US CHINA TRADE WAR – SECTION 232 CASES SLOW DOWN, CHINA TRADE PROBLEMS INCREASE, TAA FOR COMPANIES, SECTION 201 SOLAR, BAT DIES, NAFTA NEGOTIATING OBJECTIVES, NEW AD 337 CASES

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE AUGUST 7, 2017

Dear Friends,

Recently there have been two developments of note in US China trade relations.

NORTH KOREA AND NO SECTION 301 CASE AGAINST CHINA FOR THE TIME BEING

As mentioned in my last blog post, the North Korea crisis is affecting the US China Trade Relationship.  The decision of China to back the UN Security Council resolution on sanctions against North Korea has caused the Trump Administration to pull back and not move forward with a Section 301 case against China.

As Politico reported today:

NORTH KOREA SANCTIONS WAYLAY CHINA TRADE PROBE: To be honest, there were conflicting signals from administration officials early last week on the timing of an announcement that Trump would ask U.S. Trade Representative Robert Lighthizer to investigate Chinese policies that compel foreign compel transfer technology and other intellectual property to do business there. Some said the announcement would come Thursday or Friday; others said it was not imminent.

It now appears that the “not imminent” camp was right. The reason was the State Department’s fear of upsetting its successful push for Chinese cooperation on new UN sanctions against North Korea. The new Security Council resolution, which passed 15-0 on Saturday, targets North Korea’s largest source of external revenue by imposing a total ban on the country’s exports of coal, in addition to iron, iron ore, lead, lead ore and seafood.

The resolution imposes “over one billion dollars in cost to N.K.,” Trump wrote on Twitter, referring to a State Department estimate of how much Pyongyang would lose in hard currency in terms of export earnings.

As for the IP probe for China, sources said it could still happen, but there were conflicting signals on how soon. One administration official suggested there might not be an announcement this week because Lighthizer is out of the country.

Emphasis added.

When China helps the US on North Korea, Trump is going to lay back and not attack China over trade issues.  As mentioned before, Trump is the first President to overtly link trade deals with foreign policy issues.  He has made it very clear to China help us on North Korea and China will get a better trade deal.  So far that seems to be Trump’s goal with China.

President Trump is learning that trade is complicated.

SECTION 201 SOLAR CELLS CASE

Many companies have been calling me about the Section 201 Solar Cells case.  In that case, the US International Trade Commission {“ITC”) just issued its attached public prehearing report, 2017.08.01 ITC Solar 201 Prehearing Report PUB.  The hearing is scheduled for August 15th and the Commission’s injury determination is to be sent to the President on September 22nd.

The Staff Report shows that imports are up, value of imports are down, but US producers’ production and capacity have increased during the period of investigation 2012-2016.  Moreover, US producers’ profits and sales have increased in the period.

This is a very mixed staff report with no clear trends and could lead to a negative ITC injury determination on September 22nd.  The August 15th hearing will be very interesting.

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

Best regards,

Bill Perry

US CHINA TRADE WAR JULY 31, 2017

Dear Friends,

With the passage of the Trump Executive Order telling agencies, including the Department of Defense (“DOD”), to further study the problem, Trump’s trade war in the Section 232 Steel and Aluminum cases has run into reality—the impact on US downstream producers.  With a Greek Chorus of Senators and Congressmen telling the Administration to go slow, the dire warnings by downstream US users of these raw materials, and the threats of retaliation from many foreign countries, President Trump punted and decided to further study the situation.  As indicated below, in their comments numerous steel users were telling Commerce not only that Steel Tariffs would seriously damage their companies causing the loss of hundreds of thousands of jobs, but also that the Steel tariffs themselves could damage US national security by cutting DOD suppliers from very important supply lines for raw materials.

Apparently, President Trump and the Trump Administration listened.  It is easy for Candidate Trump to talk protectionism, but President Trump is now learning it is much more complicated.

Now is the time for an Emperor has no clothes moment.  The problems of the Steel industry go back decades long before Wilbur Ross arrived because of the decision to give big bonuses to management and large pensions to the Steel unions, which the companies simply can no longer fund.  These payments led to the failure to modernize and update steel production facilities and also produce specialized types of steel. That failure to produce many specialized types of steel at cost efficient prices has led to screams by US downstream steel producers with millions of jobs at stake.

But with Commerce saying there is no time deadline for the Section 232 Steel report and the Steel Unions crying doomsday and the loss of thousands of jobs, what is the solution?? As explained below, TAA for Companies, not trade protection, is the solution.  An alternative solution is needed for the Steel crisis that will not harm national security and injure more US industries.  TAA for Companies makes US companies more competitive without affecting the market in any way.

Meanwhile,  there is now talk of significant US trade sanctions against China because of North Korea.  Commerce also continues to find China a non-market economy country, and the US China Economic Talks fell apart over steel and aluminum, but also, in part, North Korea.

There are also dire warnings about the impact of the Section 201 Solar Case on US solar projects and the loss of thousands of jobs.  But the Border Adjustment tax is now officially dead, and USTR has released NAFTA negotiating objectives and the negotiations themselves are scheduled to start up on August 16 with one real issue being the impact on US agricultural exports.

New antidumping and countervailing duty cases have been filed against Cast Iron Soil Pipe Fittings and a Section 337 case against Ribbon Cables.

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

Best regards,

Bill Perry

TRUMP’S TRADE WAR—TRUMP PUNTS ON THE SECTION 232 STEEEL AND OTHER NATIONAL SECURITY CASES

Although President Donald Trump and Commerce Secretary Wilbur Ross thought they had found a panacea, cure all, for US trade problems, using Section 232 National Security cases to put large tariffs and/or quotas on Steel, Aluminum and other raw material products, something happened on the way to the Trump trade heaven—reality.  Even though Commerce Secretary Wilbur Ross promised to send completed Section 232 reports to the President by the end of June and President Trump promised that July would be the month of trade, nothing has happened to date, except for a Trump Executive Order stating that the Department of Defense and other agencies are to further study the manufacturing base needed to support US national security.

The first problem is an Emperor has no clothes moment—the problems of the Steel Industry go back decades.  The Steel industry’s problems boil down to large bonuses to management n the 1970s and 1980s and the large pensions given to Steel unions, which are in place today.  Those bonuses and pensions prevented the Steel industry from modernizing their production facilities and also specializing into specific types of steel.  Downstream steel users, such as the automotive industry, are moving away from commodity products as raw material steel inputs, and to specialized steel made to order of the downstream user.  All industry has become specialized and the US Steel Industry has not modernized so it can no longer produce certain types of steel or produce certain types of steel cost efficiently and that seriously damages downstream steel users that also manufacture in the United States.

That leads to the second big problem the steel industry has only 141,000 jobs while the jobs in the Steel Users industry are in the millions.  This is probably the reason that the Department of Defense (“DOD”) woke up.  Steel users probably told DOD you want your tank parts?

This is the time for the US Government and Congress to look at another alternative.  Tariffs and quotas simply will not save the Steel Industry, but Trade Adjustment Assistance for Companies just might.  It is time for the US government to back a proven alternative that has saved 1,000s of US manufacturing companies in the past.  A program that both President Obama and President Trump want to write off, but actually has a proven track record of saving US trade injured manufacturing companies without any impact on US market or imports.

In fact, as indicated below, directly contrary to statements of Secretary Ross, many US companies that are receiving trade adjustment assistance are steel users and cannot be competitive with imports because US steel price are higher than world market prices.

What is the TAA for Companies secret sauce?  Making US companies competitive again.  Only by making US manufacturing companies competitive again will the trade problems really be solved.  US industry needs to cure its own ills first before always blaming the foreigners and that is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.

SECTION 232 STEEL CASE

As stated in the last blog post, in response to pressure from President Trump, Commerce Secretary Ross has self-initiated National Security cases under Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. 1862, against imports of steel and aluminum, which go directly into downstream US production.  The danger of these cases is that there is no check on Presidential power if the Commerce Department finds that steel or aluminum “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President”.  The Secretary shall also advise the President on potential remedies.

On April 20, 2017, President Trump and the Commerce Department in the attached press announcement and fact sheet along with a Federal Register notice, COMMERCE FED REG SECTION 232 NOTICE Section 232 Investigation on the Effect of Imports of Steel on U.S Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce, announced the self-initiation of a Section 232 National Security case against imports of steel from every country.  See video of Trump signing the Executive Order with Secretary Ross and Steel Producers at https://www.youtube.com/watch?v=EiVfNOl-_Ho.

Commerce held a hearing on May 24th in this case.  The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.

In the past Secretary Ross has stated that the Section 232 case is meant to fill the gaps created by the patchwork of antidumping and countervailing duties on foreign steel, which he said have provided only limited relief to the U.S. industry.

If the Secretary reports affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”

Once the President makes his affirmative determination, he will report his decision to Congress, but it is questionable whether Congress can disapprove the decision.   The statute also does not provide for any appeal to the Court of International Trade.  Commerce also is very protectionist and in antidumping and countervailing duty cases.  The only check in trade cases is the injury determination by the independent US International Trade Commission, but there is no such determination under Section 232.

On July 26th Politico reported that the Section 232 Steel and Aluminum cases had stopped:

TRUMP HITS THE BRAKES ON 232 REVIEWS: The Trump administration is unlikely to make any decisions regarding whether to limit imports of steel and aluminum for national security reasons any time soon, after the president himself told The Wall Street Journal on Tuesday that “we don’t want to do it at this moment.”

The administration had already missed its initial deadline of wrapping up the pair of Section 232 reports by the end of June, and Trump indicated Tuesday that was in part because of various regulations regarding any decisions.  . . .

 Back of the queue: Trump was confident that his administration would eventually be “addressing the steel dumping,” which he called “a very unfair situation.” He did not, however, indicate the action would be imminent: He started by saying it would come “very” soon, but then backed off and said it would be “fairly soon.”

It will also likely come after other high-profile items on his policy agenda are completed. “We’re waiting ’til we get everything finished up between healthcare and taxes and maybe even infrastructure,”

The initial report on the Trump decision was a July 25th article in the Wall Street Journal in which Trump stated that with regards to the Section 232 Steel case, “we don’t want to do it at this moment” because of the complexity of the issue.  Trump further stated:

“You can’t just walk in and say I’m doing to do this.  You have to do statutory studies … It doesn’t go that quickly.”

The Wall Street Journal reported that Trump started to say he would make a move “very” soon but stopped himself and instead said “fairly soon.”

Trump also stated that the steel issue is “a very unfair situation”, and that any final decision would not be made until work is done on other major initiatives.  As Trump stated:

“We’re waiting till we get everything finished up between healthcare and taxes and maybe even infrastructure.”

On July 26, 2017, it was reported that a Commerce Department spokesman refused to suggest a revised date for its determination on whether to impose new national security trade restrictions on steel imports saying only that the President’s comments “speak for themselves.”

On July 27th, before House Ways and Means, Commerce Secretary Ross indicated sympathy with comments from users where certain steel and aluminum products were not produced domestically, but had no sympathy with the argument that steel prices could be so high as to hurt downstream producers stating that is the nature of dumping and what eventually happens when “we let imports run amok.”

After the briefing, Congressional representatives stated that tariffs and/or quotas will be delayed for a while longer.  The Representatives indicated that during the meeting Ross had read the President’s statement from the Wall Street Journal that “we don’t want to do it at this moment” and that the Administration would most likely take action “fairly soon.”

On July 26th it was also reported that that the United Steelworkers union (“USW”) had stated that Trump decision to delay a Section 232 determination on steel imports could have “devastating” consequences on the US Steel industry and the jobs in that industry as foreign trading partners rush to export steel to the U.S. under a long-delayed threat of tariffs.  As USW President Leo Gerard stated:

“Since the President announced an investigation in April, attacks on the U.S. steel sector have skyrocketed, with imports up 18 percent.  Trading partners have targeted the U.S. market for fear that the United States will finally stand up for its producers and workers and protect our national security.”

Gerard acknowledged that trading relationships in the steel sector are “complex.”, but went on to state:

“But enough time, attention and investigation have passed to know what needs to be done.  Steel, the foundation of our national security, is crumbling under the onslaught of foreign imports. Much of that is illegally traded.”

Meanwhile, even before the July 25th statement, on July 5th Kevin Brady, Chairman of House Ways and Means, urged the President to take it slow.  Brady stated:

“Our advice to the President has been pretty public: Take your time, get it right.  We want to make sure that however the White House frames their ultimate action, that it doesn’t punish our allies who are trading fairly. And we want to make sure it doesn’t give a green light to those trading unfairly to do more of it. And it’s important, too, that whatever that ultimate decision is that it actually works for America and doesn’t backfire.”

Brady acknowledged that overcapacity in the global steel market was causing problems for domestic producers. But he called for a “balanced” solution that takes into account other interests as well.

On July 7th it was reported that the Department of Defense intended to drill down on the Steel Report and was “tapping the brakes on any potential effort by President Donald Trump to hit steel imports with tariffs of up to 25 percent.”

On July 21st President Trump issued an Executive Order ordering a thorough review of the national defense industrial base and the government to gather information about whether U.S. companies can meet the commercial demand for national security goods including steel, aluminum, circuit boards and flat-panel displays.

Under the terms of the executive order, an interagency group will present a report to the White House within 270 days that identifies goods that are essential for national security and analyzes the ability of the defense industrial base to produce those goods.

The attached Executive Order, Presidential Executive Order on Assessing and Strengthening the Manufacturing a, specifically stated in part:

Presidential Executive Order on Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States . . .

By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1. Policy. A healthy manufacturing and defense industrial base and resilient supply chains are essential to the economic strength and national security of the United States. The ability of the United States to maintain readiness, and to surge in response to an emergency, directly relates to the capacity, capabilities, and resiliency of our manufacturing and defense industrial base and supply chains. Modern supply chains, however, are often long and the ability of the United States to manufacture or obtain goods critical to national security could be hampered by an inability to obtain various essential components, which themselves may not be directly related to national security. Thus, the United States must maintain a manufacturing and defense industrial base and supply chains capable of manufacturing or supplying those items.

The loss of more than 60,000 American factories, key companies, and almost 5 million manufacturing jobs since 2000 threatens to undermine the capacity and capabilities of United States manufacturers to meet national defense requirements and raises concerns about the health of the manufacturing and defense industrial base. The loss of additional companies, factories, or elements of supply chains could impair domestic capacity to create, maintain, protect, expand, or restore capabilities essential for national security.

As the manufacturing capacity and defense industrial base of the United States have been weakened by the loss of factories and manufacturing jobs, so too have workforce skills important to national defense. This creates a need for strategic and swift action in creating education and workforce development programs and policies that support job growth in manufacturing and the defense industrial base.

Strategic support for a vibrant domestic manufacturing sector, a vibrant defense industrial base, and resilient supply chains is therefore a significant national priority. A comprehensive evaluation of the defense industrial base and supply chains, with input from multiple executive departments and agencies (agencies), will provide a necessary assessment of our current strengths and weaknesses.

Sec. 2. Assessment of the Manufacturing Capacity, Defense Industrial Base, and Supply Chain Resiliency of the United States. Within 270 days of the date of this order, the Secretary of Defense, in coordination with the Secretaries of Commerce, Labor, Energy, and Homeland Security, and in consultation with the Secretaries of the Interior and Health and Human Services, the Director of the Office of Management and Budget, the Director of National Intelligence, the Assistant to the President for National Security Affairs, the Assistant to the President for Economic Policy, the Director of the Office of Trade and Manufacturing Policy, and the heads of such other agencies as the Secretary of Defense deems appropriate, shall provide to the President an unclassified report, with a classified annex as needed, that builds on current assessment and evaluation activities, and:

  • identifies the military and civilian material, raw materials, and other goods that are essential to national security;
  • identifies the manufacturing capabilities essential to producing the goods identified pursuant to subsection (a) of this section, including emerging capabilities;
  • identifies the defense, intelligence, homeland, economic, natural, geopolitical, or other contingencies that may disrupt, strain, compromise, or eliminate the supply chains of goods identified pursuant to subsection (a) of this section (including as a result of the elimination of, or failure to develop domestically, the capabilities identified pursuant to subsection (b) of this section) and that are sufficiently likely to arise so as to require reasonable preparation for their occurrence;
  • assesses the resiliency and capacity of the manufacturing and defense industrial base and supply chains of the United States to support national security needs upon the occurrence of the contingencies identified pursuant to subsection (c) of this section, including an assessment of: . . .
    • exclusive or dominant supply of the goods (or components thereof) identified pursuant to subsection (a) of this section by or through nations that are or are likely to become unfriendly or unstable; and the availability of substitutes for or alternative sources for the goods identified pursuant to subsection (a) of this section;
  • identifies the causes of any aspect of the defense industrial base or national-security- related supply chains assessed as deficient pursuant to subsection (d) of this section; and
  • recommends such legislative, regulatory, and policy changes and other actions by the President or the heads of agencies as they deem appropriate based upon a reasoned assessment that the benefits outweigh the costs (broadly defined to include any economic, strategic, and national security benefits or costs) over the short, medium, and long run to:
    • avoid, or prepare for, any contingencies identified pursuant to subsection (c) of this section;
    • ameliorate any aspect of the defense industrial base or national-security-related supply chains assessed as deficient pursuant to subsection (d) of this section; and
    • strengthen the United States manufacturing capacity and defense industrial base and increase the resiliency of supply chains critical to national . . . .

DONALD J. TRUMP

THE WHITE HOUSE, July 21, 2017

Emphasis added.

EMPEROR HAS NO CLOTHES —STEEL INDUSTRY PROBLEMS HAVE BEEN GOING ON FOR DECADES BECAUSE OF ITS FAILURE TO MODERNIZE DESPITE 40 YEARS OF PROTECTION FROM STEEL IMPORTS

After graduating from law school, in the late 1970s I went to work for a law firm in Washington DC and one of our clients was Bethlehem Steel Shipbuilding.  In the Spring of 1979, at a firm party, one of the heads of the company told me all I want to do is stop in the imports.  After joining the US International Trade Commission (“ITC”) in October 1980 I watched Bethlehem Steel file case after case against steel imports.  In 1985 while at the ITC, I asked the head of Bethlehem Steel’s Sparrow’s Point Factory how important the Continuous Castor was to Bethlehem Steel.  He replied, “We’ve bet the company on the continuous castor”.  Bethlehem Steel bet too late. The Korean steel producers already had the continuous castors.

Later, my former boss, the former ITC General Counsel, represented Bethlehem Steel for decades bringing trade cases against steel imports.  The US steel industry has had 40 years of protection from steel imports and yet it continues to decline.  Bethlehem Steel after 40 years of protection from steel imports is now green fields.

On July 14, 2017, former ITC Commissioner Dan Pearson of the Cato Institute summarized some of these problems in a Market Watch article entitled “Trump would further damage U.S. manufacturing if he restricts steel imports” stating:

“In a recent hearing on the investigation, Secretary Ross made clear that highly protectionist measures are under consideration. What Ross didn’t address is whether additional steel import restrictions would harm the U.S. economy.

Unfortunately, they certainly would. Our country may be only weeks away from presidential action that would further damage the competitiveness of the broad manufacturing  sector.

Five points are particularly relevant:

First, it’s not clear there is any legitimate national security justification for invoking Section 232. There is no doubt that much U.S. military equipment requires steel. The key question is how best to obtain specific types of steel needed for various national-security applications.

Most steel used by the military comes from domestic suppliers, such as United States Steel Corp. . ., AK Steel Holding Corp.  . . and Nucor Corp. . . . or from countries with which the United States has amicable relations. Keeping the U.S. market open to steel imports would assure that the military will have access to both foreign and domestic steel products needed to maintain national security. If the Pentagon wishes to ensure domestic sources for some products, it could establish long-term contracts with U.S. mills—no import controls are required.

Second, potential Section 232 restrictions must be viewed in the context of the existing U.S. steel marketplace. Roughly 200 antidumping or countervailing duty measures already are in place on steel products, making steel one of the country’s most protected sectors. As a result, U.S. prices for many steel products are significantly higher than world prices, greatly disadvantaging American manufacturers that require steel as an input.

Third, any additional import restrictions would do far more harm to steel-using manufacturers than any benefit that could accrue to steel mills. That is simply due to the raw numbers. Steel mills employ just 140,000 workers. Manufacturers that use steel as an input employ 6.5 million, 46 times more.

Steel mills account for a rather narrow slice of the overall U.S. economy: $36 billion in 2015, equaling only 0.2% of U.S. gross domestic product (GDP). By contrast, the economic value added by firms that use steel as an input was $1.04 trillion – 29 times more – or 5.8% of  GDP.

Any government action to drive steel prices even higher by further restricting imports will hurt steel- consuming manufacturers. Their costs will rise, thus reducing their competitiveness relative to companies in other countries. Carrier, the company that in December said it wouldn’t shift 800 jobs from Indianapolis to Mexico after all, is hardly the only firm that could reduce its steel costs by shifting production overseas.

Fourth, other nations likely would retaliate. When a foreign power acts arbitrarily to curtail its imports, negatively affected exporting countries aren’t amused. Since the United States is only a minor exporter of steel, retaliation likely would be focused on innocent, export-competitive sectors. The United States is the world’s largest exporter of military equipment, so those firms may be targeted.

The United States also is the world’s largest agricultural exporter; farm and food products would be vulnerable across the board.

Fifth, a country that imposes import restrictions always reduces its own economic welfare. This is true even if other countries don’t retaliate. Economists have understood since the work of David Ricardo that it is unwise to try to be self-sufficient when others are able to provide products at lower costs.

Import restrictions lead to inefficient resource use, lowering national economic welfare in the process. In other words, consumers are hurt more than protected industries are helped.

The Section 232 process may be intended to inflict pain on foreign nations by curtailing their exports. We can’t be sure whether U.S. import restrictions will hurt other countries, but we can be certain that restrictions will hurt America. Limiting steel imports creates a genuine threat to economic growth and prosperity. It is very difficult to build a stronger national defense when the economy is getting weaker.

But shouldn’t something be done to help steel mills and their workers as they deal with import competition? The Department of Commerce should think seriously about proposing enhanced economic adjustment assistance. It would be good public policy to encourage this historically protected industry to restructure and adapt to free trade in steel. . . .

My former boss, who later represented Bethlehem Steel for decades in trade cases, in the early 2000s told me that the problem with steel is that the employment in the entire US steel industry is less than one high tech company.

CONCERNS OF DOWNSTREAM STEEL INDUSTRIES

On May 31, 2017, public comments were filed at the Commerce Department on the Section 232 Steel case.  My last newsletter contained numerous comments from large associations representing steel users, including the American Automotive Policy Council (“AAPC”) and the truck and engine manufacturers association warning about the devastating impact high steel tariffs would have on the automotive and truck industry.  Not only would restraints on Steel imports damage downstream industries, but they would also damage the national security of the United States.  Many suppliers to the US DOD are dependent on imported steel made to certain specifications to make the downstream products to DOD specifications.  In many cases, US steel producers no longer produce steel to the specifications required by the DOD and many downstream users, such as the US automotive industry.

Thus the AAPC stated;

Although sympathetic to the challenges the steel industry faces, we are concerned that if, as a result of this Section 232 investigation, the President were to increase tariffs on foreign steel or impose other import restrictions, the auto industry and the U.S. workers that the industry employs would be adversely affected and that this unintended negative impact would exceed the benefit provided to the steel industry from this Executive action.

Steel is a critical input into the manufacture of automotive products. The price of steel in the United States is already significantly higher than in the markets where our competitors build the majority of their cars and trucks.  This puts U.S. automakers at a competitive disadvantage.

The Association of Equipment Manufacturers warned not only about the devastating impact on their industry, but went on to warn that steel tariffs would have a negative impact on US national security stating that US equipment manufacturers:

must source steel from international producers because the steel’s formula matches a specific spec required to ensure a piece of equipment’s proper function and performance that is not otherwise available in the United States. Inhibiting access to foreign steel will force manufacturers to procure steel from a domestic supplier that may not match required specifications, thus degrading the quality and performance of the equipment and risking operational safety concerns.  In cases where a particular type of steel is available from domestic suppliers, a sudden surge in demand will likely lead to extended procurement timeframes and delays in the manufacturing process.

Since equipment manufacturers provide parts and equipment to the Department of Defense, in fact, high tariffs on imported steel could, in effect, damage the national security of the United States.

The Forging Industry Association representing the US forging industry also stated:

As noted above, the steel forging industry supplies many products essential to national security, including numerous tank and automotive forgings for combat vehicles, small caliber weapons forgings, ordnance forgings, and forgings used in building airplanes, helicopters, ships and submarines. . . .

US steel forgers rely almost exclusively on domestically-produced SBQ steel. . . . The “globally competitive prices” are critically important – if the price for domestic SBQ steel is higher in the U.S. than anywhere else in the world due to tariffs or trade restrictions, then we begin to see less imports of raw material and more imports of downstream products. . . .

In effect, when current trade laws are used to remedy injury in one subsector of the economy, such as steel, they often shift the injury to another tier within the manufacturing sector.

The Industrial Fastener Institute representing the US Fastener industry warned that:

Fastener manufacturing is a major consumer of metals, including steel. Since fasteners can be made anywhere in the world, the U.S. industry is dependent on access to adequate supplies of globally priced raw materials such as steel to remain globally competitive. . .  .

However, even with a healthy domestic industry, history has shown that fastener manufacturers must sometimes import raw material because the particular types of steel needed are not available in the quantities, quality or form required. (Fasteners are made out of round form, not sheet, flat or bar products.) By some accounts, the U.S. steel industry is able to produce only about 70 percent of the total steel consumed in the U.S. . . .

The Motor & Equipment Manufacturers Association was even more explicit about the potential negative impact of this case on US national security:

Our industry is closely associated with the U.S. defense industry.  . . . Adjustments to steel imports that prevent our members from obtaining the type of steel they need in a timely manner or increases to production costs would jeopardize our ability to manufacture in the United States and to provide these critical products to the U.S. defense industry. . . .

MEMA member companies need specialized steel that either is not available at all in the U.S. or is not available in sufficient quantities. Certain foreign steel producers worked closely with MEMA member companies to develop the specialized steel and this type of collaboration benefits the U.S. by improving products. Continued access to these types of steel are critical to our industry. Attached to these comments is a non-exhaustive list of steel products that must be excluded from any import adjustments (see Appendix I). Several of our member companies are submitting exclusion requests directly as well. . . .

Motor vehicle component and systems manufacturers are the largest employers of manufacturing jobs in the U.S. and many of these companies import steel of all types, including specialized steel products, to manufacture goods in the U.S. that are then sold to the U.S. defense industry, U.S. government and consumers. Disrupting American manufacturing operations or increasing costs through adjustments to steel imports would not benefit the national security of the United States. Such adjustments to steel imports would, in fact, detrimentally impact U.S. employment, compromising our economic and national security.

The National Electrical Manufacturers Association (“NEMA”) stated in its comments:

Some electrical steels are imported into the U.S. because they are not available from domestic or North American suppliers. Loss of access to these materials would cause grave harm to NEMA manufacturers, who would no longer be able to manufacture and supply DOE-compliant products, and their customers – which include U.S. electric utilities as well as tens of thousands of industrial, commercial, and defense/national security facilities – but would have no effect on domestic or North American steel manufacturers, since they do not manufacture/produce or offer for sale those materials today.

Like the chorus in a Greek tragedy, US manufacturers that rely on steel as a key raw material input cried their warning that not only would imposing restrictions on steel imports injure downstream steel manufacturers, but also US national security itself. President Trump now appears to be listening.

ALUMINUM

The other Section 232 case that is behind steel is Aluminum.  On April 27, 2017, President Trump and the US Commerce Department self-initiated a Section 232 National Security case against imports of aluminum from all countries.  Attached are documents related to the Case, Aluminum Presidential Memo Summary ALUMINUM FED REG PUB Section 232 Investigation on the Effect of Imports of Aluminum on US National S.  The hearing was on June 22, 2017 and the video of that hearing can be found at https://www.youtube.com/watch?v=k3Bnwi3DWHg.

But in a letter to Commerce, 44 Senators and Representatives argued that the ongoing investigation under Section 232 could include aluminum imports that have little to do with national security but is used to make things like food and beverage cans.  The Congressional representatives and Senators stated that specific type of rolled can aluminum sheet and primary aluminum “could yield import restrictions or tariffs on these products – a result that would not increase their availability in the U.S. but would necessarily impose additional costs to American end-users and American consumers.”

The National Foreign Trade Council said in comments filed on behalf its 200 member companies in sectors including energy, capital goods, transportation, consumer goods, technology, health care products, services, e- commerce and retailing “We believe that imposition of high tariffs or restrictive quotas on aluminum products is not an appropriate response” to concerns that excess capacity in China has led to the closings of many aluminum smelters in the United States.  The NFTC went on to state:

“Many of the industries that rely on aluminum as an input are themselves suppliers for our nation’s defense- related needs, building the ships, aircraft, machinery, high technology weapons and other goods that a modern military demands.”

In contrast to the Commerce lack of data in the Section 232 Steel case, however, in the Aluminum case, in June 2017 the US International Trade Commission (“ITC”) has just issued the attached fact finding report on the US aluminum industry, ITC ALUMINUM PUBLICATION, which is based on questionnaires sent to US producers.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As indicated in previous blog posts, I feel very strongly about the Trade Adjustment Assistance for Companies program because with very low funding it has a true track record of saving US companies injured by imports.

Donald Trump’s proposed budget, however, would 0, zero, out the trade adjustment assistance for companies program.  Although Secretary Wilbur Ross has made it very clear he wants to increase exports to reach the 3% plus growth rate, putting protectionist walls up to limit imports of steel, aluminum and many other products invites retaliation.

The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

In fact, many of the companies receiving trade adjustment assistance are steel users or downstream US manufacturing companies, which have been injured by US trade actions.  They are the collateral damage caused by US trade actions.

A cursory analysis comparing companies in the TAA for Firms program to trade actions (AD, CVD, etc.) in 2015 revealed a strong correlation between those companies and trade actions. TAA for Firms works with small, medium sized, mostly manufacturing companies that encounter business declines linked to import competition.  ITC maintains a list of current AD/CVD cases, which, when combined with other known trade actions, yielded 116 unique product descriptions. Between 2005 and 2015 1,654 companies entered TAAF – publicly available information provides a brief description of these companies’ products. For the TAAF companies, 70% of the product descriptions match with trade actions. Steel actions alone match with 31% of the TAAF companies.

On the one hand, this is not surprising, trade actions occur in industries with concerning levels of trade, therefore, one would expect trade impacted companies in those industries. This only supports the assertion that TAAF is being applied where it should be expected.

On the other hand, the variety of companies in the TAAF program is surprising to anyone who looks closely – they certainly do not fall into predictable categories. The variety of products and level of specialization among manufacturing companies is astounding.  The TAAF companies are not the subjects of the trade actions, but the downstream buyers of those products. That one category of product, steel, would match so often, strongly stands out. An often heard anecdote from the TAAF program, quotes the business owner who says his cost of raw materials exceeds the cost of the finished imported product. It was only after performing this analysis that recollection confirmed that the anecdote was most often repeated related to companies using steel as a raw material.

It should be emphasized that this was a cursory analysis.  TAAF firms are thought to be a fraction of those experiencing trade impact. The level of analysis consisted only in rough comparisons of rough descriptions. Perhaps more surprising is that with over 45 years of TAAF program operation and what has become a vast national debate about manufacturing and jobs, no thorough analysis of trade impact exists. We do know there is a lot of it in a lot of different products and industries. And we strongly suspect that the experience of TAAF confirms the damaging downstream impact of trade actions. The good news is that TAAF companies tend to recover and grow.  Some consistent outcomes of the program are longevity of companies, sales increases that exceed the economy and industry levels,  strong productivity growth, and job growth that at least recovers lost jobs and one can infer, preserves many more.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  In his budget, Trump increases TAA for Workers, but kills TAA for Companies.  Yet to retrain the worker for a new job, the average cost per job is $5,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

Moreover, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job.   Moreover, with the threats of a massive trade war in the air, which will injure all US companies and destroy US jobs, the US government needs to look at an alternative—TAA for Firms/Companies is that alternative.

TRUMP AND CHINA

US CHINA’S NORTH KOREA PROBLEM MAY MEAN ROCKY TRADE PROBLEMS

Recently, at a speech to Chinese government officials, when asked what the major trade issues are between China and the US, I mentioned North Korea.  During the election campaign, Donald Trump often pointed to China as a source of the many trade problems for US companies.

At the Mar -A -Lago meeting with Xi Jinping, however, Donald Trump appeared to step back and explicitly linked Chinese help with North Korea to a better trade deal between the two countries.  This is the first time a US Administration has directly linked a foreign policy objective with a trade relationship.

But now Trump is frustrated because he believes China is not helping enough with North Korea and wants to develop a “cogent China strategy”. On July 31st, based on conversations with administration officials,Politico reported that the Trump Administration is considering “a handful of economic measures to punish China, with a final decision coming as soon as this week . .  . ..  The article goes on to state:

Trump’s aides met over the weekend to discuss options, including trade restrictions or economic sanctions, and they will continue those conversations today. It remains too early, however, to say what the president might decide, the officials said. . . .

The decision may come as the president grows increasingly frustrated with Beijing over its handling of the North Korea missile situation, including Friday’s latest intercontinental ballistic missile test. “I am very disappointed in China. Our foolish past leaders have allowed them to make hundreds of billions of dollars a year in trade, yet they do NOTHING for us with North Korea, just talk. We will no longer allow this to continue. China could easily solve this problem!” Trump said on Twitter over the weekend.

On the trade front, Trump has also long complained about what he sees as unfair trade practices by Beijing, and he has been encouraged particularly by some of the harder-line aides in his administration – like chief strategist Steve Bannon and Office of Trade and Manufacturing Policy Director Peter Navarro – to crack down on China.
To read more about this issue, please see the attached July 31st article from Politico, Trump plan on China may come as soon as this week – POLITICO.

CHINA STILL A NONMARKET ECONOMY COUNTRY IN CVD CASES

On July 25th, since the argument was made that China is a market economy country in the Aluminum Foil case, Commerce released the attached memo, DOC CHINA BANKING NONMARKET, starting that the interest rates set by Chinese banks are not set by market forces and thus no Chinese bank interest rates can be used in CVD cases.  This memo indicates that Commerce is not going to treat China as a market economy country in antidumping and countervailing duty cases any time soon.

STEEL AND ALUMINUM PROBLEMS STOP US CHINA TRADE NEGOTIATIONS

On July 19th, optimism was reported at the start of the U.S.-China Comprehensive Economic Dialogue.  Chinese Vice Premier Wang Yang stated “The giant ship of China-U.S. economic and trade relations is sailing on the right course.”

But on July 20th the optimistic tone changed as the disagreement over excess Chinese steel and aluminum production capacity along with North Korea problems stopped the conference in its tracks.  China refused to agree to specific cuts in steel and aluminum production capacity and the United States was unwilling to move onto other concerns.

Chinese Vice Premier Wang Yang stated:

“Let me stress here that dialogue and negotiation are different from each other.  The core objective of negotiation is to have visible and tangible results, but the primary task of dialogue is to increase mutual understanding, mutual trust and consensus.

“Dialogue cannot immediately address all differences, but confrontation will immediately damage the interests of both.

“President Trump said, ‘Coming together is a beginning, keeping together is progress and working together is a success.  China is ready to work together with the U.S. and make sure this CED will build on existing achievements and achieve win-win results.”

NAFTA NEGOTIATIONS

The United States, Canada and Mexico will sit down together for the first round of talks to formally reopen NAFTA on Aug. 16 in Washington.

On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES.

SOLAR 201 ESCAPE CLAUSE CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.  If the ITC reaches an affirmative determination, within 60 days the President must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

At the ITC, Section 201 cases are a two stage process.  The ITC must first determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”  The ITC has determined that the investigation is “extraordinarily complicated” and will make its injury determination within 128 days after the petition was filed, or by September 22, 2017. The Commission will submit to the President the report required under section 202(f) of the Act (19 U.S.C. § 2252(f)(1)) within 180 days after the date on which the petition was filed, or by November 13, 2017.

Notices of appearance at the ITC were due on June 22nd at the ITC.  During the injury phase of the investigation, the ITC will hold an injury hearing on August 15, 2017.  Prehearing briefs are due at the ITC on August 8, 2017.  Posthearing briefs will be due at the ITC on August 22nd.

If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017.

On June 26, 2017, Green Tech Media in the attached article, Suniva and SolarWorld Trade Dispute Could Halt Two-Thirds of US Solar Installat, along with a report estimated that if the ITC reaches an affirmative determination and if Trump adopts the solar import trade tariffs Suniva and SolarWorld Americas are seeking, such an action could wipe out as much as 65.5 percent of solar projects that are expected to be built in the U.S. from 2018 through 2022.

The GTM article further states:

Suniva’s and SolarWorld’s new trade dispute would strike a devastating blow to the U.S. solar market, erasing two-thirds of installations expected to come on-line over the next five years.

If the petition is successful, shockwaves will be felt across all segments of U.S. solar. Utility-scale solar is most at risk, with more than 20 gigawatts already at risk of cancellation if module prices fall back to 2012 levels.

The report determined that such a trade action would “cause unprecedented demand destruction”, and went on to state:

If Suniva’s and SolarWorld’s proposal is approved by the U.S. International Trade Commission and President Trump, there will be a new minimum price on imported crystalline silicon solar modules and a new tariff on imported cells. Put together, the U.S. could miss out on more than 47 gigawatts of solar installations. That’s more than what the U.S. solar market has brought on-line to date.

On July 24th, Reuters reported:

Installations in the United States last year hit a record. Jobs are mushrooming too. The domestic industry now employs more than 260,000 people, according to The Solar Foundation, most of them construction workers hammering panels on rooftops and erecting utility-scale solar plants in the nation’s blistering deserts.

But signs of a chill are already visible as the industry waits to see how President Donald Trump responds to a recent trade complaint lodged by a Georgia manufacturer named Suniva. The company has asked the administration effectively to double the price of imported solar panels so that U.S. factories can compete. About 95% of cells and panels sold in the U.S. last year were made abroad, with most coming from China, Malaysia and the Philippines, according to SPV

That has the solar industry bracing for the worst. Panic buying has sent spot prices for solar panels up as much as 20 percent in recent weeks as installers rush to lock up supplies ahead of potential tariffs.

Skittish U.S. energy customers are putting some solar projects on hold. Manufacturers are eyeing other markets to develop. And some investors are running for cover. Funding for large U.S. solar deals fell to $1.4 billion in the second quarter, down from $3.2 billion in the first quarter and $1.7 billion a year earlier, primarily due to concerns about the trade case, according to research firm Mercom Capital Group.

Developers of solar farms that provide utilities and big companies with energy are particularly vulnerable; panels account for as much as half of the cost of their projects.

A steep rise in panel prices “could be huge and disastrous for large-scale solar,” said Tom Werner, chief executive of San Jose-based SunPower Corp . . ., a top U.S. solar company that is majority owned by France’s Total  . . … “Developers are alarmed and planning.”

BORDER ADJUSTMENT TAXES (“BAT”) ARE FINALLY DEAD

On July 27th it was reported that White House and congressional leaders agreed to drop the BAT as they move to comprehensive tax reform. The proposal, which would have placed a tax on all imports, had been a very important part of House Republicans’ tax reform blueprint as a way to pay for a corporate tax cut. House Speaker Paul Ryan, House Ways and Means Chairman Kevin Brady, Treasury Secretary Steven Mnuchin, Senate Majority Leader Mitch McConnell, Senate Finance Chairman Orrin Hatch, and National Economic Council Director Gary Cohn said in a statement.

