter, you must partcipate in the review investigation or you will lose your 24% antidumping rate and your new rate will be 250%.  If you are an importer of solar cells during the specific review periods and your Chinese suppliers are named in these letters, you must make sure that they participate in the review investigations.  If your suppliers do not participate, the antidumping rate will go from 24% to 250% and you the importer will be retroactively liable for the difference plus interest.

TRADE NEGOTIATIONS—BALI/DOHA ROUND AND TPP

In the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) negotiations.  Both negotiations could have a major impact on China trade.

Attached is an article that I have written together with a Canadian trade and customs lawyer about the impact of the TPP from both the US and Canadian point of view.FINAL ARTICLE TPP US CHINA

DOHA ROUND-BALI

From China’s point of view, the WTO negotiations in the Doha Round are extremely important.  The only way that China can deter many trade actions is to work within the multilateral framework to reduce trade barriers to Chinese products.

Multilateral WTO negotiations are even more important for China because of the ongoing TPP negotiations, which at this moment do not include China.  As indicated in my attached article on the TPP, the US and other countries see the TPP negotiations as one way to offset China’s rise in the trade area.

But multilateral and bilateral trade negotiations are by their nature a give and take.  All countries in the negotiations have to be willing to reduce some of their own trade barriers to persuade other countries to lower their trade barriers.  No country wins or loses on all issues.  By their nature, trade negotiations involve tradeoffs.

So the WTO and TPP trade negotiations are going to be of continued interest to Chinese companies and US importers.

WTO NEGOTIATIONS-BALI

As mentioned in a past post, the United States Trade Representative (“USTR”) pointed to the coming World Trade Organization (“WTO”) multilateral negotiations in Bali on trade facilitation measures, which would streamline customs procedures, as being very important as well as the proposed Trans-Pacific Partnership with 11 other Pacific Rim countries, which were “posed to close”.

On November 27, 2013, however, there were reports that the WTO multilateral negotiations in Bali had broken down, in part over the Trade Facilitation report.  But those statements were premature.

On December 6, 2013, WTO members announced that a Trade Facilitation Agreement had been struck by the member countries.  This would be the first WTO-wide agreement in the organization’s nearly two decade history.  Round-the-clock negotiations at the conference led to the so-called Bali package -the first membership-wide agreement since the WTO was created in 1995.  The Bali Package includes measures on trade facilitation, intended to streamline customs and other procedures that affect the shipment of goods across borders, as well as provisions on agriculture and economic development.

“For the first time in our history: the WTO has truly delivered.” WTO Director-General Roberto Azevedo said in a December 5th statement. “I challenged you all, here in Bali, to show the political will we needed to take us across the finish line. You did that. And I thank you for it.”

The WTO was able to overcome objections from Cuba, Venezuela, Bolivia and Nicaragua because it did not address a U.S. embargo against Cuba, which has been in place for more than 50 years, and other trade embargoes.  The agreement was to add an additional sentence in Bali deal’s text that upheld the “principle of non-discrimination in goods in transit.”

India also raised concerns over part of the package’s agriculture section that dealt with agricultural subsidy programs that some developing countries offer to promote “food security” and combat hunger.

Those concerns, however, appeared to have been largely addressed in the draft text circulated December 3rd, which contained an interim agreement, under which WTO members would refrain from lodging disputes against developing countries that stockpile crops as part of a food security program, as long as the subsidies do not distort trade.

The Peterson Institute for International Economics said an ambitious agreement on trade facilitation could add $960 billion to the world economy.  But the symbolism is more important.  The Bali Agreement is very important for both developed and developing countries.  Many of the FTA agreements, such as the ongoing TPP agreements, could hurt the developing countries the most.  The movement of both the TPP and the Trans- Atlantic Agreement puts more pressure on the WTO countries to reach a deal.

The importance of the Bali Agreement is that it means the WTO can still be an effective forum for truly multilateral trade negotiations.  If no deal had been reached in Bali, this could have led to the collapse of the WTO as a multilateral forum to negotiate reductions of trade barriers.

In a speech in Bali, WTO Director-General Roberto Azevedo stated, “What’s at stake is the cause of multilateralism itself”

TPP NEGOTIATIONS RUN INTO HEADWINDS

The USTR and US government officials were predicting that the Trans Pacific Partnership (“TPP”) negotiations would conclude at the end of the year with an Agreement.  That was simply too optimistic.  Secret negotiations are going to generate controversey.

On December 10th, the Trade Ministers for the 12 countries negotiating the TPP announced in Singapore “substantial progress” in the talks, but there would be no deal by the end of the year.  In a joint statement, the Ministers indicated that they had engaged in productive discussions, identifying potential solutions to a number of outstanding obstacles, but more meetings would be held in 2014.

Rep. Sander Levin, D-Mich., the top Democrat on the Ways and Means Committee of U.S. House of Representatives, indicated that critical work lay ahead, especially the continued closure of Japan’s market to U.S. cars and agricultural products, the implementation of enforceable labor and environmental rules, and strict rules on currency manipulation and state-owned enterprises.

