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

IMPORT SENSITIVE PRODUCTS AND NEW 337 CASES

Commerce Department After the Snow Pennsylvania Avenue WashingtoIMPORT SENSITIVE PRODUCTS

Over the last several years, because of my international trade expertise, many US importers have called me because they wake up one morning and find they are liable for antidumping (“AD”) and countervailing duties (“CVD”) on a number of different products.  These duties can be in the millions of dollars, when the importers simply did not know that the imported products were covered by US AD and CVD orders.  One unfortunate fact is that US importers, companies that import products into the United States, are liable for AD and CVD on imports and they can be retroactively liable.

This post highlights the breadth of products currently subject to antidumping and countervailing duty orders and it thus should serve as a warning to anyone in the United States who imports products from China.

If you were an importer of a solar recharger for an RV unit, for example, would you know that the product is covered by the US AD order on solar cells from China?  If you were importing curtain walls/the sides of buildings, auto parts, geodesic domes, and lighting equipment, would you know that the products were covered by US AD and CVD orders against aluminum extrusions?

In fact, the US presently has more than 130 AD and CVD orders against China and 100s of AD and CVD orders against imports from other countries.  The Chinese AD and CVD orders block more than $30 billion in imports, and those AD and CVD orders can stay in place for 5 to 30 years.  The orders can also expand to cover downstream products, such as curtain walls, certain solar cell consumer products, and gardening equipment.

With regards to China, more than 80 of the AD and CVD orders are against raw materials, 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 almost all Chinese steel products from China are blocked by US AD and CVD orders.

In addition to steel, other metal products, such as silicomanganese, metallurgical coke, magnesium, silicon metal, and graphite electrodes, which are used in downstream steel production, are also blocked by AD orders.  Electrolytic Manganese Dioxide used to produce batteries is also covered, which led Panasonic to close its US battery factory and move to China.  The Magnesium AD orders have led to the destruction of the US Magnesium Dye Casting industry and the movement of light weight auto parts production to Canada.

In addition to steel and metal products, chemical products, such as sulfanilic acid, polyvinyl alcohol, barium carbonate, potassium permanganate, activated carbon, glycine, isocyanurates/swimming pool chemicals, xanthan gum, citric acid, and calcium hypochlorite, are covered by orders.  The AD order on sulfanilic acid led to the injury of the US optical brightening industry, which brought its own antidumping case against China.

In addition to raw materials, however, many household products are covered by AD and CVD orders, including ironing tables, steel sinks, wood flooring, wooden bedroom furniture, steel shelving, and steel cooking ware.  Other consumer products covered are: tires, hand trucks, lawn groomers, steel nails, paper clips, pencils, ribbons, candles, paper products, gift wrap and heavy forged hand tools.

In addition to household products, food products, such as shrimp, honey, crawfish and garlic, are covered by AD orders against China and other countries.

At this point in time, any product being imported from China is at least somewhat import sensitive and could well be attacked by US trade actions.  This means that an importer should monitor the products it imports for any potential trade sanctions. And if you the importer are hit with sanctions, know that in contrast to other legal statutes, the AD and CVD law are remedial statutes so you can request an antidumping or countervailing duty review investigation to get the rates reduced and with that your own liability for past imports.

NEW SECTION 337 INTELLECTUAL PROPERTY CASES FILED AT ITC AGAINST CHINA

On June 22, 2016,  Schutz Container Systems Inc. filed a section 337 IP case at the US International Trade Commission (“ITC”) against Composite Intermediate Bulk Containers.  The proposed respondent is Zhenjiang Runzhou Jinshan Packaging Factory, China.

On June 24, 2016, Excel Dryer, Inc. filed a section 337 IP case at the ITC against Hand Dryers and Housings for Hand Dryers.  The proposed respondents, including Chinese companies, are: ACL Group (Intl.) Ltd, United Kingdom; Alpine Industries Inc., Irving, New Jersey; FactoryDirectSale, Ontario, CA; Fujian Oryth Industrial Co., Ltd. (a/k/a Oryth), China; Jinhua Kingwe Electrical Co. Ltd., (a/k/a Kingwe), China; Penson & Co., China; Taizhou Dihour Electrical Appliances Co., Ltd. a/k/a Dihour, China; TC Bunny Co., Ltd., China; Toolsempire, Ontario, CA; US Air Hand Dryer, Sacramento, CA; Vinovo, China; and Zhejiang Akie Appliance Co., Ltd., China.

On July 5, 2016, The Chamberlain Group Inc. filed a section 337 case at the ITC against Access Control Systems.  The proposed respondents, including a Chinese company, are: Techtronic Industries Co. Ltd, Hong Kong; Techtronic Industries North America, Inc., Hunt Valley, Maryland; One World Technologies Inc., Anderson, South Carolina; OWT Industries Inc., Pickens, South Carolina; Ryobi Technologies Inc., Anderson, South Carolina; and Et Technology (Wuxi) Co., Ltd., China.

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 28, 2015

 

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

CHINA STOCK MARKET CRASH

CHINA STOCK MARKET CRASH—STAGE 2 WORLD MARKETS CRASH

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On the same day, the Washington Post reported:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As another Chinese analyst stated:

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

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

Counting the Cost of Gov’t Intervention in Stock Market

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

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

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

It would be wishful thinking to believe that this means the CSF has more money to continue buying stocks. Rather, the deal marked an end to operations that have plowed nearly 2 trillion yuan into the A share market since it took a nosedive in mid-June.

The sheer volume of the capital involved and the consequences that may follow over a long period demand that we seriously reflect on what was done and what should have been learned.

The money the CSF used to buy the shares primarily came from commercial banks. It will need to repay those loans quickly with the funds it received from Central Huijin, which raised the funds it needed for its purchase by issuing bonds. Costs aside, Central Huijin’s mandate is to hold stakes in financial institutions on behalf of the state. Supporting the stock market is not its job.

When announcing the share transfer, the securities regulator also said “the stock market goes up and down according to its own laws and the government will not intervene under normal circumstances.” Perhaps this statement is intended to signal that the government’s intervention has concluded.

The announcement also said that the CSF “will continue to play a stabilizing role in many ways should the market experience severe and abnormal fluctuations and possibly trigger systemic risk.” The emphasis here should fall on how the government defines “abnormal fluctuations” and “systemic risk.” Ambiguity on these two important questions will have grave consequences.

It is still too early for a thorough review of the costs and benefits of the government’s involvement in the stock market, but some judgments can be made. To start, the regulator should not have tried to get the stock index to go up. Also, the CSF seemed to have picked stocks randomly, pouring capital into valuable and worthless companies indiscriminately. Critics have questioned the wisdom of these actions, and some voiced concerns about insider trading.

Many other issues remain to be resolved. The first is defining the role of the CSF. The institution has become a de facto stock market stabilization fund in that it snaps up shares few others want, and the government has said this will remain its mission for years. Critics say the very existence of the fund distorts the market, not to mention that trillions of yuan are at stake. Deciding what the CSF can do with the money – now that its main job has changed – should be done according to the law. . . .

Also at risk is the sense of rationality that the government has tried for years to instill in stock investors.

Ever since the CSF stepped into the market, speculators have started gambling again, to the detriment of the market. The message some investors took away from the intervention is that the government will always ride to the rescue when the market collapses. The moral hazard this created backtracks on progress that has been made over many years on investor education. . . .

The capital market cannot grow in a healthy manner with the CSF playing the role of savior. It should end this role sooner rather than later. . . .

The regulator must learn the right lessons this time. Reflecting on what it did wrong would be a start. The future of the market depends upon it doing its job right.

For the full editorial, see http://english.caixin.com/2015-08-26/100843837.html.

Pointing to the factory and consumer price data, Mr. Yu Yongding, a prominent Chinese economist and a former adviser to the central bank, stated:

China’s economy will get worse before it gets better. Chinese companies are struggling with high debt loads and low prices. China has entered a stage of deflation.

Although the fundamentals are driving stock prices around the World, no one knows what the fundamentals are in China and that fuels the panic, when it comes to the Chinese stock market. As the Wall Street Journal reported on August 25th:

For All Its Heft, China’s Economy Is a Black Box

For sheer clout, China’s economy outweighs every country in the world save the U.S. But on transparency, it remains distinctly an emerging market, with murky politics, unreliable data and opaque decision making.

This veil dims the understanding of China’s economy and is an important reason its recent slowdown has produced so much turmoil.

Economists widely doubt that China grew at a robust 7% pace in the second quarter, as the country’s official statistics say. Citing other data, such as power generation and passenger travel, some think the rate might be as little as half that.

Similarly, when the People’s Bank of China devalued its currency two weeks ago, a step that sparked much of the recent market upheaval, officials couched the move as part of a long-term effort to align the yuan’s value more closely with market forces. Some outside analysts, noting that the PBOC isn’t independent, saw a more political motive: to boost exports and thus bolster the Communist Party’s credibility and hold on power. . . .

“With my G-7 and many G-20 counterparts there were frank, honest conversations, you were on the phone pretty frequently, often weekly,” recalls one former Treasury official who still deals extensively with China for the financial industry. “With China, you don’t know who to call. It’s hard to know where decision making occurs or who’s calling the shots.” . . . .

no major advanced country’s statistics are viewed as skeptically as China’s.

In 2007 Li Keqiang, now China’s premier, told the U.S. ambassador, according to a memo released by WikiLeaks, that GDP is “man-made” and therefore unreliable.

Mr. Li, who was then Communist Party chief of Liaoning province, said he looked at data on electricity, rail cargo and loans to get a better gauge on economic activity. Several analysts have since come up with indexes based on Mr. Li’s favorite stats.

In London, Capital Economics looks at freight activity, electricity, property development, passenger travel and sea shipments, and concludes China’s economy expanded much more slowly in the second quarter than China reported. Lombard Street Research, another London research outfit, uses another approach, including a different measure of inflation, and comes up with just a 3.7% growth rate.

Chinese statistics are “spookily stable from quarter to quarter,” says Capital Economics analyst Mark Williams. For instance, China’s unemployment rate registers 4.1% nearly every quarter. . . .

China’s leaders are heir to a tradition of secrecy. In 1971, when Mao Zedong’s anointed successor died, the public wasn’t told for nearly two months. In the current corruption crackdown, it can still be weeks or months after senior or retired leaders disappear before their detention is announced. . . .

Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University, in the August 25th Washington Post stated that the real scary part of the stock market crash was the reaction of the US Presidential candidates:

The truly scary thing about Black Monday

The global sell-off of stocks yesterday was a little worrying. The reaction from some candidates for president was a lot worrying. . . .

China’s Black Monday reveals something useful: how potential U.S. presidents are reacting to the market sell-off. . . .

One Republican candidate, Gov. Scott Walker of Wisconsin, called on President Obama on Monday to cancel his plans to meet in Washington next month with President Xi Jinping of China on what will be his first state visit to the United States. Mr. Walker accused Beijing of a range of offenses that have harmed American interests, including manipulating its economy and currency, carrying out cyberattacks and persecuting Christians.

Wait. What?

Frankly, at this point both U.S. and Chinese officials wish China could actively manipulate their economy. What’s happening this month is evidence, in fact, that market forces can easily override Chinese government manipulation. To be sure, Walker lists legitimate beefs with the People’s Republic, but I’m pretty sure canceling the state visit would not help at all on any of them. . . .

In response to Trump’s argument that the United States should delink from “China, Mr. Drezner stated:

Oh, for the love of –. Look, I’ll keep this simple. If American voters really want any market volatility to metastasize into an actual Great Depression, then by all means break ties with China and Asia. But the only reason the 2008 financial crisis wasn’t worse was precisely because that didn’t happen. . . .

The same is true for Sanders, who also seized on the market moment in a tweet from the populist left: “For the past 40 years, Wall Street and the billionaire class have rigged the rules to redistribute wealth to the richest among us.”….

and it would be foolish for any of the establishment candidates to go down this rabbit hole.” Except that’s what Scott Walker did. Oh, and then there’s Chris Christie:

“. . .17:08:24 Lots and lots of money from the Chinese and remember that when the Chinese hold this much of our debt, if the Chinese get a cough, we get the flu and that’s what’s happening now right now in my opinion in our financial markets.”

Let’s be clear: China owning lots of U.S. government debt has exactly zero to do with what’s happening right now. If anything, the gyrating Chinese stock market and depreciating yuan, combined with general developing country malaise, will trigger a massive surge of interest in U.S. government debt. So Christie is simply wrong here.

The scariest thing about Black Monday wasn’t the stock market fluctuations. Those will hopefully be temporary enough in the United States. No, the scariest thing was how one day of financial volatility was enough to make four presidential candidates — Christie, Sanders, Trump, and Walker — say really stupid things about the Chinese economy and the Sino-American relationship.

See https://www.washingtonpost.com/posteverything/wp/2015/08/25/the-truly-scary-thing-about-black-monday/?hpid=z3 for the full article.

From an international trade point of view, although China is important, the really scary part is not China, but the global drop in trade. On August 25, 2015 the Financial Times reported that “This year is worst for trade since crisis” of 2009

The volume of global trade fell 0.5 per cent in the three months to June compared to the first quarter . . . also revised down their result for the first quarter to a 1.5 per cent contraction, making the first half of 2015 the worst recorded since the 2009 collapse in global trade that followed the crisis.

“We have had a miserable first six months of 2015,” said Robert Koopman, chief economist of the World Trade Organization, which has forecast 3.3 per cent growth in the volume of global trade this year but is likely to revise down that estimate in the coming weeks.

Much of the slowdown in global trade this year has been due to a halting recovery in Europe as well as a slowing economy in China, Mr Koopman said.

In other words, instead of bashing China and trade in general, maybe the Presidential candidates should talk about boosting trade.

But one interesting point, on August 25, 2015, the New York Times had an article by Joe Nocera entitled The Man Who Got China Right. In the Article, Mr Nocera described Jim Chanos of Kynikos Associates, a $3 billion hedge fund that specializes in short-selling. Mr. Nocera goes on to state:

In the fall of 2009, Jim Chanos began to ask questions about the Chinese economy. What sparked his curiosity was the realization that commodity producers had been largely unaffected by the financial crisis; indeed, they had recorded big profits even as other sectors found themselves reeling in the aftermath of the crisis.

When he looked into why, he discovered that the critical factor was China’s voracious appetite for commodities: The Chinese, who had largely sidestepped the financial crisis themselves, were buying 40 percent of all copper exports; 50 percent of the available iron ore; and eye-popping quantities of just about everything else.

That insight soon led Chanos to make an audacious call: China was in the midst of an unsustainable credit bubble. . . .

Chanos and his crew at Kynikos don’t make big “macro” bets on economies; their style is more “micro”: looking at the fundamentals of individual companies or sectors. And so it was with China. “I’ll never forget the day in 2009 when my real estate guy was giving me a presentation and he said that China had 5.6 billion square meters of real estate under development, half residential and half commercial,”

Chanos told me the other day.

“I said, ‘You must mean 5.6 billion square feet.’ ”

The man replied that he hadn’t misspoken; it really was 5.6 billion square meters, which amounted to over 60 billion square feet.

For Chanos, that is when the light bulb went on. The fast-growing Chinese economy was being sustained not just by its export prowess, but by a property bubble propelled by mountains of debt, and encouraged by the government as part of an infrastructure spending strategy designed to keep the economy humming. (According to the McKinsey Global Institute, China’s debt load today is an unfathomable $28 trillion.)

Chanos soon went public with his thesis, giving interviews to CNBC and Charlie Rose, and making a speech at Oxford University. He told Rose that property speculation in China was rampant, and that because so much of the economy depended on construction — in most cases building properties that had no chance of generating enough income to pay down the debt — China was on “the treadmill to hell.”

He also pointed out that much of the construction was for high-end condos that cost over $100,000, yet the average Chinese household made less than $10,000 a year.

Can you guess how the financial establishment, convinced that the Chinese juggernaut was unstoppable, reacted to Chanos’s contrarian thesis? It scoffed. . . .

As it turns out, China’s economy began to slow right around the time Chanos first made his call. No matter: Most China experts remained bullish. Chanos, meanwhile, was shorting the stocks of a number of companies that depended on the Chinese market. . .

These days, with the markets in free-fall, it certainly looks like Chanos has been vindicated. . . . This loss of confidence in China and its leaders has spooked stock markets around the world.

The moral of today’s story is a simple one. Listen to the skeptics and the contrarians. You dismiss them at your peril.

For the full article, see http://www.nytimes.com/2015/08/25/opinion/joe-nocera-the-man-who-got-china-right.html?emc=edit_th_20150825&nl=todaysheadlines&nlid=19479910.

CHINA STOCK MARKET CRASH – STAGE 4—MARKETS RECOVER BUT CHINA IS NO LONGER A SURE BET

On August 27 and 28, 2015, World Markets recovered and the Chinese stock exchanges even went up on suspicion of Chinese government buying programs, but the new reality is that China is no longer a sure bet. The focus now is on the true state of China’s economy. As the New York Times stated on August 27th:

China Falters, and the Global Economy Is Forced to Adapt

With deepening economic fears about China, multinational corporations and countries are having to respond to a new reality as a once sure bet becomes uncertain.

China’s rapid growth over the last decade reshaped the world economy, creating a powerful driver of corporate strategies, financial markets and geopolitical decisions. China seemed to have a one-way trajectory, momentum that would provide a steady source of profit and capital.

But deepening economic fears about China, which culminated this week in a global market rout, are now forcing a broad rethinking of the conventional wisdom. Even as markets show signs of stabilizing, the resulting shock waves could be lasting, by exposing a new reality that China is no longer a sure bet.

Smartphone makers, automobile manufacturers and retailers wonder about the staying power of Chinese buyers, even if it is not shaking their bottom line at this point. General Motors and Ford factories have been shipping fewer cars to Chinese dealerships this summer. . . .

The trouble is, the true strength of the Chinese economy — and the policies the leadership will adopt to address any weaknesses — is becoming more difficult to discern.

China’s growth, which the government puts at 7 percent a year, is widely questioned. Large parts of the Chinese service sector, like restaurants and health care, continue to grow, supporting the broader economy. But the signs in industrial sectors, in which other countries and foreign companies have the greatest stake through trade, paint a bleaker picture. . . ..

For entire article, see http://www.nytimes.com/2015/08/27/business/international/china-falters-and-the-global-economy-is-forced-to-adapt.html?emc=edit_th_20150827&nl=todaysheadlines&nlid=19479910&_r=0.

 TRADE POLICY

WILL THE REAL LOSER IN THE 2016 US ELECTION BE FREE TRADE?

In my first July newsletter on Trade Policy, Trans Pacific Partnership (“TPP”) and Trade Promotion Authority (“TPA”), I asked whether the US Congress will follow the siren call of protectionism and take the US backwards or move forward with the Trans Pacific Partnership (“TPP”) to resume its free trade leadership? Truly a question.

As an observer of the Presidential primary right now, free trade and the trade agreements appear to be the latest punching bag, especially among the populist front runners, such as Donald Trump and Bernie Saunders. Using the euphemism of putting America first and protecting workers and US factories at all costs from import competition created by free trade agreements, many candidates apparently are simply engaged in protectionism.

Although the establishment Republicans, such as Jeb Bush, Marco Rubio and John Kasich, have all indicated that they are for Free but “Fair” Trade, Donald Trump, the front runner, is a different story.

When asked how the United States could create new jobs in the first Republican debate, Donald Trump, who presently leads the Republican primary field, stated during the first Republican debate, “Well for starters I would negotiate better trade deals. The Chinese are killing us.”  Trump further stated:

“This country is in big trouble. We don’t win anymore. We lose to China. We lose to Mexico both in trade and at the border. We lose to everybody,”

On August 24th, Trump warned that because of the Chinese stock market fall, China would bring the US down and the US should delink from China. See https://instagram.com/p/6xT08ZGhQc/

Trump has decreed that he will build a wall to stop illegal immigrants coming in from Mexico and the Mexican government will pay for it. Trump has stated that if the Mexican government does not pay for it, he will raise tariffs on Mexican products. But that would be a violation of the North American Free Trade Agreement (“NAFTA”).

Trump has also threatened that if China takes actions, such as cyber-attacks, on the US, he will raise tariffs on Chinese products, but that would be a violation of the World Trade Organization (“WTO”) Agreement and the WTO Agreement between the US and China.

In other words, it sounds like Trump Administration would create a trade war or trade wars with a number of different countries.

Although Trump and Republican Senator Sessions of Alabama have argued that the US has a free trade agreement with China, it does not. All the US has with China is PNTR, which means permanent normal trade relations with China, just like the normal trade relations the United States has with Russia, Ukraine, Syria, Iran and many other countries.

Although Trump has been bashing China and trade in general, most people thought he could not be elected, but in mid-August, Bloomberg Politics Managing Editor Mark Halperin stated on MSNBC that Trump has “reached a turning point” at which “establishment candidates” think he can win Iowa and added that “most” believe he can win the nomination, and “a significant number think he could win the White House.” As Halpern further stated, “Trump may not end up as the nominee, but right now, he’s changed the race.” The latest Fox News poll shows that Trump is in first place with 25 percent support nationally, more than double the support for Ben Carson who is in second place with 12 percent. The findings mirror recent polls in Iowa.

An August 20, 2015, Rasmussen Report telephone Poll has 57% of Republican voters stating Trump is the likely to be the Republican Presidential Nominee. See http://m.rasmussenreports.com/public_content/politics/elections/election_2016/trump_change.

On August 27, 2015, Peggy Noonan, a former speechwriter for President Ronald Reagan and a committed Republican, in an article entitled “America Is So in Play” published in the Wall Street Journal stated that she was discovering a distinct change in the electorate towards Donald Trump and the Republican party because the Hispanics and  other lower income people that she knows are for Donald Trump:

Second, Mr. Trump’s support is not limited to Republicans, not by any means. . . .

Since Mr. Trump announced I’ve worked or traveled in, among other places, Southern California, Connecticut, Georgia, Virginia, New Jersey and New York’s Long Island. In all places I just talked to people. My biggest sense is that political professionals are going to have to rethink “the base,” reimagine it when they see it in their minds. . . .

Something is going on, some tectonic plates are moving in interesting ways. My friend Cesar works the deli counter at my neighborhood grocery store. He is Dominican, an immigrant, early 50s, and listens most mornings to a local Hispanic radio station, La Mega, on 97.9 FM. Their morning show is the popular “El Vacilón de la Mañana,” and after the first GOP debate, Cesar told me, they opened the lines to call-ins, asking listeners (mostly Puerto Rican, Dominican, Mexican) for their impressions. More than half called in to say they were for Mr. Trump. Their praise, Cesar told me a few weeks ago, dumbfounded the hosts. I later spoke to one of them, who identified himself as D.J. New Era. He backed Cesar’s story. “We were very surprised,” at the Trump support, he said. Why? “It’s a Latin-based market!”

“He’s the man,” Cesar said of Mr. Trump. This week I went by and Cesar told me that after Mr. Trump threw Univision’s well-known anchor and immigration activist, Jorge Ramos, out of an Iowa news conference on Tuesday evening, the “El Vacilón” hosts again threw open the phone lines the following morning and were again surprised that the majority of callers backed not Mr. Ramos but Mr. Trump. Cesar, who I should probably note sees me, I sense, as a very nice establishment person who needs to get with the new reality, was delighted.

I said: Cesar, you’re supposed to be offended by Trump, he said Mexico is sending over criminals, he has been unfriendly, you’re an immigrant. Cesar shook his head: No, you have it wrong.

Immigrants, he said, don’t like illegal immigration, and they’re with Mr. Trump on anchor babies. “They are coming in from other countries to give birth to take advantage of the system. We are saying that! When you come to this country, you pledge loyalty to the country that opened the doors to help you.”

He added, “We don’t bloc vote anymore.” The idea of a “Latin vote” is “disparate,” which he said generally translates as nonsense, but which he means as “bull—-.”

He finished, on the subject of Jorge Ramos: “The elite have different notions from the grass-roots working people.”

Old style: Jorge Ramos speaks for Hispanic America. New style: Jorge Ramos speaks for Jorge Ramos. . . .

I will throw in here that almost wherever I’ve been this summer, I kept meeting immigrants who are or have grown conservative—more men than women, but women too. America is so in play. . . .

Both sides, the elites and the non-elites, sense that things are stuck. The people hate the elites, which is not new, and very American. The elites have no faith in the people, which, actually, is new. Everything is stasis. Then Donald Trump comes, like a rock thrown through a showroom window, and the molecules start to move.

For the entire article, see http://www.wsj.com/articles/america-is-so-in-play-1440715262.

In early August at a Bellevue, Washington Republican event, I heard Congressman Dave Reichert, a former Washington State policeman and sheriff, state that he believes the major issue in the next 2016 election will be “control versus chaos”. He argues that the average American voter is looking for someone who can control the situation in the United States as compared to the chaos we see in the US with illegal immigration, foreign policy and other domestic issues. That may be a reason for Trump’s appeal to the Republican voter.

But what about Democrats? Although Hilary Clinton may be in the lead, as many political experts know, she is wounded because of a number of issues, including e-mail problems she had while Secretary of State that have morphed into a potential FBI criminal investigation. See Reuters report at http://mobile.reuters.com/article/idUSKCN0QQ0BW20150821. But Hilary has not come out in favor of the trade agreements. Why? The labor unions, which are a significant part of the Democratic base and very anti-trade.

The next candidate behind Hilary is Senator Bernie Sanders. Many Democrats are saying that Hilary is “feeling the Bern.” Sanders, however, is very close to the labor unions and, therefore, is vehemently against the Trade Agreements, China and Free Trade in general. See the June 23rd statement by Senator Bernie Sanders in which he denounced Trade Promotion Authority and the Trans Pacific Partnership on the floor of the US Senate at http://www.c-span.org/video/?c4541798/sen-bernie-sanders-tpa-disaster-america.