“While we have debated the pro-growth benefits of border adjustability, we appreciate that there are many unknowns associated with it and have decided to set this policy aside in order to advance tax reform,

[W]e are now confident that, without transitioning to a new domestic consumption-based tax system, there is a viable approach for ensuring a level playing field between American and foreign companies and workers, while protecting American jobs and the U.S. tax base.”

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

CAST IRON SOIL PIPE FITTINGS FROM CHINA

On July 13, 2017, the Cast Iron Soil Pipe Institute filed an antidumping and countervailing duty case against Cast Iron Soil Pipe Fittings from China.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law, Team’s newsletter-EN Vol.2017.27 Team’s newsletter-EN Vol.2017.28 Team’s newsletter-EN Vol.2017.29

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

RIBBON CABLES

On June 30, 2017, 3M Company and 3M Innovative Properties Company filed a Section 337 case against Shielded Electrical Ribbon Cables.  The proposed respondents are Amphenol Corporation, Wallingford, Connecticut; Amphenol Interconnect Products Corporation, Endicott, New York; Amphenol Cables on Demand Corporation, Endicott, New York; Amphenol Assemble Technology (Xiamen) Co., Ltd., China; Amphenol (Xiamen) High Speed Cable Co., Ltd., China; and Amphenol East Asia Limited (Taiwan), China.

If you have any questions about these cases or about Trump and Trade, the impact on downstream industries, the Section 232 cases, North Korea US China trade problems, the 201 case against Solar Cells, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP REAGAN TRADE DIFFERENCE SECTION 232 STEEL USERS 201 SOLAR NEW TRADE CASES BORDER ADJUSTMENT TAXES NAFTA

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR JUNE 16, 2017

Dear Friends,

Trump’s trade war on downstream industries continues with exhibit number 1 being the Section 232 Steel case.  As indicated below, numerous comments were filed May 31st by downstream steel users saying that tariffs on steel imports will devastate their business and cost millions of jobs.

But the question is whether anyone is listening.  Commerce is rushing to turn out the Section 232 report by the end of June.  But it has received numerous comments, but many of those comments are only a few pages long.  The hearing itself limited testimony from each company to 10 minutes each.

When the US International Trade Commission (“ITC”) conducts a injury investigation in steel cases, it sends out numerous multiple page questionnaires to US Steel Producers, US importers, foreign producers and even US purchasers.  In addition to those questionnaire responses, it will often have prehearing and posthearing briefs that are many pages long.  In the recent Cold-Drawn Mechanical Tubing case, for example, we filed a brief that was over 200 pages long.

Now all Commerce Secretary Ross will have is the arguments of the US Steel industry and no in depth data regarding what the impact of these trade restraints will have on downstream users.

Moreover, there is a rush to judgement in the Section 232 cases.  In the ongoing Solar Cells section 201 case, which is comparable to the Section 232 case, the ITC will take 6 months to make its injury determination, 2 months to make a remedy determination.  The ITC will hold two hearings, send out numerous questionnaires and large briefs will be filed.  Not in the Section 232 case, which is only 2 months long.

Although the Section 232 Steel report is due at the end of June, President Trump is stating that the Aluminum Section 232 Steel report should come out at the end of June when the hearing is on June 22nd and comments are not due to June 30.  This is truly a rush to judgement without due regard to the impact on downstream users.

As indicated below, on trade President Trump and President Ronald Reagan are diametric opposites, and Reagan understood that protecting one industry hurts other industries.

Meanwhile, new antidumping and countervailing duty cases have been filed against Fine Denier Polyester Staple Fiber and Citric Acid and ITC and Commerce deadlines are very, very strict.  Also Commerce has ruled Aluminum Pallets are in the Aluminum Extrusions case.

The Section 201 case against imports of solar cells from every country continues.  Border Adjustment taxes are still an issue and NAFTA negotiations will start up, but Trump has told Lighthizer to do no harm to agriculture, which is going to be difficult to pull off.

Again, maybe this is why Trade Adjustment Assistance to Companies is so important.

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

Best regards,

Bill Perry

TRUMP’S TRADE WAR

Trump’s trade war continues as downstream steel user industries finally wake up to the damage they could face.  In the Section 232 case, on May 31st, numerous downstream industries from automobiles, equipment manufacturers, forging industry, industrial fasteners, motor and equipment manufacturers, electrical machinery manufacturers, transformers, heavy trucks, and other companies that use steel products filed short public comments stating cutting off their steel raw materials would devastate their companies.

But Trump himself cannot wait to impose tariffs.  On June 8, 2017, Politico reported that:

President Donald Trump appears to be champing at the bit to impose steel import restrictions under a national security probe being conducted by the Commerce Department. In a speech Wednesday in Cincinnati, Trump indicated major action was coming quickly and that it could affect countries besides China, which is often blamed for creating a global steel glut.

“Wait until you see what I’m going to do for steel and for your steel companies,” Trump said. “We’re going to stop the dumping, and stop all of these wonderful other countries from coming in and killing our companies and our workers. You’ll be seeing that very soon. The steel folks are going to be very happy.”

But big US steel consumers, like machinery, auto, energy, including oil and natural gas, are not going to be happy and are extremely worried that Trump’s trade action will damage their US industries and cause companies to close costing millions of jobs.  In Trump’s desire to move quickly to protect the steel industry, he could well damage many other US industries in the process.  This has happened before and likely will happen again.

As the National Foreign Trade Council, which represents more than 200 companies, stated in its public 232 comments filed at the Commerce Department on May 31, 2017:

In considering whether to impose restrictions on steel imports for national security reasons, it is important to keep in mind two important facts about those industries that rely on steel as a key input to their production. First, steel-consuming companies producing goods in the U.S. account for a vastly greater share of total manufacturing output and employment than does the domestic steel industry itself. The U.S.- based auto and auto parts industry employs over 800,000 production workers, more than four times as many as are employed by U.S. steel producers. The construction industry, which accounts for a majority of all steel consumption, employs nearly 8 million production workers. Many other steel-consuming sectors have larger employment than the steel sector.

Secondly, many steel-consuming companies are also major suppliers for our nation’s defense-related needs, building the ships, aircraft, machinery, high technology weapons and other goods that a modern military demands. Therefore, these downstream industries are critical to the U.S. industrial capacity and the nation’s security is weakened if the production capacity of these industries is curtailed.  Because of these two factors – employment effects and national security needs – it is of utmost importance to weigh carefully the potential effects of higher steel tariffs or restrictive quotas on these steel-consuming sectors.

On June 14th Politico reported that Congress is now getting concerned about the impact of the Section 232 case and that Trump administration officials will hold staff-level briefings with the Senate Finance and House Ways and Means committees on June 16th to lay out the context and process for an investigation into the national security threats of steel imports

Apparently, Commerce Department officials are still debating what products should be covered and from where.  One question is whether semi- finished steel, imported and fabricated into various products, should be exempt.

The big question still at issue — what is the magnitude of the national security concern? Disagreement among top White House officials could be partly to blame for slowing the report. Some in the Trump administration see the threat extending all the way to steel used in infrastructure projects while others see it limited strictly to steel used in the defense-industrial base.

Another question is whether to give a pass to steel imports from Canada and Mexico under certain circumstances.  There’s also statutory authority for treating Canada as a defense partner, which could eliminate any consideration of imports from north of the border as a threat to national security.

Politico reports that the Commerce Department is expected to present three options to the President:

  • A 25 percent tariff that would apply to any steel imports that fall in the scope of the investigation. The tariff would also apply to all existing anti-dumping and countervailing duty orders.
  • A tariff-rate quota that would hit imports with a tariff once they exceed a certain volume. There is also discussion of an alternative that would apply tariffs if imports dip below a certain price, but there is concern that Commerce or USTR may not have the resources to set up a sophisticated system to monitor prices across a range of steel
  • A straight quota that would apply strict limits on imports of certain types of steel products from certain countries.

Politico also indicated another concern whether Commerce and USTR have the manpower to effectively implement and administer any of these trade actions? Sources said that concern is one element driving the debate over what specific trade action to take.

Chairman Kevin Brady of House Ways and Means also expressed his concern with the Section 232 case at The Wall Street Journal’s annual CFO conference, stating:

“Any administration has to be careful in its assessment and its implementation of those provisions.  Done incorrectly, it can send a very protectionist signal to other countries to do the same. It is a tool that has to be wielded very carefully.”

Chairman Brady should be concerned because of the strong possibility of retaliation.  As the US Wheat Associates stated in their May 31st comments to the Commerce Department:

Wheat is often viewed as an import sensitive industry in many countries that are export destinations for U.S. farmers. Before taking action under Section 232, the Department of Commerce should consider the fallout if other countries follow suit and impose restrictions on U.S. wheat or other products as a result of their own national security concerns, whether real or imagined.

U.S. Wheat Associates is extremely concerned about the potential ramifications of import protections based on national security arguments. Under the 1994 General Agreement on Tariffs and Trade (GATT) Article XXI, national security can be a legitimate reason to restrict trade, but this has been rarely cited for very good reason: Article XXI is the Pandora’s Box of the GATT. If it is opened for our import sensitive industries, the results could be devastating.

Outside of a few obvious, generally uncontested areas, such as trade in weapons and nuclear material, most trade in goods are not considered national security issues because the implications are enormous. Steel and aluminum are undoubtedly import sensitive products. But the Department of Commerce should think very carefully about the potential consequences of declaring steel and aluminum imports to be national security concerns.

The U.S. wheat industry is highly dependent on exports, with roughly half of U.S. wheat production exported each year on average. .  . However, anytime a trade restriction is put in place, there is the potential for it to be applied to U.S. exports in response, particularly if trade restrictions are imposed outside the World Trade Organization (WTO) dispute settlement system. . . .

U.S. farmers also rely on international commitments made by countries in the WTO and other trade agreements to keep markets open. However, not every country abides by those rules, and a radical shift by the United States in its respect for trade commitments could give effective ammunition to those who seek to stop or slow food imports under the guise of national security. . . .

As indicated further below, when it comes to trade, people need to understand that Donald Trump and Ronald Regan are 180 degrees, diametrically opposite.  Reagan was a true free trade, but President Trump is a protectionist.  Although his protectionist rhetoric is probably a very good reason for his election victory, especially as it relates to trade agreements, such as TPP and NAFTA, the problem with protectionism is the collateral damage to other US industries.  When one wants to protect raw material industries very quickly with not enough time to consider the full impact of a protectionist action, the collateral damage on other US industries can truly be devastating.  The protectionist cure can be much worse than the trade disease.  Not only in Steel, but also aluminum.

TRUMP’S TRADE WAR ON DOWNSTREAM INDUSTRIES—SECTION 232 STEEL CASE

The real impact of the Trump Steel War on downstream industries is illustrated in spades by the public comments in the Section 232 Steel case by steel consuming industries.  As stated in the last blog post, in response to pressure from President Trump, Commerce Secretary Ross has self-initiated National Security cases under Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. 1862, against imports of steel and aluminum, which go directly into downstream US production.  The danger of these cases is that there is no check on Presidential power if the Commerce Department finds that steel or aluminum “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President”.  The Secretary shall also advise the President on potential remedies.

If the Secretary reports affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”

Once the President makes his affirmative determination, he will report his decision to Congress, but it is questionable whether Congress can disapprove the decision.   The statute also does not provide for any appeal to the Court of International Trade.  Commerce also is very protectionist and in antidumping and countervailing duty cases.  The only check is the injury determination by the independent US International Trade Commission.  There is no such determination under Section 232.

STEEL

On April 20, 2017, President Trump and the Commerce Department in the attached press announcement and fact sheet along with a Federal Register notice, Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce Section 232 Investigation on the Effect of Imports of Steel on U.S COMMERCE FED REG SECTION 232 NOTICE, announced the self-initiation of a Section 232 National Security case against imports of steel from every country.  See video of Trump signing the Executive Order with Secretary Ross and Steel Producers at https://www.youtube.com/watch?v=EiVfNOl-_Ho.

Commerce held a hearing on May 24th in this case.  The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.

Although Section 232 investigations usually take 6 months, at the hearing, Ross stated that a written report would go to the President by the end of June in less than two months.  At the start of the hearing, Commerce Secretary Wilbur Ross said something has to be done to help the Steel producers.  In the past Secretary Ross has stated that the Section 232 case is meant to fill the gaps created by the patchwork of antidumping and countervailing duties on foreign steel, which he said have provided only limited relief to the U.S. industry.

On May 31, 2017, public comments were filed at the Commerce Department on the Section 232 Steel case.  These are some of the comments by the Downstream Steel Users.

AMERICAN AUTOMOTIVE POLICY COUNCIL (AAPC)

The AAPC represents the common public policy interests of its member companies – FCA US, Ford Motor Company and General Motors Company, and states the following in its May 31st comments:

Although sympathetic to the challenges the steel industry faces, we are concerned that if, as a result of this Section 232 investigation, the President were to increase tariffs on foreign steel or impose other import restrictions, the auto industry and the U.S. workers that the industry employs would be adversely affected and that this unintended negative impact would exceed the benefit provided to the steel industry from this Executive action.

Steel is a critical input into the manufacture of automotive products. The price of steel in the United States is already significantly higher than in the markets where our competitors build the majority of their cars and trucks.  This puts U.S. automakers at a competitive disadvantage.

Inevitably, the imposition of across the board higher tariffs or other restrictions on imports of steel into the United States would only widen the existing price gap by increasing the price of U.S. steel and thus the cost of U.S.-built vehicles. Additionally, outside of the United States, the price of steel will fall further, giving foreign automakers an additional cost advantage over the U.S. auto industry.

As a result of such a Section 232 remedy, sales of domestically-built cars and trucks would fall, auto exports would shrink, and American auto sector jobs would be lost. In the end, this contraction could actually reduce the amount of U.S. steel consumed by U.S. automakers, jeopardizing the very industry the remedy was intended to assist. . . .

The U.S. automotive industry makes significant contributions to the U.S. economy, with FCA US, Ford Motor Company and General Motors Company representing the majority of the following 2016 economic contributions.

  • Directly employing/supporting more than 7.3 million American jobs- including manufacturers of auto parts, steel, glass, plastics, rubber and semi-conductors;
  • Exporting $137 billion in vehicles and parts, more than any other U.S. industry sector;
  • Manufacturing 12.2 million cars & trucks;
  • Representing 8% of the manufacturing sector’s contribution to GDP on a value added basis;
  • Investing $8 billion in U.S. plants/equipment, and nearly $20 billion in R&D; and
  • Selling a record 17.5 million cars and light

 The AAPC concludes:

While we strongly support the Administration’s focus on ensuring that our trading partners live up to their commitments and abide by their trade-related obligations, actions taken as a result of this Section 232 investigation to restrict imports of steel, in order to support the U.S. steel industry, could have unintended negative consequences for the domestic automotive industry and the millions of American workers it directly and indirectly employs.

Any such restrictions that this Administration might implement would lead to an increase in the price of U.S. steel and depress the price of steel in foreign markets. This would lead to lower sales of domestically-built cars and trucks in the highly competitive U.S. auto market, a decrease in U.S. auto exports, and a loss of the jobs that those economic activities support. In the end, that would be a net-negative for the U.S. economy, and potentially the U.S. steel industry – the very sector such restrictions were designed to assist.

ASSOCIATION OF EQUIPMENT MANUFACTURERS (“AEM”)

AEM Represents 950 member companies that manufacture equipment and provide services for the construction, agriculture, utilities and mining sectors worldwide.  These manufacturers represent 1.3 million Americans, contribute $159 billion to the U.S. economy and raise over $25 billion in federal and state taxes each year.  As AEM states in its comments:

Manufacturing equipment in America frequently requires the sourcing of steel products  from around the world. While manufacturers in the United States often procure steel from domestic suppliers, they at times must source steel from international producers because the steel’s formula matches a specific spec required to ensure a piece of equipment’s proper function and performance that is not otherwise available in the United States. Inhibiting access to foreign steel will force manufacturers to procure steel from a domestic supplier that may not match required specifications, thus degrading the quality and performance of the equipment and risking operational safety concerns.  In cases where a particular type of steel is available from domestic suppliers, a sudden surge in demand will likely lead to extended procurement timeframes and delays in the manufacturing process.

Restricting the import of foreign steel will also ultimately have a very negative impact on the manufacturing competitiveness of the United States as domestic steel prices rise, and global steel prices fall when steel originally destined for the US enters global markets. With nearly 30 percent of equipment manufactured in the U.S. designated for export, U.S. manufactured exports will become uncompetitive in many global markets if manufacturers are forced to pay higher prices for necessary steel inputs. In addition, restricting raw material imports hurts American jobs by driving up the costs of value-added manufacturing in the U.S.  Furthermore, imported manufactured equipment will become much more competitive in the U.S. market as foreign manufacturers are able to produce and sell equipment at a much lower price by leveraging global steel markets.

CATO INSTITUTE—FORMER ITC COMMISSIONER DAN PEARSON

Former ITC Commissioner Dan Pearson presently at the Cato Institute made the following points:

First, the 232 investigation must be understood in the context of the existing U.S. steel marketplace. Roughly 200 antidumping or countervailing duty measures already are in place on steel products from a variety of countries. Steel currently is one of the most protected sectors in the U.S. economy.  . . .

Third, any further import restrictions would do far more harm to steel-using manufacturers than any benefit that could be provided to steel mills. That is simply due to the raw numbers. Steel mills employ just 140,000 workers.  Downstream manufacturers that use steel as an input employ 6.5 million, 46 times more. Steel mills account for a fairly small slice of the overall U.S. economy.  The $36 billion in economic value added by steel mills in 2015 equals only 0.2 percent of U.S. Gross Domestic Product (GDP). By contrast, the economic value added by firms that use steel as an input was $1.04 trillion – 29 times more – or 5.8 percent of GDP.

Any government action to drive up steel prices by restricting imports will hurt steel-consuming manufacturers by artificially increasing their steel costs and reducing their competitiveness relative to companies overseas. It’s clear that the broad public would be harmed by additional steel import restrictions. A decline in U.S. economic welfare is not something the administration ought to pursue. It’s very difficult to have a stronger national defense when the economy is getting weaker.

FORGING INDUSTRY ASSOCIATION

The Forging Industry Association (FIA) is the Association representing the US forging industry.  The Comments state:

In 2016, custom forgings accounted for nearly $10.5 billion of sales in North America. An additional $3-5 billion in catalog and captive sales would bring the industry total for 2016 to the $13.5 – 15.5 billion range. The North American forging industry is comprised of nearly 500 forging operations in 38 states, Canada and Mexico, with the largest US presence of forging operations located in Ohio (79), Pennsylvania  (63), Illinois (54), Michigan (54), California (38), Texas (41), New York (16), Indiana (18), Wisconsin (17), Kentucky (13), Massachusetts (10), and South Carolina (9). . . .These operations provide more than 36,000 well-paid jobs and benefits.

As noted above, the steel forging industry supplies many products essential to national security, including numerous tank and automotive forgings for combat vehicles, small caliber weapons forgings, ordnance forgings, and forgings used in building airplanes, helicopters, ships and submarines. . . .

US steel forgers rely almost exclusively on domestically-produced SBQ steel. SBQ is specialty steel long products made to customer specifications suited for forging into the final product. Because it is heavy, bulky and expensive to ship long distances, the forging industry depends upon a healthy, competitive domestic SBQ steel industry to provide necessary raw material at globally competitive prices for steel forging here in the U.S. The “globally competitive prices” are critically important – if the price for domestic SBQ steel is higher in the U.S. than anywhere else in the world due to tariffs or trade restrictions, then we begin to see less imports of raw material and more imports of downstream products.

The US steel forging industry relies heavily on 6 domestic SBQ steel producers with mills in multiple locations. SBQ steel imports accounted for 15% of the consumption in 2016, and domestic consumption was 4 million tons of SBQ steel, while SBQ imports totaled only 600,000 tons.  This import volume has remained relatively flat over the past few years. . . . Generally speaking, we do not believe the SBQ steel industry has been adversely affected by steel imports. The domestic SBQ steel market is currently running close to capacity, and producers recently announced substantial price increases.

While SBQ raw material import penetration has been relatively insignificant, the import of steel forgings has grown significantly and at an ever increasing rate, threatening the health and viability of the domestic steel forging industry.   . . .

In effect, when current trade laws are used to remedy injury in one subsector of the economy, such as steel, they often shift the injury to another tier within the manufacturing sector.

INDUSTRIAL FASTENER INSTITUTE (“IFI”)

The IFI represents approximately 85% of fastener production capacity in North America, and there are few, if any, products used in the pursuit of national security that do not contain fasteners.

In its comments, the IFI stated:

In 2015, the U.S. fastener industry accounted for $13.4 billion (of a $69.6 billion global market), and is projected to grow +2.6% per year to roughly $15 billion by 2020. In the U.S., the fastener industry employs approximately 42,000 people at about 850 different manufacturing facilities.  . . ..

The fastener industry is critical to all segments of our manufacturing industrial base, including the defense industry.  .

Fastener manufacturing is a major consumer of metals, including steel. Since fasteners can be made anywhere in the world, the U.S. industry is dependent on access to adequate supplies of globally priced raw materials such as steel to remain globally competitive. . .  .

However, even with a healthy domestic industry, history has shown that fastener manufacturers must sometimes import raw material because the particular types of steel needed are not available in the quantities, quality or form required. (Fasteners are made out of round form, not sheet, flat or bar products.) By some accounts, the U.S. steel industry is able to produce only about 70 percent of the total steel consumed in the U.S. . . .

No one disputes that unfair trade exists, and that trade remedy laws can be a useful tool to combat it when it occurs. However, while the trade remedy laws can provide some protection for domestic metals producers, they are a double-edged sword for downstream users such as fastener manufacturers, who may be negatively impacted by higher raw material costs and may not be able to fully utilize the trade remedy laws themselves. In particular, downstream users of products subject to trade remedies have no standing under U.S. law to participate in the process that may lead to the imposition of duties on those products.  In addition, these downstream users are likely to be smaller companies who do not have the financial resources to pursue trade cases, which can cost millions of dollars to fully prosecute.

The fastener industry has experienced this scenario many times, where efforts to protect a basic raw material segment of the economy create unintended consequences throughout the rest of the economy. The most recent example occurred in 2002, when President Bush, at the urging of the U.S. steel industry concerned about a surge of imports, imposed 30% tariffs on nearly all imported steel under a Global Safeguard action. The impact on steel consuming industries was immediate and devastating. The evidence of harm to the broad economy grew quickly, leading President Bush to terminate the Global Safeguard order after only eighteen months instead of the full three years, but by then 1.3 million manufacturing jobs in steel consuming and related industries had been lost.

The fastener industry not only understands the need to ensure that the U.S. has the necessary industrial capacity to provide for our national defense needs, we are a vital part of that very capacity. To be frank, steel is a commodity until somebody makes it into a part/end item. We are concerned that the proposed 232 investigation will not give proper consideration to the importance of downstream industries to that industrial capacity.

MOTOR & EQUIPMENT MANUFACTURERS ASSOCIATION (MEMA)

MEMA represents 1,000 vehicle suppliers that manufacture and remanufacture components and systems for use in passenger cars and heavy trucks providing original equipment (OE) to new vehicles as well as aftermarket parts to service, maintain and repair over 260 million vehicles on the road today. In its comments, the MEMA stated:

the total employment impact of the motor vehicle parts manufacturing industry is 4.26 million jobs. Nearly $435 billion in economic contribution to the U.S. GDP is generated by the motor vehicle parts manufacturers and its supported activity. In total, motor vehicle parts suppliers contribute more than 77 percent of the value in today’s vehicles. .

Free and fair trade is imperative for a strong domestic supplier industry. Disruption to supply chains or increases in production costs will not contribute to the national security of the United States.

Our industry is closely associated with the U.S. defense industry.  . . . Adjustments to steel imports that prevent our members from obtaining the type of steel they need in a timely manner or increases to production costs would jeopardize our ability to manufacture in the United States and to provide these critical products to the U.S. defense industry.

Adjustments to steel imports will adversely impact MEMA member companies by disrupting U.S. manufacturing operations and increasing costs. Suppliers expect adjustments to steel imports to cause job losses due to a decrease in production if steel is not available in a timely manner or the costs of production increase. Adjustments to steel imports would also be likely to decrease overall U.S. production because production of the downstream products using steel subject to such adjustments would move abroad.

Member companies would have to compete with those finished goods imports, which likely would take market share from MEMA member companies. Finally, other countries may retaliate against the U.S. for imposing such restrictions by imposing their own restrictions, which could detrimentally impact exports of MEMA member companies.

MEMA member companies need specialized steel that either is not available at all in the U.S. or is not available in sufficient quantities. Certain foreign steel producers worked closely with MEMA member companies to develop the specialized steel and this type of collaboration benefits the U.S. by improving products. Continued access to these types of steel are critical to our industry. Attached to these comments is a non-exhaustive list of steel products that must be excluded from any import adjustments (see Appendix I). Several of our member companies are submitting exclusion requests directly as well. . . .

Motor vehicle component and systems manufacturers are the largest employers of manufacturing jobs in the U.S. and many of these companies import steel of all types, including specialized steel products, to manufacture goods in the U.S. that are then sold to the U.S. defense industry, U.S. government and consumers. Disrupting American manufacturing operations or increasing costs through adjustments to steel imports would not benefit the national security of the United States. Such adjustments to steel imports would, in fact, detrimentally impact U.S. employment, compromising our economic and national security.

NATIONAL ELECTRICAL MANUFACTURERS ASSOCIATION (NEMA)

NEMA represents nearly 350 electrical and medical imaging manufacturers and stated in its comments:

Our combined industries account for more than 400,000 American jobs and more than 7,000 facilities across the U.S. Domestic production exceeds $117 billion per year and exports top $50 billion.

Many NEMA member companies import specific types of steel from abroad for their U.S. manufacturing operations. Accordingly, NEMA urges the Administration to refrain from recommending or pursuing measures to adjust imports of fairly-traded electrical steel.

Power and distribution transformers are essential components of the U.S. electrical grid. Grain oriented electrical steel (GOES) can be the most expensive material used in the manufacture of transformers as the steel core is a very large percentage of the overall cost of a transformer, more than 50% in some cases. GOES is also the most important material in terms of quality and performance of a transformer. . .  .

Some electrical steels are imported into the U.S. because they are not available from domestic or North American suppliers. Loss of access to these materials would cause grave harm to NEMA manufacturers, who would no longer be able to manufacture and supply DOE-compliant products, and their customers – which include U.S. electric utilities as well as tens of thousands of industrial, commercial, and defense/national security facilities – but would have no effect on domestic or North American steel manufacturers, since they do not manufacture/produce or offer for sale those materials today.

The significant anti-dumping and countervailing duties in place have effectively eliminated supply from the seven largest NOES-producing countries. There is only one North American producer of NOES, who is effectively petitioning the government to become a protected monopoly.

If access to NOES were to be restricted further based on this Section 232 investigation, U.S. production of finished goods would face even greater pressure to move outside the United States.

U.S. motor manufacturers should not be forced by government policy to purchase from only a single U.S. monopoly supplier.

U.S. electrical manufacturers compete in a global market. Measures to restrict or block access by U.S. finished-product manufacturing operations to fairly-traded essential materials will harm domestic manufacturing and high-paying manufacturing jobs, and national and economic security. It would be patently unacceptable and un-American for the U.S. government to prevent U.S. manufacturers to mitigate supply chain risks through the use of a diversity of suppliers of fairly-traded materials.

Similarly, suggestions that the federal government should place restrictions, on national security grounds, on the importation of fairly-traded components and finished goods could not be more misguided. If products are entering the U.S. at less than fair value and causing injury to a domestic industry producing like products, then U.S. trade remedy laws are in place to address such situations. Steel manufacturers/producers do not have standing to call for restrictions on fairly-traded imports of products that they do not manufacture; therefore motors, transformers and steel cores (regardless of size) should not be part of this Section 232 discussion.

Many commentators, including US Auto Parts companies, requested exclusion of their specific type of imported steel because the US steel producers could not produce the specific type of steel used to make the downstream products.

BORG WARNER

In its comments, Borg Warner, a large US auto parts company, first listed 18 different specific types of steel and parts produced from that steel and went on to state:

The list above is crucial to our U.S-manufactured products that require types of specialty steel that are not available domestically. The products we make with these specialty materials provide key essential vehicle propulsion technologies for improving fuel-efficiency, emissions, and performance. These technologies are critical in helping automakers meet federal regulations for Corporate Average Fuel (CAFE) standards and achieving better overall environmental conditions.

These technologies take many years to refine and often require specialized materials in its engineering and production. We have worked closely with these specialty steel suppliers to develop our products to ensure quality and affordability for our customers and consumers. Any major changes to our supply chain could hurt our engineering and manufacturing processes, delay production, and or jeopardize our ability to meet the vehicle production demands of the industry. If these steel exclusions are not granted, the cost of these types of products would increase and ultimately be passed onto the consumers in the overall price of the vehicle. Most importantly, a major shift in steel supply could hurt U.S. vehicle sales and therefore negatively impact U.S. automotive manufacturing jobs.

BSH HOME APPLIANCE

In its comments, BSH states that it manufactures appliances sold under the Bosch, Thermador and Gaggenau names at factories in North Carolina and Tennessee, with warehouses, sales offices and show rooms throughout the United States.  BSH further states in its comments:

If the Department decides that some steel is being imported into the United States in such quantities or under such circumstances as to threaten or impair the national security, BSH requests that steel used for home appliances—light gauge sheet metal, galvanized pre-painted steel, and light gauge stainless steel—be exempt from that determination. . . .

Steel is one of the main materials used by home appliance manufacturers in the construction of their products. In particular, home appliance manufacturers typically use light gauge sheet metal, galvanized pre-painted steel, and light gauge stainless steel in the construction of their products. These materials are critical to the design, function, and durability of home appliances and, should the Department decide to recommend action, we ask that the steel used for home appliances be exempt.

First, we are concerned that any action to ban or limit the quantity of steel imported into the United States will overly burden U.S. steel capacity. U.S. steel capacity is insufficient to meet the demands of industry, including the home appliance industry. Were steel to become more difficult to source, it would hamper the industry’s ability to deliver products to consumers. In addition, some manufactures use specialty steel that is simply not available in the U.S. and must be sourced internationally.

Second, foreign competition in the steel industry improves the welfare of the home appliance industry, which is a low margin business. Competition between U.S. steel producers and international steel producers results in lower steel prices. Without this competitive pricing, it is likely that the home appliance industry could become less competitive and/or, in some cases, would need to pass price increases onto consumers.

Moreover, an action to impose a ban or limit on the quantity of steel imported into the United States or a tariff on steel imports is a disincentive to manufacture home appliances in the United States. It is likely that, in response to such actions, companies producing products domestically would be at a disadvantage compared to products produced internationally. Thus, limits on imported steel and/or tariffs on imported steel could result in companies deciding to produce home appliances outside of the United States in an effort to avoid higher steel prices or the unavailability of domestic steel. . . .

The Department and the President must ensure that in assisting one industry, they do not negatively impact others.

BUSINESS AND INSTITUTIONAL FURNITURE MANUFACTURERS ASSOCIATION (“BIFMA”)

BIFMA is the trade association for business and institutional furniture producers and is the Association for the commercial furniture industry.  BIFMA stated in its May 31st comments:

It is difficult to imagine how it is in our national security or national economic interests to impose tariffs or quotas that risk thousands of jobs in steel-consuming industries. Disregarding or discounting the economic impact of adjustments on consuming industries could have serious and unintended consequences. We urge the Department to refrain from, or carefully limit, any import adjustment recommendations.

Any adjustment to steel imports is likely to increase steel prices domestically. Adjustments that restrict supply and increase costs domestically will cause significant, negative financial consequences for companies. A sudden increase in material costs would be extremely detrimental for our members and the customers that they supply . . . . We urge the Department to take into consideration the serious ramifications to steel- consuming manufacturers while considering any recommendation it may make to the President.

STEEL BUILDING AND CONSTRUCTION COMPANIES

In its May 31st comments, more than ten steel building and construction companies stated:

Our companies produce building materials, such as prefabricated building sections, roofs, etc. from galvalume and galvanized steel coils.  Our companies are very concerned about the threat to our company’s future if the imports of flat rolled galvalume steel we rely on are restricted by additional tariffs or quotas. Only a few American mills produce galvalume at all; those mills are not interested in selling this at a competitive price to most users. There also are not enough mills producing this product to satisfy demand. Only certain selected customers are able get pricing at competitive levels. Without access to imported galvalume, our ability to compete will be reduced or eliminated.

American national security is not threatened by imports of galvalume. Not only are coated products not used in defense applications; most American mils are profitable, to the extent that they are expanding their coated steel operations, not reducing them.  . .

We urge you to not restrict the steel imports that are vital to our survival.

TRANSFORMER MANUFACTURERS

Several transformer manufacturers stated in their comments:

The proposal made in oral comments that the Department initiate remedies on the import of electrical grade steel, including GOES, deeply troubles the Transformer Manufacturers. This proposal presumes that the importation of GOES or cut steel for use in power transformers is a threat the national security. We propose that protecting the interests of the domestic transformer manufacturers and their employees is more vital to national security than the risk associated with importing GOES, which only accounts for a portion of the total market. One thing is certain of the proposal if adopted as recommended, it will severely damage the domestic transformer marketplace, the underlying companies and their United States employees. . . .

Simply put, at present there is no other domestic alternative to AK Steel as a source of GOES. Granting its requested relief will, in effect, further entrench a domestic de facto monopoly for GOES. While each of the below entities wants to continue to work with AK Steel and maintain positive commercial relationships, the potential economic impact of an unrestricted sole-source domestic provider could be devastating on the domestic transformer manufacturing industry.

TRUCK AND ENGINE MANUFACTURERS ASSOCIATION

EMA represents the world’s leading manufacturers of heavy- duty commercial vehicles, as well as the world’s leading manufacturers of the internal combustion engines that power the vehicles and equipment used in virtually all applications other than passenger cars and aircraft.  In its comments EMA stated:

members maintain significant manufacturing operations in the United States that employ tens of thousands of workers engaged in the manufacture of, among other things: trucks, buses, heavy-duty pickups and vans, construction and agricultural equipment, mining equipment, law and garden equipment, along with the wide array of internal combustion engines that power those myriad applications, as well as the engines that power locomotives and marine vessels. All of those very significant and vital manufacturing operations – operations that quite literally produce the machinery that powers and moves our domestic economy – use significant amounts of steel. As a result, EMA and its members have a significant stake in the DOC’s pending investigation.  . . .

While all of those concerns are certainly genuine and significant, there is also a significant national interest in ensuring that domestic manufacturers are not forced to purchase steel at prices that are materially higher than those that prevail in foreign manufacturing markets.

Steel is a key commodity in the manufacture of the goods produced by EMA’s members. In addition, those steel-derived goods are sold into world-wide markets, and so necessarily compete with goods manufactured in multiple foreign locations. To the extent that U.S.-based manufacturers are compelled to pay more for necessary steel inputs than their foreign competitors, they will be at a significant and unfair disadvantage from the outset.

Restrictions on the imports of steel could result in increases in the price of steel based on reduced supplies in the U.S. marketplace. That cost increase, as noted above, could cause significant competitive disadvantages for U.S.-based manufacturers that utilize steel as a key commodity in their manufacturing operations. It also could force manufacturers to pass on higher prices for their finished goods to U.S. consumers, thereby compounding the negative impacts of the increased price of steel in the U.S. Accordingly, in addition to the important concerns that are motivating the DOC’s investigation, the DOC should take into account, and give high priority to, the potential impacts on the competitiveness of U.S.-based manufacturers. A proper assessment of those impacts should be a key component of any recommendation that the DOC submits to the President on this matter.

Previous experience with additional tariffs and related restrictions on steel imports is highly instructive. In 2002, the U.S. government imposed tariffs on a broad range of steel imports over a 3-year period. In subsequent studies of the economic impact of those tariffs, it was found that the tariffs had resulted in a number of unintended adverse consequences, including the following: (i) 200,000 Americans lost their jobs due to higher steel prices; (ii) one-quarter of those job losses occurred in the machinery and equipment, and transportation equipment sectors; (iii) every U.S. State experienced employment losses from higher steel costs; and (iv) steel tariffs caused shortages and higher steel prices that put U.S. manufacturers of steel-containing products at a disadvantage relative to their foreign competitors. The same types of unintended adverse consequences could result in this case, depending on the types of “adjustments” to steel imports that the DOC may choose to recommend as an outcome of the pending study. . . .

Like the chorus in a Greek tragedy, US manufacturers that rely on steel as a key raw material input are crying their warning about imposing restrictions on steel imports.  Many more jobs on a factor of 10 could be lost by the restraints than are saved by the restraints.  The real question is whether Commerce Secretary Wilbur Ross and President Trump are listening.

ALUMINUM

On April 27, 2017, President Trump and the US Commerce Department self-initiated a Section 232 National Security case against imports of aluminum from all countries.  See the attached documents related to the Case Section 232 Investigation on the Effect of Imports of Aluminum on US National S ALUMINUM FED REG PUB Aluminum Presidential Memo Summary.  The hearing will be June 22, 2017 at the Commerce Department.

Trump has indicated that he is expecting the Aluminum report by the end of June.  But the hearing will be held on June 22nd with written comments due by June 29th.  That certainly shows a rush to protectionist judgment when aluminum users will have the same concerns as steel users.

DONALD TRUMP AND RONALD REAGAN—DIAMETRICALLY OPPOSITE IN ONE IMPORTANT AREA—TRADE

It is important to note that there is one area in which President Ronald Reagan and President Donald Trump are diametrically, 180 degrees opposite and that is trade.  None of the news shows that are Pro-Trump and Pro-Republican highlight the trade views of the Gipper, but he was certainly no Donald Trump and Donald Trump is no Ronald Reagan when it comes to trade.

At a time like this, it is important to review President Reagan’s June 28, 1986 speech on international trade. President Reagan knew something that President Trump does not work.  Protectionism destroys jobs.  As Reagan stated:

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. . . .

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

And in September, with more GATT talks coining up once again, it’s going to be very important for the United States to make clear our commitment that unfair foreign competition cannot be allowed to put American workers in businesses at an unfair disadvantage. But I think you all know the inherent danger here. A foreign government raises an unfair barrier; the United States Government is forced to respond. Then the foreign government retaliates; then we respond, and so on. The pattern is exactly the one you see in those pie fights in the  old Hollywood comedies: Everything and everybody just gets messier and messier. The difference here is that it’s not funny. It’s tragic. Protectionism becomes destructionism; it costs jobs.

Now I know that others, including USTR Lighthizer himself, argue that Reagan was not really a free trader.  But the trade actions he took, including his appointment of very free traders as ITC Commissioners, show that Reagan deeply understood the dangers of protectionism.  He lived through the Great Depression and the effects of the 1930 Smoot Hawley Tariff Act.  Donald Trump did not live during that time period and the comments of the US Steel users above indicate that President Trump does not understand the dangers of protectionism.

SOLAR 201 ESCAPE CLAUSE CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.  If the ITC reaches an affirmative determination, within 60 days the President must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

At the ITC, Section 201 cases are a two stage process.  The ITC must first determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”  The ITC has determined that the investigation is “extraordinarily complicated” and will make its injury determination within 128 days after the petition was filed, or by September 22, 2017. The Commission will submit to the President the report required under section 202(f) of the Act (19 U.S.C. § 2252(f)(1)) within 180 days after the date on which the petition was filed, or by November 13, 2017.