South Korea has indicated interest in the talks, but it is unlikely that any other country would join the agreement while the talks are still ongoing.  Presently, the TPP negotiations include Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

The two most important countries for the US, however, are Japan and possibly Vietnam.  Japan is important because of decades long problems involving automobiles and agriculture products, and Vietnam because as a non-market economy Communist country, it could be a forerunner to China.

 On December 10th Ways and Means Committee Chairman Dave Camp (R-MI) stated that there had been significant progress in the Singapore Round and countries will continue their work in January.

“The headway achieved so far on TPP is positive, but more work remains. There are longstanding issues that need to be resolved, like access for U.S. automakers and farmers, and we should take the time to get this agreement right. I look forward to consulting with Ambassador Froman when he returns on the next steps. Concluding these negotiations, as well as other trade agreements, will require Congressional passage of Trade Promotion Authority legislation. Given the considerable bipartisan and bicameral progress that has been made on that front, I expect we will be in a position to do so early next year if we have the Administration’s active participation.”

In addition, Congressional leaders announced that they had come to agreement on providing the Administration Trade Promotion Authority or Fast Track Authority.

But the TPP then ran into headwinds.

AGRICULTURE

On December 19, 2013, American Farm Bureau Federation, American Meat Institute, American Soybean Association, International Dairy Foods Association, National Association of Wheat Growers, National Cattlemen’s Beef Association, National Chicken Council, National Corn Growers Association, National Milk Producers Federation, National Oilseed Processors Association, National Pork Producers Council, National Turkey Federation, North American Meat Association, U.S. Dairy Export Council, U.S. Grains Council, U.S. Wheat Associates, USA Rice Federation announced that they would oppose the TPP if a final version did not require Japan to eliminate tariffs on virtually all US agricultural exports.

In the attached letter AG LETTER TO USTR to U.S. Trade Representative Michael Froman, the seventeen agriculture industry groups stated:

“Dear Mr. Ambassador:

We are writing to express our concern with the state of play of the Trans-Pacific Partnership (TPP) negotiations. Each of our organizations has expressed in the past strong support for a comprehensive, high-standard TPP agreement. However, we have watched with growing alarm the unwillingness of Japanese negotiators to present a comprehensive offer on agricultural products, and we now believe this situation is threatening to undermine the negotiations.

In previous negotiations, the United States has demanded and received from developing country trading partners full and comprehensive liberalization in the agricultural sector. Yet in the TPP negotiations, Japan – a rich, developed country – is demanding special treatment for its agricultural sector. We consider an agreement that includes such special treatment for Japan to be unacceptable.

If Japan is allowed to claim exceptions for sensitive products, other TPP partners will inevitably demand the right to do the same. This could quickly lead to the unraveling of the agreement, as other parties pull their offers on sensitive products, or their concessions on sensitive issues, off the table.

However, even if it were possible to prevent the agreement among current parties from unraveling, granting exceptions to Japan, or any other party, would have far-reaching consequences. As the TPP expands to include other countries in the Asia-Pacific region, we can expect other countries with sensitivities in the agricultural sector, such as China, to make similar demands. Moreover, a weak agreement with Japan would inevitably have significant negative implications for our ability to reach an acceptable agreement with the EU in the Transatlantic Trade and Investment Partnership negotiations.

U.S. agriculture has always supported trade agreements and Trade Promotion Authority as the most effective means of eliminating tariff and non-tariff barriers and expanding global trade. However, the market access package you negotiate with Japan has the potential to impact billions in future exports and hundreds of thousands of jobs.

In conclusion, TPP must include comprehensive liberalization in the agricultural sector by all participating countries. If Japan continues to insist on unreasonable protections to a range of agricultural categories, we ask you to consider concluding TPP without Japan. It will ultimately be difficult for our organizations to support a TPP agreement with Japan that does not include comprehensive trade liberalization for all agricultural sectors.”

This is an extremely important development because US agriculture is the primary force pushing for Free Trade Agreements.  If the farmers do not support the TPP, there will be no agreement.

UNIONS

On December 9th, The International Association of Machinists and Aerospace Workers (“IAM”), which represents around 700,000 current and former industrial workers, announced that the TPP would be a job killer, leading to a massive loss of American jobs.  The IAM argued that past trade deals did not create jobs and has lead to a “death sentence” for American workers.

The IAM stated that it is strongly opposed to the revival of “fast-track” authorities that expired in 2007 and “If TPP is implemented, U.S. manufacturing may well find itself on the endangered species list.”

DRUGS AND IP

On December 11, 2013, potential provisions in the TPP on drug patent protections and the length of copyright terms came under fire with Democratic lawmakers, library associations and consumer groups voicing concern over proposals that are currently on the table.

Several Democratic Congressmen urged USTR to reconsider its reported proposals for handling pharmaceutical patents in the TPP. CONG LETTER A number of libraries, digital rights and consumer groups argued against a copyright protection for a term of 70