Bashing international trade and China in particular and blaming trade and China for all the ills in the US economy is common in US elections and may feel good. But reality soon intrudes. In 2014, total US exports, including manufactured products, agricultural products and services to other countries were $2.35 trillion, an increase over the last few years, with exports of US manufactured goods reaching $1.64 trillion. Under NAFTA in 2014 goods exported to Mexico were $240 billion and to China were $123 billion. US exports means US jobs. See https://www.census.gov/foreign-trade/balance/c5700.html.

The reality is that the United States is exporting many products to Mexico and China, including manufactured goods, agricultural products and services. What this means is that the United States is vulnerable to retaliation if it takes trade actions against other countries. Retaliation that will shut down US exports and cost US jobs.

As described above, China right now is going through an economic slowdown. As the New York Times stated on August 18th:

When Prime Minister Li Keqiang convened the Chinese cabinet last month, the troubled economy was the main topic on the agenda. The stock market had stumbled after a yearlong boom. Money was flooding out of the country. Most ominously, China’s export machine had stalled, prompting labor strikes. . . . .

Manufacturing, the core engine of growth in the world’s second-largest economy, is just too critical. And the pressures have been mounting, with exports last month plunging 8 percent compared with 2014.

Across the country, millions of workers and thousands of companies are feeling the pain, as sales slip and incomes drop. . . .Millions of Chinese are looking for work.

See http://www.nytimes.com/2015/08/18/business/international/chinas-devaluation-of-its-currency-was-a-call-to-action.html?emc=edit_th_20150818&nl=todaysheadlines&nlid=19479910&_r=0.

China’s slower economy will affect US companies and US jobs. Qualcomm, for example, is about to layoff thousands from its global workforce, many in San Diego, California. See http://www.sandiegouniontribune.com/news/2015/aug/17/Qualcomm-broadcom-nokia-layoffs-foreign-workers/.

But as people who read this newsletter know, Qualcomm was fined almost $1 billion for violations of China’s Antimonopoly law. Qualcomm also makes more than $9 billion every year, but half of that income comes from China. As people also know from this newsletter, China is going through an economic slowdown so right now a weak China market can hurt US exports. In international trade, what goes around, comes around.

The problem with protectionism is that trade is not a one way street. As Senator Marco Rubio stated on August 10th at a Republican reception in Bellevue, Washington, US consumers represent only 5% of the World Economy. 95% of consumers are outside of the US so if a US company wants to increase sales and increase jobs, it has to export.  In an August 28, 2015 opinion piece in the Wall Street Journal, entitled “How My Presidency Would Deal With China”, Senator Rubio made one of the more thoughtful points on China, stating:

My second goal is protecting the U.S. economy. For years, China has subsidized exports, devalued its currency, restricted imports and stolen technology on a massive scale. As president, I would respond not through aggressive retaliation, which would hurt the U.S. as much as China, but by greater commitment and firmer insistence on free markets and free trade. This means immediately moving forward with the Trans-Pacific Partnership and other trade agreements.

For the full opinion piece, see http://www.wsj.com/articles/how-my-presidency-would-deal-with-china-1440717685.

Republican and Democratic Senators, such as Orin Hatch, Marco Rubio and Ron Wyden, and Republican representatives, such as Paul Ryan, Dave Reichert and Pete Sessions, and free trade Democratic representatives, such as Ron Kind, Rick Larson, Derek Kilmer and Suzan DelBene, make the same argument and, therefore, understand the trade situation.

On August 19th, I met with the New Democratic Coalition of moderate Congressional Democrats, many from Washington State, who are pro-trade and pro-growth. 40% of the jobs in Washington State are tied to trade. See the Politico article, which describes the New Democrat Coalition in detail at  http://www.politico.com/story/2015/08/new-dems-plan-assertive-new-presence-in-house-121208.html. See also http://www.newdempac.com.

All the Democratic Representatives in the New Dem Coalition that I talked with were very concerned about the anti-trade rhetoric in the Presidential Primary, not only from Donald Trump but also Bernie Sanders. One Representative surprised me by talking well of Republican Senator Marco Rubio, who is pro free trade. The Democratic Representatives in the New Democratic Coalition understand how important international trade is to the economy, the companies and jobs in their states.

All of international trade is based on reciprocity. What the United States does to one country, that country can do back. If the US raises tariffs to keep imports out or puts in place trade restrictions, that country, in turn, can retaliate, raise tariffs and keep US exports out.

Several years ago, the United States determined to stop Mexican trucks from carrying freight into the United States. In return, Mexico stopped all imports of potatoes from Washington and other US states.

Just like Donald Trump, Bernie Sanders and other present day politicians, in the 1930s, as a candidate for President, Herbert Hoover promised to help the United States dig out of the recession by raising tariff walls against imports, and Congress passed the Smoot-Hawley Tariff of 1930. Countries around the World retaliated by raising barriers to US exports. Exports, imports and trade stopped and the World was plunged into the Great Depression.

As indicated below, the World economy is at a tipping point and starting a trade war with the rest of the World could hurt the United States and its economy big time. As the recent drop in the US stock market because of the China slow down indicates, the United States is no longer the big kid on the block, the only and biggest market in the World. The US, therefore, can be a target of trade actions, which will hurt US companies, US jobs and the US economy as a whole.

TPP NEGOTIATING ROUND ENDS IN HAWAII WITH NO FINAL AGREEMENT—CANADA AND JAPAN CONTINUE TO BE STICKING POINTS

In late July, after a week of negotiations in Hawaii to close the Trans-Pacific Partnership (“TPP”), negotiators were not able to close the gaps on the TPP’s most controversial provisions, including pharmaceutical patents and rules governing dairy trade. USTR Michael Froman stated that although the negotiations had resulted in “substantial progress in certain areas, final agreement remains out of reach”.

At the conclusion, trade ministers spoke optimistically:

“In this last stage of negotiations, we are more confident than ever that TPP is within reach and will support jobs and economic growth. The progress made this week reflects our longstanding commitment to deliver an ambitious, comprehensive and high-standard TPP agreement that will support jobs and economic growth across the Asia Pacific region.”

On July 9th in a Politico Morning Money speech, which can be found here http://www.c-span.org/video/?327014-1/politico-conversation-trade-representative-paul-ryan-rwi, Paul Ryan, House Ways and Means Chairman, stated that there could be a final TPP Agreement by late Fall.

Among the major obstacles are pharmaceuticals and in particular biologic drugs. The U.S. has long held that those high-value medicines, which are used to treat diseases like cancer and rheumatoid arthritis, should be given 12 years on the market before the entry of generic alternatives. But every other TPP partner has consistently pressed for a much shorter exclusivity window, with positions varying from eight years of exclusivity to no exclusivity period whatsoever.

A major problem is Canada’s barriers to agricultural goods, including its dairy and poultry market. New Zealand wants more access to the US market, but the US has stated that it will only open its market if Canada will open its market for more US dairy imports. With Parliamentary elections on October 16th, it is very difficult for Canada to give in now. Trade ministers vowed to keep working closely together to resolve their differences but did not give any details about the timing of the next official negotiating session.

By the way, which group in Canada opposes the giving in to dairy imports from the United States? The Teamsters labor union. Recently Teamsters Canada reiterated its opposition to any changes to Canada’s controversial supply management system for its dairy industry warning Canada’s political class over giving into the United States and other countries in the TPP talks.

In other words, the Teamsters and AFL-CIO in the United States oppose the TPP, but their brother union in Canada opposes lifting restrictions on dairy imports from the US. Apparently the Union’s position is let’s drive worldwide economics back decades and put all the protectionist walls back in place.

The TPP talks are at a delicate stage where much of the technical underbrush has been cleared, but parties are still faced with making calls on politically charged sectors of their economies that could make or break the deal. As Warren Maruyama, former USTR general counsel, stated:

“A lot of the issues that they had going into Maui still appear to be wide open. They are definitely in the endgame, and this is when all the hard issues have to get resolved, and I have yet to see a major trade negotiation that was resolved in one ministerial meeting.”

Another issue is the rules of origin for automobiles and auto parts, which were at the center of bilateral talks between the U.S. and Japan. Although the two countries appear to have forged a compromise on the regional content rule issue, Mexico has taken issue with that arrangement. In addition, rice is a big problem for Japan, and sugar is a big problem for the United States.

The passage of the Trade Promotion Authority (“TPA”) bill revealed a Congress still sharply divided on trade, a factor that Maruyama said USTR Froman will have to keep in mind as they bring the deal to completion. As Maruyama stated:

“USTR has to keep a close eye on the Congress. If it does something that costs votes or gets them seriously crosswise with the Republican House or Senate leadership, TPP is in big trouble. TPA is a good proxy for TPP, and it passed Congress by a very narrow margin and with mostly Republican votes.”

But any delay to TPP threatens to move such a vote deeper into the 2016 election season, where meaningful legislative action often reaches a standstill. In talking to pro-trade Democratic Representatives on August 19th in the New Dem Coalition, they are concerned that the TPP could become an election issue if the Agreement is not concluded soon. Pursuant to the TPA bill that was signed into law, once the final agreement is approved, President Obama must publish the Agreement for 60 days before he can sign it, and then the Congress must take at a minimum 30 days before they can ratify it. If the Agreement is concluded in late Fall or after October 16th, the Canadian election, for example, then that means President Obama could not sign the agreement until the end of December, and Congress would have to deal with the Agreement at the end of January, February 2016, just as the Presidential primaries are starting up in an election year.

If the TPP isn’t ratified by the end of this year, the chances of its being ratified before Obama leaves office will be slim. Congress is highly unlikely to pass a gigantic free trade agreement like the TPP during an election year. It would almost have to happen after the November Presidential election in a December lame-duck session.

Meanwhile, on August 14th, Senator Sherrod Brown, an outspoken critics on US trade policy, stated that he will block the nomination of Marisa Lago to serve as a deputy U.S. trade representative, citing the office’s failure to fully open Trans-Pacific Partnership text for viewing by congressional staff. When USTR rejected Senator Brown’s request, he stated:

“The administration would rather sacrifice a nominee for a key post than improve transparency of the largest trade agreement ever negotiated. This deal could affect more the 40 percent of our global economy, but even seasoned policy advisers with the requisite security clearance can’t review text without being accompanied by a member of Congress.”

EXIM BANK PROBLEMS

There is a major battle in the US Congress now on the Ex-Im Bank. In a victory for free market ideology over pragmatism and simple common sense, conservative members of Congress have let the charter of the EX-IM Bank expire hurting many US companies.

More specifically, Congress let federal authorization for the Ex-Im Bank expire July 1, to the cheers of conservative lawmakers who view it as a tool for crony capitalism.   As a result, credit insurance policies are starting to run out for 3,000 small businesses that rely on them to be able to export along with a number of large companies, such as Boeing. According to National Association of Manufacturers Vice President Linda Dempsey, some U.S. companies continue to compete for overseas bids that will ultimately require Ex-Im backing, in the hopes that the agency will be renewed before the deals fall through.

What is the Ex-Im Bank? According to the Export-Import Bank itself, the EXIM Bank:

is an independent, self-sustaining agency with an 80-year record of supporting U.S. jobs by financing the export of American goods and services. . . .

By financing the export of American goods and services, EXIM Bank has supported 1.3 million private-sector, American jobs since 2009, supporting 164,000 jobs in FY 2014 alone. . . .

Small business exporters need certainty and protection to tackle new markets, expand and create jobs. In FY 2014, nearly 90 percent of EXIM Bank’s transactions—more than 3,340—directly supported American small businesses. . . .

Over the past two decades, the Bank has generated nearly $7 billion more than the cost of its operations. That’s money EXIM Bank generates for the American taxpayer, to help reduce the federal deficit.

EXIM Bank argues that it:

“is vital to countering aggressive foreign competition. With nearly 60 other export credit agencies around the world trying to win jobs for their own countries, EXIM Bank helps level the playing field for American businesses. “Made in America” is still the best brand in the world, and EXIM Bank ensures that U.S. companies never lose out on a sale because of attractive financing from foreign governments.

EXIM Bank further states:

In FY 2014, Export-Import Bank financing supported $27.5 billion worth of U.S. exports. $10.7 billion of that total represents exports from U.S. small businesses, making small business exports the top category for EXIM Bank supported exports last year.

Finally, the EXIM Bank argues that it has a long history of bipartisan support:

President Dwight D. Eisenhower, February 12, 1959: “[EXIM Bank’s] record of repaid loans and repayable loans, your infinitesimal portion of written-off loans is one that I can do nothing except to say congratulations to your Directors, the President, and to all of you.”

President John F. Kennedy, July 18, 1963: “…the Export-Import Bank has created a wholly new program of export financing which now provides U.S. business with credit facilities equal to any in the world.”

President Gerald Ford, November 18, 1974: “In order for the United States to maintain its strong position in foreign markets, it is important that the Congress pass the Export-Import Bank bill and avoid attaching unnecessary encumbrances.”

President Ronald Reagan, January 30, 1984: “Exports create and sustain jobs for millions of American workers and contribute to the growth and strength of the United States economy. The Export-Import Bank contributes in a significant way to our nation’s export sales.”

President William J. Clinton, May 6, 1993: “Export expansion obviously encourages our most advanced industries. I am committed to promoting these exports, and what’s where the EXIM Bank plays an important role.”

President George W. Bush, June 14, 2002: “I have today signed into law S. 1372, the Export-Import Bank Reauthorization Act of 2002. This legislation will ensure the continued effective operation of the Export-Import Bank, which helps advance U.S. trade policy, facilitate the sale of U.S. goods and services abroad, and create jobs here at home.”

See http://www.exim.gov/about/facts-about-ex-im-bank

The decision to let the EXIM Bank expire on July 1st forces many large and small companies to make drastic changes. Despite the rhetoric of pure free market ideology, the reality is that the real winner of this decision is China, Europe and other countries. Gary Mendell, president of trade financier Meridian Finance Group, said export credit agencies in other countries are already taking advantage of EXIM’s expiration to lure away business from U.S. companies. Mendell stated:

“They’re gleeful about it, and I don’t blame them. Those foreign competitors are going to customers in other countries and saying, ‘Hey, you don’t know if your U.S. supplier is even going to be able to ship to you and give you the payment terms they’re promising in their quote, because look what’s happening with Ex-Im Bank.’”

Some companies are not going to wait for Congress. Boeing Chairman Jim McNerney has stated that the giant plane manufacturer and defense contractor is considering moving parts of its operations to other countries, where they could take advantage of those nations’ equivalents to Ex-Im to continue selling products overseas:

“We’re actively considering now moving key pieces of our company to other countries, and we would’ve never considered that before this craziness on Ex-Im.

McNerney further stated that he might have “made the wrong decision” years ago in trying to keep production in the U.S., given the newly uncertain politics surrounding export financing in Washington. “People just playing politics — they’re not connected to the real world anymore,”

But Rep. Jim Jordan (R-Ohio), a leading conservative critic of the bank, sees even a prolonged expiration for the bank as a victory, stating:

“This is great news for families and taxpayers. Every day that goes by without the Ex-Im Bank being resurrected means it is more likely that it permanently ends. … This is the kind of example of good governance that I am excited to tell my constituents about during the August recess.”

But in Ohio, a state where manufacturing is the key economic issue, the failure to keep the EXIM bank open means a loss of companies and a loss of jobs. Although politicians love to blame China, the real problem is the United States, and politicians should look at themselves in the mirror. The failure of the United States to be competitive with other countries, including China, is not China’s fault.

AGOA PASSES WITH TECHNICAL CHANGES TO THE ANTIDUMPING AND COUNTERVAILING DUTY LAW

On June 25, 2015 the African Growth and Opportunity Act (“AGOA”) with Trade Adjustment Assistance (“TAA”) passed the House by a 286 to 138 vote and went to President Obama for signature.   The AGOA includes the attached technical changes to the US Antidumping and Countervailing duty law, BILL CHANGED LAW.  See also attached explanation of the changes to the law, trade_bills_fact_sheet.

Although most of the proposed changes to the Customs and Trade law are still at Conference Committee, Congress put certain attached technical changes to the Antidumping and Countervailing Duty law, including changes to the All Facts Available and the ITC injury standard, into AGOA, which passed both Senate and the House and has been signed into law by President Obama.

With regards to the ITC, a provision was added to clarify that even though an industry is profitable, it can still be materially injured. The ITC, however, has always been able to find an industry to be injured if profits were declining.

At Commerce, the new change waters down the requirement that Commerce corroborate the rate it uses as an All Facts Available (“AFA”) rate and the requirement that Commerce show that the AFA rate represents commercial reality when determining antidumping rates for foreign companies that do not cooperate in the antidumping or countervailing duty investigation.

Commerce has issued the attached Federal Register notice, DOC FED REG EFFECTIVE DATE TRADE LAW stating that the change in law applies to determinations after the effective date of the law, August 6, 2015, as published in the Commerce notice.  But in a remand determination, which came out recently in the Aluminum Extrusions case, Commerce indicated that it could apply the new law change to remand determinations made on or after August 6, 2015.

But to further complicate the issue today, the Court of Appeals for the Federal Circuit (“CAFC”) issued the attached order on August 11th in the Ad Hoc Shrimp case, CAFC SHRIMP TRADE BILL APPLICATION, asking for further argument on whether the new law applies to future Commerce determinations or retroactively back to entries that were made prior to August 6th.  The CAFC appears to be stating that the new law does not apply to old entries, in effect, that are on appeal to the Courts because the actual determinations on appeal were made prior to August 6th

CUSTOMS AND TRADE ENFORCEMENT BILL

All the Senators emphasized during the final Trade Promotion Authority (“TPA”) debate the importance of the Customs and Trade Enforcement bill formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), which passed the Senate on May 11, 2015 and the House. This bill will crack down on US importers that attempt to evade antidumping and countervailing duty laws by importing transshipped merchandise. This Customs and Trade Enforcement Bill is directed straight at the problem of transshipment by certain Chinese companies around US antidumping and countervailing duty orders.

Because of the differences in the Senate and House Bills, the bills have gone to Conference Committee to reconcile the differences.  But since some of the most pressing provisions went through Congress attached to AGOA, there is not the same pressure on Congress to work through the differences in the two bills.

TRADE

CHINA’S WTO CASE AGAINST US COUNTERVAILING DUTY DECISIONS RESULTS IN LOWER DUTIES IN A NUMBER OF DIFFERENT ANTIDUMPING CASES FOR CHINESE EXPORTERS

On July 22, 2015, Commerce issued the attached Federal Register notice,   ,as a result of China’s victory in the World Trade Organization (“WTO”) case against Commerce Department’s antidumping duty determinations, which did not adequately reduce antidumping rates to account for export subsidies found in the companion Countervailing duty case. This WTO case and Commerce Department notice have had the effect of reducing slightly cash deposits and assessment rates in the following antidumping cases against China: Aluminum Extrusions from the People’s Republic of China; Certain Circular Welded Carbon Quality Steel Line Pipe from the People’s Republic of China; Certain Kitchen Appliance Shelving and Racks from the People’s Republic of China; Certain Magnesia Carbon Bricks from the People’s Republic of China; Certain New Pneumatic Off-The-Road Tires from the People’s Republic of China; Certain Oil Country Tubular Goods from the People’s Republic of China; Certain Potassium Phosphate Salts from the People’s Republic of China; Certain Steel Grating from the People’s Republic of China; Certain Tow Behind Lawn Groomers and Certain Parts Thereof from the People’s Republic of China; Circular Welded Austenitic Stainless Pressure Pipe from the People’s Republic of China; Citric Acid and Certain Citrate Salts from the People’s Republic of China; Lightweight Thermal Paper from the People’s Republic of China; Narrow Woven Ribbons with Woven Selvedge from the People’s Republic of China; Prestressed Concrete Steel Wire Strand from the People’s Republic of China; Raw Flexible Magnets from the People’s Republic of China; and Sodium Nitrite from the People’s Republic of China.

TIRES AD AND CVD ORDERS

On August 10, 2015, in the attached notice, TIRES AD CVD ORDER, the Commerce Department issued antidumping and countervailing duty orders against Passenger Tires from China. The Antidumping Rates range from 14.35 to 30.74% with the Chinese separate rate companies receiving 25.84%. The PRC wide rate is 87.99%. The Countervailing duty rates range from 20 to 116% with the average rate for all other Chinese companies being 30.61%.

BOLTLESS STEEL SHELVES

On August 17, 2015, in the attached decision,factsheet-prc-boltless-steel-shelving-ad-cvd-final-081715, the Commerce Department announced its affirmative final determinations in the antidumping duty (AD) and countervailing duty (CVD) investigations of imports of boltless steel shelving units prepackaged for sale from China. The antidumping rates range from 17.55% to 112.68%, but the cash deposits in the AD case are only 1.49 to 96.62% because of the countervailing duty rates ranging from 12.40 to 80.45%, which are set off in part against the antidumping rates.

UNCOATED PAPER

On August 20, 2015, in the attached decision, factsheet-multiple-uncoated-paper-ad-prelim-082015, the Commerce Department announced its affirmative preliminary determinations in the antidumping duty (AD) investigations of imports of certain uncoated paper from Australia, Brazil, China, Indonesia, and Portugal. For China, the antidumping rates are very high from 97.48% to 193.30% with all Chinese companies but one getting the 193% rate.

MORE STEEL CASES AND STAINLESS STEEL CASES COMING

After the July 28, 2015 steel case that was filed against Cold-Rolled Steel Flat Products from China, Brazil, India, Japan, Korea, Netherlands, Russia, and the United Kingdom, on August 11, 2015, a new antidumping and countervailing duty case was filed against Hot-Rolled Steel Flat Products from Australia, Brazil, Japan, Korea, the Netherlands, Turkey, and the United Kingdom.

In briefs to the ITC, the domestic steel industry in the Cold-Rolled Steel case argue that the Commission should apply the new injury provisions in the statute and find that the domestic industry is materially injured.

There are also rumors in the market that US antidumping and countervailing duty cases will be filed against stainless steel imports from a number of countries, including China. On August 26, 2015, in the attached decision, EU STAINLESS STEEL, the EC imposed antidumping on imports of stainless steel cold-rolled flat products originating in the People’s Republic of China and Taiwan.

SOLAR CELLS

CIT AFFIRMS ITC

On August 7, 2015, in the attached Changzhou Trina Solar Energy Co., Ltd. et al v. US International Trade Commission (“ITC”),CIT AFFIRMS ITC INJURY , the Court of International Trade (“CIT”) affirmed the ITC’s injury determination in the original Solar Cells antidumping case.

SOLAR CELLS—EUROPE

On August 14, 2015, Chinese exporters of specialized glass for solar panels were hit with stiffer antidumping duties by the European Union on Friday after regulators determined that a decrease in export prices had failed to protect their domestic industry. An eight-month European Commission investigation found that dipping export prices allowed Chinese solar glass producers to “absorb” the duties imposed on their products in 2009, which demands increased duties to stop the surge of cheap imports that continue to flow into the EU. The EC then stated:

“[T]he Commission concluded that the sampled exporting producers absorbed the anti-dumping duty in force. Hence, anti-dumping measures imposed on imports of solar glass originating in the [People’s Republic of China] should be amended.”

The antidumping duties in place since 2009 ranged from 0.4 percent to 36.1 percent. Under the new regulation, those numbers go up to range from 17.5 percent to 75.4 percent, with Xinyi PV Products Anhui Holdings Ltd. hit with the highest duties.

The product subject to investigation is solar glass consisting of tempered soda lime flat glass, with an iron content of less than 300 parts per million and a solar transmittance of more than 88 percent, among other technical characteristics.

COMMERCE REVOKES ANTIDUMPING ORDER ON WOVEN ELECTRIC BLANKETS FROM CHINA

On August 18, 2015, in the attached notice,BLANKETS REVOCATION AD ORDER, the Commerce Department revoked the antidumping order on Certain Woven Electric Blankets From the People’s Republic of China because of lack of interest by the US industry.

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

On August 3, 2015, Commerce published the attached Federal Register notice, AUGUST OPPTY REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of August. The specific antidumping cases against China are: Ironing Tables,     Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow-Behind Lawn Groomers and Parts Thereof. The specific countervailing duty cases are: Laminated Woven Sacks,     Light-Walled Rectangular Pipe and Tube, Sodium Nitrite.

For those US import companies that imported Ironing Tables, Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, and Tow-Behind Lawn Groomers and Parts Thereof and the other products listed above from China during the antidumping period August 1, 2014-July 31, 2015 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. In the recent Solar Cells 2012-2013 final review determination, for example, the following Chinese companies were determined to no longer be eligible for a separate antidumping rate and to have the PRC antidumping rate of 238.95%:

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

IMPORT ALLIANCE FOR AMERICA

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

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

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

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

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

On November 18, 2015, importers in the Alliance will be meeting Congressmen and Congressional Trade Staff in Washington DC to discuss these issues. If you are interested in this effort, please contact the Import Alliance through its website or myself directly.

For your additional information, in the attached notice, 9-14 Kilmer Save-the-Date (3), pro-trade Democratic Congressman Derek Kilmer of Tacoma, Washington will be having a reception in Seattle, Washington on September 14, 2015. Congressmen Kilmer would be interested in talking to any importers that attend the reception.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On July 30, 2015, OFAC issued an Advisory, entitled “Obfuscation of Critical Information in Financial and Trade Transactions Involving the Crimea Region of Ukraine,” to call attention to practices that have been used to circumvent or evade the Crimean sanctions. While billed as an “Advisory,” the agency’s release stands as a warning to the financial services and international trade sectors of their obligation to implement adequate controls to guard against such evasive practices and ensure compliance with their obligations under the Crimean sanctions.