Notices of appearance at the ITC are due on June 22nd at the ITC.  During the injury phase of the investigation, the ITC will hold an injury hearing on August 15, 2017.  Prehearing briefs are due at the ITC on August 8, 2017.  Posthearing briefs will be due at the ITC on August 22nd.

If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017.

COMMERCE AND ITC DEADLINES ARE VERY VERY STRICT

In the ongoing Tool Chests from China antidumping case, Commerce just bounced nine Separate Rates Applications from Chinese companies filed by a US law firm on the due date because of computer problems at Commerce and the law firm.  Most documents are now filed electronically at both the Commerce Department and the International Trade Commission in trade cases.  Computer problems and other filing issues are why we are so paranoid about Commerce and ITC deadlines and try to file documents, if possible, before the deadline date.

Computer systems including the Commerce and ITC computer systems, can have problems and one can miss the deadline.  If deadlines are missed, truly there is hell to pay.

ALUMINUM PALLETS ARE WITHIN THE SCOPE OF THE ALUMINUM EXTRUSIONS CASE

In the attached memorandum, PALLETS IN ALUMINUM EXTRUSIONS CASE, to prevent circumvention, the Commerce Department has determined to include aluminum pallets in the Aluminum Extrusions case.  In one situation, one Chinese producer/exporter exported 1000s of aluminum pallets into the US in an attempt to evade the antidumping (“AD”) and countervailing duty (“CVD”) orders on Aluminum Extrusions.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

FINE DENIER POLYESTER STAPLE FIBER

On May 31, 2017, DAK Americas LLC, Nan Ya Plastics Corporation, America, and Auriga Polymers Inc. filed an AD and CVD petition against imports of Fine Denier Polyester Staple Fiber from China, India, Korea, Taiwan, and Vietnam.  The preliminary determination in the CVD case is due October 28th and the AD Preliminary Determination is due December 27, 2017.

CITRIC ACID AND CITRATE SALTS FROM BELGIUM, COLOMBIA AND THAILAND

On June 2, 2017, Archer Daniels Midland Company, Cargill, Incorporated, and Tate & Lyle Ingredients America LLC filed AD and CVD petitions against imports of Citric Acid and Certain Citrate Salts (“Citric Acid”) from Belgium, Colombia, and Thailand.

AD duties are imposed on subject imports that are found to be sold in the United States at less than “normal value.” CVD duties are imposed on imports that benefit from unfair government subsidies. For AD/CVD duties to be imposed, the U.S. government must determine not only that dumping or subsidization is occurring, but also that the subject imports are causing “material injury” or “threat of material injury” to the domestic industry.

This is the second AD/CVD case filed against Citric Acid. AD/CVD orders were previously imposed on citric acid from Canada and China in 2009.  The cases are targeting Chinese subsidiary companies in Thailand and other countries.

Alleged AD Rates

Belgium: 56.02 – 118.44%

Colombia: 41.18 – 49.46%

Thailand: 4.6 – 67.1%

Petitioner also identified various Thai government subsidy programs under the Thai Investment Promotion Act, along with other export-import loans, grants and export promotion measures.

Estimated Schedule of AD/CVD Investigations

June 2, 2017 – Petition filed

June 22, 2017 – DOC initiates investigations

June 23, 2017 – ITC staff conference

July 17, 2017 – ITC Preliminary Determination

October 30, 2017 – DOC CVD Preliminary Determination (assuming extended deadline)

December 29, 2017 – DOC AD Preliminary Determination (assuming extended deadline)

May 13, 2018 – DOC AD/CVD final determinations (assuming AD, CVD aligned and extended)

June 27, 2018 – ITC Final Determination (extended)

July 4, 2018 – DOC AD/CVD orders issued (extended).

OTHER TRADE CASES

SECTION 201 ESCAPE CLAUSE CASE AGAINST RESIDENTIAL WASHERS

On May 31, 2017, Whirlpool Corp. filed another Section 201 Escape Clause case against imports of Large Residential Washers.  The petition indicates that this is an attempt by Whirlpool to go after the Korean producers, including Samsung.  Whirlpool tried AD and CVD cases against Korea, but that failed because the Korean producers moved to another country.  Now like the Solar Cells 201 case, the US producer is trying to close the holes in the trade protection.

But do note another point, what is the major raw material input for residential washing machines—Steel. When US steel prices are many times higher than the world market price, that puts US steel users at a major competitive disadvantage.

USTR ROBERT LIGHTHIZER CONFIRMED—NAFTA FIGHT

Countries are still gearing up for NAFTA negotiations.  President Trump has told USTR Lighthizer not to do any damage and add to the bottom line.

Attached is an article with my quotes about the Mexico/Sugar suspension agreement to settle the dumping case against Mexico, Wilbur Ross likely will impose Mexico sugar deal over industry objections.  The Suspension Agreement will be finalized on June 30th with some possible tweaks to make the US industry feel better.  In fact, on June 16, 2017, Politico reported that the US sugar industry has given its blessing to the US-Mexico sugar deal making Commerce Secretary Ross’s day.  As Secretary Ross stated:

“I am glad all parties have agreed that the new sugar agreement is fair and addresses the shortcomings of the original deal.  I look forward to seeing the public comments on this deal, but am hopeful that we can successfully implement this new agreement with the support and cooperation of all stakeholders.”

The Sugar deal shows that Wilbur Ross wants to clear up trade issues before the NAFTA negotiations begin in earnest so we can expect a similar deal in the Lumber case.

On June 14, 2017, Robert Samuelson, a well-known economist, in an article in the Washington Post entitled “Trump is Deluded About NAFTA” stated:

The Trump administration is determined to renegotiate the North American Free Trade Agreement (NAFTA) — which created a single market from Mexico’s southern border to the Yukon — but the main political appeal of this policy rests on a popular myth: that “fair” trade requires the United States to have a surplus or balanced trade with both Mexico and Canada.

We are supposed to feel especially aggrieved that Mexico regularly has a sizable surplus with us, $63.2 billion in goods in 2016, according to Commerce Department figures. This shows, as the president repeatedly has said, that U.S. trade officials negotiated a bad deal for American firms and workers. Trump has promised to do much better.  That will be hard. . . .

In addition, the trade imbalances within NAFTA aren’t as large as they seem. It’s true — as noted — that the United States had a $63.2 billion deficit in goods trade (cars, computers, plastics) with Mexico. But the U.S. surplus on services (travel, transportation, consulting) was $7.6 billion, reducing the overall deficit with Mexico to $55.6 billion. On the same basis, covering goods and services, the United States had a trade surplus of $12.5 billion with Canada in 2016.

So: The total trade deficit with Canada and Mexico was $43.1 billion ($55.6 billion minus $12.5 billion). All trade — exports and imports — between the United States and Canada and Mexico totaled $1.207 trillion in 2016. Our net deficit equaled 3.5 percent of total trade and about two-tenths of 1 percent of U.S. GDP. This hardly seems crushing.

Against that backdrop, the notion that either Canada or Mexico is going to offer the United States vast new markets in their countries — without corresponding U.S. concessions — seems wishful thinking. “The administration appears to perceive Mexico and perhaps Canada as surplus countries,” writes [Fred} Bergsten, “whereas they (more accurately) see themselves as deficit countries,” seeking to increase exports or dampen imports. This is Trump’s delusion.

BORDER ADJUSTMENT TAXES

Although the Trump Administration says that the Border Adjustment tax (“BAT”) is dead, it continues to raise its head.  On June 7th Senate Finance Committee Chairman Orrin Hatch stated at a global transfer pricing conference in Washington DC that although Congressional Republicans and the White House are generally 80 percent in agreement on key issues for tax reform, he has not ruled out the BAT proposal.

Hatch noted the resistance against the BAT, including from certain industries that are “downright apoplectic” about it, but then went on to state that it will have a difficult time becoming law:

“I don’t think I’m making any news when I say that, given the small margin of error we have in the Senate and the number of senators who oppose the very concept of a [BAT], the proposal will have a difficult time becoming law. That said, I want to see the specifics of the proposal and find out if it works like its proponents say it will. Until then, I’m not going to publicly rule anything out.”

Hatch also said on Wednesday that the tax reform plan should include a conversion to a territorial system, which would see only revenue generated in the U.S. taxed. Under the current system, all revenue earned by U.S. ­incorporated companies, regardless of where it is earned, is taxed.  As Hatch stated

“My position has, I believe, remained clear: A territorial system will put us on par with other industrialized countries and allow our businesses to compete in the global marketplace.”

On June 15, 2017, it was reported that Kevin Brady, Chairman of House Ways and Means, has proposed a five year transition to a BAT to make it more palatable.  As Brady stated:

“My current thinking on border adjustment … is a five-year transition.  We’ll be lifting the ‘Made in America’ tax [on exports] at the same rate.  A very gradual five-year phase-in really resolves a lot of the challenges.”

But many opponents argued that a five year transition did not make the BAT a good idea.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As indicated in previous blog posts, I feel very strongly about the Trade Adjustment Assistance for Companies program because with very low funding it has a true track record of saving US companies.  In fact, in the ongoing Section 201 case on Solar Cells, the statute requires the industry seeking protection to provide a trade adjustment plan to the Commission to explain how the industry intends to adjust if trade relief is provided.  The problem is that the Commission is not the entity with experience on determining whether the Trade Adjustment plans are viable.  The entities with that experience in trade adjustment plans are the various trade adjustment centers throughout the US.

Donald Trump’s proposed budget, however, would 0 out the trade adjustment assistance for companies program.  Although Secretary Wilbur Ross has made it very clear he wants to increase exports to reach the 3% plus growth rate, putting protectionist walls up to limit imports of steel, aluminum and many other products invites retaliation.

The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  In his budget, Trump increases TAA for Workers, but kills TAA for Companies.  Yet to retrain the worker for a new job, the average cost per job is $5,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

Moreover, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job.   Moreover, with the threats of a massive trade war in the air, which will injure all US companies and destroy US jobs, the US government needs to look at an alternative—TAA for Firms/Companies is that alternative.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law.  Team’s newsletter-EN Vol.2017.22 Team’s newsletter-EN Vol.2017.23

SECTION 337 AND IP CASES

NO NEW 337 CASES AGAINST CHINA

If you have any questions about these cases or about Trump and Trade, the impact on downstream industries, the Section 232 cases, the 201 case against Solar Cells, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP’S TRADE WAR AGAINST DOWNSTREAM INDUSTRIES, SECTION 232 CASES STEEL AND ALUMINUM, SECTION 201 CASE SOLAR CELLS, BORDER ADJUSTMENT TAXES, NAFTA AND 337

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MAY 26, 2017

Dear Friends,

This blog post is coming out very late because I have been very busy with so many trade cases being filed.  In fact, this is the most trade cases I have seen in my lifetime filed in such a short period.  Every day there seems to be another trade case.

For the last two weeks I have been intensely involved in an antidumping and countervailing duty case on mechanical tubing.  We are representing auto parts companies, which have warned the US International Trade Commission (“ITC”) if they go affirmative and find injury in the case, in all probability the companies will close their US operations and move offshore.  The US producers bringing the petition want to force auto parts companies to buy their commodity mechanical tubing, which is sold to the oil & gas industry and goes down a hole.  The auto industry needs made to order mechanical tubing as their raw material because of the advanced designs and safety requirements in the United States.

If the United States is going to block raw materials, US downstream industries will have no choice.  They will move offshore to obtain the high quality raw materials they need to not only be competitive but also produce high quality safe auto parts.  In this first article below, one can read directly the public statements of these auto parts producers to the ITC.

Meanwhile, Trump is increasing the trade war.  Throughout the Presidential campaign, Trump threatened to put tariffs on many different products.  With Commerce Department Secretary Wilbur Ross, President Trump has discovered Section 232 National Security cases against Steel and Aluminum.  There are no checks on the President’s power in Section 232 cases.  No check at the US International Trade Commission (“ITC”), the Courts or the WTO.  Once the Commerce Department issues a report, then Trump has the power to impose tariffs or other remedies.

If you look at the link to the Commerce Department hearing in the Section 232 Steel case, at the end of the hearing you will hear numerous downstream companies telling Commerce to exclude their products and if they cannot get the imported steel, their companies will close.

Meanwhile, numerous antidumping and countervailing duty cases have been filed against aluminum foil, tool chests, biodiesel, tooling and aircraft just to name a few.  As described below, Trump has found his Trade War, but the real victim in this trade war may be US downstream industries.

In addition to two Section 232 cases, Suniva has filed a Section 201 case against imports of solar cells from every country.  The main targets appear to be third world countries where Chinese companies have moved their production facilities and Canada and Mexico.  The ironic point of this filing is that Solar World, the company that brought the original Solar Cells and Solar products cases against China, has now become insolvent and just today announced that it is supporting the petition.  Companies that were buying solar cells from Solar World all of a sudden cannot get the solar cells they paid for because of the insolvency.

Maybe this is why Trade Adjustment Assistance to Companies is so important.  With TAA, Solar World might have been saved with no damage to the US Polysilicon industry.  But despite the fact that section 201 requires US companies to submit adjustment plans and the Trade Adjustment Assistance Centers are the real trade adjustment experts, President Trump has zeroed out the Trade Adjustment Centers in his budget.  Apparently all President Trump wants to do is to put up protectionist walls to protect US companies and industries, rather than make them more competitive.  Very short sighted.

On the Trade Policy side, with protectionist walls appear to be going up.  Lighthizer was just confirmed as USTR and immediately plunged into NAFTA negotiations.  USTR Lighthizer has pledged to protect agriculture in the negotiations.

The only good news is that when Trump released his Tax Plan, border adjustment taxes were not part of the proposal.  But in a recent hearing before the House Ways and Means, one could tell Congressmen are split, but Republicans want border adjustment taxes.  On May 23rd, however, Treasury Secretary Mnuchin told House Democrats on Ways and Means that he and President Trump are opposed to the Border Adjustment tax.

One interesting note is that Trump’s proposal to cut corporate taxes to 15% has China scared.  Chinese companies could move to the US to set up production

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

Best regards,

Bill Perry

TRUMP’S TRADE WAR

With the number of trade cases being filed, including the Section 232 cases against Steel and Aluminum, which give President Trump carte blanche authority to issue tariffs and other import restrictions, the President truly is creating a trade war.  Trump’s threat to kill NAFTA scared Canada and Mexico to come to the table.  One of the reasons for Trump’s threat is the Canadian threat not to drop its barriers to US dairy exports.

One Canadian Parliament member threatened President Trump not to get so tough on trade.  The member should understand that such threats play right into the hands of Donald Trump and his argument that NAFTA is not truly a free trade agreement.

But all these threats and trade cases will make it very difficult to conclude trade agreements. In looking at Commerce Secretary Wilbur Ross’s plan to get to 3% GDP increase, one pillar of the plan is increased exports.  Exports, however, will not increase if there is a trade war, and it sure looks like that is going to happen.

From January 1, 2017 through March 31, 2017, the GDP was an anemic 0.7%.  Trump has to change that dramatically and deciding to have a trade war with every country is not the way to change the GDP number.

In fact, all these trade cases could be the Achilles heal of Trump’s Economic policy.  Trump’s carrots to encourage domestic industry, including lowering taxes and cutting regulations, are not the issue.  Protectionist walls to try and protect raw material industries, however, will have an opposite effect because of the collateral damage these orders will have on US downstream producers, which use these raw material inputs.  As Ronald Reagan stated, “Protectionism becomes destructionism; it costs jobs.”  But protectionism is not a partisan issue, as the only one more protectionist than President Trump may be the Democratic party.

TRUMP’S TRADE WAR ON DOWNSTREAM INDUSTRIES—COLD DRAWN MECHANICAL TUBING

To understand the real impact of the Trump Steel War on downstream industries, including the US auto parts and automobile industries, read the quotes below.  The Automobile Industry is going to be hit hard.

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. (collectively, “Petitioners”) filed an antidumping (“AD”) and countervailing duty (“CVD”) petition against imports of cold-drawn mechanical tubing from China, Germany, India, Italy, Korea and Switzerland.

Cold-drawn mechanical tubing can be sold as a commodity product to be used in the oil & gas, mining, agricultural and construction industries.  Certain types of mechanical tubing are also sold as commodity products to the auto industry to produce axles and drive shafts, but there is another segment of the auto parts industry, which produces specialized automotive products.  Because of US safety requirements, the specialized auto products companies need made to order mechanical tubing.  They cannot simply buy mechanical tubing off the shelf.  Petitioners, however, want the auto parts companies to buy their commodity products.

In order to win the antidumping and the countervailing duty case, Petitioners must establish dumping and subsidization at the Commerce Department and injury to the U.S. industry at the US International Trade Commission (“ITC”).  Once the petition was filed, the ITC immediately started up its 45 day preliminary injury investigation.   On May 10, 2017, the ITC held a hearing in Washington DC in the preliminary investigation and then we submitted a post-conference brief.

We represent in the case importers and two US auto parts companies. The importers, including these specialized auto parts companies, are very worried because the Commerce Department preliminary determinations, which will be issued very soon on September 16, 2017 (“CVD)” and November 15, 2017 (“AD”),  are when their liability begins.  With the Trump Administration and the Commerce Department’s war on steel imports, the duties are expected to be very high.  This is especially true with regard to China since Commerce does not use actual Chinese prices and costs to determine dumping.  Like many downstream customers in US AD and CVD cases, the customers are telling the ITC that they may have to close production and move offshore to get access to the higher quality competitive raw steel products.  Our hope is that the ITC will listen to these arguments, but to date the ITC has ignored them.  End users do not have standing in AD and CVD cases at the ITC.

As stated in our ITC postconference brief:

“The Petitioners/US mechanical tubing industry in this case will recover as their commodity markets in the energy, agricultural, mining and machinery markets recover.  But since antidumping and countervailing duty orders stay in place for 5 to 30 years, the impact of this case on the US downstream auto part and automobile industries will last for many years.

If the Commission goes affirmative in this case, we will see many auto parts producers close shop and move to another country where they can buy the high quality mechanical tubing that they need to compete with the loss of thousands of US jobs.  Many of these companies, including voestalpline Rotec Inc., already have operations in Canada, Mexico and through their parent company in numerous other countries and they will move their operations to obtain the high quality raw materials that they need to safely compete in the downstream auto parts market.”

As Andrew Ball, President, of voestalpine Rotec in Lafayette, Indiana stated at the Preliminary Conference:

“Our customers will not allow a change in the supply base, and this material is absolutely not available from these U.S. producers, thus making the decision to move equipment to other countries or procuring the completed components from our other global facilities in Austria, the United Kingdom, France, Spain and Poland a likely outcome.

With so much discussion surrounding trade imbalance, it is ironic that because of this case, we as a U.S. manufacturer will be forced to relocate millions of dollars of manufacturing equipment with significant loss of U.S. jobs for specialty high value, highly engineered components because several commodity U.S. producers are determined to ignore market realities.

I can say with a high degree of certainty that none of the petitioners will see one extra pound, not one single foot of material as a result of this action.  I am certain, however, that companies like ours and our customers will accelerate the relocation of domestic manufacturing to other countries, and all this business will flow in NAFTA region as semi-finished components, thus avoiding the dumping duty altogether. . . .

I simply cannot ignore the reality that the automotive industry waits for no one and for nothing.  To highlight this point, in 2013 our facility took a direct hit from an F-3 tornado, obliterating 30 percent of our manufacturing capacity.  Within 48 hours, we had the rest of the facility fully operational and with the help of our international partners and domestic competition, we had the balance of our business sourced and supplying parts to assembly facilities throughout the world within four days. Not one single production line was affected as a result. . . .

That was a natural disaster.  This one is man-made, and I can assure you that in 45 days if this case is not dismissed, these actions will accelerate the market forces already working against our U.S. manufacturing base and will either force our hand or the hand of our customers to move business overseas in many places closer to the customer locations in Mexico, to ensure the continuity of cost, quality and service, resulting in the loss of precious U.S. manufacturing jobs, future investment and all but killing the chances of fixing the trade imbalance.”

As Andrew Ball further stated in the ITC Postconference brief:

“This petition puts at risk our factory, our jobs and the factories and jobs of our US customers and subcontractors. Increases to prices that are already considered high in the global market will result in our customers resourcing our business to other suppliers or will force them to insist that we move equipment to other locations in the world to avoid this unjustified action. I was always raised that before I ask for help it was expected that I had done everything I could to help myself. Why then have none of the petitioners made sales calls to my organization looking to reform or start a partnership ahead of this action? Unfortunately, if you vote affirmative, resource decisions will be taken well ahead of the final DOC determination for risk mitigation purposes. I trust that you will analyze all details in this case and make your determination based on clear “facts and data.”

Another auto parts company stated in the brief:

We have fixed contracts with our vendors and customers, so any increase in piece price will be countered by evaluating the region that we manufacture products in or may require that we look at bringing in the  components from other countries. If your vote is affirmative then we will be making these decisions ahead of  the determination by the DOC in September as the risk is too high to wait.

If these auto parts component companies do not move, their customers, the auto parts producers, which are multi-nationals, will move because auto parts companies cannot buy commodity products when safety issues are a concern.  Product Liability cases can bankrupt an auto parts producer.

In her statement at the Preliminary Conference, Julie Ellis, President of Tube Fabrication of Logansport, Indiana echoed Andrew Ball’s statement:

The impact of this case on downstream manufacturing operations will result in the loss of thousands of jobs, maybe even more jobs than those saved by the case.  If we are unable to provide our customers with tube components at a competitive global price, they will be forced to move production from the United States to other countries.

Most of our customers already have global operations in place and have the ability to divert the production away from the U.S. locations to remain competitive.  The loss of business would not only impact businesses like TFI, but coating facilities, plating operations, heat treating, tool and die shops, machine shops, testing facilities, transportation companies, along with our customers’ U.S. facilities, and further downstream manufacturing.

In other words, in response to this petition, we fear that U.S. automotive companies will simply shift and procure the final parts with the tubes in them from multiple overseas operations.  From our point of view, this case will not result in any more tubes being switched to U.S. producers.  Instead, it will simply be a lose-lose situation.

TFI is representative of many U.S. producers at a comparable level of U.S. production.  The inability of Tube Fabrication and other companies in similar situations to remain competitive will result in a tremendous loss of jobs in the U.S. downstream manufacturing sector.  We will be forced to either move portions of our operations to Mexico, where we currently ship 20 percent of the components that we manufacture in the United States and/or cut USW jobs and benefits.

In her statement attached to the Brief, Julie Ellis states:

This is a rural community with limited manufacturing operations. We are an asset to the local economy, pay our taxes and provide community support. Thru the years we have watched as many of the local manufacturing companies have closed up operations and moved to Mexico and overseas. The inability of Tube Fabrication and other companies in similar situations, to remain competitive, could result in a tremendous loss of jobs in the downstream US manufacturing sector. It could potentially equate to thousands of people being displaced. We must have the ability to procure our raw materials at a competitive global price or we will lose business! As I said in my statement at the hearing, 20% of the components that we manufacture ship to Mexico. Please don’t force us to be the next ones to go!

Petitioners argue that respondents are simply exaggerating the problem and that the issue is simply dumped low import prices.  But in this case, the issue is not just price; it is quality.  As one importer, Salem Steel, stated at the Preliminary Conference, the same scenario played out as a result of the Section 201 Steel case, where many steel products were shut out of the US market:

“This scenario has happened before. One widely quoted study by Dr. Joseph Francois and Laura Baughman of Trade Partnership Worldwide, LLC showed that as a result of Section 201 investigation brought at the behest of the U.S. steel industry, 200,000 Americans lost their jobs to higher steel prices in 2002.

More Americans lost their jobs to higher steel prices in 2002 than the total number employed by the entire steel industry itself in the U.S.  Every U.S. state experienced employment losses from higher steel costs, with the highest losses occurring in California, Texas, Ohio, Michigan, Illinois, Pennsylvania, New York and Florida.”

In the attached Trade Partnership article, STEEL USERS ARTICLE1, Dr. Joseph Francois and Laura Baughman state at page 1 and 2 of their article that as a result of the Section 201 trade restrictions on steel:

“200,000 Americans lost their jobs to higher steel prices during 2002. These lost jobs represent approximately $4 billion in lost wages from February to November 2002.

One out of four (50,000) of these job losses occurred in the metal manufacturing, machinery and equipment and transportation equipment and parts sectors.

Job losses escalated steadily over 2002, peaking in November (at 202,000 jobs), and slightly declining to 197,000 jobs in December.

More American workers lost their jobs in 2002 to higher steel prices than the total number employed by the U.S. steel industry itself (187,500 Americans were employed by U.S. steel producers in December 2002).

Every U.S. state experienced employment losses from higher steel costs, with the highest losses occurring in California (19,392 jobs lost), Texas (15,826 jobs lost), Ohio (10,553 jobs lost), Michigan (9,829 jobs lost), Illinois (9,621 jobs lost), Pennsylvania (8,400 jobs lost), New York (8,901 jobs lost) and Florida (8,370 jobs lost). Sixteen states lost at least 4,500 steel consuming jobs each over the course of 2002 from higher steel prices. . . .

Steel tariffs caused shortages of imported product and put U.S. manufacturers of steel-containing products at a disadvantage relative to their foreign competitors. In the absence of the tariffs, the damage to steel consuming employment would have been significantly less than it was in 2002.

The analysis shows that American steel consumers have borne heavy costs from higher steel prices caused by shortages, tariffs and trade remedy duties, among other factors. Some customers of steel consumers have moved sourcing offshore as U.S. producers of steel-containing products became less reliable and more expensive. Other customers refused to accept higher prices from their suppliers and forced them to absorb the higher steel costs, which put many in a precarious (or worse) financial condition. The impact on steel-consuming industries has been significant.”

But the remedy in the Section 201 case lasts from three to five years and in the Section 201 Steel case, President Bush lifted the restraints on Steel imports sooner because of the very damaging impact on downstream users.  Antidumping and Countervailing Duty orders stay in place for five to thirty years.

The experience of downstream users in the Mechanical Tubing case reflects the experience of many downstream users in steel cases, such as the recent AD and CVD cases against Carbon Steel Wire Rod.  There are real costs that will be borne by US downstream companies and their employees because of this Mechanical Tubing trade case and any AD and CVD orders that are issued.  The Commission should have learned the same lesson from its AD order on Magnesium from China, which has been in place for more than ten years.  This AD Order protects a one company US industry in Utah, but it has led to the demise of the entire US Magnesium dye casting industry and the movement of many light weight auto parts companies to Canada.  But since downstream industries have no standing in an AD and CVD cases and there is no part of the injury provision to take this collateral damage into account, although downstream industries can testify at the ITC, in fact, they have no voice.

As Andrew Ball of voestalpine Rotec stated at the Preliminary Conference, ”I simply cannot ignore the reality that the automotive industry waits for no one and for nothing.”  With Antidumping and Countervailing Duty Orders staying in place for 5 to 30 years, if the Commission does not look at market realities, many, many US auto parts companies will close down and move to a third countries.  The real result of this Mechanical Tubing case brought by the Petitioners could well be to hollow out the US auto parts industry and lead to the destruction of the Petitioners’ US customers.

This is the real cost of the Trump trade war—thousands of jobs lost in downstream industries.

SECTION 232 INVESTIGATIONS  — STEEL AND ALUMINUM

In response to pressure from President Trump, Commerce Secretary Ross has self-initiated National Security cases under Section 232 of the Trade Expansion Act of 1962, 19 U.S.C. 1862, against imports of steel and aluminum, which go directly into downstream US production.  The danger of these cases is that there is no check on Presidential power if the Commerce Department finds that steel or aluminum “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President”.  The Secretary shall also advise the President on potential remedies.

If the Secretary reports affirmatively, the President has 90 days to determine whether it concurs with the Secretary’s determination and “determine the nature and duration of the action that, in the judgment of the President, must be taken to adjust the imports of the article and its derivatives so that such imports will not threaten to impair the national security.”

Once the President makes his affirmative determination, he will report his decision to Congress.  According to the Statute, on Petroleum and Petroleum products, the Congress can disapprove the decision, but there is no reference to Steel or Aluminum so it is questionable whether Congress can overrule the President in these cases.   The statute also does not provide for any appeal to the Court of International Trade.  Commerce also is very protectionist and in antidumping and countervailing duty cases, the only check is the injury determination by the independent US International Trade Commission.  There is no such determination under Section 232.

Moreover, in these Section 232 Steel and Aluminum cases, it is questionable how much weight Commerce will give to comments or testimony by downstream raw material users.  This is dangerous because tariffs on steel products may cause real harm to the downstream automobile industry, which is important for National Security too.

STEEL

On April 20, 2017, President Trump and the Commerce Department in the attached press announcement and fact sheet along with a Federal Register notice, Section 232 Investigation on the Effect of Imports of Steel on U.S, Presidential Memorandum Prioritizes Commerce Steel Investigation, COMMERCE FED REG SECTION 232 NOTICE, announced the self-initiation of a Section 232 National Security case against imports of steel from every country.  See video of Trump signing the Executive Order with Secretary Ross and Steel Producers at https://www.youtube.com/watch?v=EiVfNOl-_Ho.

Commerce held a hearing on May 24th in this case.  The video of the hearing can be found at https://www.commerce.gov/file/public-hearing-section-232-investigation-steel-imports-national-security.  Witnesses were given five minutes each to make their concerns known.  Written comments are due at the Commerce Department on May 31st.

At the hearing, Secretary Ross stated that a written report would go to the President by the end of June.

At the end of the hearing, several downstream users asked Commerce to exclude certain steel products from any remedy in the Section 232 case.  Counsel for the Steel Importers warned Commerce about retaliation against US exports of military products, including airplanes and agriculture products.

At the start of the hearing, Commerce Secretary Wilbur Ross said something has to be done to help the Steel producers.  In the past Secretary Ross has stated that the Section 232 case is meant to fill the gaps created by the patchwork of antidumping and countervailing duties on foreign steel, which he said have provided only limited relief to the U.S. industry:

“It’s a fairly porous system and while it has accomplished some fair measure of reduction, it doesn’t solve the whole problem.  So we are groping here to see whether the facts warrant a more comprehensive solution that would deal with a very wide range of steel products and a very wide range of countries.”

At the Trump Press Conference, Ross stated:

I am proud to stand here today and say that, under your leadership, we are restoring the primacy of American national security, American workers, and American businesses.

For years, we have simply reacted to over 150 cases of improper imports of foreign steel into this country. With our investigation launched last night, the federal government will finally become proactive.

This investigation will help ensure steel import issues do not make us less safe in a world that is increasingly fraught with geopolitical tensions.

The sheer volume of steel trade cases makes it clear that global steel overcapacity has an impact on our economy, but for the first time we will examine its impact on our national security.

We will conduct this investigation thoroughly and expeditiously so that we can fully enforce our trade laws and defend this country against those who would do us harm.

I look forward to the completion of this investigation so that I can report not just the findings, but also any concrete solutions that we may deem appropriate.

Under section 232 the Commerce Department will determine whether steel imports “threaten to impair” national security.  Commerce must issue its findings to the White House within 270 days, along with recommendations on what steps to take.

But Ross said that the investigation may move along a quicker track, citing the abundance of steel data the U.S. already has on hand from its past investigations as well as a memorandum from President Donald Trump that calls for the agency to expedite the process.  In fact, at the hearing, Secretary Ross stated that a report to the President will be issued by the end of June.

Once Commerce’s review is completed, the president has 90 days to decide whether to accept or reject its recommendations. The statute gives the administration wide latitude to act, including raising tariffs

Secretary Ross further stated in the past:

“We will conduct this investigation thoroughly and expeditiously so that, if necessary, we can take actions to defend American national security, workers, and businesses against foreign threats.  This investigation will help determine whether steel import issues are making us less safe in a world that is increasingly fraught with geopolitical tensions.”

While the use of Section 232 is rare, the actual deployment of tariffs under the 1962 law is even rarer. Commerce last conducted a Section 232 probe of iron and steel in 2001, but ultimately decided that the goods posed no national security threat, and no further action was taken.

The last time an administration forged ahead with import relief under the law was 1975, when President Gerald Ford hiked license fees and other charges on shipments of imported petroleum during the throes of the mid-70s oil crisis. President Richard Nixon also used Section 232 to impose an across-the-board 10 percent surcharge program in 1971.

But with the new protectionist outlook of the Trump Administration, the huge steel overcapacity in China, and the fact that there are no checks under section 232, this action could definitely result in tariffs, quotas and other trade remedies.

ALUMINUM

On April 27, 2017, President Trump and the US Commerce Department self-initiated a Section 232 National Security case against imports of aluminum from all countries.  Attached are documents related to the Case, ALUMINUM FED REG PUBAluminum Presidential Memo Summary.  The hearing will be June 22, 2017 at the Commerce Department.  The Presidential Memorandum issued on April 27th provides:

This Presidential Memorandum (PM) directs the Secretary of Commerce to investigate, in accordance with the Trade Expansion Act of 1962, the effects on national security of aluminum imports.

During this investigation, the Secretary will consider the following:

The domestic production of aluminum needed for projected national defense requirements.

The capacity of domestic industries to meet such requirements.

The existing and anticipated availabilities of the human resources, products, raw materials, and other supplies and services essential to the national defense.

Recognize the close relation of the Nation’s economic welfare to our national security, and consider the effect of foreign competition in the aluminum industry on the economic welfare of domestic industries.

Consider any substantial unemployment, decrease in government revenues, loss of skills or investment, or other serious effects resulting from the displacement of any domestic products by excessive aluminum imports.

The Secretary shall conduct this investigation with speed and efficiency in order to find if aluminum is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security.

If the above is deemed true, the Secretary shall recommend actions and steps that should be taken to adjust aluminum imports so that they will not threaten to impair the national security.

Although Secretary Ross wants to expedite the case, there are rumors that many investigators and other staff in Import Administration have now been moved to work on the Section 232 cases.  With an enormous number of antidumping and countervailing duty cases along with two large Section 232 cases, Commerce staff will be stretched very thin.

SOLAR AD AND CVD CASES DID NOT WORK SO LET’S TRY A SECTION 201 ESCAPE CLAUSE CASE

Just recently, Solar World, the company that brought the Solar Cells and Solar Products antidumping and countervailing duty cases against China, announced that it was going into insolvency.  The bottom line is that the antidumping and countervailing duty orders against solar cells and solar products from China did not save Solar World, but they did result in substantial damage to the upstream US Polysilicon industry.  Because of the US action, China brought its own antidumping and countervailing duty case against $2 billion in US Polysilicon exported to China.  REC Silicon in Moses Lake, Washington got hit with a 57% antidumping duty, deferred a $1 billion investment into Moses Lake, and in November 2016 laid off 70 workers in Moses Lake and cut their capacity in half.

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.  If the ITC reaches an affirmative determination, within 60 days the President must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

By the way, in its determination to the President the ITC is to report any assistance given companies under the Trade Adjustment Assistance for Companies program, the only government program that truly saves US companies.  President Trump, however, in his recent budget proposal completely zeroed out the TAA for Companies program.  More about this below.  Directly contrary to President Reagan, President Trump does not want to make US companies more competitive so that they can compete; he wants to put up protectionist walls.

The main targets of the Petition are not imports from China, but imports from third countries.  In response to the antidumping and countervailing duty orders, many Chinese companies moved to third countries and set up production there.

SCOPE OF THE 201 INVESTIGATION

The articles covered by this investigation are CSPV cells, whether or not partially or fully assembled into other products, including, but not limited to, modules, laminates, panels, and building-integrated materials.

The investigation covers crystalline silicon photovoltaic cells of a thickness equal to or greater than 20 micrometers, having a p/n junction (or variant thereof) formed by any means, whether or not the cell has undergone other processing, including, but not limited to cleaning, etching, coating, and/or addition of materials (including, but not limited to, metallization and conductor patterns) to collect and forward the electricity that is generated by the cell.

Included in the scope of the investigation are photovoltaic cells that contain crystalline silicon in addition to other photovoltaic materials. This includes, but is not limited to, passivated emitter rear contact (“PERC”) cells, heterojunction with intrinsic thin-layer (“HIIT”) cells, and other so-called “hybrid” cells.

Excluded from the investigation are CSPV cells, whether or not partially or fully assembled into other products, if the CSPV cells were manufactured in the United States.

Also excluded from the scope of the investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.

SECTION 201 PROCEDURES IN SOLAR CELL CASE

At the ITC, Section 201 cases are a two stage process.  The ITC must first determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”  The ITC has determined that the investigation is “extraordinarily complicated” and will make its injury determination within 128 days after the petition was filed, or by September 22, 2017. The Commission will submit to the President the report required under section 202(f) of the Act (19 U.S.C. § 2252(f)(1)) within 180 days after the date on which the petition was filed, or by November 13, 2017.

Notices of appearance at the ITC are due in about three weeks from now or 21 days after publication of the notice in the Federal Register.  During the injury phase of the investigation, the ITC will hold an injury hearing on August 15, 2017.  Prehearing briefs are due at the ITC on August 8, 2017.  Posthearing briefs will be due at the ITC on August 22nd.

If the ITC reaches an affirmative determination, it will go into a remedy phase and the hearing in that phase will be on October 3, 2017.

REASONS FOR SECTION 201 PETITION

According to Suniva in its petition, the problem is not China.  Suniva argues that the antidumping and countervailing duty orders in the Solar Cells and Solar Products case were simply evaded:

“as the impacted producers have simply opened significant capacity in third countries not subject to those AD/CVD orders. One of the underlying principles of those prior Title VII cases was that implementing duties against the subject goods originating from the offending countries would­ create a cost basis that generates greater domestic price equity. Unfortunately, that outcome has not occurred. Rather than invest in U.S. manufacturing or charge fair market prices, Chinese and Taiwanese manufacturers, either directly through the establishment of their own facilities, or indirectly through the support of contract manufacturing operations in Southeast Asia, India, and Eastern Europe, created alternative capacity that was not subject to U.S. tariffs.  In fact, the data in this petition shows a direct correlation between:

  • The institution of tariffs against subject goods made in China or Taiwan;
  • The reduction of imports into the United States from those countries; and

The increase in imports from Vietnam, Thailand, Malaysia, and other third countries.”

The Petition also states:

“What is striking is that even with these relatively high duties against two of the world’ s largest CSPV cell and module countries, imports continue to flood into the United States. Also striking is the quantity of Chinese and Taiwanese product that continues to enter the United States -, despite these dumping and subsidy duties. What these AD/CVD cases have also done is push production into new countries – meaning that they have led to increased global production and capacity. Consider:

  • In a March 21, 2017, article in the Financial Post, it was reported about Canadian Solar that :”The company said it has also increased production from its manufacturing facilities in Southeast Asia and Taiwan to serve the U.S. market and avoid import “
  • In a January 10, 2017, article in Taiyang News, the following is stated about Chinese producer Solar Trina: “Trina Solar has begun production of solar panels at its newly opened Vietnam factory. The facility with capacity of 800 MW annually is located in Quang Chau Industrial Park in Viet Yen district, northern Ban Giang province, reported The Voice of Vietnam.” The article continues: “After Malaysia, Vietnam is now coming up as one of the most sought after locations for Chinese solar power companies to set up their manufacturing units. Some of the biggest names, including Trina Solar, Jinko Solar and the like have voluntarily withdrawn from the European Commission’s minimum import price (MIP) undertaking which slaps anti-dumping and anti-subsidy duties ori solar panels produced in China. Most of them are keen to operate from locations beyond China to be able to circumvent these duties and even more the customs in the much larger US solar market.”
  • In a March 29, 2016, article in PY Magazine, it is reported that “Trina Solar reports that it has begun production at its PY cell and module factory in Rayong Thailand, which has the capacity to produce 700 MW of cells and 500 MW of PY modules annually.” It continues “Southeast Asia has become a major destination for Chinese and Taiwanese PY cell and module makers seeking to avoid U.S. and EU import duties on their “
  • In an October 26, 2015, press release, it is announced that Chinese producer JA Solar Holdings, , Ltd. opened a 400MW cell manufacturing facility in Penang, Malaysia. As stated in the release: “These cells will primarily be used to manufacture JS Solar Modules outside of China to provide competitive product solutions to certain overseas markets.”
  • In an October 6, 2016, PV Magazine article, it was noted that JA Solar further expanded its Malaysian operations. The article further notes: “The expansion comes in the face of falling module prices around the world, as an oversupply seems to be taking hold of the “
  • In a July 24, 2016, CLEANTECHIES article, it is reported that JA Solar is planning a $1 billion dollar module factory in Vietnam. As noted in the article: “The company already operates 8 factories across the {sic} Europe, the US and Japan. JA Solar, like several other·module manufacturers, facing import restrictions and duties in developed markets like the US and Chinese {sic}. Several Chinese and Taiwanese companies have opened factories in overseas locations-to bypass these restrictions.”
  • A January 25, 2016, China Daily article discusses Chinese panel producers moving operations to Thailand because “solar panels made in the kingdom do not invite heavy duties in the US and Europe.”.

In short, an unforeseen development of the antidumping and countervailing duty cases . . . has been the proliferation of CSPV cell and module manufacturing across the globe. This further supports the use of this global safeguard action. Without global relief, the domestic industry will be playing “whack-a-mole” against CSPV cells and modules from particular countries.

In short, imports have clearly “increased” within the meaning of the statute. Indeed, the increase has been massive; and the recent surge has been highly debilitating to the market structure. The way that the world’s largest producers have reacted to antidumping and countervailing duty claims demonstrates that global relief is required.”

The petition also shows enormous increases of solar cells from Mexico and Canada and with regards to Canada states as follows:

“Transshipment of Chinese-origin CSPV cells through Canada would explain the rapid growth in imports of CSPV cells and modules from Canada in recent years.”

The Petition also states:

“Further, the U.S. industry could not have foreseen that foreign producers, in response to [the antidumping and countervailing duty cases against China would move so rapidly and drastically to open new production facilities in third-countries resulting in no relief for the U.S. industry from the application of the orders in the antidumping and countervailing duty cases. As shown by the import data presented in Exhibit 7, the surge in imports from third-countries after the imposition of the AD and CVD orders is completely unprecedented and unforeseeable.  For example, between 2014 and 2016, imports from Malaysia surged 67 percent/while overtaking China as the largest source of imports. In addition, imports from Korea surged by 827 percent while increasing to become the third largest source of imports.  Imports from Mexico, now the fourth largest source of imports, surged 77 percent. Imports from Thailand, now the fifth largest source of imports, surged over 76,000 percent. Such a rapid and significant increase in imports from third-countries is an unprecedented and completely unforeseen development.”

Between the time the Petition was filed and the ITC institution of the case, Wuxi Suntech announced it opposition to the petition because the law firm that had represented Wuxi Suntech in the antidumping and countervailing duty case against China brought the Section 201 case on behalf of Suniva.  In addition, Sunrun, an importer and user of solar cells, entered a notice of appearance to point out that Solarworld does not support the petition and that Suniva represents less than 20% of US production, but the ITC went forward anyways.  Just today, however, Solar World announced that it is supporting Suniva’s Section 201 Petition.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

TOOL CHESTS FROM CHINA AND VIETNAM

On April 11, 2017, Waterloo Industries Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of imports of certain tool chests and cabinets from China and Vietnam.

US importers’ liability for countervailing duties on imports from China will start on September 8, 2017, 150 days after the petition was filed, and for Antidumping Duties from China and Vietnam will start on November 7, 2017, 210 days after the petition was filed.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If anyone wants a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese exporters/producers and US importers, please feel free to contact me.

COLD-DRAWN MECHANICAL TUBING FROM CHINA, GERMANY, INDIA, ITALY, KOREA AND SWITZERLAND

On April 19, 2017, ArcelorMittal Tubular Products, Michigan Seamless Tube, LLC, PTC Alliance Corp., Webco Industries, Inc., and Zekelman Industries, Inc. filed major Antidumping and Countervailing Duty cases against hundreds of millions of dollars of cold-drawn mechanical tubing from the six countries in 2016.  The petition alleges antidumping duties ranging as follows:

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

The cold-drawn mechanical tubing covered by the complaint is used to produce numerous different products in the United States, including auto parts and machinery.

As stated above, these trade cases move very quickly and many importers are blindsided because of the speed of the investigations.  In the Mechanical Tubing case, the ITC conducted its preliminary injury hearing on May 10, 2017 and briefs were filed soon after.  US importers’ liability for countervailing duties on imports from China and India will start on September 16, 2017, 150 days after the petition was filed, and for Antidumping Duties will start on November 15, 2017, 210 days after the petition was filed.

Commerce has already issued quantity and value questionnaires to the Chinese producers in the AD and CVD cases with responses for both cases due June 5th.

The entire investigation will take one year and antidumping and countervailing duty orders can last for 5 to 30 years.

If anyone wants a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese exporters/producers and US importers, please feel free to contact me.  Atttached are the relevant parts of the petition, INJURY EXCERPT SCOPE IMPORTERS EXERPT MECHANICAL TUBING FOREIGN PRODUCERS EXCERPT MECHANICAL TUBING.

100 TO 150 SEAT CIVIL AIRCRAFT

On April 27, 2017, in the attached notice, AIRCRAFT, the Boeing Company filed an antidumping and countervailing duty case against 100 to 150 Seat Civil Aircraft from Canada.  The Canadian respondent company is Bombardier.  With all extensions, the Commerce Department’s Preliminary determination in the CVD case, which is when liability begins, is due September 24, 2017 and the Commerce Department’s preliminary AD determination, when liability begins, is due November 23, 2017.

With a sympathetic Trump Administration in power, there will be a sharp rise in AD and CVD cases against China and other countries.

LIGHTHIZER CONFIRMED—NAFTA FIGHT

On May 11, 2017, Robert Lighthizer was confirmed by the Senate as the next USTR.  On May 15th he was sworn into office by Vice President Pence.

With Senators and Congressmen, especially from agricultural states, calling for new trade agreements, USTR will have a lot of work to do.

NAFTA FIGHT

On May 18, 2017, in the attached letter, nafta NOTIFICATION, USTR Lighthizer informed Congress of the President’s intention to renegotiate NAFTA.  In the letter, Lighthizer specifically stated:

In particular, we note that NAFTA was negotiated 25 years ago, and while our economy and businesses have changed considerably over that period, NAFTA has not.  Many chapters are outdated and do not reflect modern standards. For example, digital trade was in its infancy when NAFTA was enacted. In addition, and consistent with the negotiating objectives in the Trade Priorities and Accountability Act, our aim is that NAFTA be modernized to include new provisions to address intellectual property rights, regulatory practices, state-owned enterprises, services, customs procedures, sanitary and phytosanitary measures, labor, environment, and small and medium enterprises. Moreover, establishing effective implementation and aggressive enforcement of the commitments made by our trading partners under our trade agreements is vital to the success of those agreements and should be improved in the context of NAFTA. . . .

We are committed to concluding these negotiations with timely and substantive results for U.S. consumers, businesses, farmers, ranchers, and workers, consistent with U.S. priorities and the negotiating objectives established by the Congress in statute. We look forward to continuing to work with the Congress as negotiations with the NAFTA countries begin, and we commit to working with you closely and transparently throughout the process.

On May 18, 2017, John Brinkley published an article in response to the Lighthizer letter:

White House’s NAFTA Renegotiation Letter To Congress Is Surprisingly Rational

U.S. Trade Representative Robert Lighthizer seems to be trying to inject some rationality into President Trump’s trade policies. With the White House in turmoil over the Russia investigation and FBI Director James Comey’s firing, he might just get by with it.

Lighthizer on Thursday formally notified Congress of the administration’s intention to renegotiate the North American Free Trade Agreement with Canada and Mexico. The notification started the clock ticking on the 90-day period that has to elapse before the renegotiations can start.

In a letter to congressional leaders, Lighthizer made some surprisingly sensible remarks about what needed to be done – surprising because it included none of the bluster and hostility that President Trump has directed at America’s NAFTA partners, Canada and Mexico.

The letter said NAFTA needed to be improved in the areas of intellectual property rights, digital trade, state-owned enterprises, customs procedures, food safety, workers’ rights and environmental protection.

All that is true. NAFTA doesn’t address digital trade, because it didn’t exist in 1993 when the deal was signed, but it now dominates every aspect of international commerce in goods and services.

Workers’ rights and environmental protection are addressed in side agreements that aren’t enforceable. Making those standards tougher fully enforceable would lessen the incentive for US companies to move to Mexico.

The letter also said trade rule enforcement “should be improved in the context of NAFTA.” It’s hard to imagine how that might happen.  NAFTA allows a private company from one of the three countries that has operations in one of the others to file a complaint with the NAFTA secretariat against the host country if the company believes its rights have been violated. This Investor-State Dispute Settlement (ISDS) chapter allows for a hearing before a three-judge arbitration panel. Since 1994, the United States has prevailed in every NAFTA ISDS complaint that it has filed or has been filed against it and that has proceeded to a final ruling. It’s going to be hard to improve on that.

When two governments go head-to-head in a trade dispute, they usually take it to the World Trade Organization. The trend there is that the complaining government almost always wins.  The U.S. has won 91% of the cases it has filed in the WTO and lost 84% of those filed against it. Its overall batting average is just over .500. There is nothing that can be done in NAFTA to affect that.

Maybe the best thing the administration could do for American businesses when it convenes the renegotiation with Mexico and Canada is to focus on ways to make it easier for small companies to qualify for duty-free treatment under NAFTA. Lighthizer’s letter seemed to suggest the administration was interested in doing that. It’s easy for big corporations to comply with the myriad rules and regulations that cover imports, exports and free trade agreements; they can hire armies of lawyers and trade specialists to manage compliance with them. Most small firms can’t do that and many find that compliance isn’t worth the time and money. So, they don’t export. Or they export without applying for duty-free treatment under NAFTA. They just pay the tariff. A 2015 Thomson Reuters Global Trade Management survey of small business owners found that complying with rules of origin and other regulations was the principal difficulty that they faced in exporting their products.

To qualify for duty-free treatment under NAFTA, an exporter most certify that a certain percentage of a product’s value originated in the U.S., Mexico or Canada. There are two problems with this. One is that small manufacturers don’t always know where all their parts and components came from and it can be difficult to track them all down. They have to call their suppliers, who may have to call another supplier. The other problem is that the U.S. government allows exporters to use one of two processes for determining regional content and, for most people, neither of them is easy to navigate. . . .

Making this process easier would increase imports and reduce the trade deficit, although not by  much.

If the U.S. negotiators can focus their efforts on these constructive and necessary improvements to NAFTA, rather than on the threats and ultimatums that Trump and his nationalist faction in the White House have made, they might end up with an agreement that all three countries will be happy to sign.

On May 25th, the US Pork Producers issued the attached white paper, NAFTAReport05-24-17, arguing that if NAFTA negotiations lead to the disruption of agricultural exports generally – and pork exports specifically – to Canada and Mexico, that would “have devastating consequences for our farmers and the many American processing and transportation industries and workers supported by these exports.”

The White paper cites an Iowa State economist who states that if Mexico were to respond to a US withdrawal from NAFTA with a 20% duty on pork, the US port industry would lose the entire Mexican market.

Nick Giordano for the National Pork producers went on to state:

“A loss in exports to Mexico of that magnitude would be cataclysmic for the U.S. pork industry. Pork producers will support updating and improving NAFTA but only if duties on U.S. pork remain at zero and pork exports are not disrupted.”

On May 24th, USTR Lighthizer pledged that boosting agricultural exports remains a top priority for the Trump administration. He added that he and Agriculture Secretary Sonny Perdue are under specific marching orders to protect current market access for U.S. farm products in the revised NAFTA.  Lighthizer specifically stated:

“The president has specifically told each of us that this is a very, very top priority.  One, not to do any damage and two, to add to the bottom line. So we expect to do that.”

BORDER ADJUSTMENT TAXES

The only good news about Border Adjustment taxes is the President Trump did not include Border Adjustment Taxes in his tax proposal to Congress.  Despite the decision not to put border adjustment taxes (“BAT”) in the Administration’s tax proposal, the House Republicans and Ways and Means Committee continue to push it.  See May 23rd Ways and Means hearing on Border Adjustment Taxes, at https://waysandmeans.house.gov/live/.

Archer Daniel Midland argued for the BAT, citing problems with Agriculture exports, but the retailers, including Target and WalMart, came out strongly against it.  One witness stated that US products are taxed twice, but imports are only taxed once and get a rebate when the product is exported to the US.

But it was also clear from the hearing that Congressmen are split on the Border Adjustment tax.

On May 23, 2017 Treasury Secretary Steven Mnuchin, however, in a closed-door meeting with Democrats on the Ways and Means stated that both he and President Trump are opposed to the Border Adjustment Tax.   One California Democrat, Judy Chu, on the Ways and Means Committee, directly asked Mnuchin if he supported  the  BAT.  As she stated Mnuchin’s concern was the impact on consumers:

“He actually said straight out that he doesn’t support it and the president doesn’t support it.  Unless he was lying to us yesterday, I really felt it was dead on arrival.”

On May 24th, Paul Ryan stated that the BAT needs to be changed and immediately imposing it in its full form would be “too disruptive”.

TRADE ADJUSTMENT ASSISTANCE FOR FIRMS/COMPANIES – A BETTER ALTERNATIVE TRADE REMEDY WHICH ACTUALLY WORKS

As indicated in previous blog posts, I feel very strongly about the Trade Adjustment Assistance for Companies program because with very low funding it has a true track record of saving US companies.  In fact, in the ongoing Section 201 case on Solar Cells, the statute requires the industry seeking protection to provide a trade adjustment plan to the Commission to explain how the industry intends to adjust if trade relief is provided.  The problem is that the Commission is not the entity with experience on determining whether the Trade Adjustment plans are viable.  The entities with that experience in trade adjustment plans are the various trade adjustment centers throughout the US.

Donald Trump’s proposed budget, however, would 0/zero out the trade adjustment assistance for companies program.  Although Secretary Wilbur Ross has made it very clear he wants to increase exports to reach the 3% plus growth rate, putting protectionist walls up to limit imports of steel, aluminum and many other products invites retaliation.

The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

In contrast to TAA for workers, TAAF or TAA for Companies is provided by the Economic Development Administration at the Commerce Department to help companies adjust to import competition before there is a massive lay-off or closure.  Yet the program does not interfere in the market or restrict imports in any way.

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  In his budget, Trump increases TAA for Workers, but kills TAA for Companies.  Yet to retrain the worker for a new job, the average cost per job in TAA for workers is $5,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

Moreover, TAA for Firms/Companies works.  In the Northwest, where I am located, the Northwest Trade Adjustment Assistance Center, http://www.nwtaac.org/, has been able to save 80% of the companies that entered the program since 1984. The Mid-Atlantic Trade Adjustment Assistance Center, http://www.mataac.org, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job.   Moreover, with the threats of a massive trade war in the air, which will injure all US companies and destroy US jobs, the US government needs to look at an alternative—TAA for Firms/Companies is that alternative.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about developments in Chinese trade law.  Team’s newsletter-EN Vol.2017.16 Team’s newsletter-EN Vol.2017.17 Team’s newsletter-EN Vol.2017.18 Team’s newsletter-EN Vol.2017.19 Team’s newsletter-EN Vol.2017.20

SECTION 337 AND IP CASES

NEW SECTION 337 CASES AGAINST CHINA AND OTHER COUNTRIES

COLLAPSIBLE SOCKETS FROM MOBILE ELECTRONIC DEVICES

On April 10, 2017, in the attached ITC notice, SOCKETS MARINE ,PopSockets LLC filed a section 337 patent case against imports of Collapsible Sockets for Mobile Electronic Devices from the following Chinese companies:

Agomax Group Ltd., Hong Kong; Guangzhou Xi Xun Electronics Co., Ltd., China; Shenzhen Chuanghui Industry Co., Ltd., China; Shenzhen VVI Electronic Limited, China; Shenzhen Yright Technology Co., Ltd., China; Hangzhou Hangkai Technology Co., Ltd., China; Shenzhen Kinsen Technology Co., Limited, China; Shenzhen Enruize Technology Co., Ltd., China; Shenzhen Showerstar Industrial Co., Ltd., China; Shenzhen Lamye Technology Co., Ltd., China; Jiangmen Besnovo Electronics Co., Ltd., China; Shenzhen Belking Electronic Co., Ltd., China; Yiwu Wentou Import & Export Co., Ltd., China; and Shenzhen CEX Electronic Co., Limited, China.

ROBOTIC VACUUM CLEANING DEVICES

On April 18, 2017, in the attached ITC notice, ROBOTIC VACUM CLEANERS, iRobot Corporation filed a section 337 patent case against imports of Robotic Vacuum Cleaning Devices from the following US and Chinese companies:

Bissell Homecare, Inc., Grand Rapids, Michigan; Hoover Inc., Glenwillow, Ohio; Royal Appliance Manufacturing Co., Inc. d/b/a TTI Floor Care North America, Inc., Glenwillow, Ohio; Bobsweep, Inc., Canada; Bobsweep USA, Henderson, Nevada; The Black & Decker Corporation, Towson, Maryland; Black & Decker (U.S) Inc., Towson, Maryland; Shenzhen ZhiYi Technology Co., Ltd., d/b/a iLife, China; Matsutek Enterprises Co., Ltd., Taiwan; Suzhou Real Power Electric Appliance Co., Ltd., China; and Shenzhen Silver Star Intelligent Technology Co., Ltd., China.If you have any questions about these cases or about Trump and Trade, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

If you have any questions about these cases or about Trump’s Trade War on downstream industries, the Mechanical Tubing case, the Section 232 cases, the 201 case against Solar Cells, border adjustment taxes, US trade policy, the antidumping or countervailing duty law, trade adjustment assistance, customs, False Claims Act or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DAMAGE CAUSED BY AD ORDERS, TRIUMPH AND TRAGEDY OF TAAF, TPP DEVELOPMENTS, NEW TRADE/CUSTOMS LAW

US Capitol North Side Construction Night Washington DC ReflectioTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR DECEMBER 10, 2015

Dear Friends,

Attached is the first half of the December blog post, which covers the collateral damage caused by US Antidumping Orders on downstream US production by the numerous antidumping orders against raw material inputs from China, which directly damage and in some cases destroy downstream US production.  The Article describes why the Import Alliance is so important to counter this trend.

The second article is on the Triumph and Tragedy of Trade Adjustment Assistance for Companies, the only truly successful trade remedy the US government has in its arsenal to help US companies injured by imports.

This update goes into detail on the Trans Pacific Partnership (“TPP”) and when it might come up for a vote in Congress, the impact of Presidential politics, especially against Donald Trump, on the TPP, the ITC TPP investigation and the appointment of Congressman Dave Reichert of Washington State as the Chairman of the Subcommittee on Trade, House Ways and Means Committee.

Finally, on December 9th, Senate Finance Committee and House Ways and Means announced Agreement on the Trade Facilitation and Trade Enforcement Act of 2015.  Copies of the Bipartisan bill and Conference Report are attached below.

If anyone has any questions or wants additional information, please feel free to contact me.

Best regards,

Bill Perry

THE IMPORTANCE OF THE IMPORT ALLIANCE FOR US MANUFACTURING AND PRODUCTION—THE DAMAGE ANTIDUMPING CASES CAUSE TO DOWNSTREAM AND UPSTREAM PRODUCERS

US Law firms representing domestic producers in antidumping (“AD”) cases like to grab the mantle of helping US producers stay in business and saving US jobs.  They do not want Congress or the general public to look at the collateral damage created by US AD orders against China on downstream US production.  In truth, US AD cases against China have destroyed more jobs than they have saved.

All AD orders can do is delay the decline of the US industry, they cannot save the companies.  But in delaying the decline, these same AD orders destroy downstream value added production, where the US is often among the most efficient producers in the World.

These points were made by importers in the Import Alliance at meetings with Congressional Trade Staff and a Congressman on Capitol Hill on November 18th in Washington DC.  The Import Alliance has four objectives.  The first two objectives are:

(1)       Eliminate retroactive liability for US importers and join the rest of the World in making antidumping and countervailing duty orders prospective.

(2)      Work for market economy treatment for China in 2016 as provided in the US China WTO Agreement for the benefit of US importers and downstream companies.

As of November 17, 2015, as the US International Trade Commission (“ITC”) states in the attached list, NOVEMBER 172015 AD CVD ORDERS, there are 128 outstanding antidumping and countervailing duty orders against China.  More than 70 of those Antidumping and Countervailing Duty Orders are against raw material inputs, chemicals, metals and steel, that go into downstream US production.

The outstanding chemical AD and countervailing duty (“CVD”) orders against China cover imported products such as polyvinyl alcohol used to produce adhesives and polyvinyl buturyl for auto safety glass.  Another product is sulfanilic acid used to provide Optical Brighteners in the US Dye Industry, which, in turn, resulted in the antidumping order against Stilbenic optical brightening agents.  Other chemicals covered by AD and CVD orders are potassium permanganate in place since 1984 used to purify water, potassium permanganate salts, chloropicrin, barium chloride, glycine used to produce the cooling effect in candies, furfural alcohol, persulfates, barium carbonate, Tetrahydrofurfuryl alcohol, Carbazole violet pigment 23, chlorinated isocyanurates used in swimming pool chemicals, certain activated carbon used to purify various chemicals and to produce products used in nuclear plants, certain polyester staple fiber, sodium hexametaphosphate, sodium nitrite, citric acid, xanthan gum, monosodium glutamate, calcium hypochlorite and melamine.

Often these AD and CVD orders cover products that are not even produced in the United States.  Because of this situation, many US producers dependent on the raw materials simply close US production and move overseas.

The following Chinese metal products are covered by AD and countervailing duty (“CVD”) orders: magnesium ingots, magnesium, and pure magnesium, magnesium carbon bricks used in downstream magnesium dye casting industry and to produce light weight auto parts.  All light weight auto part production has moved to Canada and Mexico because of the antidumping orders on Chinese magnesium.  Other Chinese metal products covered by antidumping and countervailing duty orders are silicon metal critical for use in US foundries, silicomanganese, foundry coke, ferrovanadium, and  graphite electrodes used in the steel industry and downstream metal production, aluminum extrusions, the order has been expanded to cover many downstream products produced from aluminum extrusions, including curtain walls/sides of buildings, lighting equipment, geodesic domes, refrigerator handles, and subcomponent auto parts, electrolytic magnesium dioxide used to produce batteries, which, in part, led to the closure of Panasonic’s battery plant in the US, and refined brown aluminum oxide.

The Magnesium antidumping order, in particular, has led to enormous job loss in the downstream industries.  The Magnesium AD order protects one company in Utah and between 200 to 400 jobs by wiping out thousands, if not tens of thousands of jobs in the downstream industries.

In 2004-2005 43 US companies sold magnesium die castings in the US market.   As of two to three years ago, according to National Association of Dye Casters (“NADCA”), less than 12 US companies now produce magnesium die castings in the United States.  NADCA estimates that 31 US companies have ceased pouring magnesium in the United States because of the antidumping order against magnesium from China.  US companies, such as Lunt in Illinois, simply went out of business because of the Magnesium from China Antidumping order.  In 2010, when NADCA did the survey, it estimated a job loss of 1,675 direct jobs.  Now the jobs loss has swelled to over 2,000 and closer to 10,000 supporting jobs.

Where did the magnesium jobs and companies go?  Many companies and projects simply moved to Mexico or Canada.  Magnesium is used to produce light weight auto parts.  Many OEM magnesium parts manufacturers moved all their production to Mexico. Five Tier 1 steering wheel manufacturers, for example, have magnesium die casting and wheel assembly plants in Mexico, including TRW, AutoLiv, Takata, Key Safety Systems and Neaton.  GM intends to import Buick cars from China into the US.  Could the Magnesium AD order be one of the reasons?

After Chinese chemical and metal products, almost every steel product from China is covered by an AD order and often also a CVD order, including carbon steel plate, hot rolled carbon steel flat products, circular welded carbon quality steel pipe, light walled rectangular pipe and tube, circular welded carbon quality steel line pipe, circular welded austenitic stainless pressure pipe, steel threaded rod, oil country tubular goods, prestressed concrete steel wire strand, seamless carbon and alloy steel standard line and pressure pipe, high pressure steel cylinders, prestreessed concrete steel rail tire wire, non-oriented electrical steel, and carbon and certain alloy steel wire.  Almost every steel product from China is covered by an AD and CVD orders, except for galvanized steel products and cold rolled steel, which are presently the subject of ongoing AD and CVD investigations.

As one person working in the Trade Adjustment Assistance for Companies program remarked to me, the Antidumping and Countervailing Duty orders against Steel explain why so many companies in the TAA program use steel as an input.

If these Chinese products were truly dumped, then AD orders should be issued.  Since Commerce considers China a nonmarket economy country (“NME”) and refuses to use actual prices and costs in China to determine dumping, however, it does not know whether the products are dumped.  For more discussion of the 2016 China NME problem, see my last blog post and the dumping canard argument and many other prior posts and my next newsletter.

Congressmen may not care that retail products go up several dollars because of AD orders, but what happens when the AD orders in place injure downstream US producers, sometimes literally closing the companies down and destroying downstream jobs.  Does that make a difference to Congress?

Also the AD and CVD orders on Solar Cells and Solar Products has led to problems for REC Silicon in Moses Lake, Washington, which produces the upstream product, polysilicon, used to produce solar cells.  China has retaliated against the United States producers by bringing its own AD and CVD cases against the United States for US exports of polysilicon, wiping out the US polysilicon from the China market.  As stated in the last blog post, REC Silicon has deferred a $1 billion investment and possibly could close its plant in Moses Lake.

Because of the impact of AD and CVD orders on downstream US production, the Import Alliance has two other objectives:

(3)       End user production companies should have standing in antidumping and countervailing duty cases.

(4)       The United States should join the rest of the World in antidumping and countervailing duty cases, including Canada, the EC and yes China, and have a public interest test.

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 or use raw materials in downstream production process.

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

Ten US Importers have agreed to form the Import Alliance for America.   On November 18th, Importers in the Alliance met with a Congressman and Congressional Trade Staff in Washington DC in the first of several meetings to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US AD and CVD laws, on US importers and US downstream industries.  For more information, see the Import Alliance website at http://www.importallianceforamerica.com.

THE TRIUMPH AND TRAGEDY OF TAA FOR FIRMS/COMPANIES

But what is the answer to this import problem?  What is the answer for US companies caught in the cross hairs of import competition from China and many other countries and facing potential bankruptcy?

Not more protection. Antidumping and countervailing duty cases cannot be brought against the World.  As stated in many past blog posts, all antidumping and countervailing duty cases do is slow the decline in the US industry, not cure the disease.  A great example of this is the US Steel Industry and the demise of such well-known steel companies as Bethlehem Steel, Lone Star Steel and Jones and Laughlin.  Many of these companies have simply ceased to exist despite 40 years of protection from steel imports under the US antidumping and countervailing duty laws.

Instead, I firmly believe the answer lies in the small program—the TAA for Companies (also called TAA for Firms) (“TAAF”). The Triumph of TAAF is that it has been reauthorized for 5 years.  The tragedy is that its budget has again been cut to $12.5 million nation-wide.

TAA for Companies (TAAF) is probably the most effective trade remedy the United States has in its arsenal, but it is not given the resources it needs to do the job.   I believe in this program and sit on the board of the Northwest Trade Adjustment Assistance Center, the regional office in the Northwest that administers the program.  Since 1984, NWTAAC has been able to save 80% of the injured companies that got into the program.  For more information see www.nwtaac.org.  The big news is that TAAF nationwide recently had a great validation and, at the same time, a bewildering set back.

In case you don’t know about TAAF, this is a program that offers a one-time, highly targeted benefit to domestic companies hurt by trade.  The benefit is not paid to the companies, but to consultants, who help the company adjust to import competition.   The program is amazingly effective.   Between 2010 and 2014, 896 companies with more than 90,000 employees were certified as trade impacted by TAAF after experiencing a 16% drop in sales and 17% drop in jobs.   During this 5 year period, participating companies in TAAF increased average sales by 40% and employment by 20%, achieving impressive double-digit productivity gains.   Essentially, all of the 15,090 jobs lost to imports before company participation in the TAAF program were regained by creating more than 15,140 new jobs by the end of the five year period, and 75,000 jobs were retained by helping these companies stay in business.   These impressive results occurred with TAAF program annual costs of approximately $15.3 million per year.

To put that in context, the very much larger TAA for Worker Program’s appropriation for FY 2015 was $711 million.  The TAA for Worker (TAAW) Program spends roughly $53,000 per year to retrain a single employee AFTER a job has been lost due to trade.   The mission for each program is very different – TAAF’s primary mission is to save the company AND the jobs, while TAAW’s mission is to retrain workers after the jobs have already been lost.   Now you should ask which is the smarter investment?

Arguments are made that TAAF costs the US government money.   When a company adjusts to trade and survives or even prospers, that company and all of its workers pay taxes.  The taxes on average wages for about 8,300 jobs would pay for this whole program. Companies in the TAAF program, however, regained 15,000 jobs and retained 75,000 jobs.  The real costs to government, however, are when companies don’t survive and good jobs are lost.

In fact, the TAAF program actually saves the US government millions of dollars each year by helping companies stay in business while saving their higher paying manufacturing jobs.  For every job saved, resources aren’t wasted on expensive training and other costly benefits, but can instead be used more productively to help trade impacted firms adapt to changes in the global economy as large FTA’s like the upcoming TPP are implemented.

An example using the TAAF program statistics from above describes what happens when TAAF program resources are cut.   If workers applied for benefits through the TAA for Workers (TAAW) Program for the 15,000 jobs lost due to imports, it would cost more than $795 million to retrain them using the $53,000 average cost figure.   The TAAF program not only saves the company but saves the high paying jobs that go with that company, and keeps tax revenues rolling in to contribute to local and national tax bases rather than acting as a cost burden.

The more stunning fact – if the TAAF program saves just 300 jobs per year on a national basis for which TAA for Worker resources of $53,000 aren’t required for retraining efforts, the program easily pays for itself up to its $16 million authorization level.  That is an extremely low bar to set considering that TAAF retained more than 75,000 jobs and created an additional 15,140 jobs during the last five year period.  This shows the short sightedness in cutting the program.

For more information, see the TAA video from Mid-Atlantic TAAC at http://mataac.org/howitworks/ , which describes in detail how four import injured companies used the program to change and turn their company around and make it profitable.  One of the companies was using 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.

Amazingly, TAAF came into being over 40 years ago, before “globalization” was even a word.  On the eve of TPP – it’s never been so relevant.  The idea then, and now, is that changes in trade circumstances (often sudden and unpredictable) put U.S. companies and jobs in jeopardy.  In other word, government action through trade agreements, such as the TPP, change the US market and the market conditions under which companies operate in the United States.  Since government action through the trade agreement has changed the US market, I believe the US government has an obligation to help US companies adapt to the changing US market.

Global trade has evolved over the past 40 years and perhaps it’s time for trade policy to adapt to those changes.   The original mission for TAA was more concerned with the impact of increased imports on US workers, and the vast majority of funds have been dedicated to the TAA for Workers program.   The landscape has changed as more than 5 million manufacturing jobs have been lost in the last 40 years, and the mission for TAA must now shift to maintaining a robust core of manufacturing companies and jobs. Without a vibrant core of manufacturing firms, the US won’t have the capacity or capabilities to achieve growth through export expansion no matter how many free trade agreements are passed, and all the training in the world is not going to bring back those manufacturing jobs.

Earlier this summer, as explained in detail in past blog posts, Trade, including Trade Promotion Authority (“TPA”) and TAA were the hot topics on Capitol Hill.  During this process Congress authorized the TAA program for five years – a length of time and expression of confidence that nobody expected.  The series of events in the Congress were highly dramatic – it was a breakthrough in bipartisanship.

Many Senators and House Representatives played a significant role in pushing the trade legislation, including TAA, through Congress.  The Senators included Republicans Mitch McConnell and Orrin Hatch and Democrats Ron Wyden, Patty Murray and Maria Cantwell.   In the House, Republican Representatives, including Paul Ryan, Dave Reichert, and Jaime Herrera Beutler, voted for the TAA program along with over 90 other Republicans.  Democratic Representatives, including Suzanne Bonamici and many from the New Dem Coalition, such as Representatives Ron Kind, Derek Kilmer, Rick Larson, and Suzan DelBene, helped push the TAA and TPA legislation through Congress.

But, in the very next breath Congress cut the program’s appropriations to $12.5 Million. That’s $12.5 Million for the entire country – an investment of only $250,000 per state to help trade impacted manufacturing companies.

A couple of points to make here:

At $12.5M, TAAF will be able to serve less than 1 in 1,000 companies injured by import competition. Does anyone truly believe that import competition is seriously affecting less than one in 1,000 companies, especially with the coming passage of the TPP?

The inequity of funding for TAA programs must be addressed – FY 2015 appropriations for TAA for Workers was $711 million; TAA for Companies was $15 million.  Both programs play an important role in trade policy, but does it make sense to use the vast majority of funds for retraining efforts after jobs have been lost?  Or, should more of the funding be dedicated to saving both companies and jobs through the TAAF program?

As indicated below, the Labor Advisory Committee to the TPP, which is composed of Unions, estimates that TPP could cost the United States up to 330,000 jobs in the Manufacturing Sector.  Although this may be too pessimistic, the TPP will create losers, companies that do not do as well, and without a robust TAAF program how can those companies and jobs be saved?

TAAF has been evaluated repeatedly by GAO, CRS, and various outside evaluators, which conclude that instead of dying, TAAF companies have a 6% annual growth rate. That’s after an at least 5% decline year on year (the threshold for entering the program), which is an impressive turn-around for distressed companies.  TAAF has proven its worth, and the basic model is the most effective trade remedy that works in the 21st century.  Moreover, the TAAF solution does not change the US market or create the collateral damage associated with US antidumping and countervailing duty cases.  Instead, it teaches the company how to change, adapt and swim in the new market conditions caused by imports.

More importantly, TAAF changes the mindset of the injured companies away from Globalization victimhood to being competitive in the international market.  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.

TPP TEXT AND TRADE ADVISORY REPORTS

On November 5, 2015, the United States Trade Representative Office (“USTR”) released the text of the Trans Pacific Partnership Agreement (“TPP”).  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 past blog posts on this site.

The text of the Agreement is over 6,000 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 posted on the blog, Chapters 3 – 30 – Bates 4116 – 5135. along with the Appendices, Annex 1 – 4 – Bates A-1-1074

On November 5th, 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

On December 2nd and 3rd, 2015 various trade advisory groups operating under the umbrella of the United States Trade Representative (“USTR”) Group issued reports on the impact of the TPP on various industries and legal areas.  Attached are some of the reports,  Agricultural-Policy-Advisory-Committee ATAC-Animals-and-Animal-Products ATAC-Fruits-and-Vegetables ATAC-Grains-Feed-Oilseed-and-Planting-Seeds ATAC-Processed-Foods ATAC-Sweeteners-and-Sweetener-Products Intergovernmental-Policy-Advisory-Committee-on-Trade ITAC-2-Automobile-Equipment-and-Capital-Goods ITAC-3-Chemicals-Pharmaceuticals-Health-Science-Products-and-Services ITAC-5-Distribution-Services ITAC-6-Energy-and-Energy-Services ITAC-8-Information-and-Communication-Technologies-Services-and-Electronic-Commerce ITAC-9-Building-Materials-Construction-and-Non-Ferrous-Metals ITAC-10-Services-and-Finance-Industries ITAC-11-Small-and-Minority-Business ITAC-12-Steel ITAC-14-Customs-Matters-and-Trade-Facilitation ITAC-15-Intellectual-Property ITAC-16-Standards-and-Technical-Barriers-to-Trade Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy Trade-and-Environment-Policy-Advisory-Committee.pdf.   All the reports can be found at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/advisory-group-reports-TPP.

Almost all of the reports are favorable, except for the Steel Report, which takes no position, and the Labor Advisory Report, which is opposed because it is the position of the Unions.  Some of the relevant reports for various industries are as follows:

For Agriculture, see Agriculture Policy Advisory Committee, Animals and Animal Product, Fruits and Vegetables, Grains and Processed Foods.  See also Standards and Technical Barriers to Trade.  For Pharmaceuticals and Health Care, see Chemicals and Health Science products, plus Services.  For Banking see financial and services.  For Energy and Mining, see Energy and Energy Services plus Non-Ferrous Metals. For Intellectual Property, see IP Report and Information and Communications Technologies.  For Telecom, see Communication Technologies and also Standards. For Environmental, see Trade and Environment Policy Advisory Committee. For Customs and Trade, see Customs and Trade Facilitation.

TO TPP OR NOT TO TPP THAT IS THE QUESTION

On  October 5th, in Atlanta Trade ministers from the U.S. and 11 other nations, including Japan, Canada, Mexico, Australia, New Zealand, Peru, Chile, Brunei, Singapore, 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.

On November 5, 2015, the United States Trade Representative Office (“USTR”) released the text and appendices of the Trans Pacific Partnership Agreement, which are over 6,000 pages long and are attached above. The clock has started to run, which means President Obama could technically sign the Agreement 60 days later or on February 3rd,.  Potentially Congress could take up the bill 30 to 90 days later.

But the big question is when will Congress take up the Agreement and can it be ratified.  Two weeks ago on Capitol Hill in discussions with legislative trade staff, they said the TPP has to start from the House of Representatives.  So that means that Paul Ryan, the new Speaker of the House, will probably have the final say, along with Senators McConnell and Hatch.

The new Chairman of the Subcommittee on Trade, House Ways and Means, Congressman Dave Reichert, stated recently that a House floor vote on TPP could be possible in late spring or early summer.  Given the timeline established by TPA requirements, the President will be able to sign TPP Feb. 3 and then send the implementing legislation to Congress after March 4.  Chairman Reichert stated that Congress would have 90 days to consider the agreement, but he would rather not see the House vote pushed into the end of July, adding that it would be possible for the pact to enter into force by January 2017.  Congressman Reichert expressed confidence that sufficient votes would be there to meet the simple majority threshold required under TPA, but he acknowledged that votes on trade agreements are always close.  See article below on the appointment of Congressman Dave Reichert of Washington State to the Chairmanship of the Subcommittee on Trade, House Ways and Means.

As Chairman Reichert further stated, “We’re probably looking somewhere around the May time frame—we’re thinking late spring, early summer.”  But he also indicated that there were many issues to be discussed before scheduling the vote.

In talking to a number of Congressional Trade Staff two weeks ago, they still have not read the entire 5,000 plus pages of the Agreement and digested it enough to know what is in it.

Reichert also stressed that the timing of any vote would be a leadership decision, stating:

We’re taking a measured approach, we’re studying the document and we’re working with other members of Congress and talking with our constituents to see where the troubles might exist for them on a particular product and also working closely with the ambassador [U.S. Trade Representative] Mike Froman.