On May 21, 2015, the Commerce Department filed changes to the export rules to allow unlicensed delivery of Internet technology to Crimea region of Ukraine, saying the change will allow the Crimean people to reclaim the narrative of daily life from their Russian occupants. Under a final rule, which is attached to my blog, www.uschinatradewar.com, individuals and companies may deliver source code and technology for “instant messaging, chat and email, social networking” and other programs to the region without first retaining a license from the federal government, according to Commerce’s Bureau of Industry and Security.

Commerce stated:

“Facilitating such Internet-based communication with the people located in the Crimea region of Ukraine is in the United States’ national security and foreign policy interests because it helps the people of the Crimea region of Ukraine communicate with the outside world.”

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached to my blog are copies of the PowerPoint or the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. In addition, the blog describes the various sanctions in effect against Russia.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank. The “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions can be found at www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx.

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which is attached to my blog, which President Obama signed into law on December 19, 2014. Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

“At this time, the Administration does not intend to impose sanctions under this law, but the Act gives the Administration additional authorities that could be utilized, if circumstances warranted.”

The law provides additional military and economic assistance to Ukraine. According to the White House, instead of pursuing further sanctions under the law, the administration plans to continue collaborating with its allies to respond to developments in Ukraine and adjust its sanctions based on Russia’s actions. Apparently the Administration wants its sanctions to parallel those of the EU. As President Obama stated:

“We again call on Russia to end its occupation and attempted annexation of Crimea, cease support to separatists in eastern Ukraine, and implement the obligations it signed up to under the Minsk agreements.”

Russia, however responded in defiance with President Putin blasting the sanctions and a December 20th Russian ministry statement spoke of possible retaliation.

One day after signing this bill into law, the President issued an Executive Order “Blocking Property of Certain Persons and Prohibiting Certain Transactions with Respect to the Crimea Region of Ukraine” (the “Crimea-related Executive Order”). President Obama described the new sanctions in a letter issued by the White House as blocking:

New investments by U.S. persons in the Crimea region of Ukraine

Importation of goods, services, or technology into the United States from the Crimea region of Ukraine

Exportation, re-exportation, sale, or supply of goods, services, or technology from the United States or by a U.S. person to the Crimea region of Ukraine

The facilitation of any such transactions.

The Crimea-related Executive Order also contains a complicated asset-blocking feature. Pursuant to this order, property and interests in property of any person may be blocked if determined by the Secretary of the Treasury, in consultation with the Secretary of State, that the person is operating in Crimea or involved in other activity in Crimea.

The EU has also issued sanctions prohibiting imports of goods originating in Crimea or Sevastopol, and providing financing or financial assistance, as well as insurance and reinsurance related to the import of such goods. In addition, the EU is blocking all foreign investment in Crimea or Sevastopol.

Thus any US, Canadian or EU party involved in commercial dealings with parties in Crimea or Sevastopol must undertake substantial due diligence to make sure that no regulations in the US or EU are being violated.

CUSTOMS

JUSTICE DEPARTMENT — IMPORTER EXECUTIVE SHOULD GO TO PRISON FOR EVADING US ANTIDUMPING LAWS

On August 21, 2015 the Justice Department requested prison time of four to five years for an executive for illegally importing magnesium from China that was later sold to the military knowing that the Chinese magnesium was covered by an antidumping order. As the US Attorney stated in its response to the Defendant’s sentencing request:

“Based on the defendant’s intentional undervaluing [of the magnesium] for his own profit, it is the position of the government that the defendant was not a minor participant in the offense.”

Prosecutors alleged that the Executive received the powder from a Chinese export dealer named Qian Chen after it was mixed with quarter-inch aluminum nuggets. Nehill then mislabeled the powder as magnesium reagent, or nonpure magnesium, which carried only a 5 percent duty, rather than the 100% plus in antidumping duties.

PRODUCTS LIABILITY

LUMBER LIQUIDATORS IS HAMMERED BY PRODUCTS LIABILITY PROBLEM CAUSED BY CHINESE IMPORTS

On August 5, 2015, it was reported that Lumber Liquidators stock continued to fall by 14 percent, despite the fact that the stock was already down 72 percent this year. The fall in the stock price was caused by a surprise quarterly loss of $23 million. Numerous executives have left the company as it faces criminal and civil investigations by several regulators as a result of the charges, as well as consumer and shareholder class action suits.

Legal costs continue to smash the company as it has already spent $9.7 million to address legal problems associated with both consumer and shareholder lawsuits and ongoing probes by the Justice Department, SEC, the Consumer Product Safety Commission and the California Air Resources Board.

PRODUCTS LIABILITY COMPLAINTS AGAINST CHINESE PRODUCTS AND COMPANIES

On August 25, 2015, Juan Pruneda and Maria Ana Pruneda filed the attached products liability complaint, for a defective metal grate that led to the death of Matias Uriel Pruneda against Honghua International Co. Ltd., Chuanyou Guanghan Honghua Co., Ltd., Sichuan Honghua Petroleum Equipment Co., Ltd., Nabors Industries, Ltd., Nabors Drilling International Ltd., and Nabors Drilling International II Ltd.

IP/PATENT AND 337 CASES

SUPREMA—CAFC AFFIRMS ITC’S AUTHORITY IN INDUCED INFRINGEMENT IN SECTION 337 CASES

On August 10, 2015 in the attached en banc decision in Suprema, Inc. v. International Trade Commission, SUPREMA CAFC, a majority of the judges in the Court of Appeal for the Federal Circuit (“CAFC”) by a 6-4 vote affirmed the ITC finding that the Commission has the authority to exclude the importation of materials that induce patent infringement even if the products are not infringing when they cross the border.

The Federal Circuit found that because Section 337 does not directly address the issue of whether the ITC can exclude articles that infringe only after importation, the ITC’s interpretation of the statute as giving it jurisdiction over such post-importation infringement should be given deference.

The case involved fingerprint scanners from Korea which at the time of importation into the United States did not infringe the patent, but when the fingerprint scanners after importation were combined with software in the United States, they did infringe the US patent.

In the original CAFC decision, the 3 judge panel held on a 2-1 basis that since the scanners did not infringe the patent at the time of importation into the United States, their importation was not a violation of section 337. The En Banc panel based on a 6-4 determination reversed the ruling of the initial 3 judge panel finding that since the statute itself does not answer the question of whether the ITC has jurisdiction over goods that infringe only after importation, deference should be given to the Commission’s reasonable interpretation of Section 337 as giving the Commission authority over goods that infringe.

As the CAFC majority stated:

We conclude that because Section 337 does not answer the question before us, the Commission’s interpretation of Section 337 is entitled to Chevron deference. We hold that the Commission’s interpretation is reasonable because it is consistent with Section 337 and Congress’ mandate to the Commission to safeguard United States commercial interests at the border. Accordingly, we return the case to the panel for further proceedings consistent with this opinion. . . .

Reading the statute unambiguously to require that infringement occur at the time of importation would have produced absurd results under the pre-1994 version of § 271(a). Such a reading would mean that Congress, when it enacted the language at issue in 1988, excluded even the ordinary case of direct infringement. . . .

For nearly 35 years, the Commission has embraced its Congressional grant as bestowing authority to investigate and take action under Section 337 based on induced infringement. At least as early as 1980, the Commission was making determinations that inducement to infringe a valid U.S. patent under 35 U.S.C. § 271(b) constituted an unfair trade act under Section 337 that could be remedied by an exclusion order. . . . The Commission has persisted in its interpretation of Section 337 to the present day. . . .

The technical interpretation adopted by the panel weakens the Commission’s overall ability to prevent unfair trade acts involving infringement of a U.S. patent. The panel’s interpretation of Section 337 would eliminate relief for a distinct unfair trade act and induced infringement.

There is no basis for curtailing the Commission’s gap-filling authority in that way. Indeed, the practical consequence would be an open invitation to foreign entities (which might for various reasons not be subject to a district court injunction) to circumvent Section 337 by importing articles in a state requiring post-importation combination or modification before direct infringement could be shown.

The Commission reasonably determined that its interpretation would further the purpose of the statute. . . .

We note that our deference to the Commission’s statutory interpretation in this case is hardly momentous. The court has consistently deferred to the Commission, recognizing the Commission’s technical expertise in deciding issues arising under Section 337, a statute Congress has entrusted the agency to administer.

The Suprema case, however, is followed by Clear Correct v. ITC, which reached the CAFC after the ITC declared that the agency has the authority to stop the importation of digital files, not just physical goods. This case is presently on appeal at the CAFC, which has specifically asked the litigants to brief the issue of the impact of the Suprema decision on “the issues in this appeal.”

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

On July 31, 2015, Kiss Nail Products, Inc. filed the attached patent complaint KISS TIANJIN PATENT CASE, against Tianjin Shuangrong Paper Products Co., Ltd. and Shuang Rong America LLC.

On August 4, 2015, Boehringer Ingelheim Pharmaceuticals Inc., Boehringer Ingelheim International Gmbh, Boehringer Ingelheim Corporation, and Boehringer Ingelheim Pharma GmbH & Co. Kg filed the attached patent complaint,  SMALL HEP PATENT CASE, against Chinese companies Hec Pharm Group, Hec Pharm Co., Ltd., Hec Pharm USA, Mylan Pharmaceuticals Inc., Mylan Inc., Mylan Laboratories Limited, Intas Pharmaceuticals Limited, Accord Healthcare, Inc., Aurobindo Pharma Limited, Aurobindo Pharma Usa, Inc., Dr. Reddy’s Laboratories, Ltd., Dr. Reddy’s Laboratories, Inc., Zydus Pharmaceuticals USA, Inc., Cadila Healthcare Ltd., MSN Laboratories Private Limited, MSN Pharmaceuticals, Inc., Prinston Pharmaceutical Inc., Solco Healthcare U.S., LLC, Huahai US Inc., Zhejiang Huahai Pharmaceutical Co., Ltd., Invagen Pharmaceuticals Inc., Sun Pharmaceutical Industries Ltd., Sun Pharma Global Fze, and Sun Pharmaceutical Industries, Inc.

On August 10, 2015, Hitek Software LLC filed the attached copyright complaint FOXCONN COPYRIGHT CASEagainst Foxconn Corp., Foxconn Interconnect Technology (USA), Inc., Foxconn Electronics, Inc. and Foxconn EMS Inc.

On August 18, 2015, Foshan Naibo Electric Product Co., Ltd., a Chinese company, and Xpower Manufacture, Inc. filed the attached patent case CHINA COMPAY SUING CHINA COMPANY, against another Chinese company, Ningbo A-One Industrial Co., Ltd.

CHINA IP AND PATENT LAW

Recently, AFD China Intellectual Property Law office in China issued the attached Newsletter, News August 2015 fr AFD, about developments in Chinese patent law.

ANTITRUST

There have been major developments in the antitrust area.

VITAMIN C CASE—COLLECTIONS PROBLEMS

As the Vitamin C case is on appeal to the Second Circuit, the Plaintiffs in the case seek to vigorously enforce their $160 million judgment against Hebei Welcome Pharmaceutical Co. Ltd. and North China Pharmaceutical Group Corp. On August 14, 2015, the Federal judge stated that he was tempted to place the Chinese companies, judgment debtors, into receivership because they are in contempt in contrast to continuing to beat up the US Chinese bank branches so as to get the companies’ assets in China and elsewhere.

Plaintiffs argue that the two Chinese defendants have frustrated all collection efforts to date and added that banks have used sleights of hand and hidden behind a recently strengthened “separate entity rule” to stymie subpoenas. Plaintiffs’ attorney said that the money appears to sit inside of China and pressed for a receivership as a potential new avenue to press for collection:

A receivership is materially better than sending subpoenas out [to banks] and having these fights.

In response to the Chinese argument that the two Chinese companies would face prosecution in China if the complied, the Federal judge was not willing to consider the argument:

“It is more a question of what people want at any particular time in China” and stated that it appeared the companies and the Chinese government were working together with “a nod and a wink” to frustrate collection.

The judge further stated “It’s almost like instant nationalization of a company for the protection of the local economy.”

Attached is a full transcript of the hearing, 2ND CIRCUIT LETTER THREE, before the Federal Judge, which was filed with the Second Circuit.

CHINA ANTI-MONOPOLY CASES

T&D JANUARY REPORT

In August T&D also sent us their attached July report, T&D Monthly Antitrust Report of July 2015, on Chinese competition law.

SECURITIES

On August 17, 2015, a class action securities case was filed against Chinese Mobile Co, NQ Mobile, Inc., with allegations of mismanagement and investor fraud. The allegations are that the company has hid information from investors, diluted the stock through overvalued equity purchases and refused good faith offers to buy the business. The suit said, in particular, the company has taken to buying out small Chinese Internet firms for tens of millions of dollars in equity to expand the business and dilute shareholders without further offerings.

“This company has a few mobile applications available on iTunes with no ratings or reviews, and only 100 to 500 downloads on Google Play. No independent analysis of similar companies would value such an entity, with such a small number of product purchases, anywhere near $54 million.”

According to the complaint, NQ parted ways with its prior auditor, Price Water House Coopers China, over access to documents detailing those transactions.

“NQ Mobile has not explained why the acquisitions were made in the first place, and there is no evidence that the costs were justified and in the best interest of NQ Mobile and its shareholders.”

FOREIGN CORRUPT PRACTICES ACT

Recently, Dorsey & Whitney LLP issued its attached August 2015 Anti-Corruption Digest, Anti-Corruption-Digest-Aug2015.

With regards to China, the August Digest states:

Mead Johnson Nutrition Co. Settles FCPA Charges with SEC

The Illinois-based maker of Enfamil and other infant formula products, Mead Johnson Nutrition Co., has settled civil charges of FCPA violations related to its China operations. Under the terms of the settlement with the SEC, which has been entered in an administrative order, Mead Johnson disgorged $7.77 million (£4.95 million) plus $1.26 million (£800,000) prejudgment interest, and paid a $3 million (£1.9 million) penalty. The company neither admitted nor denied the charges.

According to the SEC, Mead China, Mead Johnson’s Chinese subsidiary, paid $2 million (£1.3 million) in bribes to healthcare professionals employed by state-owned hospitals in exchange for the healthcare professionals’ recommendations of its products, and for contact information for new and expectant mothers. According to the administrative order, Mead Johnson violated the books and records provisions of the FCPA by inaccurately recording these bribes as “distributor allowances”. The SEC alleges that Mead China gave steep discounts to distributors and directed the distributors to pay the state employed health care professionals.

In its order, the SEC also alleges that Mead Johnson violated the internal controls provisions by failing to have an adequate internal accounting control system. The SEC did not allege that the U.S. parent or any U.S. person knew about or coordinated the bribes, and none of the conduct was alleged to have taken place in the U.S. This lack of U.S. nexus to the alleged violations may explain why the U.S. Department of Justice (DOJ) has informed Mead Johnson that it has closed its parallel investigation into the bribery activity.

The SEC noted in its order that Mead Johnson had conducted but not reported an internal investigation into these allegations in 2011. When the SEC approached Mead Johnson in 2013 regarding these allegations, Mead Johnson initially failed to report its internal investigation, which had not confirmed the illegal payments.

Plaintiffs Request $62 million Avon Settlement

A group of investors have reportedly requested that a federal judge in New York approve a $62 million (£40 million) settlement in a lawsuit. The shareholders allege that Avon along with its former CEO, Andrea Jung, and former CFO, Charles Cramb, misled them about the company’s compliance with the FCPA in China.

The Chinese subsidiary in question allegedly made $8 million (£5 million) worth of payments in cash, gifts, travel, and entertainment to various Chinese officials, according to the DOJ. Avon needed the approval of the officials in order to undertake direct sales in China. The matter is ongoing.

China

It has been reported that, since President Xi Jinping initiated his anti-corruption campaign in 2012, Chinese authorities have returned Rmb38.7 billion ($6.2 billion/£4 billion) of funds involved in corruption matters to the state.

The Central Commission for Discipline Inspection (the “CCDI”), China’s anti-corruption body, stated that the money had been returned to the state, without specifying which government entity received it. The sums recovered are said to include confiscated bribes in the form of cash, land, gifts and fines that have been levied.

According to Han Jinping, director-general of the CCDI’s case co-ordination department, “submitting illegally obtained money to the national coffers and recovering economic losses will help correct the economic incentives distorted through corruption”.

HIRING RELATIVES OF FOREIGN GOVERNMENT OFFICIALS BECOMES AN FCPA ISSUE

In an August issue on his securities blog, Tom Gorman, a partner in Dorsey’s Washington DC office and formerly with the SEC Enforcement division, states:

The SEC has been investigating sovereign wealth funds and issues relating to the hiring of friends and family of foreign officials for some time. Now it has filed a settled action centered on both of those issues which contains a cautionary note for those who have not updated their compliance procedures in view of these inquiries. . . .

The Commission acknowledged the cooperation of BNY Mellon and its remedial acts which, prior to the SEC’s investigation, included initiating reforms to its anticorruption policy to address the hiring of government officials’ relatives.

To resolve the case Respondent consented to the entry of a cease and desist order based on the Sections cited in the Order.

In addition, BNY Mellon agreed to pay disgorgement of $8.3 million, prejudgment interest and a civil money penalty of $5 million. BNY Mellon acknowledged that a penalty of over $5 million was not imposed based on its cooperation.

For the full article, see http://www.secactions.com/sec-bny-mellon-settle-fcpa-charges-tied-to-hiring-relatives-of-officials.

SECURITIES COMPLAINTS

On August 14, 2015, Daniel Finocchiaro filed the attached class action securities case, Complaint (7), against NQ Mobile, Inc., Henry Yu Lin, Omar Sharif Khan, Vincent Wenyong Shi, Xu Zhou, James Ding, Jun Zhang, Roland Wu, Chun Ding, William Tiewei Li, Xiuming Tao, Max Yao, Justin Chen, Ying Han, Zemin Xu, Matthew Mathison, and Bingshi Zhang.

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

Best regards,

Bill Perry

 

NEW UPDATE JUNE 25, 2015 US CHINA TRADE WAR — TAA PASSES HOUSE– HEAVY LIFT OF TPP NEGOTIATIONS CONTINUES

US Capitol Dome Houses of Congress Washington DC“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

NEW UPDATE US CHINA TRADE WAR JUNE 25, 2015 —TAA AND TPA PASS CONGRESS AND GO TO PRESIDENT — NOW HEAVY LIFTING OF TPP NEGOTIATIONS BEGINS

Dear Friends,

On June 25, 2015, the House of Representatives passed the African Growth and Opportunity Act (“AGO”) by a vote of 286 to 138, which includes Trade Adjustment Assistance (“TAA”), and the bill, has been sent to President Obama. On June 24, 2015 the US Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and President Obama has signed the bill into law. As the Senate and House leadership promised, both TPA and TAA are on President’s Obama’s desk at the same time.

Now the heavy lift begins. Now is the time for any US company that is having export problems with exports to the 12 Trans Pacific Partnership countries, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, to bring these problems to the attention of US negotiators and also their Congressional representatives so the issue can be included in the ongoing negotiations.

On June 23, 2015, Prime Minister Shinzo Abe of Japan predicted that with the TPA vote TPP could be finalized in a month. That simply not going to happen. With all the negotiating objectives in the TPA bill, including currency manipulation, I firmly believe that TPP negotiations will go on until at least the end of the year and probably into 2016, an election year.

As Senators Hatch and Wyden stated on June 24th on the Senate Floor and Representatives Ryan, Levin and Sessions stated on the House floor on June 25th and below, this is just the beginning of the process. This TPP negotiating process has a very long way to go.

Best regards,

Bill Perry

TPA AND TAA NOW LAW—THE HEAVY LIFTING NOW BEGINS AS NEGOTIATIONS CONTINUE ON TPP

As stated in the Wall Street Journal and on the Senate and House Floor, the heavy lifting now begins on Trans Pacific Partnership (“TPP”). In light of numerous Congressional negotiating objectives, the TPP negotiations are going to take time and will not be an easy lift. Congress will be involved in the negotiations every step of the way so this will not be simple.

Anyone who thinks TPP negotiations will be finished in a month is simply wishful thinking. This is just the start of the process.

As the Wall Street Journal stated today on its June 15th front page:

The White House and Republican leaders notched a significant victory Wednesday with the Senate’s passage of divisive trade legislation, but the win kicks off a grueling, months long process to complete a Pacific trade pact that still faces domestic opposition and must win final congressional approval.

As Democratic Congressman Sander Levin, ranking member of House Ways and Means, stated on the House Floor today, the battle now switches to the actual negotiations and words in the TPP itself:

The debate these last weeks and months has been about how do we get a strong and effective trade policy and trade agreement. That debate only intensifies now. Supporters of trade promotion authority, T.P.A., sought vague negotiating objectives and passive role for Congress in the process was the way to go, in part because many on the majority side feel that more trade is essentially better no matter its terms or conditions. The opponents of T.P.A. wanted to ensure that T.P.P. negotiations were on the right track with no blank check to USTR and there are so many outstanding areas, where we are not satisfied with the status of negotiations, where we are uncertain of their outcome, now we can focus like a laser beam on those issues.

The argument about the process of T.P.A. is now behind us. And the challenge of the substance of T.P.P. smack in front of us. Automatic embrace of centuries’ old doctrines does not meet the challenges of intensifying globalization. So we will continue to shine a bright light on the critical issues like market access, state-owned enterprises, intellectual property and access to medicines, worker rights, environment, currency manipulation and investment provisions that could put at risk domestic regulations.

Our calls for improvements to the negotiations will only grow louder. In order for T.P.P. to gain the support of the American people, it will need to gain the votes of a much broader coalition of members of Congress than voted for T.P.A. the issue is not pro-trade versus anti-trade, but whether we shape trade agreements to spread the benefits broadly, including the middle class of Americans. . . .

Finally this bill includes a re-authorization of trade adjustment assistance. I’m an ardent supporter and introduced a bill earlier this year with Adam Smith to re-authorize it. I support 1295. To be sure this T.A.A. is not perfect, it falls short of the high water mark we established for the program in 2009. At a time when trade is expanding and is expected to expand even further with new trade agreements, we should be ensuring adequate funding for workers who lose their jobs as a result of trade . . . . T.P.A., T.P.P., T.A.A., it might seem like a word scramble, but going forward, T.P.P. to the American people will be about jobs and wages. They expect us to work hard to get it right as it is being negotiated, not simply leaving their elected officials with a yes or no vote after T.P.P. is done. We have a lot of work to do. And there is no ducking these issues.

As Republican Congressman Pete Sessions stated on the House Floor today, Congressional Representatives will have their chance and these negotiations are going to take time:

But I would respond and say to the gentleman, you’re going to have an opportunity and I can’t wait to get you invited to every single round of these and have you find time to go do exactly what you think members of Congress ought to be doing. Because in fact that’s the way the T.P.A. is written. . . . But this whole process — as soon as that takes place, the gentleman will have all the opportunity he wants to go and take part of every round of the discussions. But, you know, I don’t believe that’s what we were elected for. I don’t believe we were elected to go and have to do all the work that is described, that the gentleman said, to get back into the fight, to go do the negotiating. But he’ll be given that chance. He’ll be given that chance every single day. As soon as it’s signed by the President, he can go at it. He can maybe even just tell the President he wants to do this for a full time job. I don’t know. But he will have that opportunity and every member of this body will have that same chance. He and every member will have a chance to go and negotiate, be in the room, be a part of the discussion and make sure these — all these big multilateral corporations that he talks about that will be in the room, which they won’t be, because that would not be the right thing, there would be ethics violations, I’m sure the White House, the executive branch can notify him on that, but he will be allowed as a member of Congress.

So, Mr. Speaker, the things which are being talked about most as negative points about this bill, there’s already an answer to it. That’s what Republicans did. This is a Republican bill. This is about the authority of the House of Representatives, the United States Congress, to make sure we are involved. That has never been allowed before. Fast track is what we used to have. That’s what we did have. We now have a bill before us today which will help us complete the entire process, to make sure members of Congress are involved, not just the United States negotiators, but all the world will know . . . the parts about how we’re going to negotiate the trade deal and if it doesn’t come back that way, we’ll vote it down. Do we need to second guess them now today? I don’t think so. But if any member wants to be involved in this, they can just get on their plane and go wherever they want and get it done. And by law they’ll be allowed that opportunity.

All those pundits that say the TPP negotiations will be concluded in a month simply have not listened to the arguments on the House and Senate Floor. To see those arguments, watch CSPAN at http://www.c-span.org/video/?326700-1/us-house-legislative-business. To get a TPP, which will pass Congress, will require much more negotiation and a much longer time. The TPP negotiations will not conclude until the end of the year at the earliest and possibly 2016, an election year.

HOUSE VOTES TO PASS AGOA AND TAA ON JUNE 25, 2015 AND BILL GOES TO THE PRESIDENT

On June 25, 2015 the African Growth and Opportunity Act (“AGOA”) with Trade Adjustment Assistance (“TAA”) passed the House by a 286 to 138 vote and has gone to the President Obama for signature. As promised by House Speaker John Boehner and House Ways and Means Chairman Paul Ryan, TAA was brought to the floor of the House and passed. As Republican Congressman Dave Reichert, a co-sponsor of the TAA bill, stated on the House Floor:

Also included in this legislation is a renewal of trade adjustment assistance and I’m proud as Mr. Ryan said, to sponsor the House legislation to renew it because there is a need for this program. I believe increased trade is good for all Americans and it creates jobs. It makes America stronger. But I also understand that among and along the way, as we create jobs and trade and our jobs change over the next few years, along the way, some workers may need extra assistance and additional training. That’s why T.A.A. is so important. We’ve made great strides this past week by sending T.P.A. to the President’s desk . . . So now, Mr. Speaker, we must move forward, pass T.A.A. and AGOA today.