Reichert also indicated that the International Trade Commission (“ITC”) report on the impact of the TPP agreement on the U.S. economy, which is due by May 18, would also have an impact on the vote.

Reichert further stated:

We are in study mode and talking with members who have issues and concerns about some of the language in TPP.  We’re just going to be moving forward, talking with constituents, talking with members, finding ways we can address these concerns.

Two notable areas of concern are the intellectual property rights protections for pharmaceutical drugs and the carve-out of tobacco from investor state dispute settlement.  The TPP has only 5 years of protection for biologic drugs when the Pharmaceutical companies wanted 12 years.

Reichert further stated, “If we lose some votes [because of the tobacco issue], we’ll have to work on our Democrat friends to pull through and support the effort to recover those losses”

As one Republican Trade Staffer, who is very close to the decision-making, told me, “We honestly do not know when the TPP will come up.”  The staffer went on to state that before the Agreement was finalized, USTR would state that “Substance drives the timeline.”  As the Staffer further stated, now “Addressing members’ [Congressional representatives’] concerns sets the timeline.”

One Democratic trade staffer in the Senate stated that he believes that the Presidential election will have an impact on the timing of a TPP vote in the Congress. If the TPP is looked upon as a positive by the US electorate, the Republicans may want to keep the issue on the table to use against Hilary Clinton in the election.  But if the TPP is looked upon as a negative, Congressional Republicans may want the vote to take place in Spring or Summer 2016 to take it off the table in the Presidential election.

Senate Republican trade staffers made the same point to me, “Maybe there will be no vote on TPP in 2016.”

Any issue this big coming up in a Presidential election year is by its very nature political so President politics will have an impact.  As indicated below, however, Presidential politics cuts several ways.  On the Democratic side, Bernie Sanders is adamantly against the TPP and Hilary Clinton has said she is opposed because she wants the union votes. On the Republican side, all the candidates, except Donald Trump, are in favor of the TPP, but Trump adamantly opposes it.

PRESIDENT OBAMA PUSHES FOR TPP

On November 10, 2015, President Obama made his case for the TPP on Bloombergview.com:

A Trade Deal for Working Families

By Barack Obama

As President, my top priority is to grow our economy and strengthen the middle class. When I took office, America was in the middle of the worst recession since the Great Depression — but thanks to the hard work and resilience of the American people, our businesses have created 13.5 million jobs over the past 68 months, the longest streak of private-sector job creation in history. The unemployment rate has been cut nearly in half — lower than it’s been in more than seven years. We have come back further and faster from recession than nearly every other advanced nation on Earth.

That’s real progress. But as any middle-class family will tell you, we have more to do. That’s why I believe the Trans-Pacific Partnership is so important. It’s a trade deal that helps working families get ahead.

At a time when 95 percent of our potential customers live outside our borders, this agreement will open up new markets to made-in-America goods and services. Today, exports support 11.7 million American jobs. Companies that sell their goods around the world tend to grow faster, hire more employees and pay higher salaries than companies that don’t. On average, export-supported jobs pay up to 18 percent more than other jobs.

These are good jobs — and this agreement will lead to even more of them. It would eliminate more than 18,000 taxes that various countries put on made-in-America products. For instance, last year, we exported $89 billion in automotive products alone to TPP countries, many of which have soaring tariffs — more than 70 percent in some cases — on made-in-America products. Our farmers and ranchers, whose exports account for roughly 20 percent of all farm income, face similarly high tariffs. Thanks to the TPP, those taxes will drop drastically, most of them to zero. That means more U.S. exports supporting more higher-paying American jobs.

At a time when our workers too often face an unfair playing field, this agreement also includes the highest labor standards of any trade deal in history. Provisions protecting worker safety and prohibiting child labor make sure that businesses abroad play by the same kinds of rules we have here at home. Provisions protecting the environment and combating wildlife trafficking make sure that economic growth doesn’t come at the expense of the only planet we call home.

And these commitments are enforceable –meaning we can hold other countries accountable through trade sanctions if they don’t follow through. So, these tough new rules level the playing field, and when American workers have a fair chance to compete, I believe they’ll win every time.

I’ve said many times that the Trans-Pacific Partnership is the right thing for our economy, for working Americans and for our middle class. But I’m not asking you to take my word for it. Instead, I’ve posted the agreement online. If you build cars in places such as Detroit, you can see for yourself how your products will have a better shot of hitting the road in places such as Japan. If you’re a farmer or rancher, you’ll see how your products will face fewer barriers abroad. If you’re a small-business owner, you’ll see how this agreement will mean less paperwork and less red tape.

Along with the text of the agreement, we’ve posted detailed materials to help explain it. It’s an unprecedented degree of transparency — and it’s the right thing to do. Not every American will support this deal, and neither will every member of Congress. But I believe that in the end, the American people will see that it is a win for our workers, our businesses and our middle class. And I expect that, after the American people and Congress have an opportunity for months of careful review and consultation, Congress will approve it, and I’ll have the chance to sign it into law.

Together, we’ve overcome enormous obstacles over the past seven years. We’ve taken an economy that was in free fall and returned it to steady growth and job creation. And we’ve put ourselves in a position to restore America’s promise not only now, but for decades to come. That’s what I believe this agreement will help us do.

UNIONS PUSH AGAINST IT

On December 4th, Union leaders from the United Steelworkers, United Mine Workers of America and the Service Employees International Union, who sit on the president’s Labor Advisory Committee for Trade Negotiations and Trade Policy, came out against the TPP in the report released by USTR, arguing that although the TPP creates some limited opportunities for increased exports, it will also increase trade deficits in several industries — such as auto, aerospace, textiles and call centers — and will kill US jobs.  As the Union members on the Labor Advisory Committee state in the attached report, Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy:

The LAC strongly opposes the TPP, negotiated between the United States (U.S.), Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. We believe that the Agreement fails to advance the economic interests of the U.S. and does not fulfill all of the negotiating objectives identified by Congress in the Trade Priorities and Accountability Act of 2015. The threat to future economic gains here in the U.S. and the standard of living of our people will be put in jeopardy by the Agreement. These threats will grow over time based on the potential for open-ended expansion of the TPP to countries ranging from Indonesia to China.

The LAC report goes on to state:

On behalf of the millions of working people we represent, we believe that the TPP is unbalanced in its provisions, skewing benefits to economic elites while leaving workers to bear the brunt of the TPP’s downside. The TPP is likely to harm the U.S. economy, cost jobs, and lower wages. . . .

The LAC entered the TPP process hopeful and optimistic that the TPP would finally be the agreement that broke the elite stranglehold on trade policy and put working families at the front and center. Unfortunately, we believe the TPP fails to strike the proper balance: of course it is difficult to convince Vietnam to implement freedom of association before the TPP enters into force once Vietnam has already agreed to provisions that will force it to pay higher prices for medicines and subject even its most basic laws to challenge by foreign investors in private tribunals. Given the misguided values enshrined in the TPP, it is no surprise that the economic rules it will impose will actually make it harder to create a virtuous cycle of rising wages and demand in all 12 TPP countries.

While the TPP may create some limited opportunities for increased exports, there is an even larger risk that it will increase our trade deficit, which has been a substantial drag on job growth for more than twenty years. Especially at risk are jobs and wages in the auto, aerospace, aluminum and steel, apparel and textile, call center, and electronic and electrical machinery industries. The failure to address currency misalignment, weak rules of origin and inadequate state-owned enterprise provisions, extraordinary rights provided to foreign investors and pharmaceutical companies, the undermining of Buy American, and the inclusion of a labor framework that has proved itself ineffective are key among the TPP’s mistakes that contribute to our conclusion that the certain risks outweigh the TPP’s speculative and limited benefits. . . .

The LAC urges the President in the strongest possible terms to reverse course now. Do not send this TPP to Congress. Instead, the TPP should go back to the negotiating table. We want to work with you and our counterparts in the other TPP countries to create a truly progressive TPP that uplifts working people, creates wage-led growth, diminishes income inequality, promotes infrastructure investment, protects intellectual property without undermining access to affordable medicines, and respects our democracy. . . .

The LAC went on to state with regards to Manufacturing:

Manufacturing—General

The Trans Pacific Partnership will seriously undermine the future of domestic manufacturing production and employment. As was noted in an initial evaluation of the TPP published in the Wall Street Journal, the combined U.S. trade deficit in manufacturing, including automobiles and auto parts, would increase by $55.8 billion under the TPP. Utilizing the conservative estimate of the Department of Commerce that each $1 billion in trade correlates to 6,000 jobs, the TPP will cost, at a minimum, 330,000 jobs in the manufacturing sector. That estimate does not include the indirect cost in terms of jobs or on wages and living conditions of all the primary and secondary workers who will be negatively affected by the agreement. Indeed, we believe that the job loss potential of the TPP is much higher.

The report is one of 27 from various advisory committees on trade policy, environment and industries released by the Office of the U.S. Trade Representative on December 4th, many of which backed the TPP.

Meanwhile on December 4, 2015, the United Auto Workers (“UAW”) called on Congress to reject the TPP, stating that the agreement threatens domestic manufacturing jobs.  The international executive board of the UAW, one of North America’s largest unions with more than 750 locals, unanimously voted against the TPP, saying the deal repeats many of the same mistakes as other free trade deals before it, such as the North American Free Trade Agreement, that led to stagnant wages, rising income inequality and plant closings in the U.S.

On November 10, 2015, the Blue Green Alliance, a coalition of labor and environmental groups, continued to attack the TPP as a threat to U.S. jobs and climate change policies.  Members of the Alliance include the AFL-CIO, the Sierra Club and the United Steelworkers, each of which has taken a leading role in steering the fight to defeat the TPP.  Although the Union attacks are well-known, the Sierra Club Executive Director Michael Brune aimed his attack at the TPP’s investor state dispute settlement mechanism, which he claimed will give corporations even more power to challenge governments’ air, water and climate protection rules.

PRESIDENTIAL POLITICS—WALL STREET JOURNAL GOES AFTER TRUMP ON TPP AND TRADE

Meanwhile, trade issues and the TPP have been the subject of Presidential politics, with George Melloan writing an opinion piece for the Wall Street Journal on November 3, 2015 comparing Donald Trump to Herbert Hoover and the Smoot-Hawley Tariff:

Donald Trump, Meet Herbert Hoover

Today’s ardent foe of free trade has a soul mate in the president who signed Smoot-Hawley into law.  Donald Trump sees unpredictability as a virtue, so one can only guess what his policies would be if he makes it to the Oval Office. Yet because he continues to lead the Republican pack with the election only a year away, maybe it’s time to make some guesses. Those guesses may or may not be well-informed by Mr. Trump’s incessant monologues. But if he is taken at his word, he is one of the most ardent opponents of free trade ever to seek high office in the U.S.

Mr. Trump rants that as President he would punish Ford Motor Co. for building a plant in Mexico by slapping a 35% tariff on Ford cars and parts imported from that plant. China and Japan are trade enemies and he would fix their wagons, too, by putting trade negotiations with them in the hands of wheeler-dealer Carl Icahn. His pugnacious hostility toward trading partners could be brushed off, but opinion polls suggest that what he says has a lot of resonance with the electorate. . . .

The tariff act they [Smoot Hawley] wrote was initially meant to benefit farmers. But after the shock of 1929, industry and labor demanded protection as well.

Both Hoover and the Republican Congress were compliant. In its final form Smoot-Hawley covered some 20,000 items. The average tariff on dutiable goods jumped to 50% from an already high 25%. U.S. trading partners responded in kind and world trade began to shut down. . . .

But on June 17, 1930, Hoover, pressured by his fellow Republicans, signed it anyway.

The rest is history, as they say. The combined effects of declining global trade and New Deal experiments with central planning meant that Americans would suffer a decade of hard times. No Republican would man the Oval Office for another 20 years.

Could such a thing happen today? Probably not, at least not in the same way. It is now widely understood and accepted that the well-being of the American people is predicated on the smooth flow of global trade and capital. Almost every product Americans buy, including homes, is a composite of parts made in many places in the U.S. and abroad.

Apparently the only prominent American who doesn’t understand that is Donald Trump. He seems to think, as did many people 85 years ago to their sorrow, that the mutually beneficial exchange of goods and services across borders is a zero-sum game, indeed a form of warfare.

Some of us have assumed that the hotel and casino tycoon’s populist demagoguery will ultimately blow itself out. But what if it doesn’t?

On November 8th, Mary Anastasia O’Grady authored another article for the Wall Street Journal, “Memo to Trump: Nafta Helps Americans”, stating:

Levying tariffs on Mexico to pay for a border wall would launch a trade war. . . .

Without the North American Free Trade Agreement (Nafta), manufacturing would be in even worse shape. But don’t tell Donald Trump that. If elected President, he promises to “make America great again” by, among other things, blowing up the 1994 trade pact. . . .

In other words, Mr. Trump plans to launch a trade war with Mexico. This is as preposterous an idea as it is dangerous. Let’s start with the painfully obvious: A tariff is not paid by the exporter but by the importer, who passes it on to the consumer. . . .

It’s hard to see how any of this could be good for Americans. According to “NAFTA Triumphant,” a report last month by the U.S. Chamber of Commerce, annual U.S. trade with Canada and Mexico is now $1.3 trillion, nearly four times greater than before the agreement. Agricultural exports to Canada and Mexico have gone up by 350%, and U.S. service exports have tripled. More than a third of U.S. merchandise exports are now bought by Nafta partners.

A trade war would hurt American manufacturing because it would fracture the highly integrated North American economy. All three Nafta partners are competitive globally because they are able to allocate capital to its highest use anywhere on the continent. . . .

A September 2010 National Bureau of Economic Research working paper found that 40% of the content of U.S. imports from Mexico is produced by U.S. workers. . .  .

Mr. Trump’s plan also fails from a security perspective. Mexican states that are engaged economically with their northern neighbors are growing faster than the rest of the country. They are also creating good jobs and raising living standards, necessary factors to stem the flow of Mexican migrants north. . . .

Mr. Trump’s trade agenda is absurd and would invite a depression. He’s either too uneducated in economics to know that or too cynical to care.

On November 12, 2015, the Wall Street Journal went after Trump again on trade, commenting on the Republican debate:

Mr. Trump called it a “terrible deal,” though it wasn’t obvious that he has any idea what’s in it. His one specific criticism was its failure to deal with Chinese currency manipulation. But it took Rand Paul to point out that China isn’t part of the deal and would be happy if the agreement collapsed so the U.S. would have less economic influence in Asia.

Mr. Trump said on these pages Tuesday that he would label China a currency manipulator on his first day as President, triggering tariffs on thousands of Chinese goods. The businessman thinks economic mercantilism is a political winner, but we doubt that starting a trade war that raises prices for Americans would turn out to be popular. Many of Mr. Trump’s supporters care more about his take-charge attitude than his policies, but GOP voters will have to decide if they want to nominate their most protectionist nominee since Hoover. . . .

On November 12, 2015 in an Editorial, the Wall Street Journal stated:

Donald Trump Is Upset

The candidate says we were unfair to him on trade. . . .

Mr. Trump: “Yes. Well, the currency manipulation they don’t discuss in the agreement, which is a disaster. If you look at the way China and India and almost everybody takes advantage of the United States—China in particular, because they’re so good. It’s the number-one abuser of this country. And if you look at the way they take advantage, it’s through currency manipulation. It’s not even discussed in the almost 6,000-page agreement. It’s not even discussed.”

So when he is asked about TPP, Mr. Trump’s first reference is to China, which isn’t in TPP, and he now says the world should have known that he knows China isn’t part of it because amid his word salad he said that the deal “was designed for China to come in, as they always do, through the back door.”  .. . .

Our editorial point was what everyone who understands East Asian security knows, which is that China would be delighted to see TPP fail. China is putting together its own Asian trade bloc, and those rules will be written to its advantage. TPP sets a standard for trade under freer Western rules. China could seek to join TPP in the future, but it would have to do so on TPP’s terms, not vice versa.

TPP would help China’s competitors by giving them greater access on better terms to the U.S. market. Production is likely to shift from China to Vietnam and other countries. In October the Financial Times quoted Sheng Laiyun, the spokesman for China’s National Bureau of Statistics, as saying that, “If the TPP agreement is finally implemented, zero tariffs will be imposed on close to 20,000 kinds of products. . . . That will create some pressure on our foreign trade.” Some back door.  ***

As for currency manipulation, we gave Mr. Trump a forum for his views in our pages on Tuesday. He doesn’t understand currencies any better than he does TPP. Currency values are largely determined by central banks and capital flows. If China made the yuan convertible and let it float, the initial result would probably be a falling yuan as capital left the country. A trade deal with a binding currency provision could also subject the U.S. Federal Reserve to sanctions as a “manipulator” every time it eased money in a recession.

All of this bears on Mr. Trump’s candidacy because he is running as a shrewd deal-maker who can get the economy moving again. Starting a global currency and trade war “on day one” would get America moving toward recession—or worse.

IMPACT ON NON MEMBER COUNTRIES

USTR Froman in late October stated the TPP has had a “magnetic effect” on outside parties realizing that the TPP stands to set the rules of the road in the coming years, stating:

TPP was designed to be an open platform that will grow over time and help raise standards across the region and around the world.  It’s becoming clear that even nonmembers are going to have to compete in a TPP world and raise their game, and that’s good for everybody.

Froman’s statement came one day after Indonesian President Joko Widodo formally expressed interest in joining the TPP because of his fear of being left adrift in the region.

Assistant Secretary of State Daniel Russel said that the TPP strategy has been to raise trade standards and China could eventually be included in:

The world would be a better place, by far, if China were willing to meet the very high standards of TPP.  The broader impact on China is going to drive a virtuous cycle of better regulatory practices, greater transparency and openness of the Internet. What TPP brings to the member countries are things that I believe all people, including Chinese people, want.

During a recent TPP conference here in Seattle, a State Department expert on the TPP negotiations stated that the objective of the TPP is not to block or contain China.  Instead, the TPP objective is to entangle China in the higher standards and rules set by the TPP.  In other words, to join the TPP, China will have to meet the very high standards and rules set by the Agreement, which could go even higher in future negotiations.

On November 18, 2015, at the first meeting between President Barack Obama and his 11 TPP counterparts since the negotiations were completed on Oct. 5, TPP leaders stated:

“While our focus is on approval and implementation of the results of negotiations with our current partners, we have also seen interest from a number of economies throughout the region.  This interest affirms that through TPP we are creating a new and compelling model for trade in one of the world’s fastest growing and most dynamic regions.”

ITC TPP INVESTIGATION

In the attached notice, ITC TPP INVESTIGATION FED REG, on November 17, 2015 at the request of the USTR, the U.S. International Trade Commission (“ITC”) launched its formal investigation to assess the TPP’s overall economic impact, as mandated by the legislation to renew Trade Promotion Authority passed earlier this year.  As the Commission states in the notice, the purpose of the investigation is to assess the likely impact of the Agreement on the U.S. economy as a whole and on specific industry sectors and the interests of U.S. consumers.

The important dates during the investigation include a public hearing on January 13, 2016 and pre‐hearing briefs and statements due on December 29, 2015.  Post-hearing briefs and statements are due January 22, 2016.  The ITC will transmit its report to Congress on May 18, 2016.

CONGRESSMAN DAVE REICHERT OF WASHINGTON BECOMES CHAIRMAN OF THE SUBCOMMITTEE ON TRADE HOUSE WAYS AND MEANS—GOOD NEWS FOR WASHINGTON STATE AND FOR FREE TRADE IN GENERAL

On November 18, 2015, in the attached an announcement, REICHERT ANNOUNCEMENT CHAIRMAN, Congressman Dave Reichert, a Republican from Washington State, made the following statement after being named as the new Chairman of the Ways and Means Subcommittee on Trade:

I am very honored to have the opportunity to lead the Trade Subcommittee and champion some of the issues that have the greatest impact on Washingtonians. Washington State is one of the most trade-dependent states in the country with 40 percent of our jobs and more than $90 billion in annual exports connected to trade. In the Eighth District alone, 77,100 jobs are supported by trade, and our growers, producers, and businesses export approximately $8.6 billion in goods and services each year.

With the release of the text of the Trans-Pacific Partnership and our ongoing negotiations with the EU, this is a critical time for trade. As a longtime advocate of expanding trade opportunities, I will continue fighting on behalf of our workers, farmers, and businesses across the country, because I firmly believe through high-standard trade agreements we see expanded opportunities for all.

Representative Reichert is the first Member of Congress from Washington State to serve as Chairman of the Ways and Means Subcommittee on Trade.

From personal knowledge, I can confirm that the selection of Representative Dave Reichert as Chairman of the Trade Subcommittee, House Ways and Mean, is important for Washington State and for Free Trade proponents and advocates everywhere.

This is a very powerful position in Washington DC in the Trade network.  Not only the TPP, but amendments to the US Antidumping and Countervailing Duty law, Trade Adjustment Assistance and the US Customs law go through his Committee.  Chairman Reichert was recently named to the Conference Committee with the US Senate on the pending Customs and Trade bill, the Trade Facilitation and Trade Enforcement Act, H.R. 644, presently in Congress.  The Conference Committee met December 7, 2015 on Capitol Hill and as indicated below, came to Agreement on the Bill on December 9, 2015 for passage in Congress by the end of the year.

The issue of Retroactive Liability for US importers and market economy treatment for China in 2016 are squarely in the jurisdiction of the Trade Subcommittee, House Ways and Means, which Congressman Reichert now chairs.

Rep. Reichert is co-chair of the Friends of TPP Caucus, member of the President’s Export Council, and founder of the Congressional Freight Caucus.  Congressman Reichert also signed the discharge petition, as described in my last newsletter, to move the Ex-Im Bank through the House of Representatives.

On November 25, 2015, in an interview on his new position and the TPP, Chairman Reichert stated that he is focused mainly on making sure that the TPP meets many of the negotiating objectives laid out in the Trade Promotion Authority:

Right now, we are all in the process of comparing TPA language to the TPP language and discussing it with our constituents and getting into more discussions as people learn more and more about what’s actually in TPP.

The Chairman also made clear that he is holding off on a full endorsement of the TPP until he and his colleagues have carried out their analysis:

I am a pro-trade guy, but I am not going to support this agreement until we have thoroughly vetted it.  This has to be a deal that protects and creates American jobs and gives us the opportunity to have this global influence.

Reichert said that persuading skeptical Republicans will be a key job to bring the TPP to the Floor, but opposition from heavyweights, such as Paul Ryan or Orrin Hatch, will make it more difficult to get TPP through both chambers of Congress.  But Chairman Reichert pointed out that the TPP chapters, which cause some Republicans to oppose the bill, could also yield some unlikely allies from the other side of the aisle:

We may lose those members that are really affected by the tobacco provisions but on the other hand on the Democrat side, we may be able to gain some support for votes that we might lose on the Republican side.  There’s a lot of work to do in trying to find a direction through this to ensure that we have the votes to pass it [TPP] when it finally comes to the floor.

CONGRESSIONAL ANNOUNCEMENT ON DEAL FOR NEW TRADE AND CUSTOMS ENFORCEMENT BILL

On December 9, 2015, in the attached announcement, AGREEMENT NEW CUSTOMS BILL, Senate Finance Chairman Orrin Hatch, House Ways and Means Chairman Kevin Brady and Senate Finance Committee Ranking Member, Ron Wyden, announced a final agreement on the Trade Facilitation and Trade Enforcement Act of 2015.

Some of the key provisions of the bills are stringent enforcement measures for evasion of antidumping and countervailing duties. As Senator Hatch stated:

“Strong enforcement is a key element in our trade arsenal and thanks to this legislation the Administration will have a number of new tools to hold America’s trading partners accountable. Even more, this measure promotes legitimate trade facilitation and works to preserve one of America’s most important economic assets: intellectual property, helping to prevent counterfeit and illicit goods from entering our nation. We’ve put together a good package, and I look forward to working with my colleagues to get this report across the finish line and signed into law this year.”

As Senator Wyden also stated:

“This enforcement package is about jobs. Too often, our laws and enforcement policies have proven too slow or too weak to stop the trade cheats before jobs are lost. The Leveling the Playing Field Act Congress passed earlier this year helped ensure that workers and businesses harmed by unfair trade have faster access to relief. This conference report, which includes the ENFORCE Act, will help ensure that this relief is effective and that trade cheats cannot evade the consequences of violating our trade laws. The bill we released today represents bipartisan trade enforcement priorities that were years in the making. It takes trade enforcement to a new level to protect workers and businesses in Oregon and around the country. Congress is now on the verge of passing the strongest package of trade enforcement policies in decades.”

Under the new finalized bill, U.S. Customs and Border Patrol will be held accountable for effectively acting to prevent evasion of anti-dumping and countervailing duties through a new process with strict deadlines and judicial review.

Attached are a copy of the bill, the conference report and summary of the bill, CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015.

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

Best regards,

Bill Perry

 

US China Trade War — 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

 

US China Trade War–Developments in Trade, Trade Politics, Patents/IP, Antitrust and Securites

US Capitol North Side Construction Night Washington DC Reflectio“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER MAY 18, 2015 UPDATE

Dear Friends,

I have been very busy over the last two months on a number of different cases.  Can now turn my attention back to the the blog.  But the recent events on Capitol Hill, especially the vote yesterday in the Senate to block passage of the TPA bill, has pushed me to send out the two lead stories today as an update because they are so timely.

If anyone has any questions, please feel free to contact me.

Best regards,

Bill

TRADE PROMOTION AUTHORITY (“TPA”) FIGHT ON CAPITOL HILL

The major trade issue is Trade Promotion Authority (“TPA”) and the Trans Pacific Partnership and there are day to day changes.

After the Democrats in the Senate blocked the TPA bill from coming to the floor by a vote of 52 to 45 on May 12th, the Trade Adjustment Assistance (“TAA”) bill was put together with the TPA bill. The other two bills on Customs Enforcement and Africa are to be considered separately and the legislation is moving forward.

Today, May 18th and 19th TPA is being considered by the Senate with a final vote expected on May 19th.  To see fireworks in the Senate, see the following link in CSPAN http://www.c-span.org/video/?326082-1/us-senate-morning-business&live

On May 12, 2015, Democrats in the Senate blocked the TPA bill from coming to the floor by a vote of 52 to 45.  Four bills have been crafted to move together.  They are the TPA bill, Trade Adjustment Assistance (“TAA”) for workers and companies bill, Customs Enforcement Bill/‘‘Trade Facilitation and Trade Enforcement Act of 2015’’ and an African Trade Bill.  Copies of those bills are attachedCUSTOMS AND TRADE ENFORCEMENT BILL TRADE ADJUSTMENT ASSISTANCE BILL TRADE PREFERENCES ACT TRADE PROMOTION AUTHORITY BILL.

The key problem was the Customs Enforcement 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 does to one country, the other country can do back.

To see the Republican and Democratic arguments on May 12th on the Trade Bills, see http://www.c-span.org/video/?c4537385/senators-mitch-mcconnell-harry-reid-blocked-trade-promotion-authority-bill.  Also see speech by Senator Hatch at minute 24 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.

Negotiations continue.  See Houses Ways and Means Chairman Paul Ryan’s response today to the Senate Vote that the entire world is watching, including China http://video.cnbc.com/gallery/?video=3000379026

The key Senators are not the Democrats that are opposed to TPA, but the pro-trade Democrats.  After the TPA bill was blocked in the Senate on May 12th, President 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 Finance panel and co-author of fast-track legislation.

Those Senators provided the important additional 9 votes, along with the two missing Republican votes, to push the TPA Bill in the Senate over the filibuster barrier of 60 votes to the finish line.

STEEL TRADE CASES ARE COMING

A number of companies have contacted 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 from China and a number of other countries of cold rolled steel, galvanized steel and possibly hot rolled steel.

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 presently before Congress.  That Bill is the one that includes the Currency Manipulation provision and will be voted on tomorrow in the Senate.

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.  Steel companies in market economy countries are expecting trade cases to be filed and have already used computer programs to run their numbers and make sure that they are not dumping.

So with 40 years of protection from steel imports, the question should be asked is Bethlehem Steel alive today?  Do the Trade Cases actually work to save the companies?  I believe that all the trade cases can do is delay the decline of the steel companies, but mess up the market during the mean time.  The real way to save steel companies is through the Trade Adjustment Assistance for Companies program, which focuses at the micro level to help the companies adjust to import competition.

US CHINA TRADE WAR NEWSLETTER FEBRUARY 19, 2015

SPEECH IN NANJING CHINA ON MARCH 9, 2015

Dear Friends,

On March 9, 2015, I will be giving a speech on US Antidumping and Countervailing Duty law, Solar cases, section 337 IP cases and Trade Politics in Nanjing China through the Jiangsu Professional Connection.  The web link for more details about the speech is as follows https://az199.infusionsoft.com/app/page/north-american-logistics-salon?inf_contact_key=5b5596bbfdd91501d97ab4dc9c6c8f58cc044086f560cb5c8d22a1a83cf36137.

You can also learn more about the speech from Scott Holbrook at scott.holbrook@smolakindustries.com  More details about the speech are set forth below:

When: Monday, March 9th 7:00pm (Pre-speech Drinks), 7:45pm (Anti-Dumping Presentation), 8:45pm (Networking Session)

Where: Secco Restaurant and Lounge, 132 Changhong Lu, Nanjing (PRC)

FEBRUARY NEWSLETTER

On January 11thth, I put up my last post stating that because of its length, I have broken up the post into two parts. This February post includes a Trade, Customs and IP update with longer sections on Antitrust and Securities law. My intent was to have a short Trade and Customs update but there is so much happening in the trade area, especially on Capitol Hill, that there are literally day to day developments. Because of the many developments, it has taken a while to put this post up.

TRADE

SPEECH

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

OFFICE PAPER FROM CHINA

On January 21st, a major antidumping and countervailing duty case was filed against Uncoated/ Office Paper from China. Attached are a short form of the petition, International Trade Commission’s Notice of Investigation along with a Wall Street Journal Article quoting me about the new case.   OFFICE PAPER CHINA BRAZIL PETITION FED REG OFFICE PAPER ITC The Next Trade Fight Office Paper – WSJ

TIRES

On January 22nd, Commerce announced its preliminary antidumping determination in the Tires from China case. The Commerce Department Federal Register notice is attached FED REG TIRES AD PRELIM. The antidumping rates are from 19.17 to 36.26% with separate rates companies getting 27.72%. The China wide rate is 87.99%.

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

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

In response to the Commerce Department’s determination in the Tires case, the Ministry of Commerce in Beijing (“MOFCOM”) condemned the decision stating that the case has “many flaws.” MOFCOM also stated, “Data shows that the U.S. tire industry is in good shape and gets good profit; imports from China did not cause damage to the domestic industry.”

In response, USW International President Leo W. Gerard stated: “It is the Commerce Department’s statutory duty to neutralize the negative effects of the dumped imports into the United States. Dumped imports have cost thousands of American tire workers their jobs. Left unchecked, the combination of illegal dumping and subsidization on imported tires from China would cost Americans tens of thousands of additional jobs.”

ALUMINUM EXTRUSIONS

On January 21, 2015, in the attached decision, SHENYANG CURTAIN WALLS INSIDE SCOPE in Shenyang Yuanda Aluminum Industry et. Al. vs. United States, the United States Court of Appeals for the Federal Circuit (“CAFC”) determined that imports of Chinese curtain wall, sides of buildings, are within the scope and covered by the US antidumping and countervailing duty orders on Aluminum Extrusions from China.

WOOD FLOORING FROM CHINA

On January 9, 2015, the Commerce Department issued its attached preliminary determination, WOOD FLOORING PRELIM FED REG NOTICE, in the Dec 1, 2012 to Nov 30, 2013 antidumping review investigation in Wood Flooring from China. Rates went up ranging from 0 to 58.84% with most companies getting 18.27%, up from 5.74% in the last review. The final determination will come out in six months. If the final determination stays the same and rates go up, US importers will be retroactively liable for the difference plus interest.

To avoid this liability, importers should fight the review at Commerce.

We are presently in the Court of Appeals for the Federal Circuit arguing against the ITC final injury determination. If we can win, this case may go away.

But retroactive liability for US importers is predictable in antidumping cases because of annual review investigations. Since Commerce can switch surrogate countries in annual review investigations, it is only a matter of time before antidumping rates go up and US importers find themselves liable for substantial antidumping duties. Chinese companies cannot know whether they are dumping and US importers cannot know, because no one knows which surrogate country Commerce will pick to value the raw material inputs and other factors of production.

That is why there is now a surge of Wood Flooring imports from Indonesia because of the fear of retroactive liability. This is exactly what we told the International Trade Commission (‘ITC”) would happen in the initial investigation and now it has happened. But the ITC ignored the argument.

It is also why we formed the Import Alliance for America, www.importallianceforamerica.com. See below. We are now attempting to gather importers together to meet with Congressional Trade Staff this month to speak about their problems.

COURT OF APPEALS DECIDES BECAUSE ANTIDUMPING DUTIES ARE REMEDIAL NOT DEDUCTED FROM US PRICE IN ANTIDUMPING CASES

On February 5, 2015, in the attached Apex Exports v. United States, APEX CAFC CASE, the Court of Appeals for Federal Circuit determined that since antidumping duties are remedial, in calculating the US price to determine dumping when either the foreign exporter or an affiliated US importer is the importer of record, Commerce should not deduct the antidumping cash deposits from the US price. This means that if the import sale is structured correctly, foreign producers can reduce their antidumping rates because of the way Commerce calculates antidumping rates.

As the Court stated:

“Commerce considers antidumping duties as distinct from normal selling expenses and customs duties. Normal customs duties have no remedial purpose. . . . Antidumping duties, on the other hand, are special duties that implement a trade remedy. . . .As the CIT has described it, antidumping duties are “an element of a fair and reasonable price,” not an import duty or cost associated with importation. . . . Furthermore, legislative history signals that antidumping duties are special remedial duties, distinct from U.S. import duties. . . . It is therefore reasonable for Commerce not to treat antidumping duties as costs of importation when calculating EP. . . .

What is more, Commerce declines to deduct antidumping margins when calculating the margins because that would be inappropriately circular and result in a double counting of the remedy. In arguing otherwise, Ad Hoc misses the point of the antidumping statute. The goal of imposing the duty is to prevent dumping by effectively raising the price of subject merchandise in the U.S. to the fair value. The importer has less incentive to charge an unfairly low price, because it will have to make up the difference through a duty payment. . . .

Because Commerce’s interpretation of the antidumping statute is a permissible construction, the CIT’s decision to sustain Commerce’s refusal to deduct antidumping duties when calculating export price is affirmed.”

BOLTLESS STEEL SHELVING

On January 26, 2015, in the attached factsheet, CVD factsheet-prc-boltless-steel-shelving-units-cvd-prelim-012615, the Commerce Department announced an affirmative preliminary determination in the countervailing duty (CVD) case on Boltless Steel Shelving Units from China.

Commerce found preliminary subsidy rates ranging from 12.21 percent for Ningbo ETDZ Huixing Trade Co., Ltd. to 14.53 percent for Nanjing Topsun Racking Manufacturing Co., Ltd. All other producers/exporters in China have been assigned a preliminary subsidy rate of 13.37 percent. In addition, fourteen companies which did not respond to the quantity and value questionnaire received a preliminary subsidy rate of 55.75 percent, based on adverse facts available.

A preliminary antidumping determination in the case will be issued in about two months from now.

SOLAR PRODUCTS CASE—ITC AFFIRMATIVE INJURY DETERMINATION

On February 4, 2015, in the attached decision, ITC INJURY DETERMINATION PRODUCTS CASE, the US International Trade Commission (“ITC”) reached an affirmative injury determination in the Solar Products from China case. As a result, antidumping and countervailing duty orders will be issued against all imports of Chinese solar panels with third country solar cells in them.

COMMERCE HAS INITIATED SECOND SOLAR CELLS ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

The Commerce Department notice initiating the attached second Solar Cells review investigation. Commerce has also issued the attached quantity and value questionnaire in the antidumping review investigation, and is due February 19th, right in the middle of Chinese New Year.  prc-qvq-silicon-photovoltaic-cells-ar-ad-020415 SOLAR CELLS INITIATION NOTICE SECOND REVIEW

FALL OUT FROM SOLAR CELLS AND PRODUCTS CASE—VIETNAM CIRCUMVENTION SOLAR FACTORIES FORCED TO CLOSE DOWN

One US Solar Cells/Panel importer has informed me that the situation in Vietnam right now is “crazy”.  US Customs is working with Vietnam customs to inspect “so-called” solar factories and have already closed down a number of them as they were just an address for Chinese companies to get a Certificate of Origin and “cheat” the system by way of transshipment.  The Importer went on to state, “Our factory has been inspected twice already and both times had no issues as they are a legit factory using foreign solar cells.”

Vietnam’s crackdown on transshipment should not be a surprise because Vietnam is part of the Trans Pacific Partnership negotiations.  Part of the negotiations is cracking down on transshipment and preserving country of origin.  This has been a significant topic of the TPP negotiations with Malaysia and apparently Vietnam.

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.

Recently, the Import Alliance established its own website. See http://www.importallianceforamerica.com.

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

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

FEBRUARY ANTIDUMPING ADMINISTRATIVE REVIEWS

On February 2, 2015, Commerce published the attached Federal Register notice, FEBRUARY REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of February. The specific antidumping cases against China are: Certain Preserved Mushrooms, Frozen Warmwater Shrimp, Heavy Forged Hand Tools, Graphite Electrodes, Uncovered Innerspring Units, and Wind Towers. The specific countervailing duty case is Wind Towers.

For those US import companies that imported Mushrooms, Shrimp, Hand Tools, Graphite Electrodes, Innerspring Units and Wind Towers and the other products listed above from China during the antidumping period February 1, 2014-January 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. Recently in the Shrimp from China antidumping case, for example, almost 100 Chinese exporters were denied a separate antidumping rate.

MAGNESIUM

Two US Executives were ordered to pay fines for evading the US antidumping order on magnesium. Gregory Magness, president of Superior Metal Powders Inc., and Eldon Bott, president of Innovative Materials & Solutions Inc., pled guilty to evading antidumping duties in the millions of dollars under the Magnesium antidumping order. Greg Magness was ordered to pay antidumping duties of $287,942 and Eldon Bott was ordered to pay $55,600. The two executives made false statements to the US government to avoid millions of dollars in antidumping duties by smuggling Chinese magnesium, which was later used for $42 million worth of aircraft flares. The two executives circumvented a 305% antidumping duty on Chinese magnesium powder that a U.S. military contractor unknowingly used to produce $42 million worth of flares that draw heat-seeking missiles away from aircraft.

Because both men pled guilty, Magness and Bott will avoid serving any prison time under the terms of their agreements. Under the agreement with Magness, the government has gone after him personally and he agreed to return $100,000 from savings and investment accounts, provided his wife doesn’t assert any claim to the money he agreed to forfeit.

Magness’ son Justin also pled guilty last month to aiding and abetting in the presentation of a false document to customs officers. Two other individuals, Nehill and Wright, are scheduled to be sentenced in June.

WTO DECISION AGAINST COMMERCE IS HAVING A SIGNIFICANT IMPACT ON NUMEROUS US CVD CASES AGAINST CHINA, INCLUDING THE SOLAR CELLS CASE

At the January 27th Senate Finance Hearing, which is described below, the United States Trade Representative and US Senators celebrated all the victories the United States has had in the WTO against China. I personally heard a US Congressman state “We are winning every case against China in the WTO.”