As Democratic Congressman Earl Blumenauer on the House Floor stated today, the Republican leaders kept their promise on TPA and TAA:

It’s at times trust is in short supply in this institution for a whole host of reasons but we were given ironclad assurances from the Speaker, from the President, from the Chairman, from Senator Wyden, Senator Hatch, Leader McConnell that T.A.A. would come back to this floor to be voted on. And I think it’s important that that has in fact occurred. Because to adapt, respond and grow a 21st century work force we need trade adjustment assistance. And what we have before us is an improvement over current law. It’s not as good as what we had in 2009, and I hope that we will be able to build on this and move forward, but this program has helped more than 100,000 Americans, including 3,000 of my fellow Oregonians who received job training and financial support. And there will continue to be winners and losers in the global economy. Whether we have trade agreements with countries or not like with pressures from China, it’s important that we provide this for our workers. With our vote today we do so.

US CHINA TRADE WAR JUNE 24, 2015 UPDATE — SENATE PASSES TPA AND IT GOES TO PRESIDENT FOR HIS SIGNATURE; TAA PASSES SENATE AND GOES TO THE HOUSE

Dear Friends,

As predicted, today the US Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and it has gone to President Obama’s desk for signature.  Now is the time for any US company that is having export problems with exports to the 12 Trans Pacific Partnership countries, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, to bring these problems to the attention of US negotiators and also their Congressional representatives so the issue can be included in the ongoing negotiations.

Yesterday, Prime Minister Shinzo Abe of Japan predicted that with the TPA vote TPP could be finalized in a month.  I suspect not.  With all the negotiating objectives in the TPA bill, including currency manipulation, I firmly believe that TPP negotiations will go on until at least the end of the year and probably into 2016, an election year.

As Senators Hatch and Wyden stated today on the Floor and below, this is just the beginning of the process.

Best regards,

Bill Perry

SENATE PASSES TPA AND THE BILL GOES TO PRESIDENT OBAMA’S DESK FOR SIGNATURE

After jumping over a major procedural hurdle on June 23rd, on June 24th the Senate passed the Trade Promotion Authority (“TPA”) bill by a vote of 60 to 38 and the House has sent the bill to President Obama for his signature.  Set forth below are some of the major statements by the proponents and one opponent of the bill.  To see the entire debate, watch CSPAN.org at http://www.c-span.org/video/?326775-1/us-senate-advances-taa-passes-tpa&live.

Trade Adjustment Assistance (“TAA”) also passed the Senate by an overwhelming vote of 77 to 23 votes.  The House is expected to vote on TAA tomorrow and that means it will go to the President by Friday at the latest.

All the Senators emphasized during the debate the importance of the Customs and Trade Enforcement bill going through Congress.  This bill will crack down on US importers that attempt to evade antidumping and countervailing duty laws by importing transshipped merchandise.  This Customs and Trade Enforcement Bill is directed straight at the problem of transshipment by certain Chinese companies around US antidumping and countervailing duty orders.  That bill will now go to conference in the House of Representatives to reconcile differences in the House and Senate bills.

Before the vote, Senate Majority leader Mitch McConnell stated:

Yesterday’s T.P.A. vote [was a] the long overdue victory for the American worker and the American middle class.  It wasn’t easy. Many thought it would never happen. We even saw corks pop in the facts optional lobby a few weeks ago, but that proved to be premature because here’s what we’ve always known about the legislation we’ll vote to send to the President today. It’s underpinned by a simple but powerful idea, for American workers to have a fair shot in the 21st century economy, it just makes sense to remove the unfair barriers that discriminate against them and the products that they make. Some may disagree. They certainly weren’t quiet in voicing their opinions. It’s okay if they don’t share our passion for ending this unfair discrimination against American workers. It’s okay if they would rather rail against tomorrow.

But a bipartisan coalition in the House and the Senate thought it was time for forward progress instead. We were really pleased to see President Obama pursue an idea we’ve long believed in. We thank him for his efforts to help us advance this measure. We thank all of our friends across the aisle for their efforts too. Senator Wyden, most of all. Over in the house, I commend Speaker Boehner and Chairman Ryan for everything they’ve done. It hasn’t been easy, and without them it wouldn’t have been possible. And of course let me thank Chairman Orrin Hatch for demonstrating such patience, persistence and determination throughout this process. He never lost sight of the goal, never gave up. The people of Utah are lucky to have him. The Senate’s work on trade doesn’t end today. I said the Senate would finish pursuing the rest of the full trade package, and it will. We’ll take another cloture vote today to that end. That process continues. But the key victory for American workers and products stamped “Made in the U.S.A.” comes today. The bill we’re about to pass will assert Congress’s authority throughout the trade negotiation process. It will ensure we have the tools we need to properly scrutinize whatever trade agreements are ultimately negotiated and it will make clear that the final say rests with us. We had plenty of bumps along the road. Frankly, a few big potholes too. But we worked across the aisle to get through all of them. That’s an example of how a new Congress is back to work for the American people. I thank everyone who helped us get where we are. Now let’s vote again to support the American worker and American middle class by approving the bipartisan T.P.A. bill.

Before the vote, ranking Democratic Senator Ron Wyden of the Senate Finance Committee emphasized that the TPA bill would go through along with a Customs and Trade Enforcement bill, which includes major changes to the US Customs and Trade laws, including a sharp crack down on transshipment around US antidumping and countervailing duty laws.  As I have stated many times on this blog, the transshipment issue is a burning issue in Washington DC and now it has resulted in legislation, which will be going to Conference Committee with the House of Representatives.  Senator Wyden stated today on the Floor:

Mr. President, today the Senate is taking major steps towards a new, more progressive trade policy that will shut the door on the 1990’s North American Free Trade Agreement once and for all. One of the major ways this overall package accomplishes this goal is by kicking in place a tough new regime of enforcing our trade laws.  . .  . And it has long been my view, Mr. President, that vigorous enforcement of our trade laws must be at the forefront of any modern approach to trade at this unique time in history. One of the first questions many citizens ask is, I hear there’s talk in Washington, D.C. about passing a new trade law. How about first enforcing the laws that are on the books? And this has been an area that I long have sought to change, and we’re beginning to do this with this legislation, and I want to describe it. And for me, Mr. President, this goes back to the days when I chaired the Senate Finance Subcommittee on International Trade and Competitiveness, and we saw such widespread cheating, such widespread flouting of our trade laws, my staff and I set up a sting operation. We set up a sting operation to catch the cheats. In effect, almost inviting these people to try to use a web site to evade the laws. And they came out of nowhere because they said cheating has gotten pretty easy, let’s sign up. And we caught a lot of people. So we said from that point on that we were going to make sure that any new trade legislation took right at the center an approach that would protect hardworking Americans from the misdeeds of trade cheats.

And in fact, the core of the bipartisan legislation that heads into conference is a jobs bill, a jobs bill that will protect American workers and our exporters from those kind of rip-offs by those who would flout the trade laws. And the fact is, Mr. President, when you finally get tough enforcement of our trade laws, it is a jobs bill. A true jobs bill, because you are doing a better job of enforcing the laws that protect the jobs, the good-paying jobs of American workers. And I guess some people think that you’re going to get that tougher enforcement by osmosis. We’re going to get it because we’re going to pass a law starting today with the Conference Agreement that’s going to have real teeth in it. Real teeth in it to enforce our trade laws. Foreign companies and nations employ a whole host of complicated schemes and shadowy tactics to break the trade rules. And they bully American businesses and undercut our workers.

So what we said in the Finance Committee on a bipartisan basis, that the name of the game would be to stay out in front of these unfair trade practices that cost our workers good-paying jobs. My colleagues and I believe that the Senate has offered now the right plan to fight back against the trade cheats and protect American jobs and protect our companies from abuse. It really starts with what’s called the Enforce Act, which is a proposal I first offered years ago that will give our customs agency more tools to crack down on the cheaters. Then we have a bipartisan, bicameral agreement on the need for an unfair trade alert. That’s another major upgrade that responds to what we heard companies and labor folks say again and again, Mr. President. What they would say is the trade enforcement laws get there too late. They get there too late. The plant’s closed, the jobs are gone, the hopes and dreams of working families are shattered. So what we said is we’re going to start using some of the data and the information that we have to have a real trade alert so that we can spot what’s coming up, get that information in our communities, in our working families and our companies to protect our workers. This unfair trade alert is another major upgrade in how we tackle, Mr. President, enforcing our trade laws. My view is that any bill that comes out of that enforcement conference, the customs conference, needs to reflect important American priorities. And that should certainly include smart protection of our environmental treasures. When our trade agreements establish rules on environmental protection, they’ve got to be enforced with the same vigor as the rules that knock down barriers for businesses overseas.  . . .

And it’s been too hard, too hard in the past for our businesses, particularly our small businesses, to get the enforcement that matters, the enforcement with teeth, the enforcement that serves as a real deterrent to cheating. So this legislation is our chance to demonstrate that strengthening trade enforcement, enforcement of the trade laws, will now be an integral part of a new modern approach to trade, an approach that says, we’re not part of the 1990’s on trade where nobody had web sites and iPhones and the like; we’ve got a modern trade policy with the centerpiece enforcing our trade laws. Our policies are going to give America’s trade enforcers the tools they need to fight on behalf of American jobs and American workers and stop the trade cheats who seek to undercut them. I strongly urge my colleagues to vote “yes” later today on the motion to send the enforcement bill to conference and work on a bipartisan basis, as we did in the Finance Committee, to put strong trade enforcement legislation on the President’s desk.  . . .

My friend and colleague on the Finance Committee, Senator Brown, offered a proposal that goes a long way, in my view, to strengthening our enforcement of key trade laws. It’s called leveling the playing field. . . .if you look at the Committee’s debate, level the playing field was a top priority for those in the unions, the steel unions and others, and it was a also a top priority for their companies. And so having this policy in the trade adjustment assistance is exactly the kind of bipartisan work that the American people want done. Business, labor, Democrats, Republicans — a strong record of evidence as to why it’s needed. This legislation is going to be the difference between steelworkers and paper workers being on the job or being laid off, because it ensures that the remedies of trade law — what’s called Counter-Veiling Duty Law, Anti-Dumping Law — is going to be available to workers and their companies earlier and in a more comprehensive way. It’s going to protect jobs, and it is a priority of both political parties.

I made mention how important this was to me. . . . Hugely important to my state. I said my first hearing was going to be on trade enforcement, and my good friends from the steel industry spoke about how American workers wants to see the Senate and the Finance Committee stand up for them and finally fix the shortcomings in our trade remedy laws. That’s what we have done now. Getting behind Sherrod Brown’s proposal to strengthen our trade laws, to stop unfair trade so that foreign companies do not undercut American workers and manufacturers ought to be an American priority, a red, white, and blue priority, a priority for every member of this body.  . . . The three programs — the trade adjustment assistance program, the health coverage tax credit, Senator Brown’s leveling the playing field act — are now moving through the Senate alongside legislation that creates new economic opportunities for impoverished countries in Africa and other places around the world.  . . . I urge all of my colleagues to vote yes to support these important programs when we vote later today.

Senator Sherrod Brown of Ohio speaking against TPA pounded on the enforcement bill:

Its authority to amend trade agreements, should not pave the way for a trade deal that looks like it’s going to be more of the same. Corporate handouts, worker sellouts. We’ve seen it with NAFTA. We saw a similar kind of move on PNTR with China where the trade deficit, our bilateral trade deficit has almost literally exploded since 2000, when this body and the other body moved forward on PNTR. . . . . We also have a responsibility to look out for the American worker who we know will be hurt by this deal. . . . Last, Mr. President, we have an opportunity in this bill today to once again support the level the playing field act to make sure it gets to the President’s desk. This will be the vote after this — after the T.P.A. vote. This vote is essential to protecting our manufacturers from illegal foreign competition. We can’t have trade promotion without trade enforcement. It shouldn’t be bipartisan, regardless of how you vote on T.A.A. we need to make sure our deals are enforced. Level the playing field to against unfair trade practices, it’s critical for our businesses, our workers who drown in the flood of illegally subsidized import. It has the full support of business and workers, Republicans and Democrats. . . . No matter where you stand on T.P.A. we should be able to come together to have enforce — enforceable laws. We have trade. We know these agreements cause wages to stagnate, we know these agreements cause factories to close . . . This is a terrible mistake we will make which we’ve made over and over and over and over if we pass this today. If we pass T.P.A. it’s the same mistake we made with NAFTA. Big promises, job increases, wages going up, bad results. We did it when we passed PNTR, when we passed CAFTA, the Central American Free Trade Agreement, with the Korean Free Trade Agreement, we’re about to do it again, shame on us. At least take care of workers if we’re going to pass this legislation.

Prior to the vote, Senator Orrin Hatch, Chairman of the Senate Finance Committee, called the TPA bill and accompanying trade legislation the most important bill to pass in the Senate this year.  Senator Hatch stated:

This is a critical day for our country. In fact I’d call it an historic day. It’s taken us awhile to get there, longer than many of us would have liked but we all know anything worth having takes effort and this bill is worth the effort. This is perhaps the most important bill we’ll pass in the Senate this year. It will help reassert Congress’s role over U.S. trade negotiations and reestablish the United States as a strong player in international trade.

Renewing T.P.A. has been a top priority for me for many years and as Chairman of the Senate Finance Committee, I am pleased that with the help of ranking member Wyden, we’ve been able to deliver a robust and bipartisan bill. It’s also been a high priority for the Senate Majority Leader. And thanks to his strong support and leadership, we’re one step away from completing this important task. This bill will help farmers, ranchers, manufacturers and entrepreneurs throughout our country get better access to foreign markets and allow them to compete on a level playing field. This bill will help give these job creators and the workers they employ greater opportunities to grow their businesses which will help create a healthier American economy. The business and agricultural communities understand the importance of strong trade agreements. That is why they came together in strong support of this important legislation. We’ve heard from all of them throughout this debate, and I appreciate their enthusiasm and support.

This has from the outset been a bipartisan effort, and I’m glad it remained that way. Throughout this entire debate here in the Senate, over in the House and here in the Senate again we’ve been able to maintain a bipartisan coalition in support of T.P.A., fair trade, and expanded market access for U.S. exporters. This is no small feat, Mr. President, and I’m appreciative of everyone who has worked so hard to make this possible. With this final vote, we can complete the work that we began so many years ago. But let’s be clear, passing T.P.A. is not the end of the story. It’s just the beginning. As Chairman of the Finance Committee, I intend to remain vigilant in our oversight as the administration pursues the negotiating objectives that Congress has set with this legislation. And if they fall short, I will be among the first to hold them accountable. But that is for another day. Today I urge my colleagues to help us finalize this historic achievement and join me in voting in favor of this bipartisan T.P.A. bill. If the vote goes the way I think it will today, today will be remembered as a good day for the Senate, the President, and the American people. Mr. President, once we vote to pass T.P.A., we will then be voting to invoke cloture on the Trade Preferences Extension Act of 2015.  . . . In addition to these preferences programs, the bill we’ll be voting on includes legislation introduced by Senators Portman and Brown to strengthen the enforcement and administration of our anti-dumping and countervailing duty laws. As I have noted in the past, anti-dumping and countervailing duty laws are among the most important trade tools we have to protect U.S. companies from unfair foreign trade practices. A number of Utah companies do benefit from these laws which allow them to compete against imports that unfairly benefit from support from foreign governments. I’m pleased we were able to include this legislation in the preferences bill. Finally, also included in this bill is an extension of the Trade Adjustment Assistance, or T.A.A. program. I think I’ve said enough about my opposition to this program here on the floor over the past several weeks. I won’t delve too deeply into that issue here. However, I do understand that for many of my colleagues who want to support T.P.A. and free trade, passage of T.A.A. is a prerequisite. From the outset of this debate over trade promotion authority, I’ve committed to my colleagues to working to ensure that both T.A.A. and T.P.A. move on parallel tracks. I plan to make good on this commitment and today will show that. That is why despite my misgivings about T.A.A. and with the entire picture in view, I plan to vote for this latest version of the trade preferences bill.

On June 23, 2015, former Senate Majority leaders Bob Dole and Trent Lott, in the Wall Street Journal congratulated Senator McConnell with pushing the TPA/trade legislation through the Senate stating:

It is a relief to see an institution that we both devoted so much of our lives to working again.  And it is an encouraging development for the country to see the Senate addressing big problems after years of inaction when it was controlled by Democrats.

JUNE 23, 2015 UPDATE

SENATE JUMPS OVER MAJOR PROCEDURAL HURDLE AND PUSHES TRADE PROMOTION AUTHORITY FORWARD

Dear Friends,

There was a major development in the Senate today on Trade Promotion Authority.  The Senate has jumped over a major procedural hurdle and moved the Trade Promotion Authority (“TPA”) bill forward. The final TPA vote will be tomorrow and it will pass because only a simple majority is needed. For US companies, this means now is the time to bring to the attention of US trade negotiators any export problems they have with the 12 TPP countries, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, so the issue can be included in the ongoing negotiations.

The TPA fight has also raised questions as to whether the Free Trade Agreements can actually pass Congress or whether the US will slip backward into a protectionist mindset and no longer be a free trade leader.

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

Best regards,

Bill Perry

SENATE PASSES TPA PROCEDURAL HURDLE AND MOVES IT FORWARD SO THAT THE TPA BILL WILL BE ON THE PRESIDENT’S DESK BY FRIDAY

On June 23, 2015, in a key procedural vote in the Senate, which required a minimum of 60 votes to pass, the Senate passed cloture 60-37 for Trade Promotion Authority (“TPA”).  To pass cloture and bring the TPA bill up for vote, the Senate requires 60 votes.  This means that tomorrow the Senate will have the final vote on TPA and only 51 votes are required for passage.

To recap since the last blog post, after passing the Senate on May 22nd, the linked TPA and Trade Adjustment Assistance (“TAA”) bills went to the House of Representatives.  Despite Herculean efforts by House Ways and Means Chairman Paul Ryan, on June 12th progressive Democrats and tea party protectionist conservative Republicans joined together to defeat Trade Adjustment Assistance and pursuant to the procedural rules kill TPA.  But pro-trade Republicans and Democrats in the Senate and the House worked with President Obama to come up with an alternative strategy and delinked TAA from TPA.

On June 18th, the House passed the TPA as a stand-alone bill.  See Paul Ryan’s statement on the House Floor at http://waysandmeans.house.gov/.

In response, today, June 23rd, the Senate with no extra votes, overcame the procedural hurdle of the 60 vote requirement, and voted to move forward with the House TPA Bill, which had passed on June 18th.  Tomorrow the Senate will vote on TPA and only a simple majority is required, which means TPA will pass and go to President Obama’s desk for signature by the end of the week.

One can see the Senate vote and the entire speeches up to and after the vote on Cspan at http://www.c-span.org/video/?326681-1/us-senate-debate-trade-promotion-authority.  Prior to the vote, Republican Majority Mitch McConnell stated in part:

The Bipartisan Trade Legislation Trade Legislation we’ll vote on today.  . . . It’s demonstrating that both parties can work together to strengthen America’s National Security at home and America’s leadership abroad.  Instead of simply ceding the future and one of the World’s fastest-growing regions from Chinese aggression and it’s proven that our friends can rally with us in support of 1.4 Million additional jobs in our country, including over 18,000 in Kentucky alone. . . .

Today is a very big vote. It’s an important moment for the country. It sets in motion the completion of a project we set out on literally months ago.  Completing work on all four of the bills reported by the Finance Committee. That is what my friend on the other side said they wanted and that is what can be achieved by continuing to work together.  . . .

So this is where we are, Mr. President. Let’s vote today. Let’s vote today to move ahead on T.P.A., an important accomplishment for the country. Then we can vote to move ahead on T.A.A. and AGOA and preferences. And then we can vote to move ahead on customs. If we all keep working together and trusting each other, then by the end of the week the President will have T.P.A., T.A.A., and AGOA and preferences on his desk. With Customs in the process of heading his way as well.

As Senator Orrin Hatch, Chairman of the Senate Finance Committee, stated in part prior to the vote:

On Trade Promotion Authority, the Senate has voted on this before each time demonstrating strong bipartisan support for T.P.P. — T.P.A. My hope is we can get a similar result in the Senate. We need to be clear about what is at stake. The United States is clearly negotiating a number of trade agreements with our most important trading partners in the world.  . . .

As we all know, most of the World’s consumers live outside of our borders.  95% of them. In addition, the vast majority of economic growth in the world is likely to occur outside of the United States over the next decade if our workers, farmers, ranchers and service providers are going to be able to compete in these growing markets, we must have open access to these markets and fair trade rules to boot.  Without strong trade agreements neither is possible.  When it comes to International Trade, we cannot stand still.  If we don’t lead and set the rules of the game, other nations will and our economy will be left behind.

The United States continues to be a leader in agricultural exports throughout the World.  In fact, we still export more agricultural goods than any other country.  In addition, the United States continues to boast an enormous manufacturing base which supplies consumers in every corner of the globe.  We also lead the World in technology, digital services and innovation.  Indeed not only do we lead the World in creation of intellectual property, America essentially created the modern digital landscape.  The U.S. also continues to lead in trade and services, exporting more than $700 Billion in services in 2014 alone.  That is more than twice as much as the United Kingdom, the World’s second-highest services exporter. . . .

This [TPA] bill, which is the product of a great deal of work and a lot of bipartisan cooperation, will have a powerful and positive impact on industries throughout our economy, on consumers and of course on American workers as well.  Mr. President, in an America that embraces International Trade, I believe even those individuals who encounter temporary setbacks can find new opportunities, can outwork, out-produce and out-innovate our global competition so long as the groundwork has been laid to give them those opportunities.  That is why we need strong trade agreements and that is why we need T.P.A. . . .

I am very appreciative of all the support we have received from members on both sides of the aisle.  We couldn’t have gotten this far without that support.  Now it is time to finish the work to pass this bill and get it to the President’s desk.  We need this bill to ensure that our constituents’ voices are heard in the trade negotiating process.  We need this bill to give our trade negotiators the tools they need to get a good deal.  And we need this bill to extend access to foreign markets so we can grow our economy and create good, high-paying jobs here at home.  That, Mr. President, is what this bill is all about and why we have been working on this process for so long.  We’re very close to the finish line, Mr. President.  We need just one more burst of energy and a few more steps to get us there.

I urge all of my colleagues who support free trade, open markets, and the advancement of American values and interests abroad to join me once again in supporting T.P.A. and working with me and with my colleague, Senator Wyden, to get all the pending trade bills passed in the Senate and signed into law. . . .

Democratic Senator Ron Wyden, ranking member on the Senate Finance Committee, stated prior to vote:

If you believe that those policies of the 1990’s fail to protect American workers and strengthen our economy, this is our chance to set a new course.  This is our chance to put in place higher standards in global trade on matters like labor rights and environmental protection, shine some real sunlight on trade agreements and ensure that our country writes the rules of the road.  The fact is in 2016, globalization is a reality.  The choice is whether to sit back and allow globalization to push and pull on our economy until in effect we face some of the same kind of dictates that you see in China.  So our choice is either to move now, get into the center of the ring and fight for a stronger economic future, protect our workers and promote our values or remain tethered to many of those old policies of the 1990’s.  . . .

China is certainly not going to take up the banner for American values in trade.  So if you believe America should stop a race to the bottom on labor rights, environmental safeguards and human rights, this legislation is our chance to lift global standards up.

Now, I want to talk for a moment about the economic potential of this legislation.  What we all understand we need to do is make things here, grow things here, add value to them here and then ship them somewhere.  My state knows how to make this happen, and so do many others.  About one out of five jobs in Oregon depends on International Trade.  Almost 90% of them are small and medium-sized, and what we know is that in many instances, those jobs pay better, but the fact is if our farmers want to sell their products in Japan – and this is true of agriculture all over America, Mr. President – a lot of our farmers face average tariffs of 40%.  That’s right.  If you want to export some jam to Vietnam, it will be marked up by 90%.  If you want to sell a bottle of wine – and we’ve got wine growers with prosperous businesses all over the country, you’ve got to fork over 50% of the value to the government.  So if you believe that other countries should open their markets to American exports, like the U.S. is open to theirs, this is our chance to bring down the tariffs and other barriers . . .

While the goal of enacting trade policies is a tool to give all Americans a chance to get ahead, trade adjustment assistance is an absolute must-pass bill.  And I am confident that it is going to get through Congress and the President’s Desk.  . . .

In my view, the Congress has an opportunity with this legislation to show that it can work in a bipartisan way to take on one of the premier economic challenges of our time.  Our job is to get past the policies of the 1990’s and move towards getting trade done right.  Colleagues, let’s open – let’s pry open foreign markets and send more of our exports abroad.  Let’s fight for the American brand and the Oregon brand against the trade cheats and the bad actors who are blocking our way.  And let’s raise the bar for American values and open up our trade policies to sunlight.  I urge all in the Senate to vote “Yes” on cloture today and to support this package as it advances this week and in effect we get three of the important bills done this week and set in motion the fourth.