The statement unfortunately is not true because China is also now winning a lot of cases against the USA. As mentioned in my last newsletter, on December 18, 2014 in the attached United States – Countervailing Duty Measures on Certain Products from China, FINDINGS AND CONCLUSIONS COMPLETE WTO REPORT, the World Trade Organization (“WTO”) Appellate Body found the United States in violation of the WTO Agreement, specifically the Agreement on Subsidies and Countervailing Measures (ASCM), with regards to a number of US countervailing duty cases against China, including the following US countervailing duty investigations against China: Pressure Pipe, Line Pipe, Citric Acid, Lawn Groomers, OCTG, Wire Strand, Magnesia Bricks, Seamless Pipe, Coated Paper, Drill Pipe, Aluminum Extrusions, Steel Cylinders, Wood Flooring, and Solar Cells. On January 16, 2015, the WTO Dispute Settlement Body accepted the December 18th Appellate Body decision.

This WTO decision is now having an impact on numerous past Commerce Department countervailing duty determinations against China, which the WTO has determined are inconsistent with the WTO Agreement. In response, on January 28 and January 29, the Commerce Department initiated investigations under 19 USC 3538, Administrative Actions following WTO Panel Reports, on a number of different products.

As the Commerce Department states in the attached notice on the Solar Cells case, CVD RE INVESTIGATION WTO:

This is to inform you that, pursuant to Section 129 of the Uruguay Round Agreements Act, 19 USC 3538, the Department of Commerce (Department) is in the process of making a determination not inconsistent with the findings of the World Trade Organization (WTO) dispute settlement panel (the Panel) and Appellate Body (AB) in United States – Countervailing and Anti-dumping Measures on Certain Products from China (WT/DS449). This dispute concerns the final determination in the antidumping duty investigation on crystalline silicon photovoltaic cells, whether or not assembled into modules from the People’s Republic of China (PRC) and the order published on December 7, 2012.

Several other notices are attached, including Wood Flooring and Coated Paper.  139 Wood Flooring Initiation Letter Coated paper sec 129 inititation letter

As mentioned, in my past post, the WTO faulted the US in its determinations that all state-owned companies, in fact, are the Chinese government and in the Commerce Department’s use of unreasonable all facts available decisions in countervailing duty cases against China.

The WTO Appellate Body also found the US violating the WTO CVD Agreement, the Agreement on Subsidies and Countervailing Measures (ASCM), for failing to use Chinese benchmark prices to calculate whether there is a benefit in its countervailing duty (CVD) investigations. Specifically, at issue was the Commerce Department practice of refusing to accept private or in-country prices in China as a benchmark to calculate the benefit the Chinese subsidy is providing the Chinese exporter/producer. Commerce had determined that all in-country China prices were distorted by Chinese government intervention and used a presumption. The WTO determined that Commerce must make a case by case investigation and cannot use a presumption.

The first issue faulted by the panel relates to how Commerce determines whether a state-owned enterprise (SOE) is a public body capable of bestowing subsidies within the meaning of the CVD agreement. The U.S. already lost on this issue in an earlier WTO case brought by China. Specifically the WTO Appellate body found a violation of the WTO CVD agreement when the Commerce Department determined that state-owned enterprises are a public body capable of providing subsidies simply because it is government controlled. The Appellate Body determined that the U.S. instead has to demonstrate that the SOE is performing a “government function” or has “government authority.”

The panel also faulted the U.S. for initiating the investigations based solely on the existence of export restraints in two CVD proceedings, and for not considering the appropriate factors in determining whether a subsidy was de facto specific in 12 CVD proceedings.

Commerce is complying with the WTO decision by initiating “Section 129” proceedings, in which Commerce would review the CVD determinations and perhaps alter the margins in order to take into account the Appellate Body findings. But Commerce will probably follow past procedures and simply change its decisions slightly to accommodate the WTO decision.

It should be noted that the Commerce Department’s approach to WTO decisions is mirrored by the Chinese government’s approach to WTO decisions. Many US Senators and Congressmen are very upset about the Chinese government’s reaction to the adverse WTO antidumping determination against the Chinese government’s antidumping determination on Chicken from the United States. In reality, China is simply following the Commerce Department’s approach in these cases. Never give in and just make small changes to policy in response to WTO decisions.

All WTO law is based on reciprocity and what goes around does indeed come around.

UNITED STATES RESPONDS WITH OWN WTO SUBSIDIES CASE AGAINST CHINA

On February 11, 2015, the United States responded with its own WTO complaint against Chinese export subsidies. USTR Michael Froman announced that a new WTO complaint has been filed in the WTO against Chinese export subsidy program, which has supplied export $1 billion in export subsidies to industries ranging from agriculture to medical devices. Specifically targeted is China’s “Demonstration Bases-Common Service Platform” export subsidy regime, under which the Chinese government allegedly Supplies free and discounted services to 179 so-called demonstration bases across seven industries. Those sectors are textiles and apparel, advanced materials and metals, light industry, specialty chemicals, medical devices, hardware and building materials and agriculture.

TRADE POLITICS AND TRADE AGREEMENTS

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

TPA MOVES FORWARD QUICKLY WITH CHANGES ON A DAY TO DAY BASIS

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 cannot 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 during the elections as soft on trade.

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

But then came the November 4th Republican wave election changing Trade Politics dramatically in Washington DC. Elections have consequences and in 2015 Republicans have taken the Senate and increased their numbers in House.

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

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

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

On July 17, 2014 all Republican members of the House Ways and Means Committee sent a letter to USTR Froman, which is posted on my blog, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

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

Now the story continues . . . .

On January 8, 2015, Republican leaders in the Senate and the House began to build the case for Trade Promotion Authority. Senate Majority Leader Mitch McConnell, R-Ky, stated that talks have been underway for some time and that the trade area is a critical area in which the Republican majority and President Obama can find common ground.

As McConnell stated,

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

Neither McConnell nor Senate Finance Committee Chairman Orrin Hatch, R-Utah, however, could offer a specific timetable for the legislation to be introduced as members are still working on the details. McConnell went on to state,

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

The President has increased his push for TPA renewal and McConnell stated he was happy that the president had become a “born-again free trader,” but stressed that Obama would have to deal with resistance from Democratic trade opponents if he is to be taken seriously in his decision to reinstate TPA. As McConnell further stated:

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

On January 12, 2015, USTR responded to criticism that the negotiations have been too secret by stating the White House has taken “unprecedented” steps to promote transparency. The USTR released a fact sheet that detailed efforts it said the administration has made to encourage public conversation and to cooperate with the newly Republican-controlled Congress to pass the Transatlantic Trade and Investment Partnership and the Trans-Pacific Partnership.

The USTR stated,

“We are always looking for new ways to engage the public and to seek views that will help inform and guide our trade policy, and enhancing transparency will remain a priority, consistent with the ability to deliver on our ultimate mission, which is to deliver agreements that achieve the maximum possible benefit for the American people. That’s our focus.”

The USTR maintained that it will release the full text of the TPP “well before” it is signed in order to invite further comment.

The fact sheet said the White House has provided the current negotiating texts to any interested members of Congress and has held more than 1,600 congressional briefings on the TPP alone. The USTR also said Congress has been informed “every step of the way,” and that Congressional committees have been able to preview every proposal before they’re brought to the negotiating table.

On January 13, 2015 several small government conservative organizations, including Americans for Limited Government and Tea Party Patriots, in an open letter to Congress argued that Congress should refuse to give President Obama the authority to submit trade agreements for votes on an expedited track, because such a process was against good government.

As the letter stated,

“President Obama has seized power time and again, and Congress has effectively thrown up its hands in despair. Denying him Fast Track Authority sends a clear message that enough is enough. It tells this President that Congress will stand up for itself as a co-equal branch of government and engage in a thorough and complete examination of any agreements that he signs.”

“In light of this President’s disregard for Congressional prerogatives, it would be inexcusable for Congress to provide this President with any additional power. Given the fact that the TPP has largely been negotiated in secret with only the administration’s multinational stakeholder partners involved, it is Congress’ duty to examine every jot and note to ensure that American interests are protected.”

On January 20, 2015, in a speech to the US Chamber of Commerce, Senator Orrin Hatch, new Chairman of the Senate Finance Committee, stated that he would move “carefully but quickly” to introduce a bill that will reinstate the process for swiftly approving trade agreements, calling on the White House to engage with lawmakers in order to facilitate its ambitious trade agenda. Senator Hatch said that he is continuing his effort to work on the bill in close coordination with the ranking Democratic member of the Senate Finance Committee, Sen. Ron Wyden, D-Ore., and House Ways and Means Committee Chairman Paul Ryan, R-Wis. As Senator Hatch stated:

“My plan … is to move carefully but quickly to introduce and mark up a TPA bill. I’m currently working with Ranking Member Wyden and Chairman Ryan to see if there are improvements that might be made to TPA so that we can introduce a bipartisan, bicameral bill in this Congress that we can move in short order.”

But Senator Hatch went on to state:

“If President Obama can be more forward-leaning with members of his party — starting with tonight’s State of the Union address — I believe we can get this done quickly. That is what I am committed to do.”

Following his statement, on the night of January 20th, in the only part of the State of the Union address in which Republican lawmakers clapped and Democrats were silent, President Obama pushed for passage of Trade Promotion Authority stating:

“We should level the playing field. That’s why I’m asking both parties to give me trade promotion authority to protect American workers with strong new trade deals from Asia to Europe that aren’t just free but are also fair. It’s the right thing to do.”

“I’m the first one to admit that past trade deals haven’t always lived up to the hype, and that’s why we’ve gone after countries that break the rules at our expense. But 95 percent of the world’s customers live outside our borders, and we can’t close ourselves off from those opportunities.”

In response, several Democratic members in Congress vowed to fight the Trade Agreements. Representative Rosa DeLauro, a Connecticut Democrat, stating, “It surrenders the Congressional authority that we may need to protect American workers and American consumers.” Representative Louise Slaughter, a New York Democrat, stated “We are going to fight this tooth and nail, and I believe we are going to win.”

But Representative Steny Hoyer of Maryland, the No. 2 Democrat in the House, stated prior to the State of the Union that fast track “can pass” in the House. He also praised prior trade deals as “good for our country and our workers.”

Even before the State of the Union had finished, opponents began issuing statements that night. The Communications Workers of America said it supports many of Obama’s initiatives but wouldn’t stand with him “to send more U.S. jobs offshore.” AFL-CIO President Richard Trumka agreed with Obama’s initiatives on taxes and wages, but added “our opposition to fast-track trade deals that are giant giveaways to big corporations must be resolute” and do not tackle so-called 21st-century trade problems, such as foreign currency manipulation.

The Sierra Club, the Natural Resources Defense Council and 42 other environmental came out against fast-track approval process in a letter sent out to Congress stating that lawmakers and the general public should have a more active role in the negotiations:

“U.S. involvement in trade negotiations should be guided by democracy, transparency, political accountability and must lead to a ‘race to the top’ that provides real protections for communities, workers and the environment. A new model of trade that delivers benefits for most Americans, promotes broadly shared prosperity, and safeguards the environment and public health is possible.”

Both Representative Paul Ryan and Senator Orrin Hatch, however, welcomed Obama’s decision to push TPA, with Hatch putting the burden squarely on the President’s Democrats to ensure the process moves smoothly, stating,

“Democrats in Congress can now either work with the President and Republicans to pass TPA and empower our country to compete, or they can throw up more roadblocks and cast uncertainty on our country’s trade agenda.”

On January 23, 2015, Sander Levin, ranking Democratic Congressman on the House Ways and Means Committee, took aim at Japan in the TPP, stating:

“Japan imports one American car for every 100 Japanese cars imported into the United States each year. The TPP agreement should eliminate tariffs and other charges by a date certain on virtually all products exported by the United States that decrease market opportunities for United States exports.”

On January 27, 2015, the House Ways and Means Committee held a full hearing on US Trade Policy with testimony by USTR Michael Froman. In his Opening Statement, which will be attached to my blog, Ways and Means Chairman Republican Paul Ryan stated in part:

“Expanding American trade is going to be one of our top priorities this year. And the reason why is pretty simple. Ninety-five percent of the world’s customers live outside the United States. I can think of few better ways to grow our economy than to grow our customer base. I believe Americans can compete with anybody, if given a fair chance. That’s why we have to break down barriers to our exports by completing trade agreements.

“Right now, there are several trade deals in the works—all of them very promising. We’re negotiating the Trans-Pacific Partnership with our friends in Asia, the Trans-Atlantic Trade and Investment Partnership with our friends in Europe, the Trade in Services Agreement with countries around the world, and several agreements through the World Trade Organization.

“And if done well, all of them would help create jobs and expand opportunity. And all of them would help shape the kind of economy we leave for our kids.

The fact is, if we don’t write the rules of the global economy, other countries will. They already are. Other countries, like China, are putting in place new trade agreements among themselves. So it’s a simple as this: If we’re not moving forward, we’re falling behind.

“And look at the record. If you add up all the countries that don’t have agreements with us, we run a manufacturing trade deficit. And if you add up all the countries that do have agreements with us, we run a surplus.

“So I think it’s pretty clear: Trade—and trade agreements—are good for our country. We need more of both. And the first thing we need to do to get there is pass trade promotion authority.

“Here’s the issue: When the United States sits down at the negotiating table, everybody at that table has to trust us. They have to know the deal the administration wants is the deal Congress wants—because if our trading partners don’t trust the administration—if they think it will make commitments that Congress will undo later—they won’t make concessions. Why run the risk for no reason?

“On the other hand, once our trading partners know we’re trustworthy—once they can see we’re negotiating in good faith—they’ll be more willing to make concessions. That’s why we have to pass this bill before negotiations are complete.

To get the best deal possible, we have to be in the best position possible. We can’t be negotiating with ourselves. We have to maintain a united front.

“Now, I’m not saying to maximize our leverage we have to maximize the administration’s power. I’d no sooner trust this administration with more power than I’d trust the Patriots with the footballs at Lambeau. What I’m saying is this bill would maximize Congress’s power.

“Let me explain. Nothing stops a president from negotiating a deal without instructions from Congress. So, if we waited till after the negotiations are done to make our views known—if we simply reacted to what the administration put in front of us—we might scuttle the whole deal. That means we have to get involved before the deal is done, not after it’s finished. We have to be proactive, not reactive.

“That’s what TPA does. We call this process ‘trade promotion authority.’ But I think of it more as a contract. We say to the administration, if you want this up-or-down vote, you have to meet three requirements: Number one, you have to listen to us. Number two, you have to talk to us. And number three, you have to remember: we get the final say

“First, TPA lays out all our negotiating objectives for our trade deals. In short, we tell the administration what targets to hit. It’s got to do things like eliminate barriers to our exports, protect our intellectual property, and eliminate unnecessary regulatory barriers in other countries.

“Second, TPA requires the administration to consult with Congress. Any member can meet with our trade representative’s office at any time. Any member can read the text. Any member can attend the negotiations. It’s like a TPA hotline.

“And third, just to avoid any confusion, we put it right in the bill text: Congress gets the final say. If a trade deal requires any changes in our laws, Congress must approve them.

And if the administration violates any of these requirements, we can say, ‘No deal.’ If it doesn’t cooperate, it doesn’t get the up-or-down vote.

“We simply can’t get the best deals without TPA, and that’s why we’ve got to pass it as soon as possible.

“So TPA is front and center, but there are several other measures we must take to help the economy. . . .

“Finally, Congressman Brady has done solid work on the Customs Trade Facilitation and Enforcement Act. The bill would help streamline our customs procedures and enforce our trade laws. And Congressman Boustany has tackled the problem of trade remedy evasion in a creative and effective way. We’ve got to get this legislation across the finish line. . . .

At the January 27th hearing, in a statement, which will be attached to my blog, www.uschinatradewar.com, USTR Michael Froman stated in part:

The Obama Administration’s economic agenda of creating jobs, promoting growth, and strengthening America’s middle class is supported by the work we do at USTR: opening markets and leveling the playing field to ensure that American workers, farmers, ranchers; manufacturers and service providers; innovators, creators, investors and businesses – both large and small – can compete in the world’s fastest growing markets.

Building on Record Breaking U.S. Exports

In 2014, USTR built on record-breaking exports, market opening initiatives, intensive engagement, and trade enforcement to achieve strong results for America’s economy. The data is compelling: Unemployment has dipped to 5.6 percent and we are creating more than 200,000 jobs per month. Those jobs include a gain of 786,000 new manufacturing jobs over the last five years. Manufacturing exports have grown by 9 percent a year on average. Our total exports have grown by nearly 50 percent and contributed nearly one-third of our economic growth since the second quarter of 2009. In 2013, the most recent year on record, American exports reached a record high of $2.3 trillion and supported a record-breaking 11.3 million jobs.

It’s clear, more exports means more good jobs and more jobs are dependent upon exports than ever before. That’s why we’ve worked hard to open more markets to Made-In-America goods and services, agricultural products, innovation, and investment. In the last four years, the increase in U.S. exports has supported 1.6 million more good jobs, which typically pay 13-18 percent more on average than jobs not related to exports.

Done right, trade policy unlocks opportunities for Americans. Done right, trade policy promotes not only our interests, but also our values. And it gives us the tools to make sure others play by the same rules as we do. The United States is an open economy and our borders are already open to trade. But other countries still erect real barriers to our exports. . . .

But we know that the status quo is not an option to compete in the global economy. And we know that our workers are competing against workers in countries that lack even the most basic labor rights. Our businesses are competing against companies that get subsidies from their governments or that don’t have to maintain any environmental standards. If we sit on the sidelines, we will be faced with a race to the bottom in global trade instead of continuing to promote a race to the top. That’s not how we want to compete. As the President said last week, we should be the ones to engage and lead. We want to take the field, establish the rules of the game that reflect our interests and our values, and do so with all the tools we need to win.

Our trade agreements will support American jobs by boosting Made in America exports from our businesses, farms, and factories. In fact, for every $1 billion we export, between 5,400 and 5,900 jobs are supported here at home. By opening rapidly expanding markets with millions of new middle-class consumers in parts of the globe like the Asia-Pacific, our trade agreements will help our businesses and workers access overseas markets, where 95 percent of the world’s consumers and 80 percent of the world’s purchasing power reside. Combined with our supply of energy, highly skilled work force, and culture of innovation, our trade agreements will help once again make America the global production platform of choice. . . .

Trans-Pacific Partnership (TPP) . . . .

In 2014, we significantly advanced negotiation of the TPP, a state-of-the-art trade agreement that will guarantee expanded U.S. access to the rapidly growing economies in the Asia Pacific. Together with the 11 other TPP countries, we have made important progress in the market access negotiations for agricultural products, industrial goods, services and investment, and government procurement. We have also made substantial progress on ambitious, high-standard trade rules that will promote U.S. commercial interests and values in the region, in such areas as intellectual property, digital trade, competition with State-owned enterprises, and labor and environmental protections. The Peterson Institute for International Economics estimates that TPP will add $123.5 billion to U.S. exports each year when it is fully implemented.

We continue to make progress in closing gaps related to autos, agriculture, and other market access issues in our bilateral negotiations with Japan. Japan agreed upfront to provide the longest staging of any TPP products for U.S. autos and truck tariffs, and we continue to work with Japan to address the long-standing barriers to American autos in the Japanese market. We will continue to closely consult with our auto workers and industry as the negotiations proceed in order to get the best deal possible for them. In agriculture, we continue to work hard to dismantle high tariffs, restrictive quotas, and complex administrative policies to create new opportunities for U.S. producers.

At the TPP Leaders meeting in November convened by President Obama, all 12 countries took note of the progress that has been made on TPP, and agreed that the end of the negotiation is now coming into focus. And the TPP countries reaffirmed their commitment to concluding a comprehensive, high-standard agreement, and to work toward finalizing the TPP agreement as soon as possible. . . .

Manufacturing

In 2013, the United States exported nearly $1.4 trillion in manufactured goods, which accounted for 87 percent of all U.S. goods exports and 61 percent of U.S. total exports. Here too, we expect that 2014 was a record year. In 2015, the Obama Administration will continue to pursue trade policies aimed at supporting the growth of manufacturing and associated high-quality jobs here at home and maintaining American manufacturers’ competitive edge. U.S. manufacturing is vital to our economy and the Obama Administration is committed to making sure that the United States is competitive in attracting businesses to locate here. This is why we support a dynamic manufacturing sector and research and development policies to support broad-based innovation and advanced manufacturing that will help U.S. workers and firms win the future. As American manufacturers increase their capacity to produce more advanced and value-added goods, consumers around the world continue to place a high value on Made-in-America products. Across our trade negotiations, we aim to create rules that ensure state-owned enterprises (SOEs) do not compete unfairly with private firms, and seek to ensure that rules of origin and global supply chain provisions create conditions for manufacturers to locate here in the United States.

Innovation, Intellectual Property, and the Digital Economy

America’s economic growth and competitiveness depend on its capacity to innovate. Our trade agreements, including TPP and T-TIP, promote strong and balanced IP protection and enforcement while opening markets for U.S. produced IP-intensive goods and services. . . .

We will continue to support a free and open Internet that encourages the flow of information across the digital world. We know that the impact of digital trade is enormous, and thus that a supportive trade framework is critical for its continued expansion. Therefore, among the other twenty-first century issues we are addressing, we are modernizing our trade agenda to promote growth in the digital economy in particular. We will continue to work closely with Congress and all our stakeholders on a wide range of trade issues related to the protection and enforcement of copyrights, trademarks, patents, trade secrets, and other forms of IP. We will also work to push back against efforts by our trading partners to improperly use geographical indications to limit the ability of our farmers and exporters to use common food names and trademarks for their products.

The theft of U.S. intellectual property puts American jobs at risk and generates counterfeit products that can pose a threat to the health and safety of consumers around the world. We utilize our annual “Special 301” Report to identify and resolve IP concerns with many trading partners. . . .

Enforcement Tools Utilized to Protect U.S. Trade Rights Around the World

As we work to open markets around the world, we are simultaneously working to hold our trading partners accountable for their commitments under existing agreements so that American workers, businesses, farmers and ranchers get the full benefit of all the economic opportunities the United States has negotiated over the years. From day one, the Obama Administration has shown an unwavering commitment to enforce our trade rights around the world. Within existing resources, we have undertaken a bold and ambitious trade enforcement agenda reflected in the scale, scope, and systemic importance of our disputes. And for every part of our economy, USTR is fighting on their behalf – from American auto workers to farmers to high-tech manufacturers that need rare earth metals to American service providers.

WTO Enforcement

USTR is building upon significant WTO victories for the United States as we move forward with a robust monitoring and enforcement agenda in 2015. We continue to build on our strong success with major victories in several WTO disputes. In June, the WTO found that China had breached WTO rules by imposing on American cars and SUVs unjustified extra duties, which were assessed on over $5 billion of U.S. auto exports in 2013. In August, the WTO found that China again breached WTO rules by imposing duties and quotas on exports of rare earths, tungsten, and molybdenum, which discriminate against U.S. manufacturers of hybrid car batteries, wind turbines, energy-efficient lighting, steel, advanced electronics, automobiles, and more. . . .

For the 18 WTO complaints filed since 2009, every single case that has been decided has resulted in a win for the United States. And when you consider those victories I just mentioned – the range of trading partners, the types of trade barriers, and value and diversity of exports involved – the power of robust trade enforcement becomes clear. We’re absolutely committed to ensuring American workers get all the benefits of U.S. trade agreements because we’ve seen that trade, done right, supports high-quality, middle class American jobs.

Enforcement of U.S. Free Trade Agreements

The Administration also continued to vigorously monitor our FTA partners’ implementation of their obligations under Congressionally-approved FTAs. . . .

<Deepening our Trade and Investment Partnerships Around the World

The Administration continues to work to deepen our trade relationships around the world. This includes engagement with China, India, Burma, Sub-Saharan Africa and other regions to address concerns with our bilateral trading partners.

China

On China, the Administration made progress on a wide range of issues, including protection and enforcement of trade secrets and other intellectual property rights, as well as SOEs, investment, services, global drug supply chain integrity, and transparency at the U.S.-China Strategic and Economic Dialogue in July. These engagements yielded concrete changes which support jobs and exports from the United States. We also made significant progress on key issues like transparency and a level playing field in competition law enforcement, agricultural biotechnology, the protection and enforcement of trade secrets, and technology localization at the 25th Joint Commission on Commerce and Trade held in December. There was further progress in the pharmaceutical sector at the JCCT, where China agreed to streamline its approval processes for pharmaceutical and medical devices. We also intensified our negotiations toward a Bilateral Investment Treaty (BIT) with China and expect to initiate the critical “negative list” market access negotiations in early 2015. . . .

Trade Promotion Authority (TPA)

Let me build upon the President’s remarks on trade at the State of the Union. As the President made clear last week, the Administration is committed to securing bipartisan Trade Promotion Authority. America has always been strongest when it speaks with one voice, and that’s exactly what Trade Promotion Authority, or TPA, helps us do. TPA puts Congress in the driver’s seat to define U.S. negotiating objectives and priorities for trade agreements. It clarifies and strengthens public and Congressional oversight by requiring consultations and transparency throughout the negotiating process. It makes clear to our trading partners that the Administration and Congress are on the same page negotiating high standards in our trade agreements. There is no other area of policy that reflects closer coordination between the Executive branch and Congress than trade policy. And in return, I can promise you that we’ll continue working hard to strike balanced agreements that benefit our workers, employers, our environment and the economy at large. . . .

The Administration looks forward to continue working with this Committee and the new Congress as a whole to secure TPA that has bipartisan support. We also look forward to renewing Trade Adjustment Assistance (TAA), which helps provide American workers with the skills to compete in the 21st century. . . .

Promoting Increased Engagement and Transparency in Negotiations

As we work to open markets to support more American jobs, an important part of that work is keeping the public, Congress, and a diverse array of stakeholders engaged and informed. We believe that public participation, Congressional input, and an open national debate enhance trade policy. And to ensure these agreements are balanced, we seek a diversity of voices in America’s trade policy.

The Administration has taken unprecedented steps to increase transparency. Those steps have resulted in more public dialogue and outreach on trade agreements like TPP and T-TIP than on any other free trade agreements in history. This includes the more than 1,600 consultations we’ve had on TPP alone. We have provided access to the current negotiating texts of both agreements to Members of Congress. We have previewed every new U.S. proposal with the Committees of jurisdiction before tabling them in both negotiations. And we have briefed interested Members of Congress before and after every negotiating round—seeking feedback at every stage of the game.

The Administration has also engaged with the public around its trade agenda in new ways. We have held public hearings soliciting the public’s input on the negotiations and suspended negotiating rounds to host first-of-a-kind stakeholder events so that the public can provide our negotiators with direct feedback on the negotiations. We have also shared information on the current status of the negotiations through an array of tools on our website.

We are always looking for new ways to engage the public and welcome input, including from your committee, which will help inform and guide our trade policy. Enhancing transparency will remain a priority, consistent with the ability to deliver on our ultimate mission, which is to deliver agreements that achieve the maximum possible benefit for the American people.

Conclusion

The Obama Administration’s trade agenda is focused on expanding opportunities to export more Made-in-America products, support jobs at home, and create economic growth by opening overseas markets and leveling the playing field for American workers, farmers, and businesses. In doing so, we will continue to advocate for strong, enforceable rules that promote core U.S. values and interests, including protection of U.S. creativity and innovation, access to medicines, fundamental labor rights, and robust environmental commitments. We can only accomplish these shared goals and priorities through strong bipartisan cooperation between Congress and the Administration. We look forward to working with you to ensure our trade policy creates opportunities for all Americans. . . .

In response to USTR Froman’s comments, the Democrats reacted. With regard to transparency, Ranking Democratic Congressman Levin welcomed the attempts to open up the talks for Congressional input, saying more must be done on that front. Democratic Rep. Lloyd Doggett, D-Texas echoed this point arguing that even though members of Congress are allowed to view trade negotiating texts, they are not allowed to take notes or share the documents with certain members of their staff.

As Congressman Doggett stated,

“There is a big difference between quantity and quality on transparency. That is not practicing transparency — it’s practicing secrecy. I can’t find a legal basis for that type of restrictive environment, and I would just urge you to take immediate steps to change it.”

On the same day January 27, 2015, after the Ways and Means hearing USTR Froman spoke to the Senate Finance Committee stating that the TPP talks are coming to completion, but would offer no time table. To see the hearing, follow the following link http://www.finance.senate.gov/hearings/hearing/?id=5ef11836-5056-a032-5292-dc24774c7fe1.

To make the video work, slide the bar to minute 16 when the hearing begins.

In his opening statement, which will be attached to my blog, www.uschinatradewar.com, Senator Orrin Hatch, Chairman of the Senate Finance Committee, stated in part:

Thank you Ambassador Froman, for being here today. I have to say that the trade agenda is looking up since the last time you testified.

Things seem to be improving with our ongoing trade negotiations. For example, while significant gaps remain, the administration seems to be inching ever closer toward a conclusion of a Trans-Pacific Partnership agreement.

Morale at the Office of the United States Trade Representative, after a long period of decline, is beginning to rise. Of course, there is still a lot to be done. And, renewal of Trade Promotion Authority, or TPA, is at the top of my list. But, even in that regard, things seem to be looking up.

Compared with this time last year, the administration is much more engaged at all levels in making the case for renewal of TPA. President Obama’s strong call for TPA in the State of the Union was welcome, though, in my opinion, it was long overdue. I hope that he’ll follow his latest call to action with a real concerted effort to help us get TPA through Congress.

Here in the Finance Committee, we’re doing all we can to help in this effort.

Although the bill I introduced last year with Chairmen Camp and Baucus received broad support, I am currently working with Senator Wyden to see if there is a way to address some additional issues he has raised. We’re working with Chairman Ryan as well.

While there may be some improvements we can make to the bill, I want to make one thing clear: The time for TPA is now.

TPA is how Congress tells the administration and our negotiating partners what a trade agreement must contain to be successfully enacted into law. And, TPA empowers our negotiators to get the best deal possible for American workers.

To succeed in getting TPA renewed, we will need an all-out effort by the administration to make the case for why TPA is so vital to our nation’s ability to fairly engage in international trade and to enhance the health of our economy.

Simply put, trade means jobs. Today 95 percent of the world’s consumers live outside the United States. These potential customers account for 92 percent of global economic growth and 80 percent of the world’s purchasing power. To maintain a healthy economy, we need the opportunity to sell American products in those markets.

Right now, the United States is engaged in some of the most ambitious trade negotiations in our nation’s history. The first, which I already mentioned, is the Trans-Pacific Partnership, or TPP.

Renewal of TPA is key to the success of this agreement. Without TPA, the administration will not be able bring back the high-standard agreement Congress needs to ensure its enactment.

Let me be clear here: It would be a grave mistake for the administration to close TPP before Congress enacts TPA. Doing so may lead to doubt as to whether the U.S. could have gotten a better agreement, ultimately eroding support for TPP and jeopardizing its prospects for passage in Congress.

There are also some key outstanding issues that need to be resolved in TPP. As I have stated in the past, my support for TPA by no means ensures that I will support just any version of TPP that happens to be submitted to Congress for approval.

For me, the agreement must achieve a very high standard for the protection of intellectual property, including twelve years of data protection for biologics, and strong copyright and trademark protections. The intellectual property provisions of TPP must also effectively address the theft of trade secrets and ensure effective implementation and enforcement of IP obligations. Provisions to enhance digital trade and address state-owned enterprises are also critical, as is real market access for U.S. exports. …

Ambassador Froman, all of this represents a very ambitious agenda for your office and for the administration as a whole. But, if I haven’t been clear up to now, let me restate: TPA must be considered an essential element for all of these endeavors.

I believe Congressional renewal of TPA will unleash new energy in our international trade agenda, helping to propel our economy to greater growth and prosperity. History shows that trade agreements concluded with TPA in place create new economic opportunities and higher-paying American jobs.

This year we truly are at the precipice of opportunity. The only question is whether both parties in Congress and the Administration can work together to put in place the necessary tools to seize this opportunity. I certainly think we can, and I will do everything in my power as Chairman of this committee to ensure our mutual success.

In his opening statement, Ranking Democratic Member of the Senate Finance Committee Senator Wyden of Oregon stated,

My bottom line on how the U.S. can improve its trade policy is this:

Today’s global economy moves at a million miles an hour, so clinging to yesterday’s outdated trade policies is a loser for the millions of middle-class American workers counting on political leadership to help create more high-skill, high-wage, middle-class jobs.

Trade agreements need to bulldoze barriers and open new markets to exports made by America’s middle class – the things we grow or raise, build or forge. Done right, trade agreements can help grow the paychecks of middle-class families. That will help take our economic recovery from a walk to a sprint.

According to a report by the Commerce Department’s International Trade Administration, many export-driven jobs – from precision welding to engineering design – offer higher pay and more generous benefits than jobs that aren’t tied to exports. Workers who design and build products like machinery, electrical gear or transportation equipment get into the winners’ circle when the goods they make are exported. The goal of trade agreements should be to take the fruits of American labor and ship them to markets around the world.

With that said, it’s easy to understand why many American workers are frustrated when they haven’t gotten a meaningful raise in decades – or worse, they’ve lost jobs and fallen out of the middle class. When discouraged Americans argue that they’ve been hurt by trade, their voices should not be ignored. They must be heard. Those who favor a trade agenda that takes on the challenges of a hyper-competitive global economy have a responsibility to make the case that it will work for America’s middle class.

I bring that up because the President said during the State of the Union address that, “…past trade deals haven’t always lived up to the hype.”

So, Ambassador Froman, I’d like you to outline today how the administration plans to change that with fresh trade policies that will lift wages, help create middle-class jobs, and expand the winner’s circle.

I hope to discuss what safeguards will be in place to ensure that any workers impacted by trade have access to retraining, health coverage, and other sources of support that connect them with new opportunities. And perhaps most importantly, I hope to hear how the administration will make the case to America’s workers that these modern policies will deliver for them.

To keep my remarks brief, there are a few specific issue I’ll address.

The first is tough enforcement. There has never been a greater need for the U.S. to back its workers and businesses by strongly enforcing our trade laws and agreements. And in the face of unfair schemes by foreign governments and companies that undercut American jobs and exports, trade enforcement works.

Just ask any one of the hundreds of Oregonians who work at SolarWorld, a solar-panel manufacturer in my home state. When Chinese companies made an end-run around our trade laws that threatened SolarWorld and its employees, SolarWorld fought back and won. That victory preserved 900 good Oregon jobs. And American trade enforcers have to keep at it, because China and other governments won’t stop trying to get around the rules anytime soon.

With 21st century trade agreements, tough enforcement also needs to hold foreign governments accountable for commitments to uphold strong labor rights and environmental protections. Those are bedrock elements of trade agreements, and they are not to be ignored or pushed to the periphery.

The second issue to address is technology. Just as containers changed trade in the 20th century, the Internet is changing trade in the 21st, enabling more efficient ways to exchange goods and services internationally. . . . The nation’s trade policies must take advantage of economic areas where there is clearly “Advantage USA.” That means promoting and protecting a free and open Internet — keeping open what is, in effect, the shipping lane of the 21st century.

The third issue to address today is transparency. The American people have made it very clear that they will not accept secretly-written agreements that don’t see the light of day until the very last minute. That was too often the way things worked in the past, but that’s not good enough anymore. Nor is it enough to respond to important questions with the same inadequate refrain: that Americans will benefit from trade deals. People have the right to know what’s at stake in negotiations before they wrap up. Our trade policies are stronger when the American people are part of the debate – and when their elected representatives in Congress are able to conduct effective oversight.

Furthermore, transparency is also critical for a trade promotion authority bill. Once a bill is ready, it must be available to the public. And there must be a fair and open process for its review and consideration. I will work with Chairman Hatch to develop a process along these lines.

No matter where members of this committee stand, I know everyone here is ready to have a serious debate on how to make trade policy work best. My focus will be on finding new opportunities to sell red, white and blue American goods overseas, helping businesses create jobs, and growing the paychecks for middle-class families. I’m eager to find ways for this committee to work on a bipartisan basis with the administration to accomplish those goals.

USTR Froman repeated his remarks before the House Ways and Means Committee earlier that day. Froman further stated that “the contours of a final agreement are coming into focus” and vowed to correct the failures of past trade deals in areas such as labor, environment and state-owned enterprise rules. Froman pledged to be as open as possible stating:

“As we move ahead, we’re committed to providing maximum transparency consistent with our ability to negotiate the best agreements possible. We look forward to working with this committee and others in Congress to determine the best way to achieve that goal.”

Froman added that his office expects to make the text of the TPP public after it is signed and before it goes to Capitol Hill for a vote but cautioned that the U.S. was consulting with other parties in the agreement on possible areas of sensitivity.

Sen. Chuck Schumer, D-N.Y. argued against TPP because of currency manipulation:

“I can’t support a TPP agreement if we do not at the same time enact new statutory law that includes objective criteria to define and enforce against currency manipulation. I will not support moving this trade agreement forward if we’re not fighting to make sure we have the necessary tools to protect the American middle class and American jobs.”

During the question and answer, Sen. Charles Grassley (R-Iowa) stated that the administration needs to step up its arguments to Democrats, in particular, to get TPA cleared by the Senate stating, in part,

“[I] if we are going to get trade promotion authority passed, [the president is] going to have to work the telephones one-on-one with some senators to get us to the 60-vote threshold,” to avoid a filibuster.

With regard to currency manipulation, Froman stated that “Currency is a great concern to us,” but went on to state that the Treasury Department takes the lead on the issue. Sen. Debbie Stabenow (D-Mich.) said she was not seeing any indication that currency issues would addressed in TPA or TPP, commenting that this was a serious problem.

Stabenow also questioned Froman on a press report asserting that the U.S. was dropping a request to lower standards on auto imports to Japan in exchange for Japan agreeing to more rice imports from the U.S. Characterizing the report as “categorically wrong,” Froman said both auto and agriculture negotiations with Japan were continuing “on parallel tracks.”

Sen. John Thune (R-S.D.) stated that Canada’s dairy market was not sufficiently opened as part of the North American Free Trade Agreement and many of the tariff rates on dairy products range from 200 percent to 295 percent. Canada’s dairy policies are a priority, Froman said. The U.S. is engaged with Canada on a whole range of outstanding issues, “and they know that this is very important to us, and we’re working towards hopefully a successful conclusion there.”

After the hearings on Capitol Hill, on January 27th, US Pork producers came out in support of Trade Promotion Authority. In a mass letter to members of Congress, the National Pork Producers Council said that TPA is vital to their industry stating,

“Significant progress has been made with respect to Japan’s market access offer on pork, thanks to the hard work of U.S. trade officials and the strong support of the U.S. Congress.”

The pork producers said that since the passage of the U.S.-Canada free trade agreement in 1989, their exports increased 1,550 percent in value — and they credited TPA for enabling such a boost.

On January 28th at closed door remarks at the House Democratic retreat, President Obama strongly hinted that there would be no currency manipulation language in the TPP according to Rep. Rosa DeLauro (D-CT). President Obama stated that there would be no currency chapter, stating that this issue was under the Treasury Department’s authority.

Obama’s opening remarks to the caucus did not mention trade, but during a question-and-answer session, Rep. Derek Kilmer (D-WA) asked Obama how to make the case for trade agreements to skeptical constituents. Kilmer’s question was the first one the president took.