After winning the procedural vote today, Senator McConnell stated:

Have voted aye on the Cloture Motion.  I want to say to our colleagues this is a very important day for our country. We’ve demonstrated we can work together on a bipartisan basis to achieve something that is extremely important for America. Not only when we confirm this trade promotion authority will we have the mechanism in place for the President to finalize an extraordinarily important deal with a number of different Asian countries, it will indicate that America is back in the trade business, it will also send a message to our allies that we understand they’re somewhat wary about Chinese commercial and potentially military domination and that we intend to still be deeply involved in the Pacific.  So I want to congratulate Senator Hatch, Senator Wyden.  This has been a long and rather twisted path to where we are today, but it’s a very, very important accomplishment for the country.

In response to the Senate vote, on June 23rd Paul Ryan, Chairman of the House Ways and Means Committee, issued the following statement:

I want to congratulate my colleagues in the Senate for voting to advance TPA. Only with TPA can the U.S. win a fair deal for the American worker in trade negotiations. And only with TPA can the U.S. rebuild its credibility on the world stage. I’m proud of my colleagues—in both houses, on both sides of the aisle—for working together to promote American trade. Some work remains to complete our trade agenda, but this has been a good day.

What is the effect of this vote on companies?  The bottom line is that by the week’s end President Obama will be able to sign into law Trade Promotion Authority and the negotiations on the Trans Pacific Partnership and the TTIP negotiations with Europe will continue.

For any company facing problems with exports to the 12 countries in the TPP, specifically Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore or Vietnam, now is the time to present your concerns to the trade negotiators in the US government and your Congressional representatives so the issue can be included in the ongoing negotiations.

WILL CONGRESS FOLLOW THE SIREN CALL OF PROTECTIONISM AND TAKE THE US BACK OR MOVE IT FORWARD TO RESUME ITS FREE TRADE LEADERSHIP

In light of the Senate vote today, one hopes that the Congress is moving away from the protectionist brink, but with a 60-37 procedural vote, when 60 votes were required, nothing can be taken for granted.  Listening to the anti-trade rhetoric in the US Senate and House of Representatives one is reminded of the original Greek tale in which Ulysses on his way back home had to pass the Siren rocks.  The Greek Sirens would cry so sweetly they lured sailors and ships to their doom.

Many Democrats and some Republicans are now listening to the Sirens of protectionism from the labor unions and other activists that the US should move inward, put America first and protect workers and US factories at all costs from import competition created by free trade agreements.  Although trade pundits acknowledge that TPA will pass, they argue that the Agreements, the TPP and TTIP Agreement with the EC, will die because the United States simply cannot withstand the protectionist attacks.  If that is true, the US will give up trade leadership and could well return back to the 1900s.  See the statement by Senator Bernie Sanders on June 23rd on the floor of the US Senate at http://www.c-span.org/video/?326681-1/us-senate-debate-trade-promotion-authority&live.

As John Brinkley, a Forbes commentator, stated on June 22, 2015, the day before the vote in the Senate on TPA:

Whether the Trans-Pacific Partnership lives or dies, it will probably be America’s last free trade agreement for a very long time.

No future Congress will want to walk into a war zone like the one now extant to pass a trade deal based on nebulous benefits. You may have noticed that the Obama administration has offered no estimate of how many jobs the TPP would create. Rather, its strategy has been to say that ratifying the TPP would empower the United States to write the rules of global trade and not ratifying it would cede that power to China. . . .

If the administration and Congress can’t convince people that free trade will facilitate those things – and they can’t – why should people care?

The next free trade agreement in the queue is the Trans-Atlantic Trade and Investment Partnership, or TTIP, which would connect the economies of the United States and the European Union. Given the amount of combat that’s been waged over the TPP, you wouldn’t want to bet on ratification of the TTIP.

Congressional leaders don’t want to put their members through another grueling trade fight like they one they’re in now, and they have no doubt made that clear to Obama. If the next president is a Democrat, he or she won’t touch the TTIP with a ten foot pole. A Republican president might ignore the opposition and try to get it done, but he’d probably lose. . . .

The TPP’s detractors have been louder and more prolific in attacking it than its proponents have been in defending it. And most of what they’ve been saying is exaggerated or wrong.  They’ll probably fail to derail the TPP. But they’ve probably already succeeded in killing the TTIP and any future trade agreement that the next president or two might envision.

For Mr. Brinkley’s entire article see http://www.forbes.com/sites/johnbrinkley/2015/06/22/farewell-free-trade.

Another commentator predicted that the real impact of the Trade fight will be on the Democratic Party stating:

Just as the tea party wing of the Republican Party has pulled the entire GOP to the right and hampered attempts at compromise on Capitol Hill, some now fear a similar dynamic is taking shape on the left. . . .

The revival of the trade package inflamed labor unions and liberal groups that had fought ferociously to block it, including by running ads against otherwise friendly House Democrats and threatening to mount primary campaigns against them. Unions say past trade deals bled American jobs and tanked wages. They argue that granting Obama the power to finalize trade deals that Congress can accept or reject, but not amend, would lead to more of the same, including the 12-nation Trans-Pacific Partnership the White House has worked on for years.

“Democrats who allowed the passage of fast-track authority for the job-killing TPP, should know that we will not lift a finger or raise a penny to protect you when you’re attacked in 2016, we will encourage our progressive allies to join us in leaving you to rot, and we will actively search for opportunities to primary you with a real Democrat,” Jim Dean, head of Democracy for America, said in a statement following Thursday’s House vote. . . .

http://apnews.myway.com/article/20150620/us–congress-democrats-ad8fbb804c.html or http://tiny.iavian.net/5mkd.

To illustrate the pressure on Congressional lawmakers, in discussing the situation with knowledgeable trade professionals, they mentioned that a Union sent demonstrators to the school where one Democratic Congressman placed his kids.

Why is the protectionist America first trade policy wrong policy?  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, the United States can 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.  Yes, currency manipulation is now 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.

The Siren Call of protectionism of putting America first by protecting companies and worker job from imports, the vast majority of which “must be unfairly traded”, however, has echoed throughout American history.  Many politicians apparently have not learned the lessons of history.  In the 1930s, President Hubert Hoover promised to help the United States dig out of the recession by raising tariff walls against imports and Congress passed the Smoot-Hawley Tariff of 1930.  Countries around the World retaliated by raising barriers to imports from the United States.  Exports and imports stopped and the World was plunged in the depression, which, in turn, was one of reasons for the rise of Adolf Hitler and the cause of the Second World War.

As one article on Capitalism states:

What was the end-result of the Smoot-Hawley Tariff Act?  As other countries placed tariffs on American exports in retaliation, these tariffs actually led to the reduction of American exports and thus jobs: With the reduction of American exports came also the destruction of American jobs, as unemployment levels which were 6.3% (June 1930) jumped to 11.6% a few months later (November 1930). As farmers were unable to pay back their loans to banks, their loan defaults led to increasing bank crashes, particularly in the West and Mid-West.

See http://capitalism.org/free-trade/what-was-the-end-result-of-the-smoot-hawley-tariff-act/

The State Department itself states on its website:

The Smoot-Hawley Tariff Act of June 1930 raised U.S. tariffs to historically high levels. The original intention behind the legislation was to increase the protection afforded domestic farmers against foreign agricultural imports.  . . . During the 1928 election campaign, Republican presidential candidate Herbert Hoover pledged to help the beleaguered farmer by, among other things, raising tariff levels on agricultural products. But once the tariff schedule revision process got started, it proved impossible to stop. Calls for increased protection flooded in from industrial sector special interest groups, and soon a bill meant to provide relief for farmers became a means to raise tariffs in all sectors of the economy. When the dust had settled, Congress had agreed to tariff levels that exceeded the already high rates established by the 1922 Fordney-McCumber Act and represented among the most protectionist tariffs in U.S. history.

The Smoot-Hawley Tariff was more a consequence of the onset of the Great Depression than an initial cause. But while the tariff might not have caused the Depression, it certainly did not make it any better. It provoked a storm of foreign retaliatory measures and came to stand as a symbol of the “beggar-thy neighbor” policies (policies designed to improve one’s own lot at the expense of that of others) of the 1930s.  Such policies contributed to a drastic decline in international trade. For example, U.S. imports from Europe declined from a 1929 high of $1,334 million to just $390 million in 1932, while U.S. exports to Europe fell from $2,341 million in 1929 to $784 million in 1932.  Overall, world trade declined by some 66% between 1929 and 1934. More generally, Smoot-Hawley did nothing to foster trust and cooperation among nations in either the political or economic realm during a perilous era in international relations.

The Smoot-Hawley tariff represents the high-water mark of U.S. protectionism in the 20th century. Thereafter, beginning with the 1934 Reciprocal Trade Agreements Act, American commercial policy generally emphasized trade liberalization over protectionism. The United States generally assumed the mantle of champion of freer international trade . . . .

See http://future.state.gov/when/timeline/1921_timeline/smoot_tariff.html.

In fact, it is the political impact and the security implications of the trade agreements, that has caused Secretary of Defense Carter and on May 8th, a bipartisan collection of 7 former US defense secretaries, including Harold Brown, William S. Cohen, Robert M. Gates, Chuck Hagel, Leon E. Panetta, William J. Perry, Donald H. Rumsfeld along with well-known Generals, such as General David H. Petraeus and General Colin Powell, to call for the passage of TPA, stating:

By binding us closer together with Japan, Vietnam, Malaysia and Australia, among others, TPP would strengthen existing and emerging security relationships in the Asia-Pacific, and reassure the region of America’s long-term staying power.  In Europe, TTIP would reinvigorate the transatlantic partnership and send an equally strong signal about the commitment of the United States to our European allies.

The successful conclusion of TPP and TTIP would also draw in other nations and encourage them to undertake political and economic reforms. The result will be deeper regional economic integration, increased political cooperation, and ultimately greater stability in the two regions of the world that will have the greatest long-term impact on U.S. prosperity and security.

Indeed, TPP in particular will shape an economic dynamic over the next several decades that will link the United States with one of the world’s most vibrant and dynamic regions. If, however, we fail to move forward with TPP, Asian economies will almost certainly develop along a China-centric model. In fact, China is already pursuing an alternative regional free trade initiative. TPP, combined with T-TIP, would allow the United States and our closest allies to help shape the rules and standards for global trade.

The stakes are clear. There are tremendous strategic benefits to TPP and TTIP, and there would be harmful strategic consequences if we fail to secure these agreements.

In a June 28, 1986 speech President Ronald Reagan indicated that he had learned the Smoot Hawley lesson stating:

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.  . . .

As many famous statesmen have stated in the past, those who do not learn from history are doomed to repeat it.

With the extreme rhetoric in the international trade area, however, the question is whether the United States truly has learned its lesson or whether it will raise the protectionist walls, and give up on free trade.  So the question is does the United States give up on Free Trade and ignore the historical lesson or does it move forward with these free trade agreements, open up markets around the World,  and retake its leadership position in international trade?.

MAY 27 UPDATE

TRANSFORMATIVE POWER OF TRADE ADJUSTMENT ASSISTANCE (“TAA”) FOR COMPANIES

As the battle for Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership (TPP) moves to the House of Representatives, the merits of the Trade Adjustment Assistance for Firms/Companies program, which is linked with the TPA bill, needs to be discussed.  Many Republican Senators and Representatives oppose TAA.  On the Senate Floor, Senate Finance Committee (“SFC”) Chairman Orrin Hatch stated that he was “generally opposed” to TAA, but realized that his Democratic colleagues, led by SFC Ranking member Senator Ron Wyden, needed TAA to support TPA.

In the House, however, many Republican Representatives oppose TAA because they see TAA as an entitlement.  But when talking to Republican staff in the House, it soon becomes apparent that many Representatives do not understand that there are two TAA programs.  The first TAA program is TAA for Workers (“TAAW”), which is a $450 million job retraining program for workers that have been displaced by international trade.  That is the program, Democratic Senators and Representatives need to support, to help the Unions, their constituents.

The second TAA program, however, is TAA for Companies (also called TAA for Firms or TAAF).  TAA for Companies is set at only $16 million in the Senate and $12.5 million in the House nationwide.  TAA for Companies targets small and medium size business (SMEs) and helps them adjust to import competition.  The irony is that SMEs are the Republican sweet spot.  These companies are Republican constituents.

What are the Republican arguments against TAA for Companies?  The first argument is that the program does not work.  To the contrary, the Northwest Trade Adjustment Assistance Center (“NWTAAC”), which I have been working with, has an 80% survival rate since 1984.  In other words, NWTAAC has saved 80% of the companies that got into the program since 1984.  See the attached Wall Street Journal article, REVISED FEBRUARY242011TAACLETTERWSJ – Perry.

The transformative power of TAA for Companies is illustrated by this video from the Mid-Atlantic TAA Center with statements from four small business owners on how TAA For Companies has saved their business– http://mataac.org/media.  See also the video at https://www.youtube.com/watch?v=tCef23LqDVs&feature=youtu.be&a.

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.

In fact, I truly believe that President Ronald Reagan himself endorsed the TAA for Companies program.  Why?  Jim Munn.  I started working with NWTAAC because Ronald Reagan himself asked Jim Munn to look into the program in the early 80’s.  Who was Jim Munn?  He was a Republican organizer, a criminal lawyer in Seattle who won every case that he handled, and yes a personal friend of Ronald Reagan.  See his attached 2002 obituary, JIM MUNN.

What did Jim Munn find out when he investigated the program?  Lo and behold the program works.  Companies are saved, and Jim Munn stayed around as the NWTAAC board chairman for 22 years.

TAA for Companies will be a very important program that Congress can use to help their constituent businesses that will be hurt in the future by trade agreements.  The Trans Pacific Partnership will create many winners, such as agriculture, but losers too, and those losing companies will need help adjusting to the trade tsunami of imports created by the TPP.

The other Republican argument against TAAF is that this program is another Solyndra and picks winners and losers.  Nothing could be further from the truth.  First, TAA for Companies does not provide money directly to companies.  TAA provides matching funds to consultants to work with companies to help them create and implement strategic plans to compete effectively in a trade intensive environment.

Second, there is no picking winners and losers.   Companies have to meet certain statutory criteria (including a decline in business). Company plans are then vetted by business experts at regional TAAF centers, which helps create a business recovery or adjustment plan. TAAF then provides a matching fund for outside expertise to help implement that adjustment plan. When companies are helped at the local level with an adjustment plan created specifically for that company, even companies facing severe import competition can survive and can prosper.

The only limitation on TAA for Companies is the low level of financial support in the Congress.  Many companies wait for long periods of time to get into the program because there simply is no funding.  In five states in the Pacific Northwest, for example, only about 10 companies begin the program each year, which is only a small fraction of the companies facing strong import competition.

Another argument made by Senator Hatch’s Legislative staff is that TAAF is duplicative of other Federal business programs.  That again is not true.  Helping companies that have been injured by imports is an entirely different objective from other business programs.

In the first place, Trade injured companies must change their business significantly to adapt to the new intensive trade environment in order to survive and grow. While there are other programs that offer business planning help, such as SBDC, they generally focus on very small business (often retail or services). TAAF specializes in helping larger trade injured companies, often manufacturers (as well as agricultural and some services companies).

Whereas other programs offer a fixed set of services or specific solutions (e.g. manufacturing technology or lean practices), a one size fits all, from a narrow pool of consultants, TAAF offers a highly flexible solution linking a consultant to a company to solve its specific import problem. Often the consultant hired by TAAF is one that the company already knows but simply does not have the resources to hire.

Today’s SMEs are lean operations, which rely on a network of project based specialists to keep them competitive. TAAF’s strength is the flexibility of linking a specific service provider with a specific skill, matched to the individual needs of the company facing immediate threat from import competition. TAAF does not compete with the private consulting industry, but facilitates access to it. This is the power of the market working to cure the disease and is perfectly in line with Republican principles.

The Transformative Power of TAA for Companies is illustrated by companies in Senator Hatch’s Utah saved by the program.  Today there are 19 Utah companies active in TAAF, including a medical device, a precision metals, a furniture and an aluminum extrusions manufacturer. Because of TAAF, these 19 companies with a total of more $2 billion in sales have retained 1000s of high paid manufacturing jobs and added 1000s more jobs. Total cost to the US tax payer for these 19 companies – $1.2 million over a five year period. But saving those 19 companies and the jobs associated with them has resulted in substantial tax revenue at the Federal, state and local level. What TAAF has done in Utah, it has also done throughout the United States.

In addition to TAA for Companies, there are a number of other amendments to the trade laws going through the US Congress with TPA, including changes to the US antidumping law to make it easier to bring trade cases. As stated in past blog posts and as Ronald Reagan predicted in the attached 1986 speech, BETTER COPY REAGAN IT SPEECH, the problem with antidumping and countervailing duty cases is that they do not work. The Steel Industry has had protection from steel imports under US antidumping and countervailing duty laws for 40 years. Have the cases worked? Is the US Steel Industry prospering today?

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 and with the trade tsunami created by the TPP, this program will be needed to teach companies how to swim in the new competitive environment. That is why this program should be supported by both Republicans and Democrats in the upcoming votes in Congress. TAAF is better targeted and more effective than any other trade remedy available today.

TPA UPDATE—LATEST NEWS FROM THE HOUSE

On May 28th, it was reported that the Republican leadership in the House of Representatives intends to bring up Trade Promotion Authority (“TPA”) and Trade Adjustment Assistance (“TAA”) the week of June 8th and will hold two separate votes on its constituent parts. The House is considering taking up the Senate-passed bill, H.R. 1314, which contains both the TPA and TAA renewals, but then vote on each part separately. This could be done using a parliamentary procedure called “division of the question,” which could be written into the rule governing House consideration of the legislation. This rule, however, would have to be approved on the House floor prior to the vote on the bill itself.

The reason for holding the TPA vote in the second week of June after the House returns from recess is to give both Republicans and Democrats time to increase support for TPA to ensure they have the 217 or more votes needed to pass the bill. It takes 217 votes, instead of 218 votes, to approve the bill because of two vacancies in the House. But there are indications that the vote could slip until the third week of June to provide supporters more time to gather the votes together.

Sources are stating that they expect between 40-55 Republican no votes, although the no votes could be much higher. With 245 Republicans in the House, the 40 to 55 range would require between 17-22 Democrats voting “yes” in order to get to the required 217 votes. Democratic Congressmen can provide more than 20 votes, possibly 25 or 27, given that 17 members of the caucus have already endorsed the TPA bill.

On May 27th, Washington State Democratic Congressman, Rick Larsen, came out in favor of TPA. In the announcement, Congressman Larsen stated:

“TPA is a cornerstone of the President’s trade agenda. It is the vehicle for Congress to set standards and goals for new trade agreements the President is seeking to finalize. I believe presidents should have the authority to negotiate trade agreements based on Congressional direction. The specifics of that direction are important, and they are laid out in the 2015 TPA bill.

“I have decided to support the 2015 TPA bill because trade matters for the Second Congressional District and for Washington State. Trade matters for manufacturers of all sizes in the Second Congressional District. Opening up new markets for our businesses to sell their goods and services is a key way to help them grow their operations and create jobs here at home. We have manufacturers of all sizes in my district that trade with other countries, supporting more than 68,320 jobs. That is a sizeable piece of our economy that we simply cannot ignore. Trade matters for these factories and workers.”

“Trade matters for a variety of industries in Washington State, from agriculture to electronics to tourism. In Washington State, about 40 percent of all jobs are tied to trade in some way, and the pay for these jobs is nearly 20 percent higher than the average annual wage. Our state exported more than $90 billion in goods and services in 2014, making us the largest exporting state per capita in the country.

“I agree with a comment Secretary John Kerry made during his recent visit to the Boeing factory in Renton. He said our state is a trade leader because we discovered a long time ago that it is in our best interest to do business with the world. Helping our state’s businesses sell their products in new markets worldwide means more growth, jobs and opportunity in the Pacific Northwest. . . .

A key factor in the Vote will be the positions of House Minority Leader Nancy Pelosi (D-CA) and Minority Whip Steny Hoyer (D-MD).

Before bringing the Bill to a vote, however, TPA supporters in the House will want to make sure that they have a comfortable margin of votes beyond the required 217. Ways & Means Chairman Paul Ryan (R-WI) has already agreed, that the House will consider TPA and TAA renewal on the same day as a customs and enforcement bill and legislation to renew several trade preference programs.

On May 27th, it was reported that Chairman Paul Ryan in a May 22nd letter to Senators Hatch and Wyden stated that he intended to seek to include in the House version of a customs and enforcement bill four amendments that failed to make it into the fast-track bill in the Senate. His commitment is part of an agreement with Hatch and Wyden to use the customs bill conference as a forum to resolve outstanding issues related to fast track and potentially other trade legislation, without requiring a conference on the fast-track bill itself.

The first change Ryan agreed to make is to include in the House customs bill the trade remedy law changes championed by Sens. Sherrod Brown (D-OH) and Rob Portman (R-OH), which are pending in the House as H.R. 2523. Ryan, however, did not address how he wants to reconcile another key difference in the two customs bills, which is their provisions aimed at fighting the evasion of antidumping and countervailing duties. In addition to Trade Remedy, Ryan indicated interest in including in the House customs bill amendments on human trafficking, immigration and US seafood exports.

US CHINA TRADE WAR NEWSLETTER MAY 27, 2015

Dear Friends,

Been very busy over the last two months on a number of different cases, but now I can now get back to the blog.

TRADE PROMOTION AUTHORITY (“TPA”) BILL PASSES THE SENATE AS FIGHT ON CAPITOL HILL CONTINUES

The major trade issue is Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership.

On May 22, 2015, after another close cloture vote, the TPA bill passed the Senate by a majority vote of 62 to 37 votes. The Short Title of the TPA Bill is the “Trade Act of 2015” and the long title is the “Bipartisan Congressional Trade Priorities and Accountability Act of 2015”.

The action next switches to the House of Representatives, which will take up Trade Promotion Authority in June. The fight in the House will be even more difficult than the Senate because reportedly there is more opposition to TPA, but there are no requirements for a super majority in the House.

To see the debate on the Senate Floor, see http://www.c-span.org/video/?326202-2/us-senate-debate-trade-promotion-authority.  Be prepared to move the video bar at the bottom of the screen to cycle through the trade arguments.

On May 21st in a close vote, 62-38 vote, with 60 votes required, the Senate agreed to cloture, to end debate, and to go to a final vote on the TPA bill. Two of the most important votes came from Democratic Senators Patti Murray and Maria Cantwell of Washington, who only agreed to vote to move the TPA bill forward after the Republicans agreed to a vote in June on the Ex-Im Bank, which is very important for the Boeing Company in Washington. Senator Lindsay Graham, a Republican from South Carolina, where Boeing is located, joined the Murray/Cantwell fight on the Senate Floor.

Attached is the revised TPA Bill with the Trade Adjustment Assistance (“TAA”) bill joined with it. TPA AS AMENDED MAY 22ND This combined bill happened as a result of a compromise after the Senate Democrats blocked the TPA bill on May 12th.

On May 22nd, another amendment on Currency Manipulation from Senators Wyden and Hatch was passed as a compromise. The attached Amendment Hatch-Wyden HANDWRITTEN AMENDMENT 1411 states as follows:

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.

On May 22, 2015, Senator Hatch made a very strong argument against the Currency Amendment proposed by Senators Stabenow and Portman, which requires enforceable provisions, 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. See part of the speech below.

One of the key arguments for TPA was made by Democratic Senator Bill Nelson of Florida on the Senate Floor on May 22nd when he stated that a major reason for his vote was when the Joint Chiefs of Staff from the Department of Defense come to Congress and unanimously told the Armed Forces Committee that the TPA and TPP are one of the most important issues for National Security in that area of the World. As Senator Nelson stated, “I believe that this Bill will pass.”

On May 12th, after the Democrats in the Senate blocked the TPA bill from coming to the floor by a vote of 52 to 45, the TAA bill was put together with the TPA bill and started to move again. The Grand Bargain between the Democrats and Republicans is that TAA will be joined to the TPA bill. Republican Senator Hatch on the floor stated several times that although he was personally opposed to TAA, he realized that his Democratic colleagues needed TAA to vote for TPA.

Four bills have been crafted to move together. They are the TPA bill, Trade Adjustment Assistance (“TAA”) for workers and companies, Customs and Trade Enforcement Bill, formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), and the Trade Preferences Extension Act of 2015 (“TPEA”). The TFTEA Bill passed the Senate on May 11, 2015 and the TPTEA Bill passed on May 14, 2015, but both bills now go to the House where there survival is questionable.  Copies of those bills and Legislative History are attached.  TRADE PREFERENCES ACT TPA LEGISLATIVE HISTORY SENATE FINANCE TPA AS AMENDED MAY 22ND TAA LEGISLATIVE HISTORY LEGISLATIVE HISTORY TRADE AND CUSTOMS ENFORCEMENT BILL Hatch-Wyden HANDWRITTEN AMENDMENT 1411 CUSTOMS AND TRADE ENFORCEMENT BILL Preferences.Bill.fin

The key problem is the Customs TFTEA bill because Senators Brown and Portman have put in the bill a specific provision that currency manipulation can be considered a countervailable subsidy. That is a major problem for Republicans and also President Obama because a currency manipulation bill could be used to retaliate against US Exports because of the Federal Reserve Policy. Remember Quantitative Easing? Currency manipulation has not been defined and this is why Treasury Secretary Lew has been so cautious in going after China and other countries. All trade law is based on reciprocity and what the United States can do to one country, the other country can do back. President Obama has stated that if enforcement provisions regarding currency manipulation are tied to the TPA bill, he will veto the bill.

Also see speech by Senator Hatch at minute 40 at this link http://www.c-span.org/video/?325918-9/senators-mcconnell-reid-wyden-hatch-cornyn-trade-promotion-authority to get a better idea of what is going on. Senator Hatch described currency manipulation as “a killer amendment” to the TPA. See also Senator Hatch speech on the floor below.

Negotiations continued. See Paul Ryan’s response that the entire world is watching, including China http://video.cnbc.com/gallery/?video=3000379026

The key point is not the Democrats opposed to TPA, but the pro-trade Democrats. After the TPA bill was blocked in the Senate on May 12th, Obama met with a group of pro-trade Democrats at the White House in an effort to secure their support. In addition to Senator Caper from Delaware, that group includes: Sens. Michael Bennet (Colo.), Maria Cantwell (Wash.), Ben Cardin (Md.), Heidi Heitkamp (N.D.), Tim Kaine (Va.), Patty Murray (Wash.), Bill Nelson (Fla.), Mark Warner (Va.) and Ron Wyden (Ore.), the senior Democrat on the Senate Finance Committee and co-author of fast-track legislation.

That is an additional 9 votes, along with the two missing Republican votes. When the additional 11 votes are added, the TPA overcame the filibuster and passed the Senate. Now the TPA battle continues in the House.

This blog post will discuss brief various trade issues, including antidumping and customs, then discuss Trade Policy, including the TPA bill in detail, followed by sections on IP, Antitrust and Securities.

TRADE

STEEL TRADE CASES ARE COMING

A number of companies have contacted me with questions about potential Steel trade antidumping and countervailing duty cases against various countries with a primary target being China. In discussions with a number of companies, the major steel targeted products are likely to be imports of cold rolled steel and galvanized steel from China and other countries and possibly hot rolled steel from other countries because Chinese hot rolled steel is already covered by antidumping and countervailing duty orders.

On March 26, 2015, the Congressional Steel Caucus held a major hearing on Capitol Hill on the State of the Steel Industry. See https://www.youtube.com/watch?v=VFUbn6lnNFM

The announcement for the hearing described it as follows:

Amidst the ongoing market turbulence in our domestic steel industry, the bi-partisan Congressional Steel Caucus will feature testimony from steel industry leaders, including several Pittsburgh-based experts. Earlier this month, U.S. Steel announced that its Keewatin, Minnesota facility would shut down operations as a result of the US market being flooded with low-cost imported foreign steel. Anticipated questions to be discussed include international trade practices, currency valuation; meeting steel market needs.

At the March 26th hearing the large US steel companies urged Congress to take action against “illegal trade practices” threatening the domestic steel industry. At the Steel Caucus hearing, U.S. Steel President and CEO Mario Longhi and Nucor Corp. Chairman, CEO and President John Ferriola and others stated that the US government has been too easy in confronting foreign companies over unfair trade practices.

Mario Longhi of US Steel stated:

“This nation’s safety, security and prosperity depend upon indigenous capacity to respond to our essential national needs, in peacetime and in times of crisis. [However], not since the late 1990s have we witnessed the torrent of steel imports. The last time we were at these levels, nearly half of American steel companies disappeared … American steel companies are being irreparably harmed by illegal trade practices.”

Longhi called for revised injury standards in the US antidumping and countervailing duty laws arguing that the ITC is too focused on operating profit margins. At the meeting Senator Sherrod Brown of Ohio pledged to help the steel companies through his “The Leveling the Playing Field Act”.

That pledge resulted in the proposed changes to the US Antidumping and Countervailing Duty laws in the Customs Enforcement Bill formally entitled ‘‘Trade Facilitation and Trade Enforcement Act of 2015’’Act, which passed the Senate. That Bill is the one that includes the Currency Manipulation provision.

One provision in that Bill would change the way the US International Trade Commission (“ITC”) does its injury investigations. Specifically the Bill proposes to add an additional provision to the Material Injury provision used by the ITC in antidumping and countervailing duty cases to provide:

“(J) EFFECT OF PROFITABILITY.—The Commission shall not determine that there is no material injury or threat of material injury to an industry in the United States merely because that industry is profitable or because the performance of that industry has recently improved.’’

In talking with one friend at the ITC, he did not believe that the change would have that much impact on an ITC investigation, but the passage of the law will have an impact.

With this much smoke in the air regarding Steel imports, that usually means fire will follow. I suspect we will see a number of trade cases against steel imports, probably at the end of June or early July.

When looking at Steel Trade problems one should understand that the US Steel Industry has had various amounts of trade protection from steel imports for close to 40 years. Presently there are outstanding antidumping and countervailing duty orders against the following steel imports from China: Steel Concrete Reinforcing Bar (“Rebar”), Oil Country Tubular Goods (“OCTG”), Hot Rolled Carbon Steel, Carbon Steel Plate, Carbon Steel Butt-Weld Pipe Fittings, Circular Welded Carbon Quality Steel Pipe, Light-Walled Rectangular Pipe and Tube, Circular Welded Carbon Quality Steel Line Pipe, Circular Welded Austentic Stainless Pressure Pipe, Steel Threaded Rod, Prestressed Concrete Steel Wire Strand, Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe, Grain Oriented Electrical Steel, Non-Oriented Electrical Steel, and Prestressed Concrete Steel Rail Tie Wire.

Against China, it is easy to bring steel trade cases because Commerce does not use actual prices and costs in China to determine dumping. But when actual prices and costs are used against market economy countries, such as Korea, it is a much bigger problem.

When I was at the ITC in the 1980s, I was the Commission staff lawyer on the first Oil Country Tubular Goods (“OCTG”) case filed against Korea in 1984. When Commerce uses actual prices and costs against countries like Korea in antidumping cases, the companies can run computer programs and make sure that they are not dumping. Since the Korean companies know they will be targeted, they are certainly running computer programs to eliminate all dumping.

With 40 years of protection from steel imports, the question should be asked is Bethlehem Steel alive today? Did the Steel Antidumping and Countervailing Duty Cases actually protect the steel industry and allow them to grow and expand or simply delay their decline?

As advocated several times in prior posts on this blog, the only way to save companies injured by imports, such as the steel companies, is a robust trade adjustment assistance program to help the companies adjust to import competition. Antidumping and countervailing duty cases do not work. They only delay the decline because a US industry cannot put up walls to unstoppable waves of imports. Instead the US industry has to adjust and learn how to compete effectively in the US market against imports, which are often fairly traded.

COMMERCE RAISES BARRIERS TO CHINESE IMPORTS BY MAKING IT MORE DIFFICULT TO GET SEPARATE RATES IN ANTIDUMPING CASES AGAINST CHINA

As stated in prior newsletters, as a result of an appeal in the Diamond Sawblades case, Commerce has raised the bar for Chinese companies to obtain their own antidumping rates by proving that they are independent of government control. The issue is especially significant for Chinese companies, which are owned in whole or in part, by the PRC State-Owned Assets Supervision and Administration Commission (SASAC).

In the Diamond Sawblades redetermination, Commerce determined that it had “further scrutinized the record” and concluded that, because the 100 percent SASAC owned majority shareholder was the only shareholder with the right to nominate all board members, including board members active in the selection of respondent’s managers, the company was not independent from the Chinese government.

Even though there was no evidence that export prices had been affected, in an investigation involving carbon and certain alloy steel wire rod from the PRC, Commerce stated that, in light of the Diamond Sawblades case, it has “concluded that where a government entity holds a majority ownership share, either directly or indirectly, in the respondent exporter, the majority ownership holding in and of itself means that the government exercises or has the potential to exercise control over the exporter’s operations generally. … Consistent with normal business practices, we would expect any majority shareholder, including a government, to have the ability to control and an interest in controlling, the operations of the company, including the selection of management and the profitability of the company.”

Meanwhile, until recently Chinese respondent companies were given 60 days from the date of Commerce initiation of an investigation or review to submit a separate rate application (“SRA”) to show that it is independent and separate from the Chinese government. Commerce has now reduced the time period to submit the SRA to 30 days and eliminated the option for early filing that previously provided NME companies with the opportunity to clarify an application Commerce deems insufficient.

COURT OF APPEALS RULES AGAINST CHINA IN GPX CASE

On March 16, 2015, in the attached GPX International Tire Corp. and Hebei Starbright Tire Co. vs. United States, GPX CAFC DECISION the Court of Appeals for the Federal Circuit (“CAFC”) turned away the second constitutional challenge to the 2012 amendment to the Countervailing Duty law affirming the U.S. Department of Commerce’s ability to apply countervailing duties on imports from nonmarket economies like China. The CAFC held that the Amendment did not violate the U.S. Constitution’s Due Process Clause even though it applied the duties retroactively.

PROPOSED CHANGES TO ANTIDUMPING AND COUNTERVAILING DUTY LAW IN CUSTOMS TRADE ENFORCEMENT BILL

Accompanying the Trade Promotion Authority Bill is the attached Customs Enforcement Bill, the ‘‘Trade Facilitation and Trade Enforcement Act of 2015,” and its legislative history which includes minor changes to the antidumping and countervailing law and significant changes to the US Customs law to stop evasion of antidumping and countervailing duty law. LEGISLATIVE HISTORY TRADE AND CUSTOMS ENFORCEMENT BILL CUSTOMS AND TRADE ENFORCEMENT BILL

Although the bill has passed the Senate, there is a substantial question whether the House of Representatives will agree. One House aide expressed confidence that the provision would eventually become law. But Congressional and business sources have pointed out the possibility that the customs bill was merely a tool that Senate Finance leaders used to funnel amendments away from Trade Promotion Authority and other bills, and that it will never become law.

This is in part because there are key differences between the House and Senate bills, meaning the Senate and House will go to conference to negotiate a comprimise bill. Among these differences in the Customs/Trade bills are the ways the two bills address the evasion of antidumping and countervailing duties, and the inclusion in the Senate bill of changes to trade remedy law that make it easier for petitioners to secure the affirmative determination necessary for duties to be imposed. On April 29th, Finance Chairman Orrin Hatch (R-UT) told reporters that he hoped the customs bill would become law, but did not provide strong assurances.

But on May 20, 2015, Senator Ron Wyden stated on the floor of the Senate that Chairman Paul Ryan has already agreed that there will be a conference committee on the Customs Enforcement Bill so a bill will pass both the Senate and the House, but what is that final bill after conference committee is still an open issue.

One key provision in the Customs and Trade Enforcement bill, however, would make currency manipulation a countervailable subsidy. Chairman Hatch has already stated on the Senate Floor if that provision is in the TPA bill it would not pass the House and would be vetoed by President Obama. If it passes the Senate, that provision will be thrown out by the House at the Conference Committee so the situation regarding this Customs and Trade Enforcement Bill is still very fluid and not settled yet in the Congress.

AMERICAN LAWYER ARTICLE ABOUT US TRADE ACTIONS AGAINST CHINA

On March 12, 2015, the American Lawyer published the attached article on The U.S. Offensive in the China Trade War, which quotes me extensively.  BETTER COPY The U.S. Offensive in the China Trade War _ The American Lawyer

STAINLESS STEEL SINKS

On April 30, 2015, the Commerce Department published the attached preliminary determination in the Stainless Steel Sinks case with dumping margins ranging from 0.81 to 5.55 %. DOC STEEL SINKS PRELIM Specifically the rates ranged from 0.81% for Guangdong Dongyuan Kitchenware Industrial Co., Ltd. to 5.55% for Guangdong Yingao Kitchen Utensils Co. with separate rates companies obtaining 2.14%.

The final determination will be in October. Attached is the Federal Register notice initiating the second antidumping and countervailing duty review investigations in the Stainless Steel Sinks case covering Chinese sinks imported during the antidumping review period April 1, 2014 through March 31, 2015 and 2014, the countervailing duty review period. MAY INITIATIONS COMMERCE REVIEWS

BOLTLESS STEEL SHELVING

On March 25, 2015, in the attached factsheet, factsheet-prc-boltless-steel-shelving-ad-prelim-032515 the Commerce Department announced an affirmative preliminary determination in the antidumping (AD) case on Boltless Steel Shelving Units from China. Commerce found preliminary antidumping rates ranging from 22.64 percent to 112.68 percent.

ITC GOES NEGATIVE NO INJURY IN 53 FOOT DRY CONTAINERS ANTIDUMPING CASE AGAINST CHINA

On May 19, 2015, the United States International Trade Commission (USITC) determined that the establishment of a U.S. industry is not materially retarded by reason of imports of 53-foot domestic dry containers from China that Commerce determined are subsidized and sold in the United States at less than fair value. As a result of the ITC negative determinations no antidumping or countervailing duty orders will be issued on imports of these products from China.

COURT OF INTERNATIONAL TRADE RULES FOR CHINA IN TAISHAN KAM KIU AND SINCE HARDWARE CASES

In the attached two determinations, Since Hardware v. United States and Taishan Kam Kiu v. United States, SINCE HARDWARE TAISHAN CITY KAM KIU the Court of International Trade remanded the Ironing Tables and Aluminum Extrusions antidumping and countervailing duty determinations back to Commerce.

SOLAR PRODUCTS ANTIDUMPING AND COUNTERVAILING DUTY ORDERS

On February 18, 2015, the attached final antidumping and countervailing duty orders in the Solar Products cases from China and Taiwan were issued. SOLAR PRODUCTS TAIWAN AD ORDER AD CVD ORDERS SOLAR PRODUCTS CHINA

MAY ANTIDUMPING ADMINISTRATIVE REVIEWS

On May 1, 2015, Commerce published the attached Federal Register notice, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of May. MAY REVIEWS The specific antidumping cases against China are: Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Citrate Salt, Iron Construction Castings, Oil Country Tubular Goods, Pure Magnesium, and Stilbenic Optical Brightening Agents. The specific countervailing duty cases are: Aluminum Extrusions, Citric Acid and Citrate Salt, and Wind Towers.

For those US import companies that imported Aluminum Extrusions, Circular Steel Line Pipe, Citric Acid, Iron Construction Castings, Oil Country Tubular Goods, and Pure Magnesium and the other products listed above from China during the antidumping period May 1, 2014-April 30, 2015 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

In my experience, many US importers do not realize the significance of the administrative review investigations. They think the antidumping and countervailing duty case is over because the initial investigation is over. Many importers are blindsided because their Chinese supplier did not respond in the administrative review, and the US importers find themselves liable for millions of dollars in retroactive liability. In the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

Attached is the May 26th Federal Register notice initiating antidumping and countervailing duty review investigations against steel sinks, activated carbon, magnesium metal and steel threaded rod for imports during the period April 1, 2014 through March 31, 2015.  MAY INITIATIONS COMMERCE REVIEWS

IMPORT ALLIANCE FOR AMERICA

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

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

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

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

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

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

TRADE POLITICS AND TRADE AGREEMENTS

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

TRADE PROMOTION AUTHORITY (“TPA”) BATTLE IN THE SENATE

As stated above, with the passage of the TPA Bill at 9PM at night on May 22nd, the TPA battle moves to the House of Representatives. This section of the newsletter will provide more background on the TPA bill and the pressure on both the Senate and the House as the bill moves through Congress.

During the Senate debate, Senate Finance Committee Chairman Senator Orrin Hatch of Utah spoke against the enforcement provisions of the proposed currency manipulation amendment to the TPA bill because it will “kill” TPA. Instead, the Senate TPA bill would make currency manipulation a major negotiating objective.

But Democrats want more. They want enforcement actions against currency manipulation. But Senator Hatch is concerned that such a provision could be used against the United States.

Other Senators are worried about possible changes to US immigration laws, environmental and labor issues. USTR has been told in no uncertain terms that touching immigration is a third rail for trade policy, and USTR has stated during Hearings on Capitol Hill that there is nothing that would “change laws and regulations with respect to immigration,”

Although TPA passed the Senate, the vote in the U.S. House of Representatives is far more uncertain. Paul Ryan, however, Chairman of the House Ways and Means Committee and former Republican Vice Presidential candidate, has pledged to take the TPA bill across the Finish Line so his credibility is riding on the bill.  That means the TPA bill should pass in the House, probably in June.

To summarize the situation, 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 certain 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 could not get one Democratic Congressman in the House of Representatives to openly co-sponsor 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 as soft on trade.

As mentioned in prior blog posts, on January 29, 2014, the day after President Obama pushed the TPA in his State of the Union speech in Congress, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

But then came the November 4th Republican wave election changing Trade Politics dramatically in Washington DC. Elections have consequences and in 2015 Republicans have taken the Senate and increased their numbers in House. The TPA Bill has now passed the Senate. The Title of the Bill is the Bipartisan Congressional Trade Priorities and Accountability Act of 2015, which is posted above. The short tile of the bill is the Trade Act of 2015. The bill has been revised on the Senate Floor to add Trade Adjustment Assistance and a currency amendment, which are set forth above.

There are changes in the bill as compared to original 2014 Bill to increase transparency, but the major objective of the two bills is the same. 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.

One should understand that 90% of the negotiations of these Agreements are not conducted by political appointees of President Obama. Other than United States Trade Representative Michael Froman, who is respected by both Democrats and Republicans, most of the negotiators have been at the Office of USTR for years, if not decades, and are truly professional trade negotiators. So TPA does not truly cede power to President Obama. In fact, there will be substantial oversight of the trade negotiations by Congress.

Since my last blog post in mid-February, many groups, including 35 religious groups, labor unions, environmental and consumer advocacy organizations, complained that the Trade Negotiations are too secret and not subject to public scrutiny. At the same time, President Obama and the Administration have put on a full court press to pass the TPA.  As early as February 23, 2015, President Barack Obama used his national weekend address to repeat his call on Congress to give him Trade Promotion Authority (TPA), arguing that “95 percent of the world’s potential customers” live outside the U.S.:

“Many of them live in the Asia-Pacific — the world’s fastest-growing region. And as we speak, China is trying to write the rules for trade in the 21st century. That would put our workers and our businesses at a massive disadvantage. We can’t let that happen. We should write those rules. That’s why Congress should act on something called ‘trade promotion authority.”

“This is bipartisan legislation that would protect American workers, and promote American businesses, with strong new trade deals from Asia to Europe that aren’t just free, but are fair. It would level the playing field for American workers. It would hold all countries to the same high labor and environmental standards to which we hold ourselves.”

On March 11, 2015, the AFL-CIO upped the cost to Democrats of supporting the TPA legislation and the TPP deal, stating that it would freeze all political action committee donations to federal candidates until further notice. While Paul Ryan and President Obama were talking up TPA, on March 18, 2015 AFL-CIO President Richard Trumka vowed to kill the “rotten”.   As Trumka stated:

“Every single thing in our trade deals should be openly discussed and subject to public oversight and the full legislative process. There should be no question about that. Fast track is wrong and undemocratic, it’s a rotten process, and the American labor movement intends to kill it.”

In response to the Congressional criticism on transparency, on March 19, 2015 the Obama Administration announced new measures to provide lawmakers and their staff members the opportunity to review the TPP negotiating text. USTR set forth several changes to the USTR’s policies, the most important being placing the TPP text in the Capitol for members to view at their leisure without an administration official in attendance. Congressional members are also allowed to review the text with a personal staff member with security clearance.

Complaints, however, about access to the details of trade negotiating texts grew louder because the massive TPP deal would encompass 40 percent of global commerce. On March 26, 2015, it was reported that the protracted standoff between Wyden and Hatch centered around this very issue, transparency and oversight, with Wyden pushing for language that would make it easier for Congress to essentially “turn off” fast track with a resolution of disapproval if the negotiating standards are not met.

On March 25th, Wikileaks released a draft treaty of the TPP from the Investment Group, which led to a strong debate on Investor Arbitration Panels. This led to Senator Warren introducing an amendment to do away with investment panels, which was defeated on May 22nd, prior to the vote on the TPA. Public Citizen argued that the Investor State Dispute Settlement (“ISDS”) system provides foreign investors with more rights than those given to domestic firms and that the mechanism stands as an affront to a government’s right to regulate in the public’s interest.

On the other side, the National Association of Manufacturers praised the text and stated that the U.S. approach to investment talks has been a matter of public record for three years. As the NAM Vice President for International Economic Affairs Linda Dempsey stated:

“The investment provisions of our trade agreements, which are backed up by the neutral and well respected ISDS dispute settlement mechanism, are an important tool particularly for small and medium-size businesses that have been the most prevalent users of the ISDS dispute settlement mechanism.”

On March 26, 2016, Secretary of Defense, Ashton Carter, called for a “full-court press” on TPA, TPP, TTIP because expanding and deepening trade relationships provides stronger national security, stating:

“We also need Congress’ support for some of the most important investments we can make in our future prosperity—new trade agreements, including Trade Promotion Authority for the President. We must be allowed to clinch new and historic trade agreements spanning from Europe to Asia.

I offer this as a Secretary of Defense, convinced that a full-court press to strengthen our nation’s trade relationships will reinforce our nation’s security—while neglecting them could undercut it.

The arithmetic is straightforward.

We know that 95% of the world’s customers live beyond our borders, and the spending power of middle-class consumers in today’s emerging markets is expected to increase by 20 trillion dollars over the next decade. . . . And this trend will continue as Asia’s 570 million-strong middle class grows to about 2.7 billion consumers over the next 15 years. . . .

The bottom line is that, as global trade intensifies, we need to be both at the helm, and in the thick of it. Three years ago, trade accounted for about a third of global GDP. In a decade, it could approach half of global GDP. America’s economy, and our security that depends on it, cannot afford to be left behind. . . .

Shared growth generates magnetism: attracting new partners from around the region. While far from a guarantee, strong trade patterns also help build trust and raise the cost of conflict, while assuring our allies and partners of our long-term commitment to a shared and interdependent future…something that Secretary and General Marshall clearly understood.”

On March 26, 2015, former Republican and Democratic Commerce Secretaries, including Pete Peterson, Frederick Dent, Barbara Franklin, Mickey Kantor, William Daley, Norman Mineta, Donald Evans, Carlos Gutierrez, Gary Locke and John Bryson, urged Congress to pass the TPA Bill, but also argued that anti-currency manipulation should not be tied to trade deals.

On March 31, 2015, House Ways and Means Committee Chairman Paul Ryan, R-Wis., on Tuesday mounted a strong defense of the investor-state dispute settlement mechanism, blasting the system’s critics as “doomsayers” attempting to thwart the U.S. trade agenda with hyperbolic arguments, stating:

“The way [the critics] tell it, ISDS panels are corporate shills that gut public-safety regulations and undermine U.S. sovereignty. The truth is, there are few better tools for holding other countries accountable to the agreements they make — especially when they harm American job creators.”

Calling ISDS “one of the more mundane procedures of trade law,” Ryan stated that there is some version of the mechanism on the books in more than 3,000 trade and investment agreements around the globe, 90 percent of which have never even seen an investor dispute arise. Ryan also stated an ISDS panel does not have the power to change a country’s laws and can only fault the application of a given law.

On April 6, 2015, Defense Secretary Carter warned that “time’s running out” for the TPP deal. Failing to pass the proposed trade deal would cause the U.S. to “take ourselves out of the game”:

You may not expect to hear this from a Secretary of Defense, but in terms of our rebalance in the broadest sense, passing TPP is as important to me as another aircraft carrier. It would deepen our alliances and partnerships abroad and underscore our lasting commitment to the Asia-Pacific. And it would help us promote a global order that reflects both our interests and our values.”

On April 6, 2015, a bipartisan coalition of 76 U.S. Congress members in a letter to Representative Michael Froman and U.S. Secretary of Agriculture Tom Vilsack urged the Obama administration to ensure that the final deal opens new doors for the dairy industry, particularly in Canada and Japan.

On April 16, 2015, Senators Hatch and Wyden introduced the final bipartisan TPA Bill, the “Bipartisan Congressional Trade Priorities and Accountability Act of 2015”.

The 2015 TPA bill creates a new “transparency officer” in the USTR and establishes House and Senate advisory groups to oversee ongoing negotiations. Under the 2015 TPA bill, the Administration would also be required to make finalized trade deals available to the public for 60 days before Presidential signature and up to four months before a Congressional vote. If the deal does not meet Congressional objectives, a 60-vote majority in the Senate would strip the deal of fast-track protection and allow amendments.

But critics continued to attack the bill with AFL-CIO President Richard Trumka stating:

“We can’t afford another bad deal that lowers wages and outsources jobs,” That’s why Congress must reject Fast Track and maintain its constitutional authority and leverage to improve the TPP and other trade deals.”

On April 16th, USTR Froman made clear that the Trans Pacific Partnership (“TPP”) did not contain any changes to the US immigration system, telling lawmakers that no such modifications would be made, even though other nations involved in the negotiations are making temporary entry deals.

Although critics attacked the new TPA bill, American Agriculture Associations praised the new bill with one magazine reporting:

“Pork, corn, dairy, wheatyou name itthe American agriculture industry is standing firmly behind a new bipartisan trade promotion authority bill introduced last week.”

The Agriculture Associations supporting the bill include the American Farm Bureau, The National Association of Wheat Growers, The National Chicken Council, The National Pork Producers Council, The American Feed Industry Association, The National Cattlemen’s Beef Association, The National Milk Producers Federation and the U.S. Dairy Export Council, The Corn Refiners Association, the Corn Growers Association, the American Soybean Association, and the USA Rice Federation.

On April 20, 2015, House Ways and Means released an e-mail stating:

TPA: Good for the Farm and Ranch

Support for TPA is strong among the American agriculture industry. Industry after industry has talked about how breaking down trade barriers is critical to selling more U.S. grown and raised food abroad. But the industry also supports TPA because of the important negotiating objectives that it lays out. These guidelines help ensure that the administration is making progress on issues important to American agriculture, like directing it to:

Obtain Enforceable SPS-Plus Rules: Directs the Administration to obtain robust and enforceable rules on sanitary and phytosanitary measures and require the use of science based standards.

End Improper Use of Geographical Indications: Seeks elimination of the improper use of GIs, including registration of generic terms, which undermine market access for U.S. products.