In response, the President largely reiterated the arguments he has previously made in favor of trade agreements, including that the U.S. needs to sets the rules for trade or China will do so. Sources stated that he did not explicitly mention Trade Promotion Authority (TPA) or urge House Democrats to support it.

The president said he recognized that previous trade deals were “not perfect,” and conceded that no new trade agreement will fix all of the real challenges that arise from globalization and past trade agreements, according to a source who attended the session. It was in this context that Obama raised currency manipulation as one challenge that cannot be fixed through TPP, another source said.

On January 29th, the House Ways and Means Committee sent out the following e-mail, which will be attached to my blog, stating in part that newspapers around the Country are calling on Congress to enact TPA.

WAYS AND MEANS JANUARY 29, 2015 . . . .

As Republicans and Democrats work to put in place bipartisan trade promotion authority, editorial boards from coast to coast are rallying behind the effort. Trade Promotion Authority—or TPA—empowers Congress to set the negotiating objectives when pursing trade agreements with other countries and helps the United States get the best deal possible. Here’s a sampling of what newspapers have had to say about TPA:

Wisconsin State Journal: Congress needs to pass trade promotion authority’

“Free-trade zones across the Atlantic and Pacific oceans would lower tariffs and smooth commerce for all while encouraging higher environmental and labor standards. Past trade agreements ‘haven’t always lived up to the hype,’ Obama acknowledged. But ‘95 percent of the world’s customers live outside our borders.

We can’t close ourselves off from those opportunities.’ No, we can’t — especially in a top manufacturing and dairy state such as Wisconsin, where research and technology are strong.”

San Francisco Chronicle: ‘California will be a winner if Congress blesses a Pacific trade treaty’

“Global trade is an enormous chunk of California’s present and future. It needs to be nurtured, improved and given rules and treaty agreements to protect this thriving financial lifeline.”

The Seattle Times: ‘Congress should enact trade-promotion authority’

“Congress must not delay in approving TPA. [It] would have substantial and lasting effects on the state’s and nation’s economies.”

Washington Post: ‘The Trans-Pacific Partnership can help the U.S. counter China’s expansion’

“Both economically and geopolitically, the Trans-Pacific Partnership would perpetuate the United States’ stabilizing role in Asia; it is one of the Obama administration’s brightest ideas. All that’s left now is for both the president and Republican leaders in Congress to keep their promises and make it happen.”

Houston Chronicle: ‘Expansion of international trade agreements would mean a whole lot of good for the U.S.’

“President Obama and the new Republican majorities in the House and Senate can demonstrate that they are capable of agreement on important issues that will result in good jobs and more exports for farmers and the manufacturing, service and tech sectors.”

Minneapolis Star Tribune: ‘More trade means more Minnesota jobs’

“Rising exports mean more jobs. Minnesota has the natural and human resources to compete at the highest global level, meaning that state workers can benefit from expanded free trade.”

Chicago Tribune: ‘TPA is essential for overcoming the inevitable fight against vested interests’

“TPA empowers Congress to establish negotiating objectives, and enhances its ability to set priorities. The U.S. is legally bound to a trade agreement only if Congress votes to approve it. TPA, which has been essential to reaching trade deals since the 1930s, has proven to be fully consistent with the Constitution and supportive of U.S. sovereignty.”

On January 30, 2015, Senate Finance Chairman Orrin Hatch stated that the new legislation reviving the administration’s trade negotiating authority will closely resemble a bill he introduced last year, touting the need for strict rules on intellectual property, currency manipulation, and other areas. Senator Hatch declared the U.S. trade agenda to be “at the precipice of opportunity.” Hatch further stated,

“The U.S. needs to lead on trade. We need to establish rules that hold other nations accountable for their unfair trade practices. And we need to tear down barriers that block our goods from foreign markets. We can only do that if we renew TPA and do so soon.”

Hatch declined to give a hard and fast timeline for the bill, saying only that he was working with Finance Committee Ranking Member Ron Wyden, D-Ore., to settle certain differences and introduce the legislation “in short order.”

“We need to see commitments from our partners in ongoing trade negotiations to avoid manipulating exchange rates to gain an unfair competitive advantage over other parties to the agreement, a standard reflecting commitments parties have made in the International Monetary Fund. It is essential that Congress know how the administration intends to address his problem in ongoing negotiations.”

On February 3, 2015, USTR Froman pushed state-level agricultural officials stating that their support will be critical to ensure swift movement of the White House’s robust trade agenda, touting the benefits of the administration’s two biggest negotiating efforts for U.S. food producers. Froman stated,

“We need you to remind farmers and ranchers in your states that trade agreements are how we can level the playing field for our workers, farmers, and businesses and protect America’s competitiveness for the next generation. We need you to remind them how important exports are to more good jobs here in the U.S.”

Froman again claimed that the shape of a final TPP deal is “coming into focus” and that the U.S. is looking to chip away at large tariffs on poultry, beef and pork in countries like Canada, Australia, Japan and Vietnam.

On February 5, 2015, at the Senate Finance Committee, Treasury Secretary Jacob Lew stated that the Obama administration is not prepared to insert a section into future trade agreements to stop currency manipulation, stating that such a confrontational move might undermine its ongoing efforts to tackle the issue diplomatically. Facing pressure from numerous members of the Senate Finance Committee, Lew said the administration had been successful in pushing back against currency manipulation in its bilateral engagements with countries like China, adding that punitive language in trade deals could stop that progress.

As Secretary Lew stated,

“I think the challenge in the context of a trade agreement is how to address the issue in a way that helps and doesn’t hurt. I would be concerned that the effectiveness we have dealing through the existing channel could be diminished in some ways, if some approaches were taken.”

“When we push back, there is a response where we’ve, I think, been quite successful pushing back on even the hint of interventions that have those characteristics in a time that we’ve been here.”

An odd situation is arising in the US Congress where liberal Democrats and Tea Party Republicans are working together to stop TPA. An alliance between Tea Party Republican Congressmen Louie Gohmert and Dana Rohrabacher, two of the more conservative members, and two strong liberal Democratic Congresswomen, Rosa DeLauro and Louise Slaughter is emerging. The Tea Party Republicans object to giving such trade negotiating authority to the President, and the liberal Democrats are objecting to the impact of any trade agreement on US jobs and labor unions.

Dana Rohrabacher, a Tea Party Republican, stated, “This president has tried to rule by dictate in a number of arenas. He’s issued executive orders in a way that is totally out of sync with what executive orders are supposed to be about. A lot of people think this president has been much more aggressive in centralizing power.”

Congresswoman Rosa DeLauro echoed the statement by the Tea Party Republican,

“We have trusted and trusted for years and years, and it’s only been to the detriment of American workers. Members of Congress are fed up with this. The trust factor, whether it’s Barack Obama or anyone else, is not there any longer.”

As the New York Times observed in a February 10, 2015 article,

The White House understands that trade promotion authority will be a tough sell with Democrats. Instead, the president’s strongest supporters include two men he has frequently battled: the House speaker, John A. Boehner of Ohio, and Senator Mitch McConnell of Kentucky, the majority leader.

The Times goes on to state:

But even as most liberal Democrats have become disenchanted with the trade agenda advocated by a variety of American business interests, it is the erosion of support in the rank-and-file right that has Mr. Obama sweating the most. In 2002, the last time Congress approved such authority, the House passed it by a bare majority, 215 to 212, with 190 Republicans carrying the load, and only 27 Democrats coming along for the ride.

That was for George W. Bush. This time, Mr. Boehner, prominent committee chairmen like Mr. Ryan and an alliance of business and agricultural groups are going to have to persuade dozens of conservatives to confer power on a president they say has seized too much authority already. Tea Party groups are already flexing their muscle with Republicans they helped elect, pressuring them to oppose anything that strengthens Mr. Obama’s hand and, they argue, weakens United States sovereignty over economic policy.

As the Times Article further states, although the Administration and the pro-trade Coalition stated that the have the numbers to pass trade promotion authority:

they have work to do. About 150 of the House’s 188 Democrats have already signed on to letters opposing fast track, an ominous figure for the president, since Mr. Boehner said last Congress he would need as many as 50 Democratic votes.

In 2013, 22 House Republicans signed on to their own opposition letter, of which 17 remain in Congress.

On February 12, 2015 the House Ways and Means Committee issued the following e-mail release on Currency Manipulation opposing the implementation of a bill to unilaterally hit countries on Currency Manipulation:

FEBRUARY 12, 2015

Currency Manipulation: Finding the Right Solution

There is great unease today about currency manipulation abroad—and rightfully so. Some countries—particularly China—have distorted exchange rates to gain an advantage in the world market, hurting American exports by making their goods cheaper and ours more expensive.

It’s a legitimate problem that deserves a real response. The United States holds the world’s reserve currency. We have a unique ability to pressure countries to stop the manipulation, and we must do more. That’s why Trade Promotion Authority legislation (TPA) raises fighting manipulation to a primary negotiating objective and provides the administration more tools to tackle the practice.

At the same time, some in Congress have called for a more confrontational approach.

Opposed by the administration and many in Congress, including Chairman Ryan, this counterproductive tactic would trigger higher tariffs on any country believed to be manipulating its currency, either through unilateral U.S. action or through a mechanism in trade agreements. While possibly appealing on its face, this approach presents significant problems. It could:

Lead to a tariff war that will increase barriers to trade and cost jobs;

If the United States begins unilaterally levying tariffs, our trading partners will no doubt do the same, leading to a dangerous cycle that would undermine the very purpose of trade agreements—to break down barriers—and, more importantly, hurt American competitiveness and jobs.

Capture the wrong culprit and put the U.S. at risk of manipulation charges;

There is no clear definition of currency manipulation or simple calculation for it, and trying to legislate such a complex matter poses the risk of triggering a trade war in response to innocent currency movements. At the same time, it would not be difficult for other nations to assert the U.S.’s monetary policy is intended to tilt the playing field.

<Risk putting the U.S. in violation of international obligations and out of WTO

compliance;

Pursuing a unilateral approach would likely cause the United States to be a target for retaliation by countries like China, harming our businesses and their employees.

Make the U.S. vulnerable to lawsuits and jeopardize our ability to set our own

monetary policy;

Even pursuing provisions in trade agreements that would allow us to increase tariffs on manipulators would expose us to litigation, whether justified or not, when countries challenge our monetary policy. And even if the United States ultimately prevails, litigation would distract from broader efforts to address currency manipulation and shield real currency manipulators.

Threaten the U.S. dollar’s standing as the world’s leading currency;

The United States has become the holder of the world’s reserve currency not by accident or by any law, but rather through strength and steadiness. And the status provides the U.S. immeasurable benefits. Maintaining stability and pursuing currency grievances through multinational forums are critical to protecting this valued position we hold in the world.

Derail the Trans-Pacific Partnership (TPP) and its potential benefits to the U.S.;

Creating mechanisms to increase tariffs through trade agreements because of currency policy would no doubt cause nations with which we are currently negotiating a significant trade agreement to rethink whether the United States is a viable trading partner, causing them to pull out of these negotiations. Missing out on a good TPP agreement would be a critical blow to America’s credibility and an enormous missed opportunity to create good jobs.

And, for all the downside, it probably wouldn’t work.

With all the damage such an approach would do to the United States and our standing in the world, it provides no real incentive for bad actors to change behavior. What’s more, monetary and domestic fiscal policy have much greater impact on the value of a currency than would the type of market interventions targeted by this proposal.

So what is the right solution?

For starters, let’s put in place multinational rules that have proven to yield results. The G-7, G-20, and IMF efforts have had success in limiting attempts to manipulate currency and in some cases outright stopped market interventions. For example, as a result of commitments taken by the G-7, Japan has not intervened in foreign currency markets in an effort to lower the value of the yen in the last three years.

But we can—and must—do more. That’s why TPA legislation would make fighting currency manipulation a primary negotiating objective for all trade agreements. In addition, TPA provides the administration with tools such as “cooperative mechanisms, enforceable rules, reporting, monitoring, transparency, or other means, as appropriate” to address currency manipulation. It is incumbent upon the administration to continue pursuing efforts to rein in the practice, and Congress must continue to press for better results.

Finally, another important step we can take is put in place more trade agreements. A more interconnected global marketplace will have even less tolerance for manipulation. And as Chairman Ryan has said, “If we don’t write the rules of the global economy, somebody else will—somebody who may not have our best interests at heart. And if we don’t like the way the global economy works, then we have to get out there and change it.”

That’s why enacting trade legislation like TPA with a thoughtful approach toward currency manipulation is so critical. Currency manipulation is a legitimate threat, but our response must be one that advances, rather than undermines, our trade agenda and our economy.

TRADE ADJUSTMENT ASSITANCE PROGRAM—REAUTHORIZATION

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

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

Recently we have learned although President Obama preaches a good game, the Commerce Department has proposed reducing trade adjustment assistance for companies to $10 million. This very small amount is to help all companies nation- wide hurt by imports?? Yet, if we can save the companies, we save the jobs that go with those companies

According to the Commerce Department’s Economic Development Agency’s 4th annual report, 882 trade-impacted firms have received assistance through TAA for Firms (TAAF) in 2013. These firms employed over 76,000 workers at the time of their entry into TAAF and at least one firm was located in 48 of the 50 states throughout the country.

As Democratic Congressmen stated in a December 8, 2014 letter to Speaker Boehner and Minority leader Nancy Pelosi:

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

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

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.

US APPROVES TRADE FACILITATION AGREEMENT

In addition to Hong Kong, on January 23, 2015 the US government officially ratified the WTO trade facilitation agreement. The TFA is expected to cut Customs red tape at ports around the World. Experts have estimated that the TFA could add billions to the World economy.

CHINA ANTIDUMPING CASES AGAINST US

On January 28, 2015, the Chinese government reported that it has three outstanding antidumping and countervailing duty orders against the United States: Grain Oriented Flat-rolled Electrical Steel, Broiler (Chicken) Products; and Solar-grade Polysilicon.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached 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.

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

On January 26th, Adam Szubin, the director of the Office of Foreign Assets Control, a top US Treasury official, stated that more targeted sanctions could be coming against Russia as the violence in eastern Ukraine escalates.

On February 9th, Chancellor Merkel met with President Obama and the decision was to leave the sanctions in place. On February 11th, Germany, France, Ukraine and Russia are expected to have talks in Belarus in an attempt to establish a peace agreement in the Ukraine.

MADE IN USA—NORDTROM AND LAND’S END BOTH HAVE PROBLEMS

On January 27, 2015, a California Federal Judge denied Nordstrom’s motion for an interlocutory review of a proposed class action accusing them of falsely marketing jeans as “made in the USA.” California has a much stricter “Made in USA” law than the Federal FTC law or any law in the rest of the United States.

On the same day, Land’s End moved to end a proposed class action case in California alleging that the clothing retailer inflated prices on its clothes by labeling foreign-made apparel as produced in the USA.

IP/PATENT AND 337 CASES

SUPREMA ORAL ARGUMENT

On February 5, 2015, the Court of Appeals for the Federal Circuit held an oral argument in the Suprema case to determine whether section 337 can be used to bar imports that induce patent infringement. It was reported that the CAFC judges appear split on whether “articles of infringement” in section 337 refers only to the imported items themselves, and not how they will be used upon sale in the U.S.

Plaintiff argued that Articles of infringement mean only imports that infringe the patent at the time of entry into the US and the imports did not infringe the patent at time of entry.

The ITC lawyer argued that the Commission must analyze the patent as a whole in determining which items infringe. The ITC lawyer stated;

“The invention is the process.” Isolating the items from their ultimate use is “not how [patent cases] are adjudicated.”

NEW 337 CASE AGAINST CHINA

On February 9, 2015, a new 337 complaint was filed by Andreas Electronics Corp on Audio Processing Hardware and Software and Products against Acer Inc., Taiwan; Acer America Corp., San Jose, CA; ASUSTEK Computer Inc., Taiwan; ASUS Computer International, Fremont, CA; Dell Inc., Round Rock, TX; Hewlett Packard Co., Palo Alto, CA; Lenovo Group Ltd., China; Lenovo Holding Co., Inc., Morrisville, NC; Lenovo (United States) Inc., Morrisville, NC; Toshiba Corp., Japan; Toshiba America Inc., New York, NY; Toshiba America Information Systems Inc., Irvine, CA; and Realtek Semiconductor Corp..

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

On January 13, 2015 Azure Networks Inc. filed a patent case against ZTE Corporation and ZTE (USA) Inc. AZURE ZTE COMPLAINT

On January 21, 2015, Music City Metals Co. filed a trademark case against Xiao Jin Hua, Hou Huanqing, King Shin International, King Jing LLC, King Shin International Co., Ltd. KZNG SHZN International Co., Ltd. and BBQ Parts Ltd.MUSIC CITY COMPLAINT Complaint 3-15cv67

On January 27, 2015, Robertshaw Controls Company filed a trademark unfair competition case against Ningbo Ranco Machinery & Equipment Co., Ltd.NINGBO TRADEMARK CASE

On January 28, 2015, Spy Optic Inc. filed a trademark, unfair competition case, against Alibaba.com, Albaba.com Hong Kong Ltd., Alibaba Group Holding Ltd.,ALIBABA TRADEMARK CASE

On January 30, 2015, Consolidated Work Station Computing LLC filed a patent case against Huawei Technologies USA, Inc. and Huawei Device USA Inc. CONSOLIDATED HUAWEI

On February 3, 2015, Thingcharger Inc. and P3 International Corp. filed a patent case against Viatek Consumer Products Group, Inc., Viatek International LLC, Foshan Um Electronics Co., Ltd. Foshum complaint

On February 4, 2015 Paxton Sales, Inc. filed a copyright and unfair competition case against Vogue Furniture Direct Inc., Guozhi Qiao, and Zhejiang Chairmeng Furniture Co., Ltd. PAXTON FURNITURE COPYRIGHT COMPLAINT

On February 6, 2015, Avionqs LLC filed a patent case against Air China Cargo Company. CHINA CARGO PATENT CASE

On February 9, 2015, United States Pumice Company filed a trade secrets unfair competition case against Seung Joon Lee and Yiwe Xianxue Company Ltd. dba Ipumice.comPUMICE CHINA CASE

On February 12, 2015, Toyo Tire and Rubber Co and Toyo Tire USA Corp. filed an unfair competition, trade dress case against CIA Wheel Group, Doublestar Dong Feng Tyre Co., Tire Industrial Co., Ltd. and Double Star Group Corp.  QINGDAO TYRE CASE

On February 13, 2015, eDigital Corp filed a patent case against Shenzhen Gospell Smartphone Electron Co., dba Ocea Camera, Ividem Ltd., New Sight Devices Corp. SHENZHEN CASE

CHINESE INVESTMENT AND PRODUCTION IN UNITED STATES—FOREIGN INVESTMENT FILING REQUIREMENTS

On December 4, 2014, Mellissa Krasnow, a Dorsey attorney, published the following article about the filing requirement for Foreign Investments in the United States:

The U.S. Bureau of Economic Analysis recently launched the BE-13, Survey of New Foreign Direct Investment in the United States. See http://www.dorsey.com/eu-be-13-new-foreigndirect- investment-in-us/. There are civil penalties, injunctive relief and criminal penalties for failing to file BE-13 when required, so whether BE-13 needs to be filed must be determined and the obligation to file must be complied with. Questions for companies to ask regarding acquisitions completed since January 1, 2014 (data is being collected retroactively back to January 1, 2014) and going forward include:

  1. Has your company made foreign investment filings with the U.S. Bureau of Economic Analysis?
  2. Has your company been contacted by the U.S. Bureau of Economic Analysis in 2014?
  3. Is the total cost of the transaction greater than US$3 million and:

Did a foreign entity or an existing U.S. affiliate of a foreign entity acquire a voting interest in a U.S. enterprise, segment or operating unit? If yes, consider the requirements for BE-13A at https://www.bea.gov/surveys/pdf/be13/be13a-fillable.pdf;

also consider the requirements for BE-13C at Https://www.bea.gov/surveys/pdf/be13/be13c-fillable.pdf.

Did a foreign entity or an existing U.S. affiliate of a foreign entity establish a new legal entity in the United States? If yes, consider the requirements for BE-13B at

https://www.bea.gov/surveys/pdf/be13/be13b-fillable.pdf.

Did an existing U.S. affiliate of a foreign parent acquire a U.S. business enterprise or segment that it then merge into its operations? If yes, consider the requirements for BE-13C at https://www.bea.gov/surveys/pdf/be13/be13cfillable.pdf.

Did an existing U.S. affiliate of a foreign parent expand its operations to include a new facility where business is conducted? If yes, consider the requirements for BE-13D at https://www.bea.gov/surveys/pdf/be13/be13dfillable.pdf.

Does the U.S. business enterprise not meet all of the above requirements? If yes, consider the requirements for BE-13 Claim for Exemption at https://www.bea.gov/surveys/pdf/be13/be13-claimfillable.pdf.

These filings are due within 45 days after the acquisition is completed, the new legal entity is established, or the expansion is begun.

US LITIGATION ORDERING FOREIGN COMPANIES TO BREAK ATTORNEY CLIENT WORK PRODUCT

Dorsey lawyers for the Bank of China are attempting to overturn a US judge’s order to release materials to plaintiff collected during the Bank of China’s internal investigation. Dorsey lawyers for the Bank are arguing that the documents were prepared under the direction of outside counsel in anticipation of potential litigation and should not be released to the Plaintiffs because of attorney-client privilege.

The Federal Judge faulted the Bank for failing to provide information as to when it began communicating with its original outside attorney at Preston, Gates about the matter, and that it failed to state the dates and nature of his involvement, including whether he “directed or claims to have directed any aspect of the investigation”.

In the objection to the order, Bank of China’s lawyer Lanier Saperstein at Dorsey & Whitney said that “Judge Gorenstein has effectively created new rules for establishing work-product protection and attorney-client privilege,” adding that the new rules would prevent a business like Bank of China “from communicating with an attorney for the purpose of obtaining legal advice unless the attorney first directs the client to do so.” Saperstein argued that Judge Gorenstein’s order is contrary to a Second Circuit ruling in United States v Adlman where the court established that work-product protection applies if “the documents can fairly be said to have been prepared or obtained because of the prospect of litigation”.

Saperstein also rejected the assertion that only communications made at the request of the attorney apply for attorney-client privilege. Limiting privilege “to only those communications made at the direction of the attorney would lead to perverse results,” Saperstein said, adding: “Under this requirement, a client who describes his situation to an attorney before asking for advice would receive no protection.”

Saperstein further stated: “I’m particularly thrown by the theme that runs through the decision, which is that you need to establish the counterfactual world, and show what you would have done had the facts been different.”

He said the decision places a very high burden on companies, stating:

“I’ve never submitted an Upjohn declaration stating what we would have done had we not anticipated litigation. [I’m] not entirely sure how one does that, because it moves away from the factual situation to a hypothetical one. How would one attest to what you would have done in a different scenario?”

ANTITRUST

There have been major developments in the antitrust area both in the United States and in China.

VITAMIN C ORAL ARGUMENT

On January 29, 2015, oral argument was held in the Second Circuit Court of Appeals in the Vitamin C Antitrust Case against Chinese companies. In that appeal, two Chinese companies Hebei Welcome Pharmaceutical Co. Ltd. and North China Pharmaceutical Group Corp., along with China’s Ministry of Commerce (“MOFCOM”) are trying to reverse a $153 million dollar award against the two Chinese companies from a Brooklyn, New York in an antitrust class action over price-fixing of vitamin C exports to the US from China. During the argument, MOFCOM’s counsel argued that the proceedings are seen “as an affront to the Chinese government,” especially the notion that China tried to tweak its laws after the fact.

But William Isaacson of Boies, Schiller, the Plaintiff’s lawyer argued that Chinese law, or its possible evolution, was not before the jury and urged the panel to respect the vigorously litigated proceeding and voluminous record below, stating:

“It shows no disrespect to a government to disagree with them. The good people of Brooklyn were not asked to decide what Chinese law says,” only to decide whether the government made the companies fix their prices. “If there’s no actual compulsion, there’s no comity issue.”

Augustine Lo, a Dorsey Trade and Corporate lawyer, attended the oral argument and reported as follows:

The Second Circuit oral argument in the Vitamin C antitrust case was interesting. Counsel for the two Chinese companies who went to trial (Wilson Sonsini), counsel for MOFCOM (Carter Phillips of Sidley Austin LLP), and counsel for plaintiffs (Boies Schiller) presented their arguments. The panel consisted of Chief Judge Cabranes, Judge Hall, and Judge Wesley.

As you may recall, Federal District Court Judge Cogan of Eastern District New York (same judge as Arab Bank trial) ruled that MOFCOM’s statement in support of the Chinese companies was insufficient to prove that the PRC government compelled the antitrust violation at issue. In effect, the Federal District Court Judge decided that plaintiffs’ explanation of Chinese law and ambiguous translations of witness statements concerning the lack of strict enforcement were more authoritative than MOFCOM’s statement. MOFCOM was furious.

Defendants-Appellants’ counsel focused his argument on the comity issue – that the District Judge failed to defer to the MOFCOM statement and failed to acknowledge the international relations conflict between price fixing authorized by Chinese law and prohibition of the same conduct under U.S. antitrust law. Plaintiffs-Appellees’ counsel explained that the District Judge properly excluded the Chinese regulation from the jury because the interpretation of the regulation was a question of law that the judge previously settled under Rule 44.1. Plaintiffs contend that the jury was able to decide there was no compulsion based on the record evidence. In rebuttal, defendants countered that the translations on the record regarding the companies’ voluntary conduct were ambiguous, which militates even more strongly in favor of deference to the MOFCOM statement.

Judges Cabranes and Hall seemed more receptive to defendants-appellees’ comity arguments. I predict a 2-1 vote in favor of reversal on the issue of comity. It’s unclear whether they will remand for dismissal for lack of jurisdiction (as requested by defendants), or whether they may remand for new trial and require the District Court Judge to accord proper evidentiary weight to the MOFCOM statement.

CHINA ANTI-MONOPOLY CASES

QUALCOMM

On February 9, 2015, it was announced that Qualcomm Inc. agreed to pay $975 million to end the Chinese government’s antitrust investigation under China’s anti-monopoly law into whether it used its position as the world’s largest smartphone chipmaker to charge discriminatory fees to patent licensees. The settlement came after meetings on February 6th between Qualcomm and China’s National Development and Reform Commission (“NDRC”). Qualcomm also agreed to lower its royalty rates on patents used in China and to change its licensing practices as part of the deal.

Derek Aberle, Qualcomm’s President, stated:

“We are pleased that the investigation has concluded and believe that our licensing business is now well positioned to fully participate in China’s rapidly accelerating adoption of our 3G/4G technology. We appreciate the NDRC’s acknowledgment of the value and importance of Qualcomm’s technology and many contributions to China, and look forward to its future support of our business in China.”

The NDRC ruled that Qualcomm violated China’s anti-monopoly law with its patent licensing practices, and the company agreed not to contest the finding.

Apparently, the Chinese market and the potential for large profits are just too big for US companies to ignore.

JCCT TALKS

On December 19, 2014, the Chinese Daily reported on the December 16-18 JCCT talks between the US government and the Chinese government stating, “China said it will treat all market entities equally in anti-monopoly enforcement and allow foreign companies’ legal advisers to observe meetings between litigants and anti-monopoly enforcement agencies.”

In the fact sheet, which was circulated at the end of the talks, the Commerce Department stated regarding the Chinese government’s agreement at the JCCT talks:

COMPETITION LAW

U.S. industry has asserted that China’s competition policy enforcement authorities seem to be targeting foreign companies and at times use Anti-monopoly Law investigations as a tool to protect and promote domestic national champions and domestic industries. U.S. industry also has expressed concern about insufficient predictability, fairness and transparency in China’s investigative processes, as well as pressure from the Chinese authorities not to seek outside counsel or have counsel present at meetings. China’s commitments below help to address several of these concerns.

  1. In order to build on the recognition of the United States and China in the Sixth Meeting of the U.S.-China Strategic and Economic Dialogue that the objective of competition policy is to promote consumer welfare and economic efficiency, rather than promote individual competitors or industries, and that the enforcement of their respective competition laws should be fair, transparent, objective, and non-discriminatory, and China’s commitment that its three Antimonopoly Enforcement Agencies (AMEAs) are to provide to any party under investigation information about the AMEA’s competition concerns with the conduct or transaction, as well as an effective opportunity for the party to present evidence in its defense:
  2. a) China clarifies that in enforcing the AML, all business operators shall be treated equally.
  3. b) Where AML violations are found, China clarifies that it is to impose enforcement measures that address the harm to competition, and not to impose enforcement measures designed to promote individual competitors or industries.
  4. China clarifies that its AMEAs will, (1) when undertaking administrative actions, strictly follow statutory limits on their authority, procedures, and requirements as laid out in China’s relevant laws, regulations and rules; and

(2) before imposing penalties, notify the parties of the facts, grounds, and basis according to which the administrative penalties are to be decided, notify the parties of the rights that they enjoy in accordance with the law, and provide the parties with the right to state their cases and to defend themselves.

  1. China clarifies that all administrative decisions that impose liability on a party under the AML will be provided in writing to the party and include the facts, reasons, and evidence on which the decision is based. China clarifies that it will publish the final version of administrative decisions that impose liability on a party under the AML in a timely manner. Administrative decisions made public in accordance with law should not include contents involving what are legally commercial secrets.
  2. China will ensure that, upon request from a party involved, the three AMEAs are to allow Chinese practicing lawyers to attend and participate in meetings with any of the three AMEAs. China will ensure that, upon request from the party involved, and after obtaining approval from the AMEA, which shall be granted as normal practice, the following persons may attend the meetings with any of the three AMEAs: (1) representatives of foreign law firm representative offices established in China, who are permitted to attend and advise on international law and practice and provide information on the impact of the Chinese legal environment, but not permitted to conduct activities that encompass Chinese legal affairs, and (2) foreign legal counsel practicing in other legal jurisdictions, who are permitted to attend and provide information on the subject transaction or conduct and information on the laws or international practices of the legal jurisdiction where they practice.

In the Blog post describing the JCCT, Commerce states:

  • Competition policy enforcement: The United States was able to address a significant concern for many foreign companies, which have expressed serious concern about insufficient predictability, fairness and transparency in the investigative processes of China’s Anti-Monopoly Law enforcement. The Chinese side agreed that, under normal circumstances, a foreign company in an Anti-Monopoly Law investigation would be permitted to have counsel present and to consult with them during proceedings. China also made several additional commitments, including to treat domestic and foreign companies equally and to provide increased transparency for investigated companies.

ANJIE LAW FIRM

On January 21, 2015, Michael Gu, a Chinese antitrust lawyer at the Anjie Law Firm in Beijing, sent the following e-mail with attached several articles on Chinese antitrust law:

I would like to share with you my latest articles on the recent PRC antitrust development.

      Six Years After the Implementation of the Anti-Monopoly Law: Enforcement Trends and Developments of Anti-Monopoly Law Investigation in China (English and Chinese)2014 marks the six anniversary of the implementation of the PRC Anti-Monopoly Law (“AML), the National Development and Reform Commission of the People’s Republic of China (“NDRC”) and the State Administration for Industry and Commerce of the People’s Republic of China (“SAIC”) have gradually strengthened their anti-monopoly law enforcement in terms of investigation with rounds of record fines. In particular, since early 2013, the investigations conducted by the NDRC are apparently speeding up with 11 high-profile cases investigated and closed with the total fines amounting to RMB 3,272.75 million. This article focus on the typical cases investigated and fined by the NDRC and the SAIC, analyzing in detail the recent trends and features, as well as future developments of anti-monopoly law enforcement. Also, we provide suggestions to companies with respect to their construction of antitrust compliance program under the new circumstances

MOFCOM Steps Up: Penalty Decisions Regarding Merger Control Published for the First Time (English) On 2 December 2014, for the first time ever, MOFCOM, the Chinese antitrust enforcement authority responsible for merger control, published three penalty decisions regarding concentration of undertakings. MOFCOM has announced that it was going to publicize its penalty decisions on undertakings which fail to file a notifiable merger as early as 21 March 2014, and now, here it comes. By publicizing these penalty decisions, MOFCOM conveys a clear message that it is enhancing the supervision and law enforcement on merger issues.

T&D MICROSOFT E-MAIL AND ARTICLE

On December 9th, John Ren of T&D Associates, a well-known, Chinese antitrust lawyer in Beijing, sent out an e-mail to all interested parties about the Chinese Ministry of Commerce’s (MOFCOM) recent decisions to hand out penalty decision in three cases. As John Ren states:

T&D has prepared an email to introduce three penalty decisions of MOFCOM to the clients. Please see below for your reference as well.

The Department of Treaty and Law (“DTL”) of the Ministry of Commerce of People’s Republic of China (“MOFCOM”) has published three Administrative Penalty Determination Letters on December 8, 2014 on its website to impose fines on Western Digital Corporation (“Western Digital”) and Tsinghua Unigroup Co., Ltd.(“Unigroup”) for their violation of antitrust law and regulations. Please find attached the English translations of the three documents prepared by T&D for your kind reference.

T&D would like to provide comments as below for your kind reference:

      1. The penalties imposed on Western Digital are aimed at its violation of commitments in MOFCOM’s conditional approval notice in accordance with Article 15 of the Measures for the Review of Concentrations of Undertakings (“Measures“), while the penalty imposed on Unigroup is aimed at its violation of notification obligation in accordance with Article 21 of the Anti-Monopoly Law (“AML“) and Article 13 of the Interim Measures for Investigating and Handling Failure to Notify the Concentration of Undertakings According to Law (“Interim Measures“).
      2.      On March 20, 2014, MOFCOM has published an announcement about disclosing the penalty determination after May 1, 2014 on the undertakings who implemented a concentration without filing before MOFCOM when it is needed in accordance with law. And it is the first time MOFCOM has published its penalty determinations on undertakings who violate the restrictive conditions in a conditional approval notice (regarding the Western Digital Penalty) and on undertakings who fail to notify before MOFCOM when it was needed in accordance with the law (regarding the Unigroup Penalty).
      3. These public penalty determinations show a trend of MOFCOM strengthening enforcement of antitrust law after May 1, 2014. In fact, there were several companies on which bureau-level penalties were imposed in the past by the Anti-Monopoly Bureau of MOFCOM and those penalties have not been disclosed to the public, while the disclosure of the administrative penalty this time by DTL of MOFCOM is a higher-level penalty which has a higher number of fine and needs consent from the minister-level to be implemented. Also, there will be other kinds of penalties if MOFCOM defines antitrust concerns during the review process in accordance with the AML, for example, to discontinue such concentrations, to dispose of undertakings’ shares or assets within a specific time limit, to transfer the business, to adopt other necessary measures to return to the status prior to the concentration, etc.
      4. In accordance with Article 48 of the AML, MOFCOM can impose a fine of no more than 500,000 RMB on the undertakings. Although compared to the transaction value and the turnover of some large-scale companies, this is not a significant figure, MOFCOM’s act of disclosing the penalty determination will seriously hurt the reputation of the companies and effect the compliance issues of those companies in their future operations in China. Therefore, we sincerely suggest that companies take it more seriously when evaluating the necessity of notification and perform the obligation of notification if necessary.
      5. As we can see, the penalty determinations aim at one foreign company and one domestic company, which shows a fair treatment and attitude by MOFCOM regarding antitrust law enforcement on both foreign and domestic companies.

T&D JANUARY REPORT

T&D also sent us their attached January report on Chinese competition law, TD Monthly Antitrust Report of January 2015. In that report, John Ren states in part:

Experts Predict Anti-Monopoly Law Enforcement will Normalize and Regulate this Year

January 5, 2015

Anti-monopoly law enforcement advanced triumphantly in 2014.

This year, many well-known foreign companies such as Qualcomm, Tetra Pak, Microsoft, Mercedes, etc. have faced investigation by China’s anti-monopoly law enforcement; Japanese auto parts enterprises received the biggest fines since the birth of the anti-monopoly law; rare anti-administrative monopoly investigation cases have also arisen on suspicions of discriminatorily charging road tolls, and the National Development and Reform Commission (NDRC) launched an anti-monopoly investigation on an administrative organ at the provincial level for the first time.

There are so many bright spots of “first times”, “largest,” and so on in 2014, leaving this year with a groundbreaking mark in the course of China’s anti-monopoly law enforcement.

This kind of strength has been accused of “selective law enforcement”, “lacking law enforcement transparency”, “lacking professionalism” and so on. As for the trend of the anti-monopoly law enforcement from now on, a majority of experts give prudent predictions. They think, in view of law enforcement difficulties, the strengthening of supervision by public opinion as well as the improvement on the Government Information Publicity System, anti-monopoly law enforcement in 2015 will become more prudent and precise, and strong law enforcement is likely to slow down.

Full bloom of anti-monopoly law enforcement

2014 is the year in which anti-monopoly law enforcement blossomed everywhere. Both for domestic enterprises and foreign enterprises, also both for natural monopolies and administrative monopolies, law enforcement and judicial organs all increased their engagement.

The anti-monopoly investigation on many multinational companies and foreign companies is a big characteristic of anti-monopoly in 2014. At the beginning of the New Year, the information of anti-monopoly law enforcement drew people’s attention. Qualcomm was under anti-monopoly investigation by the National Development and Reform Commission, and Tetra Pak and Microsoft were under an anti-monopoly investigation by China’s State Administration for Industry and Commerce.

On May 29, the National Development and Reform Commission issued the first anti-monopoly fine for 2014. Because price monopolistic behavior violated the anti-monopoly law, five eyeglass production enterprises including Essilor, Bausch & Lomb, etc., were fined more than 19 million Yuan.

Into the summer, the National Development and Reform Commission targeted the import auto industry as a goal for a new round of anti-monopoly enforcement. On August 4, the anti-monopoly investigation team of the National Development and Reform Commission abruptly investigated Mercedes’ Shanghai office. A number of Mercedes executives were summoned for questioning, and many office computers were inspected. After then, luxury cars such as Chrysler and Audi reduced their prices one after the other in response to China’s anti-monopoly investigations.

At the same time, domestic enterprises are also undergoing anti-monopoly investigations and anti-monopoly penalties. So far, it is clear to see through the “Anti-monopoly Cases Release Platform” that all 16 anti-monopoly cases punished by the anti-monopoly enforcement authority in the industry and commerce system target domestic enterprises.

The “restricting administrative monopoly” provision in the Anti-Monopoly law has been plagued by the “decoration” question. On September 13, the NDRC anti-monopoly bureau director Kun Lin, Xu announced at a news conference in the State Council Information Office (SCIO) that the stipulation by Hebei province, that the bus in its province will be charged half price of toll fees but out-of-province buses will be charged full price, is suspected of violating the anti-monopoly law, and it is under the National Development and Reform Commission’s investigation. Relevant government departments in Hebei province soon put forward an improvement scheme, restoring prices to the same price charged for local vehicles and vehicle from other places.

Repeatedly refreshed anti-monopoly fines

In 2014, the anti-monopoly enforcement authority continued the intensity of punishment in 2013; anti-monopoly fines reached new highs repeatedly.

In sweltering mid-August, the National Development and Reform Commission offered a 1.235 billion Yuan penalty to 12 Japanese auto parts companies, and so far this is the biggest anti-monopoly fine in China. It is understood that since 2013 the National Development and Reform Commission has issued 7 anti-monopoly fines, each of which reached more than ten million Yuan.