Maintain Domestic Protections: Ensures that countries may protect human, animal, or plant life or health, consistent with international obligations.

Address Tariff and Non-Tariff Barriers: Instructs USTR to reduce or eliminate tariff and non-tariff barriers, as well as subsidies that decrease market opportunities for U.S. exports.

Preserve Family Farm Supports: Includes provisions seeking preservation of family farms and rural communities.

Facilitate Import Relief: Ensures that import relief mechanisms for perishable and cyclical products are accessible and timely.

Assess Compliance with Existing Obligations: Requires USTR to evaluate whether countries have made meaningful agriculture commitments in the WTO and whether they are living up to their commitments in the WTO and under other trade agreements.

Ensure Special Consultations on Import-Sensitive Products: Takes into account the effect of trade agreements and negotiations on import-sensitive products, and requires additional Congressional consultations on such products.

Make Tariff-Rate Quota (TRQ) Administration Transparent: Ensures transparency in the administration of TRQ programs.

On April 21, 2015, Senator Orrin Hatch, Senate Finance Chairman, called arguments by Democratic Senators that Republicans were trying to ram the Bill through the Committee “nonsense”:

“This is well-covered territory for this committee. So, while I understand and respect that there are sincerely held views on this topic, some of which are different than mine, any arguments that we’ve been less than forthcoming and transparent with this TPA legislation are, not to put too fine a point on it, nonsense.”

Hatch further stated that the Finance Committee convened nine total trade hearings during the last session of Congress and has already held three such hearings in the 2015 session. Hatch also stated that the new TPA bill closely mirrors the bipartisan TPA legislation introduced in 2014 stating:

“True enough, in our discussions, Sen. Wyden, Chairman Ryan and I made some improvements to that original bill. But, the fundamentals remain the same, and we’ve been very transparent as to what the changes have been.”

On April 21, 2015 the American Textile Industry endorsed the TPA. The National Council of Textile Organizations announced, “We are pleased to lend our support to this renewal of Trade Promotion Authority.” The Council specifically stated that the US government supports a balanced outcome, including the yarn-forward rule of origin, which requires that the yarn production and all operations forward occur in either the United States or the territory of our trading partner.

On April 22, 2015, the TPA bill cleared the Senate Finance Committee and proceeded to a fight on Senate floor. Senator Ron Wyden, ranking Democratic Member, showing a profile in courage, led the negotiations with Paul Ryan in the House, and stated after the passage of the TPA Bill in the Committee:

“The U.S. is going to aim higher in trade deals, our enforcement will be much tougher, and the process of negotiating and voting on agreements will be more transparent and more democratic. This legislation will safeguard American sovereignty and promote American values. Congress will be sending U.S. trade policy in a more progressive direction than it ever has before.”

On April 23, 2015, President Obama stated that TPP will correct the shortcomings of the North American Free Trade Agreement (“NAFTA”) because TPP would put in place tough labor and environmental standards that NAFTA did not. TPP would also contain provisions fighting illegal wildlife trafficking and logging, and protecting oceans and against overfishing. Additionally, it would ensure an open Internet, protect consumers from fraud and deception, require anti-corruption and transparency measures and simplify export rules for small businesses. As President Obama stated,

“Trade has always been tough, and it’s always been tough especially in the Democratic Party. A lot of people are skeptical of trade deals, and a lot of times it’s for good reason. For decades now, technology made good jobs obsolete, global competition meant jobs were being shipped overseas, past trade deals didn’t always live up to the hype.

“[But] we’re not going to stop a global economy at our shores. That’s the wrong lesson to draw. We can’t go back to the past.”

Meanwhile, on April 23, 2015, the TPA bill cleared the House Ways and Means Committee with Chairman Paul Ryan stating:

“We have a unique opportunity to write the rules of these trade deals to tear down those barriers and open markets for American products. TPA will increase our bargaining power so we get the most effective trade deals possible — so we tear down more trade barriers and create more opportunity right here in America.”

In the Ways and Means Committee, Democrats were unable to amend the TPA’s language on foreign currency manipulation to enact enforceable rules that would punish trading partners for manipulating their currency to gain a competitive advantage.

On April 27, 2015, the House Ways and Means Committee announced that the High Tech Industry Backs TPA:

“There’s no doubt about it: The tech industry is going big for the Trade Priorities and Accountability Act. . . .These are America’s moviemakers, software developers, and computer manufacturers—the people who drive American innovation. They understand that promoting American trade requires protecting American intellectual property. That’s the only way to keep our competitive edge in the 21st century. And that’s exactly what TPA will do.

TPA lays out almost 150 negotiating objectives for the administration to pursue in trade deals. Among them is to “ensure that governments refrain from implementing trade-related measures that impede digital trade in goods and services, restrict cross-border data flows, or require local storage or processing of data.” . . . .

Microsoft’s general counsel Brad Smith echoed this sentiment:

“Passage of renewed TPA, with its updated objectives for digital trade, is critical for America to be able to pursue its interests. And passage is important for Microsoft and our network of more than 400,000 partners, the majority of which are small businesses, to compete in the global economy.”

On April 27, 2015, House Ways and Means announced that more Conservative organizations are speaking out in favor of TPA, stating in part:

“Just last week, Americans for Tax Reform and 19 other conservative groups signed a letter in support of TPA. . . . The American Conservative Union, Citizens for Limited Taxation, Americans for Job Security, the National Taxpayers Union, the Competitive Enterprise Institute—all voiced their support for expanding American trade.

The editors at Investor’s Business Daily echo this argument:

[TPP] also would reinforce the American presence on the Pacific Rim through economic strengthening, offsetting at least to some extent President Obama’s deep naval defense cuts.

But the main thing is, for every party involved, it would contribute to decades of prosperity and economic growth, as study after study on the impact of free trade agreements has found.”

On April 27, 2015, from a Ways and Means Press Release, Paul Ryan in a radio address, on the show Morning in America, made the case for TPA, stating:

“The reason we need trade agreements with other countries is twofold.

Ninety six percent of the world’s consumers live in other countries; they don’t live in our country. And if we want to have a mature economy where we have more jobs, higher-paying jobs, we have to make and grow more things in America and sell them overseas so we can keep full employment—you know, more people working. So we have to open [markets] to our products. That’s point number one.

“Point number two is all these other countries are going around getting trade agreements for their countries that are better, that give them more access to these foreign markets. And, as a result, Americans don’t get access to those markets, which means we face higher barriers and we can’t sell our products to other markets. China is a perfect example. They’re running around the world right now trying to get better trade agreements to meet China’s needs, to run by China’s rules. And so, right now what’s happening in this global economy is the rules of the global economy are being written, and the question for us is: ‘Who writes those rules?’ Is it China writing those rules, for China’s benefit? Or are we going to write the rules, for our benefit?”

On holding the administration accountable:

“Trade promotion authority is done in a way this time very differently than others because of our mistrust of the executive. So, we tell the executive—meaning, in this case, Obama—and the next president: Here’s what you need to put in a trade agreement, here’s how you go about getting it. You have to be transparent. Members of Congress have to see it. The public has to see these agreements before they’re signed to. And Congress reserves the power to veto it. Congress gets the final say. Congress has to approve it. And if the president doesn’t put together the kind of trade agreement, the process we spell out, then we can say: ‘You didn’t do it the right way.’ And we can revoke trade promotion authority and that trade agreement. So, we’re putting sort of a belts-and suspenders approach to making Congress, the legislative branch, in charge of this so that the executive cannot go beyond his reach.”

On leveling the playing field for American workers and job creators:

“[W]e think we have done this in the right way, and the president has to go out and get the right kind of an agreement. We want to open our dairy markets. We want to open our agriculture markets, our manufacturing. Here’s the deal . … We already give these countries—in this particular case I’m talking about Asia, non-China Asian countries—we already give them pretty good access to our country. Just walk into Wal-Mart or Farm & Fleet or wherever you go, and you’ll see a bunch of goods made in Asian countries. The problem is they don’t give us the same kind of access to their markets. So what we’re trying to get here is the same kind of access to their markets that they have to ours and to give us zero tariffs.”

In response to the TPA movement, however, on April 28th, AFL-CIO President Richard Trumka repeated labor’s stance against TPA, TPP and all free trade agreements:

“All across the country, workers are leading a fierce and broad social movement to defeat fast track. We are rebelling against corporate-written free trade agreements — and we are succeeding.”

The labor movement opposes fast-track. We expect those who seek to lead our nation forward to oppose fast-track. There is no middle ground … [and] in the 2016 campaign, there will be no place to hide for those who aspire to lead America.”

On April 30th Paul Ryan issued another press release from the House Ways and Means Committee stating that the way to hold President Obama accountable is TPA:

The bottom line is, TPA will make the trade negotiations much more transparent and hold the president accountable. Here are the top eight ways TPA will empower Congress:

  • Read the negotiating text

Right now, nothing requires the administration to allow a member of Congress to read the negotiating text of an agreement. But under TPA, every member will be able to read the text of the agreement all throughout the talks.

  1. Receive up-to-date briefings

Sometimes, reading the text isn’t enough. A member of Congress wants to know where the talks are headed. TPA will require the U.S. trade representative’s (USTR) office to brief any member who asks on the status of the negotiations.

  1. Attend negotiating rounds

If that’s not enough, how about actually attending the talks? Under TPA, any interested member will be able to become a “congressional adviser” to U.S. negotiators. All designated congressional advisers will be able to attend negotiating rounds.

  1. Consult with negotiators

TPA will also create House and Senate Advisory Groups on Negotiations to oversee the talks and receive regular briefings, according to a fixed timetable. Any member will be able to submit his or her views to the group.

  1. Provide public summaries

Right now, there’s little public information about how an agreement is shaping up. TPA will require USTR to post up-to-date summaries of each chapter of the agreement so people can see what’s up.

  1. Create a new transparency officer

TPA will create a chief transparency officer at USTR that will consult with Congress and the public on transparency policies.

  1. Make the text public

The ultimate judge is the American people, so they should be able to read the text themselves. For the first time ever, TPA will codify in law the public’s right to review the agreement before the President puts his signature on it. TPA will require the administration to publish the text of a completed trade agreement at least 60 days before agreeing to it. That’s even before Congress considers a vote.

  1. Tell Congress how he will implement the agreement

Finally, at least 30 days before Congress considers the final bill, the president must tell Congress how he intends to enact the agreement if Congress passes the implementing bill.

All of these tools will shed greater light on the negotiations. We need them to get the most effective trade deals possible. We need them to hold the president accountable. And that’s why we need to establish TPA.

Meanwhile on May 5, 2015, Senator Harry Reed announced that he would convince his fellow Democrats to hold off on a TPA vote until the passage of highway infrastructure funding and surveillance legislation. Senate Majority Leader Mitch McConnell, however, rejected the Reid motion and pushed on.

On May 6, 2015, a Press Release from the House Ways and Means Committee stated:

Opponents of free trade agreements are raising a stink about transparency in trade negotiations. But the truth is, if they really want to shed light on the negotiations, the best thing they can do is pass trade promotion authority (TPA). . . .

Most notably, TPA requires the president to make public the text of a trade agreement at least 60 days before he finalizes it. And at least 30 days before he submits an implementing bill to Congress, the president must send the final legal text of the agreement and a description of how he proposes to implement the agreement. So long before the agreement comes up for a vote, the American people will have plenty of time to read and debate it. . . .

So, question: How can we make trade negotiations more transparent?

Answer: Pass TPA.

On May 8th, a bipartisan collection of former US defense secretaries, including Harold Brown, William S. Cohen, Robert M. Gates, Chuck Hagel, Leon E. Panetta, William J. Perry, Donald H. Rumsfeld along with well-known Generals, such as General David H. Petraeus and General Colin Powell, called for passage of TPA, stating:

We write to express our strongest possible support for the enactment of Trade Promotion Authority legislation, which is critical to the successful conclusion of two vital trade agreements: the . . . TPP . . . and the TTIP.

While the economic benefits of both these agreements would be substantial, as former Secretaries of Defense and military leaders we believe there is an equally compelling strategic rationale for TPP and TTIP.

First and foremost, the conclusion of these agreements would be a powerful symbol of continued U.S. leadership and engagement globally. They would reinforce relationships with important allies and partners in critical regions of the world. By binding us closer together with Japan, Vietnam, Malaysia and Australia, among others, TPP would strengthen existing and emerging security relationships in the Asia-Pacific, and reassure the region of America’s long-term staying power. In Europe, TTIP would reinvigorate the transatlantic partnership and send an equally strong signal about the commitment of the United States to our European allies.

The successful conclusion of TPP and TTIP would also draw in other nations and encourage them to undertake political and economic reforms. The result will be deeper regional economic integration, increased political cooperation, and ultimately greater stability in the two regions of the world that will have the greatest long-term impact on U.S. prosperity and security.

Indeed, TPP in particular will shape an economic dynamic over the next several decades that will link the United States with one of the world’s most vibrant and dynamic regions. If, however, we fail to move forward with TPP, Asian economies will almost certainly develop along a China-centric model. In fact, China is already pursuing an alternative regional free trade initiative. TPP, combined with T-TIP, would allow the United States and our closest allies to help shape the rules and standards for global trade.

The stakes are clear. There are tremendous strategic benefits to TPP and TTIP, and there would be harmful strategic consequences if we fail to secure these agreements. In both Asia-Pacific and the Atlantic, our allies and partners would question our commitments, doubt our resolve, and inevitably look to other partners. America’s prestige, influence, and leadership are on the line. With TPP originating in the Bush administration, these agreements are fundamentally bipartisan in nature and squarely in our national security interest. It is vitally important that we seize the new strategic opportunities these agreements offer our nation.

Despite criticism from fellow Democrats, on May 8, 2015, President Obama responded to the Democratic critics of the TPA bill at Nike’s headquarters in Oregon, home state for Senator Ron Wyden, stating:

“Vietnam would actually for the first time have to raise its labor standards. It would have to set a minimum wage. It would have to pass safe workplace laws to protect its workers. It would even have to protect workers’ freedom to form unions for the very first time. That would make a difference.”

On May 22, 2015, just prior to the passage of the TPA, on the Senate Floor Senator Orrin Hatch, in the attached speech, HATCH SPEECH ON CURRENCY MANIPULATION responded to the attempt to amend the TPA bill and add the Currency Amendment of Senators Portman and Stabenow.  Senator Hatch stated in part:

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.

Nonetheless, I do not believe we should ignore currency manipulation, which is why, for the very first time, our TPA bill would elevate currency practices to a principal negotiation objective. This is important. It means that, if the administration fails to make progress in achieving this or any other objectives laid out in the bill, then the relevant trade agreement is subject to a procedural disapproval resolution . . . .

Of course, I understand that a number of my colleagues want to see more prescriptive language, which would limit the range of tools available and require that trade sanctions be used to keep monetary policies in line. . . .

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. . . .

TRADE ADJUSTMENT ASSITANCE PROGRAM—REAUTHORIZATION

As stated in my last blog posts, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which has been cut to $12.5 million nationwide. The TAA Bill, which is attached to the TPA bill, in the Senate brings the TAA for Firms program back to $16 million. In the House, however, TAA has been cut to $12.5 million. So the question is what happens in the Conference Committee?

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

As the TPP, TTIP and other trade agreements come into force changing the US market by government action with the force of a government tsunami, TAA for firms/companies is the only program that will give companies the tools they need to adjust to increased trade/import competition from so many different countries.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On May 21, 2015, the Commerce Department announced 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 the attached final rule, FINAL COMMERCE RULE, 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

There are significant changes to Customs law in the Customs and Trade Enforcement Bill, formerly The Trade Facilitation and Trade Enforcement Act of 2015 (“TFTEA”), which passed the Senate on May 11, 2015. Some of those provisions include tough enforcement provisions for evasion of US antidumping and countervailing duty laws. The question, however, is whether these changes will ever become law because the Bill has to pass the House and then go to Conference Committee.

PRODUCTS LIABILITY AND TRADE—HOW CHINESE ACTIONS CAN DESTROY LARGE US IMPORT COMPANIES/RETAILERS

Quality problems with Chinese imported products can hit US import companies and retailers like a trade tsunami, potentially driving large US companies out of business. Nothing illustrates this problem better than the major issues facing Lumber Liquidators because of imports of low quality, high formaldehyde laminate flooring from China.

Lumber Liquidators Inc. has been hit with close to a hundred class action complaints for products liability, consumer actions and even securities cases because of its sale of formaldehyde-laden Chinese flooring. The Actions accuse Lumber Liquidators of defrauding US consumers by falsely stating that its Laminate Flooring meet state emissions standards for the toxic Formaldehyde chemical.

The Complaints allege that Lumber Liquidators routinely sells Chinese-made flooring that greatly exceeds California and other State Air Resource Board standards for safe formaldehyde emissions. Yet Lumber Liquidators advertises on its website and elsewhere that it ensures all of its suppliers comply with California’s “advanced environmental requirements,” even for products sold in other states.

These Actions have originated from a 60 Minutes program, a well-known nationwide news investigative program, which revealed that independent testing of dozens of boxes of Chinese flooring from Lumber Liquidators stores in four states, revealed that all but one of the samples surpassed the California Formaldehyde limit and some went more than 13 times beyond the mark. This 60 Minutes New Report led to the filing of dozens of lawsuits against Lumber Liquidators under Products Liability law and consumer protection/false advertising law. Reportedly the number of complaints is now over one hundred.

Meanwhile, in Sept. 2013, the U.S. Fish and Wildlife Service and the U.S. Department of Homeland Security’s Immigration and Customs Enforcement service carried out a search warrant at Lumber Liquidator’s corporate offices in Richmond, Virginia.  Multiple media reports have reported that the raid was linked to wood suspected of having originated from the Siberian tiger’s habitat.

On March 25, 2015, the U.S. Consumer Protection Safety Commission (“CSPC”) announced that it was investigating the formaldehyde content of Chinese laminate tile flooring imported by Lumber Liquidators Inc. following the 60 Minutes investigation. In a 2013 report, the CPSC said formaldehyde has been linked to cancer in humans and lab animals but added that some people are more susceptible to the chemical effects than others. In response to the announcement, Lumber Liquidators reported that it was cooperating with other agencies, including the U.S. Environmental Protection Agency, Centers for Disease Control, Federal Trade Commission and others.

On April 29th, Lumber Liquidators announced that in addition to the more than 100 class action cases filed against it, the US Justice Department (“DOJ”) will seek criminal charges against Lumber Liquidators for violating a conservation law in connection with imported wood flooring products. Specifically the DOJ stated that it is seeking criminal charges under the Lacey Act, a conservation law that prohibits import of products made from illegally logged woods.

With all the class action cases, earnings fell, which resulted in a Securities Class Action against Lumber Liquidators by stock investors alleging securities fraud, arguing that its record-high profits were based on creative “sourcing initiatives” when in fact they came from illegal wood harvesting and the sale of cheap formaldehyde laced floors. The company and its entire board of directors were named as defendants in the April 15 derivative complaint by Amalgamated Bank, the trustee for an index fund that has invested in Lumber Liquidators stock. See actual complaint below.

Specifically, the securities complaint alleged that Lumber Liquidators reported gross margins that were significantly higher than those of its major competitors, Home Depot and Lowe’s Companies Inc., because partnerships in China allowed it to cut out middlemen and work directly with suppliers. In reality, the company was buying engineered and laminate flooring manufactured in China that contained and emitted dangerously high and illegal levels of formaldehyde, as well as wood that had been illegally harvested from protected forests in the Russia, home to the critically endangered Siberian tiger and Far East leopard.

According to the suit, the directors breached their duties to shareholders by failing to prevent possible violations of environmental and consumer protection laws and by failing to disclose the illicit practices in public U.S. Securities and Exchange Commission filings. As the Complaint states at paragraph 14:

“Moreover, as a result of defendants’ breaches of their fiduciary duties, the Company is now subject to several complex and expensive securities class action lawsuits alleging violations of the CARB Regulations; the Lacey Act; the Racketeer Influenced & Corrupt Organizations Act (“RICO”); the Magnuson -Moss Warranty Act; breach of express and implied warranties; violation of Consumer Protection/Deceptive Practices acts; unjust enrichment; and lawsuits alleging violations of California’s Proposition 65. On March 10, 2015, The New York Times reported that the Attorney General of New York, Eric T. Schneiderman, had opened an inquiry into whether the Company violated safety standards and that officials in California are also likely to investigate.”

According to paragraph 17 of the complaint,

“Although Lumber Liquidators has been severely injured, defendants [Board Members] have not fared nearly so badly. During the relevant time period, defendants collectively pocketed millions in salaries, fees, stock options, illicit insider trading profits and other payments that were not justified in light of the violations of state and federal law at Lumber Liquidators that occurred on their watch. . . .”

According to the shareholders, the scandals have exposed Lumber Liquidators to “millions of dollars in potential liability” from various investigators and allegedly wiped out more than $1.2 billion in shareholder equity. As further stated in paragraph 116 of the complaint:

“Moreover, these actions have irreparably damaged Lumber Liquidators’ ‘environmentally conscientious’ corporate image. For at least the foreseeable future, Lumber Liquidators will suffer from what is known as the ‘liar’s discount,’ a term applied to the stocks of companies that have been implicated in improper behavior and have misled the investing public, such that Lumber Liquidators’ ability to raise equity capital or debt on favorable terms in the future is now impaired.”

The Complaint also details the allegations against Lumber Liquidator’s Chinese suppliers at paragraphs 82-96, stating in part in paragraph 98:

Moreover, defendants were fully aware of the risks of importing wood from China-a country often associated with the export of wood products with excess formaldehyde levels and illegally sourced timber. For example, in February 2012, the leading Chinese hardwood flooring company, Anxin Weiguang Flooring, was forced to pull its wood flooring products from shelves pending an investigation by Shanghai’s Bureau of Supervision, Inspection and Quarantine because of claims that the flooring emitted excessive levels of formaldehyde. One study, entitled “Formaldehyde in China: Production, consumption, exposure levels, and health effects,” 35 Environment Int’l (Nov. 2009), found that over the last 20 years, China’s formaldehyde industry has experienced unprecedented growth, and now produces and consumes one-third of the world’s formaldehyde. More than 65% of the Chinese formaldehyde output is used to produce resins which are mainly found in wood products. These are also the major source of indoor air pollution in China. The study documented numerous instances of hazardous occupational exposure to formaldehyde in Chinese wood workers.

On May 7, 2015, Lumber Liquidators announced that it was suspending sales of laminate flooring from China that prosecutors and consumers have alleged contain toxic levels of the building chemical formaldehyde, and will conduct a review of its suppliers who had labeled the product as meeting California’s limits for the carcinogenic chemical. Lumber Liquidators also hired former Federal Bureau of Investigation director Louis Freeh’s consulting firm to advise it on compliance issues.

On May 21, 2015, Lumber Liquidators announced that its CEO Robert M. Lynch has resigned “unexpectedly”.

The Lumber Liquidators problems illustrate the importance of quality control of Chinese products and how actions in China can seriously damage, if not destroy, their US customers, well-known US companies and brands.

SOME OF THE LUMBER LIQUIDATOR COMPLAINTS

False Advertising and Consumer Protection

On March 6, 2015 Sara Latta filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. LATTALL

On March 9, 2015, Jerry Green and Twala Scott filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. GREEN LL

On March 12, 2015, Mary Kleinsasser filed the attached class action case against Lumber Liquidators for false advertising and consumer protection violations. KLEINASSERLL

On March 12, 2015, Adam White and Julia White a class action case against Lumber Liquidators for false advertising and consumer protection violations. WHITE LUMBER

On March 27, 2015, Thomas P. Phelan filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. PHELAN LUMBER LIQUIDATORS

On March 27, 2015, James Silverthorn filed a class action case against Lumber Liquidators for false advertising and consumer protection violations. SILVERTHORN LUMBER

SECURITIES CASES AGAINST LUMBER LIQUIDATORS

On April 15, 2015, Amalgamated Bank filed the attached shareholder derivative complaint for breach of fiduciary duty, corporate waste and unjust enrichment against Lumber Liquidators and its directors and officer. AMALGAMATED BANK LUMBER LIQUIDATORS CASE

IP/PATENT AND 337 CASES

CAFC MAKES DOMESTIC INDUSTRY AN ISSUE IN 337 CASES

Under section 337, owners of US patents, trademarks and copyrights can filed a case against infringing imports. After a year-long proceeding before an Administrative Law Judge and the ITC itself, if the Commission finds that these unfair imports have injured a US industry, it can issue an exclusion order and the infringing imports will be kept out at the border.

On May 11, 2015 in the attached decision, Lelo Inc, v, International Trade Commission, CAFC LELO DOMESTIC INDUSTRY, the Court of Appeals for the Federal Circuit (“CAFC”) increased the domestic industry standard, reversing the ITC and determining that there was no domestic industry in a section 337 case, stating:

In Certain Kinesiotherapy Devices and Components Thereof, Inv. No. 337-TA-823, Initial Determination at 50 (Jan. 8, 2013) (“Initial Determination”), “the Administrative Law Judge determined initially that the domestic industry requirement had not been met because the ALJ rejected Plaintiff’s arguments that its U.S. purchase of the four components constituted a “significant investment in plant and equipment,” or a “substantial investment in its exploitation, including engineering, research and development, or licensing,” under prongs (A) and (C), respectively, of the § 337 domestic industry requirement.”

Specifically, the ALJ concluded that Standard Innovation’s U.S. purchases were not relevant to a prong (A) analysis because Standard Innovation failed to establish what portion, if any, the purchase price actually contributed towards a domestic investment in plant or equipment. . . . The ALJ also decided that the components were off-the-shelf items and not relevant to prong (C) because there was no proof that the components were developed specifically for Standard Innovation’s devices, or what portion, if any, of the purchase price was allocable to research and development costs incurred in the development of the components.

Further, the ALJ determined that even if the purchases were relevant, they were neither “substantial” nor “significant” under prongs (A) or (C). . . . . The total purchase prices accounted for less than five percent of the total raw cost of the devices.

The CAFC went on to state:

The Commission, however, reversed the ALJ’s domestic industry determination, finding that “Standard Innovation has satisfied the domestic industry requirement based on its expenditures on components produced domestically that are critical to [its devices].” . . .The Commission rejected the ALJ’s economic prong analysis because Standard Innovation “established that the components were critical for [its devices], which the ALJ found to be protected by the patent. This is sufficient for us to consider the component expenses in our economic prong analysis.”

The CAFC found:

The Commission determined that Standard Innovation’s investment and employment under prongs (A) and (B) were quantitatively “modest,” . . ., which we take to mean “insignificant.” The Commission also found that Standard Innovation did not establish prong (C). . . . We agree with the Commission’s finding that investment and employment under prongs (A) and (B) were modest and insignificant. The Commission erred when it disregarded the quantitative data to reach its domestic industry finding based on qualitative factors. Qualitative factors cannot compensate for quantitative data that indicate insignificant investment and employment. As such, Standard Innovation did not establish a “significant” “investment” or “employment” under prongs (A) or (B), and did not set forth evidence of relevant investments under prong (C). Accordingly, Standard Innovation did not satisfy the domestic industry requirement of § 337.

The CAFC then determined:

We hold that qualitative factors alone are insufficient to show “significant investment in plant and equipment” and “significant employment of labor or capital” under prongs (A) and (B) of the § 337 domestic industry requirements. The purchase of so called “crucial” components from third-party U.S. suppliers are insufficient to satisfy the “significant investment” or “significant employment of labor or capital” criteria of § 337 where there is an absence of evidence that connects the cost of the components to an increase of investment or employment in the United States.

NEW 337 COMPLAINTS

On April 30, 2015, Pacific Bioscience Laboratories, Inc. filed a new section 337 case at the ITC against imports of Electric Skin Care Devices, Brushes, Chargers and Kits Containing Same from the follow companies:

Our Family Jewels, Inc. d/b/a Epipur Skincare, Parker, CO; Accord Media, LLC d/b/a Truth in Aging, New York, NY; Xnovi Electronic Co., Ltd., China; Michael Todd True Organics LP. Port St. Lucie, FL; Mtto LLC, Fort St. Lucie, FL; Shanghai Anzikang Electronic Co., Ltd., China; Nutra-Luxe M.D., LLC, Fort Myers, FL; Beauty Tech, Inc., Coral Gables, FL; Anex Corporation, Korea; RN Ventures Ltd., United Kingdom; Korean Beauty Co., Ltd., Korea; H2Pro Beautylife, Inc., Placentia, CA; Serious Skin Care, Inc., Carson City, NV; Home Skinovations Inc., Canada; Home Skinovations Ltd., Israel; Wenzhou AI ER Electrical Technology Co., Ltd. d/b/a Cnaier, China; Coreana Cosmetics Co., Ltd., Korea; and Flageoli Classic Limited, Las Vegas, NV

PATENT AND OTHER INTELLECTUAL PROPERTY CASES

SIX CHINESE CITIZENS CHARGED WITH ECONOMIC ESPIONAGE

On May 19, 2015, the US Justice Department announced that it has indicted six Chinese individuals for economic espionage. The Justice Department stated in the attached announcement, DOJ CHINA PROFESSORS:

Chinese Professors Among Six Defendants Charged with Economic Espionage and Theft Of Trade Secrets for Benefit of People’s Republic of China

Chinese Professors Alleged to Have Stolen Valuable Technology from Avago Technologies and Skyworks Solutions to Benefit a PRC University

On May 16, 2015, Tianjin University Professor Hao Zhang was arrested upon entry into the United States from the People’s Republic of China (PRC) in connection with a recent superseding indictment in the Northern District of California . . . .

The 32-count indictment, which had previously been sealed, charges a total of six individuals with economic espionage and theft of trade secrets for their roles in a long-running effort to obtain U.S. trade secrets for the benefit of universities and companies controlled by the PRC government.

“According to the charges in the indictment, the defendants leveraged their access to and knowledge of sensitive U.S. technologies to illegally obtain and share U.S. trade secrets with the PRC for economic advantage,” said Assistant Attorney General Carlin. “Economic espionage imposes great costs on American businesses, weakens the global marketplace and ultimately harms U.S. interests worldwide. The National Security Division will continue to relentlessly identify, pursue and prosecute offenders wherever the evidence leads. . . .

“As today’s case demonstrates, sensitive technology developed by U.S. companies in Silicon Valley and throughout California continues to be vulnerable to coordinated and complex efforts sponsored by foreign governments to steal that technology,” said U.S. Attorney Haag. “Combating economic espionage and trade secret theft remains one of the top priorities of this Office.” . . .

According to the indictment, PRC nationals Wei Pang and Hao Zhang met at a U.S. university in Southern California during their doctoral studies in electrical engineering. While there, Pang and Zhang conducted research and development on thin-film bulk acoustic resonator (FBAR) technology under funding from U.S. Defense Advanced Research Projects Agency (DARPA). After earning their doctorate in approximately 2005, Pang accepted employment as an FBAR engineer with Avago Technologies (Avago) in Colorado and Zhang accepted employment as an FBAR engineer with Skyworks Solutions Inc. (Skyworks) in Massachusetts. The stolen trade secrets alleged in the indictment belong to Avago or Skyworks.

Avago is a designer, developer and global supplier of FBAR technology, which is a specific type of radio frequency (RF) filter.

Throughout Zhang’s employment, Skyworks was also a designer and developer of FBAR technology. FBAR technology is primarily used in mobile devices like cellular telephones, tablets and GPS devices. FBAR technology filters incoming and outgoing wireless signals so that a user only receives and transmits the specific communications intended by the user. Apart from consumer applications, FBAR technology has numerous applications for a variety of military and defense communications technologies.

According to the indictment, in 2006 and 2007, Pang, Zhang and other co-conspirators prepared a business plan and began soliciting PRC universities and others, seeking opportunities to start manufacturing FBAR technology in China. Through efforts outlined in the superseding indictment, Pang, Zhang and others established relationships with officials from Tianjin University. Tianjin University is a leading PRC Ministry of Education University located in the PRC and one of the oldest universities in China.

As set forth in the indictment, in 2008, officials from Tianjin University flew to San Jose, California, to meet with Pang, Zhang and other co-conspirators. Shortly thereafter, Tianjin University agreed to support Pang, Zhang and others in establishing an FBAR fabrication facility in the PRC. Pang and Zhang continued to work for Avago and Skyworks in close coordination with Tianjin University. In mid-2009, both Pang and Zhang simultaneously resigned from the U.S. companies and accepted positions as full professors at Tianjin University. Tianjin University later formed a joint venture with Pang, Zhang and others under the company name ROFS Microsystem intending to mass produce FBARs.

The indictment alleges that Pang, Zhang and other co-conspirators stole recipes, source code, specifications, presentations, design layouts and other documents marked as confidential and proprietary from the victim companies and shared the information with one another and with individuals working for Tianjin University.

The six indicted defendants include: Tianjin University Professor Hao Zhang, Professor Wei Pang, Professor Jinping Chen, Huisui Zhang (Huisui), and Chong Zhou, a Tianjin University graduate student, and Zhao Gang, the General Manager of ROFS Microsystems.

The maximum statutory penalty for each one of these violations is more than 10 years imprisonment and 100s of thousands of dollars in fines. The case is USA v. Wei Pang.

On May 21, 2015, Tianjin University denied the charges against the three professors, pledged legal support to the professors and accused U.S. officials of “politicizing” the issue and endangering academic exchanges between the two countries.

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

Complaints are attached to each citation.

On February 13, 2015, e.Digital Corporation filed the attached patent case against Shenzhen Gospell Smarthome Electronic Co., Ltd. (dba Oco Camera); Ivideon LLC (dba Oco Camera); Global Innovations; and, New Sight Devices Corp. SHENZHEN GOSPELL

On February 17, 2015, Parthenon Unified Memory Architecture LLC filed a patent complaint against ZTE. PARTHENON ZTE COMPLAINT

On February 27, 2015, Innovation Works, Inc. filed a trademark case against Innovation Works (Beijing) Ltd., IW North America. INNOV BEIJING

On March 2, 2015, Optis Wireless Technology LLC et al filed a patent case against ZTE Corporation et al. OPTIS ZTE

On March 2, 2015, Skyworks Solutions, Inc. filed a patent complaint against Kinetic Technologies, Kinetic Technologies Hong Kong and China. SKYWORKSKIN

On March 4, 2015, Petmatrix LLC filed a patent complaint against Wenzhou Yuxiang Pet Product Co., Ltd. WENZHOU PATENT CASE

On March 5, 2015, Magnet Products International Group filed a trade secrets fraud case against Maghold LLC, Mary Zhang, and Dongguan Maghard Flexible Magnet Co, and Xiaodong Wang. MAGNET TRADE

On March 9, 2015, Orlando Communications LLC filed a patent case against ZTE Corp., et al. ZTE ORLANDO

On March 10, 2015, Saint Lawrence Communications filed a patent complaint against ZTE.  STLAWRENCE ZTE

On March 12, 2015, Anki Inc. filed a patent case against China Industries Ltd T?A Wow Stuff. ANKI CHINA INDUSTRIES

On March 13, 2015, China Central Television, Dish Network LLC et al filed a copyright and trademark case against Create New Technology (HK) Ltd., Hua Yang International Technology Ltd., Shenzhen GreatVision Network Technology Co., Ltd., Club TVPAD, Inc., Bennet Wong, Asha Media Group Inc. d/b/a TVPAD.com, Amit Bhalla, NewTVPad Ltd., Liangzhong Zhou, and Honghui Chen.  CCTV

On March 18, 2015, Lilith Games (Shanghai) Co., Ltd. filed a copyright case against uCool, Inc. and uCool Ltd. LILLITH GAMES SHANGHAI

On March 24, 2015, Wetro Lan filed a patent complaint against Huawei. HUAWEI PATENT COMPLAINT

On March 25, 2015, Streamlight Inc. filed a patent complaint Ningbo Highlite Technical Co., Ltd. NINGBO PATENT

On March 26, 2015, Tianhai Lace, a Chinese company, filed a copyright case against Posh Shop, a US company. TIANHAI COPYRIGHT

On April 1, 2015, Crafty Productions, Inc. et al filed a copyright and fraud case against Fuqing Sanxing Crafts Co. Ltd., a China company, Tony Zhu, MRF Associates, Inc., Michelle Faherty, The Michaels Companies, Inc., Michaels Stores, Inc., ZheJiang HongYe Co. Ltd., a China company, Fuzhou Bomy Trading Co., Ltd., a China company, Fuzhou Great Suns Co. Ltd., a China company, Sunface Crafts Co. Ltd., a China company, and a number of other US retail companies. CRAFTY COPYRIGHT

On April 2, 2015, Trans-Texas Tire, LLC filed an unfair competition and breach of contract case for unfair misappropriation of molds against Tianjin Wanda Tyre Group Co., Ltd, and Zhang Guanghhui and Li Xue Yong. TIRE MOLDS UNFAIR COMPETITION

On April 6, 2015, Express Mobile filed a patent case against Alibaba Group Holding Ltd. ALIBABA EXPRESS

On April 9, 2015, Nonend Inventions, N. V. filed patent complaints against Huawei and ZTE and multiple other high tech clients. NONENDZTE NONENDHUAWEI

On April 17, 2015, Synaptics Inc. filed a patent case against Goodix Technology Inc., Shenzhen Huiding Technology Co., Ltd. a/k/a Shenzhen Goodix Technology Co., Ltd. and Blu Products, Inc. SHENZHEN PATENT

On April 24, 2015 Nova Intellectual Solutions LLC filed a patent complaint against ZTE. NOVA ZTE CASE

On April 30, 2015, Cellular Communications Equipment LLC filed a patent case against ZTE Corp and a number of other companies. CELL ZTE

On May 1, 2015, Pacific Bioscience Laboratories, Inc. filed patent complaints against Wenzhou Ai ER Electrical Technology Co., Ltd. dba Cnaier and Shanghai Anzikang Electric Co., Ltd. PACIFIC BIO WENZHOU PACIFIC BIOSCIENCE

On May 4, 2015, Ti Beverage Group, Ltd. and Michael Machat filed a trademark infringement case against Alibaba Group Holding Ltd., and Ebay Inc. TIBEV ALIBABA

On May 4, 2015, Anthony California, Inc, filed a copyright and trade secret case against Fire Power Co., Ltd., New Bright Jet Lighting (Shenzhen) Co., Ltd., Interest Plus Investments Ltd., Chien Tsai Tsai, Chien Ho Tsia, James Moran and M&M Sales, and Direct Lighting LLC. CHINA SHEN NEW BRIGHT

On May 8, 2015, Frequency Systems, LLC filed patent complaints against Huawei and ZTE. ZTE FREQ HUAEWEI AGAIN

On May 12, 2015, Nuhertz Technologies, LLC filed a copyright and trademark case for software piracy against Alibaba Group Holding Ltd., Alibaba.Com Hong Kong Ltd., Alibaba. Com Ltd., Alibaba.Com Investment Holding Ltd., Other Alibaba Companies, Taobao Holding Ltd., Taobao China Holding Ltd., Taobao (China) Software Co., Ltd., and Alipay.Com Co., Ltd. NUEHERTZ ALIBABA

On May 15, 2015, Gucci filed a major trademark and counterfeiting case against Alibaba. Specifically, on May 15, 2015, Gucci America, Inc., Balenciaga S.A., Balenciaga America, Inc., Bottega Veneta S.A., Bottega Veneta Inc., Yves Saint Laurent America, Inc. Luxury Goods International (L.G.I.) S.A. and Kering S.A. filed the trademark and counterfeiting case against Alibaba Group Holding Ltd., Alibaba.Com Hong Kong Ltd., Alibaba. Com Ltd., Alibaba.Com Investment Holding Ltd., Other Alibaba Companies, Taobao Holding Ltd., Taobao China Holding Ltd., Taobao (China) Software Co., Ltd., and Alipay.Com Co., Ltd. GUCCI ALIBABA

Complaints will be posted on my blog, www.uschinatradewar.com.

ANTITRUST

There have been major developments in the antitrust area in China.

CHINA ANTI-MONOPOLY CASES

DORSEY ARTICLE BY PETER CORNE

Peter Corne, who heads Dorsey’s Shanghai office, published the following article on March 13, 2015 about China’s antimonopoly law:

NDRC’s Qualcomm Decision Sends Mixed Messages

Chinese New Year celebrations culminated in a big way for foreign multinationals in China with the news at the end of February that the head of the National Development and Reform Commission’s (“NDRC’s”) Antitrust Bureau had been removed. Xu Kunlin had made his name by initiating numerous investigations against sectors involving multinationals such as auto parts and bearings, cars, and contact lenses. Former Director Xu (who is still director of the NDRC’s Price Department) was widely regarded as a fine leader, and his Antitrust Bureau hit monopolies with hefty penalties of RMB 7.9 Billion (US$1.29 Billion) from 2014 through February 10, the date the Qualcomm decision was announced as discussed below. He has been replaced by Zhang Handong (former deputy director of the Healthcare Reform Office under the State Council), whom we presume will take time to settle into his new position. Based on his familiarity with the medical sector, we would caution clients in that sector to continue to pay close attention to antitrust compliance.

The full content of the long-awaited result of the Qualcomm decision was published in early March (following the February 10 announcement of the result). In only three prior cases has the NDRC published the full content of an antitrust decision. Qualcomm was ordered to cease its infringing activities and was assessed a fine of RMB 6.1 billion (US$975 million), which represented about 8% of its 2013 revenue in China. The NDRC found Qualcomm guilty of abuse of market dominance and implementing monopolistic activities that eliminate and restrict competition. The following activities were deemed illegal: (1) charging unfairly excessive patent royalties, (2) tying patents that are not standard-essential patents in the telecom industry without a legitimate reason, and (3) imposing unreasonable conditions in the sale of baseband chips. During the investigation Qualcomm cooperated with the authorities and raised a series of rectification measures including the following:

(1) calculating patent royalties on the basis of 65% of net wholesale price of the device sold in China,

(2) when Qualcomm licenses its patent to Chinese licensees it will provide a list of patents and not charge royalties over patents that have already expired,

(3) Qualcomm will no longer require that Chinese licensees provide a compulsory (and royalty-free) cross-license for Qualcomm customers,

(4) where wireless standard-essential patents are concerned, Qualcomm will not tie in non-standard-essential patents without a legitimate reason, and

(5) unreasonable conditions will not be included in the license agreements when selling baseband chips, such as conditions prohibiting licensees from challenging the terms in the license agreement.

The Chinese press celebrated the decision as a victory for China. But Qualcomm was not forced to change its business model by the NDRC, so the decision could have been far worse for Qualcomm, reflected in a rise in the stock price of Qualcomm by 4.69% on the second day after the decision was announced.

Qualcomm’s core business model is to impose royalties on the net selling price of the entire device rather than the chips or other components, so it need now only change the calculation of the royalty base rather than the business model itself, leading some commentators to claim that the decision was a victory for Qualcomm.

Although the media claims victory for both sides, many problems seem to have been forgotten. For example, why was a formal investigation only initiated at the end of 2013 when publicly-available information indicates that the first complaint was made as early as 2008 by Texas Instruments? Further, under the Chinese Anti-Monopoly Law a guilty decision requires that illegal gains be confiscated, but this case resulted only in the imposition of a fine.

The NDRC required such a confiscation in the LCD maker case. So if the NDRC agreed that 65% (mentioned above in Qualcomm’s rectification plan) was the correct calculation base, then Qualcomm should at least have been asked to return the portion of royalties calculated on the other 35% (which could amount to billions of dollars). In addition, the law provides that a fine should be charged on the basis of the revenue of the previous year, i.e. 2014, and not 2013, which was used in the decision. Some even questioned the jurisdiction of the NDRC in the first place because, judging from the decision, most of the illegal activities listed were not price-related, indicating that it would have been more appropriate for SAIC to launch the investigation.

On the other hand, Qualcomm dropped its request for a hearing at the last minute, and paid up the fine in only three days. All of the above clues lead us to believe that the decision was the result of a compromise between the investigator and the investigated, in the context of which the investigator somehow lost sight of the fact that it was deviating from the national law. But we have seen this before. For example, in the Liquor Case involving Chinese spirits (Moutai and Wuliangye), the NDRC limited its investigation to provincial level, only in Guizhou and Sichuan.

The moral of the story seems to be to make sure that you proactively engage the authorities up front. It may be best to do so before any investigation is even contemplated. Regardless of the timing, it appears that open engagement during an investigation should lead to a much better result.

ANJIE LAW FIRM

On March 16, 2015, Michael Gu, a Chinese antitrust lawyer at the Anjie Law Firm in Beijing, sent out the attached 014 review of Chinese anti-monopoly law. Public competition enforcement_China 2015_AnJie_20150316.

T&D JANUARY REPORT

On May 2, 2015 T&D also sent us the attached April report on Chinese competition law. T&D Monthly Antitrust Report of April 2015

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

DORSEY MAY ANTI-CORRUPTION DIGEST

Dorsey recently published its attached May anti-corruption digest.  Anti-Corruption-Digest-May2015  With regards to China and Ukraine, the Digest states:

China

China has continued with its ongoing anti-corruption campaign.

In the energy sector, a senior executive at the state energy firm China Sinopec Group is reportedly under investigation for suspected “serious disciplinary violations”, a phrase which has become synonymous with allegations of corruption. China’s Central Commission for Discipline Inspection has reportedly confirmed the investigation but has not disclosed further details about the case. The Chairman of Sinopec, Fu Chengyu, said in an interview with Chinese media that the company supports “the government’s long-term anti-corruption effort, not just cracking down on illegal acts but disciplinary wrongdoings as well”.

In the healthcare sector, it has been reported that the head of Yunnan’s No. 1 People’s hospital is under investigation for allegedly receiving bribes of ¥35 million ($5.6 million/£3.6 million) in cash, 100 properties worth approximately $13 million (£8 million) and a number of car parking spaces. It is alleged that Dr. Wang Tianchao used his position to seek bribes related to medical device procurement and employment positions. Dr. Wang, who was reportedly in the running to become the head of the region’s food and drug regulator, has been removed from his post.

In the retail motor industry, a former top executive at Volkswagen’s joint venture with FAW Group Corporation has been sentenced to life in prison for allegedly accepting bribes. Shi Tao was reportedly convicted of taking ¥33 million ($5 million/£3.2 million) in bribes in exchange for giving business to advertisers and car dealers from FAW-Volkswagen. In a statement, Volkswagen said that it was aware of the case, noting that “globally, Volkswagen is strictly against any kind of illegal conduct, and attaches great importance that all applicable anti-corruption laws are adhered to”.

In its global efforts to trace alleged “economic fugitives”, the Chinese government has published a list of 100 individuals suspected of corruption. The “most wanted” list, which displays the individuals’ photographs, identification numbers and likely whereabouts, is said to be composed of former local government officials, police officers and accountants who are suspected of accepting bribes, misappropriating funds and money laundering.

Ukraine

A new law has been enacted requiring companies to have compliance programs in place. The law applies to most companies participating in public tenders and state-owned enterprises over a certain size and in essence requires companies to appoint a compliance officer with responsibility for implementing the compliance program and reporting to shareholders. The law does not include penalties for failing to implement a compliance program; however companies are encouraged to:

 Conduct regular risk assessments.

 Develop programs to raise employee awareness of anti-corruption.

 Include compliance provisions in contracts with third parties.

Despite the apparent lack of enforcement in place, it is said that officials may consider the establishment of a compliance program when deciding whether to pursue an action against a company.

SECURITIES COMPLAINTS

On February 11, 2015, Claire Rand filed a class action securities case against Alibaba Group Holding Ltd., Jack Yun Ma, Joseph C. Tsai, Jonathan Lu and Maggie Wu. RANDALIBABA

On March 3, 2015, the SEC filed a securities case against China Infrastructure Investment Corp., Li Xipeng and Wang Feng. SEC CHINA INFRASTRUCTURE

On March 13, 2015, Felipe Garcia filed a class action securities case against Lentuo International, Inc, Hetong Guo, Jing Yang and Yang Jiangyuluo. GARCIA LENTUO

On March 24, 2015, Placidius Silva filed a class action securities case against Alibaba Group Holding Ltd., Jack Yun Ma, Joseph C. Tsai, Jonathan Lu and Maggie Wu. ALIBABA PLACIDUSE

On March 25, 2015 Qiang Wang filed a class action securities case against Yoliku Tudou, Inc., Victor Wind, Chelfng Koo, and Michael Gexu. WANG YOKOU

On March 26, 2015 Edward Martindale filed a class action securities case against Yoliku Tudou, Inc., Victor Wind, Chelfng Koo, and Michael Gexu. MARTINDALEYOKOU TUDOU

On March 27, 2015, the SEC brought an action against Macquarie Capital (USA), Inc., Aaron Black, and William Fang, the Underwriters of Puda Coal, a Chinese company. SECPUDA COAL

On April 2, 2015, Troy Hung filed a class action securities case against Idreamsky Technology Ltd., Michael Xiangyu Chen, Jun Zou, Anfernee Song Guan, Jeffrey Lyndon, Ko, Steven Xiaoyi Ma, Erhai Liu, Mingyao Wang, David Yuan, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Stifel Nicolas & Company, In Corpora Ted, and Piper Jaffra. HUNGIDREAMY

On April 14, 2015 Rashid Jahm filed a class action securities case against Yoliku Tudou, Inc., Victor Wind, Chelfng Koo, and Michael Gexu. JAHM YOKOU

On April 15, 2015, James Patrick Griffith filed a class action securities case against Idreamsky Technology Ltd., Michael Xiangyu Chen, Jun Zou, Anfernee Song Guan, Jeffrey Lyndon, Ko, Steven Xiaoyi Ma, Erhai Liu, Mingyao Wang, David Yuan, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Stifel Nicolas & Company, In Corpora Ted, and Piper Jaffra. GRIFFITHIDREAM

On April 21, 2015, Francis J. Bonanno filed a class action securities case against Cellular Biomedicine Group, Inc., Wei Cao and Tony Liu. CELLULAR SECURITIES

On April 29, 2015, the SEC filed an insider trading case against two Chinese nationals, Xiaoyu Xia and Yangting Hu. SECHUAXU

On May 5, 2015, Abraham Jeremias, Roger Mariani and Michael Rubin filed a class action securities case against Idreamsky Technology Ltd., Michael Xiangyu Chen, Jun Zou, Anfernee Song Guan, Jeffrey Lyndon, Ko, Steven Xiaoyi Ma, Erhai Liu, Mingyao Wang, David Yuan, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Stifel Nicolas & Company, In Corpora Ted, and Piper Jaffra. JEREMIASIDREAM

On May 8, 2015, Steve Surrey filed a class action securities case against Alibaba Group Holding Ltd., Jack Yun Ma, Joseph C. Tsai, Jonathan Lu, Masayoshi Son, Daniel Young, Chee Hwa Tung, Walter The, Ming Kwauk, J. Michael Evans, and Jerry Yang. SURREY ALIBABA

On May 19, 2015, Paul Heller filed a class action securities case against Vishop Holding Ltd., Ya Shen and Donghao Yang. HELLERVISHOP

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

Best regards,

Bill Perry

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