On September 2, in view of the fact that the insurance industry association of Zhejiang province organized 23 provincial property insurance companies to hold a meeting about car insurance premiums and they violated the anti-monopoly law regulation, the National Development and Reform Commission decided to fine the insurance industry association of Zhejiang province 500,000 Yuan, and 110 million Yuan on the 23 property insurance companies involved. This is by far the biggest anti-monopoly fine in the insurance industry.

The media exclaims that anti-monopoly fines are higher and higher. Industry experts remind the public that the focus for anti-monopoly enforcement should not just be placed on the amount of the fine. Professor Jian Zhong Shi, a modification and review panel expert for the Anti-Monopoly Law of the State Council Legislative Affairs Office and a director in the competition law research center of China University of Political Science and Law, thinks that even if a fine is a “sky-high price”, the purpose of law enforcement is not for huge fines, but for restoring the normal order of market competition.

Super-national treatment is closed

The intensive law enforcement on foreign-funded enterprises soon triggered suspicion. The European Union Chamber of Commerce in China raised objection to the anti-monopoly investigations in China, considering that they have been treated unfairly. Others argue that there is a double standard in China’s anti-monopoly law enforcement. While there is strict law enforcement on private enterprise and multinational companies, the law enforcement on state-owned enterprise is passive.

As for this point of view, Mengyan, an associate professor in the law school of Renmin University of China, thinks that the business activities of multinational companies and foreign-funded enterprises in China enjoy “Super-national Treatment” in the initial stages of reform and opening-up. When faced with anti-monopoly law enforcement practices in China, foreign-funded enterprises should consider more, keep a low-profile, and reflect on whether their own pricing behavior violates the anti-monopoly provision.

Since the initiation of China’s anti-monopoly law in August, 2008, the National Development and Reform Commission and the State Administration of Industry and Commerce did not “exert force” until the past two years. As for this point, Huangyong, deputy supervisor of the expert consultation group for the Anti-monopoly Commission of the State Council and professor in the law school of University of International Business and Economics, expresses that this phenomenon may be explained as that: For the new anti-monopoly law, law enforcement authorities are willing to set aside a period of time for market players to correct themselves before as the authorities themselves also need some time to learn professional knowledge and accumulate law enforcement experience. However, after six years, law enforcement authorities today both have the intention and the capability to fully open anti-monopoly law enforcement. To some extent, law enforcement authorities are cleaning “historical debts”. Law enforcement work is becoming normality.

Law enforcement transparency awaits improvement

The transparency of law enforcement has become a focus point for the general question in the foreign press on China’s anti-monopoly law enforcement.

On September 2, 2014, the National Development and Reform Commission announced its 0.11 billion Yuan anti-monopoly “ticket” on the insurance industry in Zhejiang province and published its full written decision of administrative penalty at the same time. However, the scrupulous reader can find that this written decision of administrative penalty has been made by the National Development and Reform Commission as early as the end of 2013, so why is it not published until today? Should the written decision of administrative penalty for anti-monopoly law enforcement be published timely?

Meanwhile, the publication of written decisions of administrative penalties for anti-monopoly law enforcement lacks unified legislation. This becomes another question raising suspicion of foreigners regarding anti-monopoly law enforcement transparency.

Insiders generally consider that anti-monopoly law enforcement will become normality from now on. However, considering law enforcement difficulties, the strengthening of the supervision of public opinions as well as the improvement on Government Information Publicity System, anti-monopoly law enforcement in 2015 will become more prudent and precise; the strong law enforcement is likely to slow down.

Professor Huangyong thinks that the focus for anti-monopoly law enforcement from now on should return to the legislative intention for the anti-monopoly law, that is to say, to safeguard a healthy market competition order. From now on, anti-monopoly cases will be more complex and involve more frontier domains. This puts forward a higher demand for the professionalism of anti-monopoly law enforcement. Thus, law enforcement authorities in our country should be well prepared and meet the challenge actively.

SECURITIES

PRC AUDIT FIRMS REACH SETTLEMENT WITH SEC

On February 8, 2015, Dorsey Partner, Tom Gorman, who used to work at the SEC Enforcement division, posted the following article about PRC Based Audit Firms and their problems at the US Securities and Exchange Commission (“SEC”) on his blog on securities litigation. In that post Tom Gorman states:

SEC – PRC Based Audit Firms Reach A Settlement

The SEC and the PRC based affiliates of five major accounting firms entered into a settlement of proceedings initiated over the failure to produce audit work papers for issuers with substantial operations in China. The settlement, which provides a mechanism for governing future productions, represents a significant step toward a resolution of these issues which ultimately stem from the intersection of far different cultures and regulatory systems.

The proceedings

In the Matter of BDO China Dahua CPA Co., Ltd., Adm. Proc. File No. 3-15116 (Dec. 3, 2012) is a proceeding which named as Respondents the PRC based affiliates of five major accounting firms: BDO China, Ernst & Young Hau Ming LLP, KPMG Huazhen (Special General Partnership), Deloitte Touche Tohmatsu Certified Public Accountants Ltd. and PricewaterhouseCoopers Zhong Tian CPAs Ltd.

The proceeding was based on Rule 102(e)(1)(iii) which permits the Commission to temporarily or permanently deny any person found to have willfully violated or aided and abetted the violation of the Federal securities laws. Section 106 of the Sarbanes-Oxley Act of 2002, as amended by the Dodd-Frank Act, was alleged to have been violated. That Section provides that a PCAOB registered firm that audits the financial statements of a U.S. issuer consents to produce its work papers on request by either the Board or the SEC.

In this matter, each Respondent is registered with the PCAOB. Each Respondent is alleged to have been engaged to audit the financial statements of a PRC based U.S. issuer. Each Respondent was served with a request by the Commission to produce all of its audit work papers for a designated period. Each Respondent declined, at least in part, based on their understanding that the law of the PRC precluded the production. The Order directed that a hearing be held before an ALJ to hear evidence.

Following the hearing the Law Judge issued an initial decision on January 22, 2014. In that decision, much of which was redacted, the Law Judge found that each firm should be censured. In addition, each firm, except BDO, was suspended from practicing before the SEC for six months. The Commission then granted petitions for review filed by Deloitte, EY, KPMG and PwC as well as the Division. See also In the Matter of Deloitte Touche Tohmatsu Certified Public Accountants Ltd., Adm. Proc. File No. 3-14872 (May 9, 2012)(subpoena enforcement action against the audit firm related to a different PRC based client).

The settlement

BDO China, Deloitte, EY, KPMG and PwC settled with the SEC, admitting certain facts which are the predicate of the proceedings as set forth in Annex A. There were no admissions that the Federal securities or other laws were violated.

Under the terms of the settlement each Respondent is censured and will pay a penalty of $500,000. The Order provides for a stay of the current proceedings for a period of four years. The continuation of the stay is contingent on the implementation of certain undertakings tied to the execution of future requests for work papers. Specifically, the undertakings provide that in the future the SEC will make requests for assistance to the CSRC under international sharing mechanisms which include the

IOSCO MMOU. At the same time the staff will make a request to one of the settling Respondents through its designated U.S. agent. The Respondent to whom the request is directed will provide the staff with a certification that the materials have been furnished to the CSRC, along with a log of any documents withheld based on privilege or PRC law provisions which include state secrets. The undertakings provide time limits for the completion of these tasks.

If the Respondent to whom the request is directed fails to provide the required certificates within the specified time periods the Commission can, under Rule 102(e), enter a partial bar as to that Respondent. That bar will have a term of six months and will preclude the firm from issuing an audit report or otherwise serving as a principal auditor for any issuer. If two such bars are ordered they shall run consecutively. There is no appeal from the entry of this order.

Alternatively, if the staff determines that the production made to CSRC is materially incomplete, after an opportunity to cure, a summary proceeding may be instituted before a Law Judge. The Law Judge will have the authority to issue a partial bar, a censure and a penalty of up to $75,000.

Finally, if the staff determines that a Respondent has provided materially deficient responses, there has been substantial delay, material has been withheld without justification under U.S. law and a summary proceeding has not been instituted, it may request that the Commission terminate the stay and restart the proceedings.

Comment

The settlement of these proceedings is one step in what has become a long and difficult process regarding the entry of PRC issuers into the U.S. and world capital markets. Issuers based in, or with substantial operations in the PRC, have sought entry into the U.S. and world capital markets.

Bringing those firms to markets which are heavily regulated and based on disclosure, however, represents a clash of culture and regulatory regimes.

Here that clash has been evident from the first. While SOX requires Board registered auditors to agree to produce work papers and subjects them to inspections, at the time of registration the firms involved in these proceedings did not provide the Consent to Cooperate. Nevertheless, the Board permitted their registration while reiterating its obligations.

As these proceedings demonstrate, effectuating the requirement that registered firms produce work papers has been difficult for the SEC and the Board. At the same time the Commission and Board have exercised restraint while negotiating resolutions of the issues involved here. For example, after significant efforts the Board was able to enter into an MOU with the CSRC regarding cooperation and the production of work papers. The materials in the underlying actions were produced.

Yet an agreement on inspection, while under discussion, has been elusive.

Viewed against this backdrop, the settlements here are significant. The firms were sanctioned, but not barred from appearing and practicing before the SEC. Rather, an additional mechanism for facilitating future requests was arranged under the threat of additional and more significant sanctions. The ultimate success of the process is, however, tied to the MOU negotiated by Board since the settlement only calls for delivery of the materials to the CSRC, not to the SEC. Recent productions by that agency suggest that in the future there will be more cooperation and transparency regarding issuers operating in the PRC. It may well be that the time has come for issuers operating in the PRC to enter the world capital markets.

See also Tom Gorman’s blog for more information about this case http://www.secactions.com/sec-prc-based-audit-firms-reach-a-settlement/

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

On December 15, 2014, the Justice Department announced that Avon China had pled guilty to violating the foreign corrupt practices Act by concealing more than $8 million in gifts to Chinese officials. As the Justice Department stated in an announcement, which will be attached to my blog:

Avon Products Inc. and Avon Products (China) Co. Ltd. Will Pay More than $135 Million in Criminal and Regulatory Penalties

Avon Products (China) Co. Ltd. (Avon China), a wholly owned subsidiary of the New York-based cosmetics company, Avon Products Inc. (Avon), pleaded guilty today to conspiring to violate the accounting provisions of the Foreign Corrupt Practices Act (FCPA) to conceal more than $8 million in gifts, cash and non-business meals, travel and entertainment it gave to Chinese government officials in order to obtain and retain business benefits for Avon China. Avon China and Avon admitted the improper accounting and payments and Avon entered into a deferred prosecution agreement to resolve the investigation. In a proceeding today before United States District Judge George B. Daniels, the criminal Informations were filed against Avon and Avon China, and Avon China entered its guilty plea and was sentenced.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.

“Companies that cook their books to hide improper payments will face criminal penalties, as Avon China’s guilty plea demonstrates,” said Assistant Attorney General Caldwell. “Public companies that discover bribes paid to foreign officials, fail to stop them, and cover them up do so at their own peril.”

“For years in China it was ‘Avon calling,’ as Avon bestowed millions of dollars in gifts and other things on Chinese government officials in return for business benefits,” said U.S. Attorney Bharara. “Avon China was in the door-to-door influence-peddling business, and for years its corporate parent, rather than putting an end to the practice, conspired to cover it up. Avon has now agreed to adopt rigorous internal controls and to the appointment of a monitor to ensure that reforms are instituted and maintained.”

“When corporations knowingly engage in bribery in order to obtain and retain contracts, it disrupts the level playing field to which all businesses are entitled,” said FBI Assistant Director in Charge McCabe.

“Companies who attempt to advance their businesses through foreign bribery should be on notice. The FBI, with our law enforcement partners, is continuing to push this unacceptable practice out of the business playbook by investigating companies who ignore the law.”

Avon China pleaded guilty to a criminal information filed today in the U.S. District Court for the Southern District of New York charging the company with conspiring to violate the books and records provisions of the FCPA. Avon, the parent company, entered into a deferred prosecution agreement today and admitted its criminal conduct, including its role in the conspiracy and its failure to implement internal controls.

Pursuant to the deferred prosecution agreement, the department filed a criminal information charging Avon with conspiring to violate the books and records provisions of the FCPA and violating the internal controls provisions of the FCPA. In total, the Avon entities will pay $67,648,000 in criminal penalties. Avon also agreed to implement rigorous internal controls, cooperate fully with the department and retain a compliance monitor for at least 18 months.

Avon settled a related FCPA matter with the U.S. Securities and Exchange Commission (SEC) today, and will pay an additional $67,365,013 in disgorgement and prejudgment interest, bringing the total amount of U.S. criminal and regulatory penalties paid by Avon and Avon China to $135,013,013.

According to the companies’ admissions, from at least 2004 through 2008, Avon and Avon China conspired to falsify Avon’s books and records by falsely describing the nature and purpose of certain Avon China transactions. Specifically, the companies sought to disguise over $8 million in gifts, cash and non-business travel, meals and entertainment that Avon China executives and employees gave to government officials in China in order to obtain and retain business benefits for Avon China. Avon China attempted to disguise the payments and benefits through various means, including falsely describing the nature or purpose of, or participants associated with such expenses, and falsely recording payments to a third party intermediary as payments for legitimate consulting services.

The companies also admitted that in late 2005 Avon learned that Avon China was routinely providing things of value to Chinese government officials and failing to properly document them. Instead of ensuring the practice was halted, fixing the false books and records, disciplining the culpable individuals, and implementing appropriate controls to address this problem, the companies took steps to conceal the conduct, despite knowing that Avon China’s books and records, and ultimately Avon’s books and records, would continue to be inaccurate.

Court filings acknowledge Avon’s cooperation with the department, including conducting an extensive internal investigation, voluntarily making U.S. and foreign employees available for interviews, and collecting, analyzing, translating and organizing voluminous evidence.

BRUKER CORP.

On December 15, 2014 Massachusetts-based scientific instruments manufacturer Bruker Corp. agreed to pay $2.4 million to settle the U.S. Securities and Exchange Commission’s charges that it violated the Foreign Corrupt Practices Act by bribing Chinese government officials in an effort to win sales contracts.

SECURITIES COMPLAINTS

On December 2, 2014, Wayne Jewell filed a class action securities case against MOL Global, Inc., Tan Sri Dato, Seri Vincent Tan, Ganesh Jumar Bangah, Allan Sai Wah Wong, Eric He, Noah J. Doyle, Citigroup Global Markets Inc., Deutchsche Bank Securities Inc., UBS Securities LLC and CIMB Securities (Singapore) PTD, Ltd. JEWELL MOL GLOBAL

On December 11, 2014, Chao Lu filed a class action securities case against Jumei International Holding Ltd, Leo Ou Chen, Yusen Dai, Mona Meng Gao, Yunsheng Zheng, Judge Paijley, Steve Yue Ji, Keyi Chen, Goldman Sachs (Asia) LLC, Credit Suize Securities (USA) llc, J.P. Morgan Securities LLC, China Renaissance Securities (Hong Kong) Ltd, Piper Jaffray & Co and Oppenheimer & Co. Inc. JUMEI BROCK COMPLAINT

On December 31, 2014, Aram J. Pehlivian filed a class action securities case against China Gerui Advanced Materials Group Ltd, Mingwang Lu, Edward Meng, Yi Lu, Harry Edelson, J. P. Huang, Kwok Keung Wong, Yunlong Wang, and Maotong Xu. CHINA GERUI

On January 9, 2015, Steven Bocker, Sadie LaBerge and Jay Wise filed a class action securities case against Deer Consumer Products Inc., Yuehua Xie, Zongshu Nie, Arnold Staloff, Qi Hua Xu, Yongmei Wang, Man Wai James Chu, Walter Zhao, Edward Hua, Bill Ying he, Goldman Kurland Mohidin LLP, and Ahmed Mohidin. DEER SECURITIES

On January 14, 2015, Paul Fila filed a class action securities case against Pingtan Marine Enterprise Ltd., Xinrong Zhuo, Roy Yu, Jin Shi and Xuesong Song. PINGTAN MARINE Complaint

On February 2, 2015, Chao Sun filed a class action securities case against Daqing Han, Xiaoli Yu, Hong Li, Ming Li, Lian Zhu, Guanghui Cheng, Guobin Pan, Guangjun Lu, Yuanpin He, Mazars CPA Ltd, Mazars Scrl, Weisermazars LLP, and Telestone Technologies Corp. CHAO SUN TELESTONE

On February 4, 2015, Ming Huang filed a class action securities case against Alibaba Group Holding Ltd, Jack Yun Ma, Joseph C. Tsai, Jonathan Zhaoxi Lu and Maggie Wei Wu. MING HUANG ALIBABA

On February 16, 2015, Myrtle Chao filed a class action securities case against Alibaba. MYTRLE CHAO ALIBABA

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

Best regards,

Bill Perry

US CHINA TRADE WAR–TRADE, TRADE ADJUSTMENT, 337/IP, PRODUCTS LIABILITY

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER JANUARY 11, 2015

Dear Friends,

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

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

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

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

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

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

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

NEWSLETTER

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

TRADE –– SOLAR PRODUCTS AND SOLAR CELLS CASES

SOLAR PRODUCTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS

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

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

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

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

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

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

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

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

US CHINA SOLAR NEGOTIATIONS

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

A major reason for this failure is because Solar World Americas, the petitioner in the U.S. trade remedy cases, stated that it could not accept the parameters that Chinese producers were willing to offer, and the U.S. government was unwilling to push the company to give ground. Knowledgeable sources have said that the floor price is the key sticking point.

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

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

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

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

IMPACT OF SOLAR CASE ON US INDUSTRY

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

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

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

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

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

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

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

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

According to the Press Release,

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

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

FACTS AVAILABLE CHANGE

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

“SUBSIDY RATES AND DUMPING MARGINS IN ADVERSE INFERENCE DETERMINATIONS:

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

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

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

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

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

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

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

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

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

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

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

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

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

“Use of facts available: . . .

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

As the WTO further stated in its determination:

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

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

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

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

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

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

The WTO Appellate Body went on to state:

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

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

In its conclusion, the WTO determines:

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

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

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

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

MARKET ECONOMY CHANGE

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

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

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

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

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

The United States, however, faces a looming deadline under the WTO Agreement with regard to the application of this nonmarket economy methodology to China. Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, provides:

 “Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

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

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

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

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

 IMPORT ALLIANCE FOR AMERICA

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

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

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

Recently, the Import Alliance established its own website. See http://www.importallianceforamerica.com.

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

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for the Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226. The PowerPoint we used to describe the Import Alliance, the specific provisions in the US China WTO Agreement and the Trade War in general is attached FINAL WEB BEIJING IMPORT ALLIANCE POWERPOINT.

TRADE POLITICS AND TRADE AGREEMENTS

ONE ISSUE MOVING IN CONGRESS NEXT YEAR—TRADE

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

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

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

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

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

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

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

US CHINA TRADE AGREEMENTS

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

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

With regards to ITA, in Beijing at the APEC meeting, the US government announced on November 10th that it had convinced China to eliminate tariffs on tech goods like advanced semiconductors and medical devices. The Chinese government agreed to U.S. demands to eventually eliminate tariffs on advanced semiconductors known as MCOs, magnetic resonance imaging (MRI) machines, and high-tech testing equipment, but the deal did not include tariff elimination on flat-panel displays.

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

The core group negotiating the updated ITA includes the EU, U.S., Japan, China, South Korea, Australia, Switzerland, Norway, New Zealand, Singapore, Taipei, Malaysia, Thailand, the Philippines, Hong Kong, Costa Rica, Israel, Croatia, Turkey, Bahrain, Montenegro, Iceland, El Salvador, Guatemala, Colombia, Dominican Republic and Albania. A fact sheet circulated by the White House noted that the expansion of the ITA pact would eventually eliminate tariffs on roughly $1 trillion in annual global sales of information technology products and boost the annual global GDP by an estimated $190 billion.

On December 12th the USTR issued the attached statement by US WTO Ambassador Michael Punke, USTR STATE ITA FAILURE, which states in part:

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

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

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

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

 TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

As mentioned in past blog posts, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP), Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations and the WTO.  The TPP is a free trade agreement being negotiated by officials from the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These trade negotiations could have a major impact on China trade, as trade issues become a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

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

But then came the November 4th Republican wave election changing Trade Politics dramatically in Washington DC. Elections have consequences and in 2015 Republicans have taken the Senate and increased their numbers in House.

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

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

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

On July 17th, all Republican members of the House Ways and Means Committee sent a letter to USTR Froman, which is posted on my blog, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

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

Now the story continues . . . .

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

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

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

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

Levin further stated:

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

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

December 4, 2014

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tiberi further stated:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A senior White Official also stated:

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

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

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

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

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

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

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

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

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

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

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

Boehner spokesman Cory Fritz stated,

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

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

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

TPP FOR CHINA??

On October 15th, the Peterson Institute for International Economic (”IIE”) released a study touting the benefits of a theoretical free trade agreement between China and the United States, including increased income and export gains, while also acknowledging that such an agreement could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span. The opening chapter as well as an IIE powerpoint are attached.  IIE FREE TRADE AGREEMENT CHINA US CHINA FTA FIRST CHAPTER

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

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

As stated in my prior post, that is where Trade Adjustment Assistance for Companies comes into play. The Peterson study contends that because the economic benefits equate to roughly $1.25 million in national income gains per job lost, the U.S. should consider policy alternatives to offset job loss rather than simply abandon an FTA with China.

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

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

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

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

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

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

CHINA AUSTRALIA FTA

On November 17th, Australia and China signed a free trade agreement to allow greater Australian agricultural exports and greater investment in China and increased Chinese exports to Australia. According to the Australian Prime Minister, the Agreement is predicted to add billions to the Australian economy create jobs and drive higher living standards.

INDIA US BILATERAL DEAL MOVES TRADE FACILITATION AGREEMENT FORWARD

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

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

In response, WTO Director-General Roberto Azevedo stated:

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

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

TRADE ADJUSTMENT ASSITANCE PROGRAM—REAUTHORIZATION

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

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

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

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

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

“December 8, 2014

Dear Speaker Boehner and Leader Pelosi, . . .

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

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

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

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

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

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

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

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

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

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

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

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

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

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

Sincerely,

Mitch McConnell”

United States Senator

JANUARY ANTIDUMPING ADMINISTRATIVE. REVIEWS

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

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

For those US import companies that imported Potassium Permanganate, Wooden Bedroom Furniture, OCTG and the other products listed above from China during the antidumping period January 1, 2014-December 31, 2014 or during the countervailing duty review period of 2014 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

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

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

The sanctions will eventually increase more with the Congressional passage of the Ukraine Freedom Support Act, which will be attached to my blog, which President Obama signed into law on December 19, 2014.

Although the law provides for additional sanctions if warranted, at the time of the signing, the White House stated:

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

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

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

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

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

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

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

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

The facilitation of any such transactions.

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

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

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

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

IP/PATENT AND 337 CASES

337 CASES

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

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

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

PATENT AND IP CASES IN GENERAL

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

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

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

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

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

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

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

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

PRODUCTS LIABILITY

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

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

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE , TAA, 337/IP, ANTITRUST AND SECURITIES

US Capitol South Side Fountain Night Stars Washington DC TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER NOVEMBER 25, 2014

DECEMBER 12, 2014 UPDATE–SOLAR NEGOTIATIONS AND NEW SOLAR ANTIDUMPING AND COUNTERVAILING DUTY CASE IN CANADA

Dear Friends,

On January 21st, I will be speaking at the Brooklyn Law School in New York City on US China Trade Disputes. The invitation to the speech is set forth below.

I look forward to seeing any of my friends at the speech.

Best regards,

Bill Perry

Wednesday, January 21, 2015 * Subotnick Center, 250 Joraelmon Street * Brooklyn Law School

2 FREE CLE credits

Two judges from the US Court of International Trade * partners from two leading law firms handling China trade disputes * professors from four law schools * former chairman of Federal Trade Commission * former congressman focused on US-China trade * former general counsel of MasterCard

REGISTRATION PROGRAM RECEPTION
5:30 PM 6-8 PM 8 PM onward

WELCOME Professor Nicholas W. Allard

Joseph Crea Dean and Professor of Law, Brooklyn Law School

INTRODUCTION

Professor Robin Effron

Co-Director, Dennis J. Block Center for the Study of International Business Law, Brooklyn Law School

FIRST PANEL: PURE TRADE DISPUTES

MODERATOR

Geoffrey Sant, Esq.

Adjunct Professor, Fordham Law School

Special Counsel, Dorsey & Whitney LLP

PANELISTS

The Honorable Donald Pogue

Senior Judge, US Court of International Trade

Professor Bill Kovacic

Global Competition Professor, George Washington Law School

Former Chairman of Federal Trade Commission

  

Bill Perry, Esq.

Partner, Dorsey & Whitney LLP

Formerly in Office of General Counsel, US International Trade Commission; Office of Chief Counsel and Office of Antidumping Investigation, U.S. Department of Commerce

Don Bonker

Executive Director, APCO Worldwide, Inc.

Former US Congressman (D-WA); former Chairman of Subcommittee on International Economic Policy and Trade

SECOND PANEL: DISPUTES BETWEEN TRADE PARTNERS

MODERATOR

  1. Augustine Lo, Esq.

Dosey & Whitney LLP

PANELISTS

Chris Cloutier, Esq.

Partner, King & Spalding LLP

Former Acting Deputy Director of Trade Remedy Compliance, US Department of Commerce (at US Embassy in Beijing, China)

Professor Thomas Lee

Leitner Family Professor of International Law, Fordham Law School

Noah Hanfft, Esq.

President; CEO of International Institute for Conflict Prevention and Resolution

Former General Counsel of MasterCard

Professor Zhao Yun

Director of the Center for Chinese Law, University of Hong Kong

CLOSING REMARKS The Honorable Claire Kelly

Judge, US Court of International Trade

Trustee, Brooklyn Law School

RECEPTION

8 PM onward

THIS EVENT IS FREE, BUT RSVPS ARE REQUIRED

RSVP to events@cblalaw.org

About the Program The United States and China are major trading partners. Trade issues between the two nations take center stage as leaders negotiate new trade treaties and struggle to resolve disputes under existing legal frameworks. Brooklyn Law School and the Chinese Business Lawyers Association present an evening of dialogue among leading practitioners and professors who will examine current issues in trade disputes between the U.S. and China.

Sponsored by the Dennis J. Block Center for International Business Law, Chinese Business Law Association (CBLA), ABA Section of International Law, and the Trade Secrets Institute(TSI).

WE EXPECT ALL SEATS TO BE RSVP’D.  TO ATTEND, PLEASE RSVP AS SOON AS POSSIBLE TO events@cblalaw.org OR TO www.brooklaw.edu/tradedisputes

For directions, please visit: www.brooklaw.edu/directions

Thank you!

Geoffrey Sant, Director

Chinese Business Lawyers Association

This course provides two (2) CLE credits in the State of New York. Partial credit is not available. The credits are transitional and non-transitional and the category is Professional Practice.

US CHINA SOLAR NEGOTIATIONS

Several companies have asked me about a possible US-China settlement in the Solar Cells/Solar Products cases.  Today, December 12th, USTR Michael Froman acknowledged that Washington and Beijing have held talks about the Solar cases for “some time”.  During a conference call with Reporters, Froman stated that a stable environment for trade in solar products and polysilicon would have three components.  The first is to ensure that trade laws are being enforced. The second and third components are to enable the further deployment of clean technology and address issues like climate change, and “to maintain world class industries in both our countries to manufacture these important products.”

But knowledgeable people stated that talks have slowed in recent weeks, following a period of intense engagement prior to President Obama’s state visit to China in November, which ended without an agreement.  A major reason for this failure is because SolarWorld Americas, the petitioner in the U.S. trade remedy cases, stated that it could not accept the parameters that Chinese producers were willing to offer, and the U.S. government was unwilling to push the company to give ground.  In contrast to Europe, Canada, many other countries and even China, the United States does not have a public interest test in its US antidumping and countervailing duty laws and, therefore, the US government has less power to push a settlement.

The deadline for Commerce to accept a potential agreement to suspend the ongoing antidumping (AD) or countervailing duty (CVD) cases against Chinese solar panels has long passed. Thus settling the dispute will require a broader agreement, such as in 2006 U.S.-Canada Softwood Lumber Agreement, under which Canada agreed to impose export taxes and/or quotas on its exports of softwood lumber to the United States, in return for the U.S. government stopping the collection of trade remedy duties on those products.

SolarWorld has stated that it could accept a package that would do away with the various trade cases if four key conditions were met. The first three are that the agreement be enforceable by Commerce, set a floor price on imports of Chinese solar cells, and include a quantitative restriction on the volume of imports. The fourth condition is that the floor price on imports of Chinese solar cells be indexed to the market price for polysilicon.  Knowledgeable sources, however, have said that the floor price is key sticking point.

Commerce Secretary Penny Prtizker also stated that she did not expect the final Solar Products determination to have any impact on the JCCT negotiations, which will soon take place in Chicago.

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

CANADA SOLAR CASE

An importer has contacted me about a new Solar Module and Panel Antidumping and Countervailing Duty Petition filed in Canada. On December 5, 2014, the Canadian government initiated the investigation. See the attached petition and announcement of the Canadian government.  CANADIAN SOLAR COMPLAINT CANADIAN SOLAR ANNOUNCEMENT

The Solar Trade War with China is now beginning to follow a similar pattern with other trade wars against Chinese products. An antidumping/countervailing duty case is filed in the US or the EU followed by many, many cases around the World.

In the early 1990s, a US antidumping case was brought against Garlic from China. I represented a number of US importers in the case and tried to represent the Chinese exporters/producers. In a very unusual situation, an official at the Chinese Chamber of Commerce refused to let any Chinese company respond to the US antidumping case and since the Chamber controlled export licenses, the official had the power to stop participation.

As a result, the Commerce Department levied antidumping duties of 376% against Chinese garlic, and that antidumping order is in place today, almost 20 years after the petition was filed.  But that was not the worst part of the case, the Garlic case spread to numerous other countries, including EU, India, Japan, Korea, Brazil, Mexico and other countries. Pretty soon 20 to 30 countries had trade orders against Chinese garlic blocking all exports of Chinese garlic, and Chinese garlic prices dropped like a rock. Garlic was very cheap in Beijing.

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

If anyone has any questons about this case or the ongoing US Solar Cells and Solar Products case, please feel free to contact me.

If anyone wants specific help on the Canadian case, please let me know and I will put them in touch with Canadian trade counsel.

NOVEMBER 25, 2014 POST

There have been major developments in the trade politics, trade, trade agreements, trade adjustment assistance, 337/IP, US/Chinese antitrust, and securities areas.

This month the blog post has grown substantially because there have been so many developments in the trade and political area, especially with regards to China.

TRADE POLITICS AND TRADE AGREEMENTS WITH CHINA

THE REPUBLICAN WAVE ELECTION CHANGES THE TRADE POLITICAL LANDSCAPE IN WASHINGTON DC

No matter whether you are a Republican or a Democrat, in looking at trade issues, including the trade laws and the relationship between the US and China, one must deal with political reality in Washington DC. Elections have consequences, and the November 4th Republican wave election will have consequences for years to come.

Not only did the Republicans take the Senate, but no one expected the Republicans to take 8 seats with potentially another coming from Louisiana so Republicans at the end of January 2015 will control the Senate 53 or 54 to 47 or 46.

In the House of Representatives with 5 races still undecided Republicans gained 12 sets. They now hold 245 seats to 187. One can see how the political map has changed in the House by looking at http://www.politico.com/2014-election/results/map/house/. In the House, the United States has turned into a red Republican sea.

As it stands now, this is the largest Republican majority since 1946. If 3 of the 5 outstanding House seats go Republican, it will be the largest Republican majority since the 1930s under Herbert Hoover, before Franklin Delano Roosevelt was President. To say that this election was historic is an understatement.

As Dana Milbank, a Washington Post columnist, who is not viewed as a Republican/conservative partisan, states in his November 14th Washington Post column:

“There are five 2014 House races still to be decided before we can answer the question of historical interest:

Was this the worst election for House Democrats since 1928? Or was it merely their worst since 1946?

Either way, the results do not reflect well on the House Democratic leader, Nancy Pelosi – a conclusion that seems to have escaped Nancy Pelosi.

“I do not believe what happened the other night is a wave”, the former speaker informed Politico. . . . She preferred to describe what happened in the House elections as an “ebb tide.”

If Democrats lose three of the five undecided races, they will have ebbed all the way back to the day Herbert Hoover won the Presidency. To fail to see that as a wave, Pelosi must be far out to sea.”

The 2014 election for Democrats was not a wave. It was a tsunami, and now the political reality has changed dramatically in Washington DC. The most dramatic impact will be in the trade area because that is the one area that Senate and House Republicans can work on together with President Obama.

As indicated below, under the Trade Agreements discussion, President Obama’s problem in the Trade area is not with the Republicans, but with the Democrats. Although many Democrats want to call themselves progressive, because of substantial Union support, a number of powerful Democrats do not want progress on trade. They are opposed to Free Trade Agreements that lower barriers to imports. In fact, several Democrats want to raise barriers to imports.

Most Republicans are not opposed to the Free Trade Agreements because they firmly believe that Free Markets will result in more business and a substantial increase in economic activity for US companies and more jobs for US workers.

On November 5th the day after the election, many former US government officials were predicting that Trade Promotion Authority (“TPA”), which will lead to the Free Trade Agreements, such as the Trans Pacific Partnership (“TPP”), would be one of the first issues taken up by the new Republican majority.   TPA is the centerpiece of the administration’s trade policy, as it will set forth negotiating priorities for the next several years.

While a bipartisan TPA bill emerged earlier this year, Senate Majority Leader Harry Reid, D-Nev refused to introduce the bill on the floor. The change of the majority to the trade-friendly Republicans removes that problem.

According to former United State Trade Representative (“USTR”) Clayton Yeutter, with the Obama administration pushing for a final 12-nation Trans-Pacific Partnership as soon as possible, securing TPA will be the number one objective and will likely rise to the top of the Republican agenda. As former USTR Yeutter stated:

“The challenge will be to get fast-track done as early as possible and I believe that all the folks in congressional leadership positions understand that fully. I would look for it to be one of the very first issues on the Congressional agenda next year.”

Present USTR Michael Froman also expressed optimism, stating:

“I think ultimately this is an area where there’s a lot of bipartisan support for trade. It’s one of the areas that cuts across party lines, one area that we think we can make progress in, and we look forward to working with Congress after the election on Trade Promotion Authority and on our trade agenda more generally, in a way that has broad bipartisan support.”

In addition, the new Chairman of the Senate Finance Committee will be Republican Senator Orrin Hatch of Utah and he has a close working relationship with the present Chairman, Democratic Sen. Ron Wyden of Oregon. As indicated in past newsletters, Senator Hatch has been very open about the need to pass TPA through the Congress and he will be very active on this issue.

The chances of passing a fast-track bill in the upcoming lame-duck session of Congress are slim because the objective according to recent reports is to end the session on December 11th.  In the new Congress, however, TPA will be very important because Republicans have publicly warned the Administration not to conclude the TPP talks before TPA is concluded. As indicated below, without TPA no final deal will be concluded because countries like Japan and Canada will not put their best proposals on the table.  Japanese Prime Minister Shinzo Abe, for example, in particular, will be reluctant to strike a deal if there is a chance it could be altered legislatively at a later date.

As former USTR Yeutter stated:

“It will be exceedingly difficult to wrap up TPP without TPA. Abe and Japan don’t want to have to make tough political decisions twice.”

As a further example, in the attached e-mail, WAYS AND MEANS TRADE A PLUS on November 13, 2014, the House Ways and Means Committee released an article by Bryan Riley from The Hill stating:

Free Trade is a Winner in Recent Elections

By Bryan Riley, The Hill contributor

Riley is the Heritage Foundation’s Jay Van Andel Senior Policy Analyst in Trade Policy.

In Georgia, Iowa, Massachusetts and North Carolina, the midterm elections proved that candidates shouldn’t be afraid to talk about the benefits of trade. They also demonstrated that candidates tempted to employ protectionist scare tactics in their campaigns should think twice.

In Iowa, Republican Senate candidate Joni Ernst’s campaign argued: “Congressman [Bruce] Braley’s Anti-Free Trade Votes are bad for Iowa Farmers.”

According to Politico: Iowa Republicans, in one of the tightest Senate races in the country, are trying to capitalize on Democratic Rep. Bruce Braley’s record of voting against trade agreements to help hand their candidate, Joni Ernst, the victory. Braley, whose state is heavily dependent on farm exports, voted against free trade pacts with South Korea, Colombia and Panama in 2011, even after President Barack Obama’s administration re-negotiated several provisions to round up more Democratic support. “The South Korean trade deal was huge,” Agriculture Secretary Bill Northey told POLITICO in an interview. “Everyone knew it was a clear, clear win for agriculture and it would have been a terrible not to have it. For him to vote against that I just think is a major red flag.”

Ernst defeated Braley, 52.2 percent to 43.7 percent.

In North Carolina’s Senate race, Democratic incumbent Kay Hagan said:

“Unfair trade agreements have contributed to the loss of more than 286,000 North Carolina manufacturing jobs in the last decade — the fourth-largest decline in the nation. It is time we start protecting jobs here at home.” Her campaign spokesman added: “Kay opposed trade agreements that ship North Carolina jobs overseas because she will always put North Carolina jobs first.”

Her Republican opponent, Thom Tillis, disagreed: “As agriculture exports increase, Thom believes we must promote policies that make trade with other nations free and efficient in order to stimulate our economy and allow North Carolina farmers and ranchers to expand their businesses.”

Tillis defeated Hagan, 49.0 percent to 47.3 percent.

In Massachusetts, the Democratic Governors Association released an ad attacking Republican gubernatorial candidate Charlie Baker: “Baker won the Outsourcing Excellence Award at the ‘Oscars of Outsourcing’ for his work destroying jobs here at home.” Baker replied that outsourcing some jobs to India allowed Massachusetts insurer Harvard Pilgrim to save thousands of jobs at home. Former Massachusetts Attorney General Thomas F. Reilly (D) called the outsourcing attacks “exactly the kind of nonsense that drives people away from the political process.”

Baker defeated Democrat Martha Coakley, 48.5 percent to 46.6 percent.

In Georgia, Democratic senatorial hopeful Michelle Nunn attempted to smear her Republican opponent David Perdue for outsourcing jobs to other countries: “David Perdue, he’s not for you,” her ad proclaimed. When a reporter asked Perdue to defend his use of outsourcing, he replied: “Defend it? I’m proud of it. … It’s the lack of understanding of the free enterprise system that I’m running against here.”

Perdue beat Nunn, 53.0 percent to 45.1 percent.

After the Massachusetts and Georgia elections, Computerworld reported:

“Offshore outsourcing fails as election issue: A longtime Democratic bludgeon isn’t enough to move needle.” In contrast, candidates who embraced the benefits of trade, like Joni Ernst and Thom Tillis, emerged victorious.

Promoting free trade is good economics, too. A comparison of trade policy around the world, developed by the Heritage Foundation and The Wall Street Journal in the annual Index of Economic Freedom, shows a strong correlation between trade freedom and prosperity.

Washington Post columnist Steven Pearlstein observed that outsourcing saves U.S. businesses and consumers billions of dollars each year:

“Those savings and those extra profits aren’t put under the mattress. Most of it is spent or invested in the United States in ways that are hard to track but have surely created hundreds of thousands of jobs in other companies and other industries. Those who hold those jobs would have no reason to know that they are beneficiaries of the process of outsourcing and globalization. But in a very real sense, they are.”

Most economists agree that criticizing trade is bad policy. Last week’s election results suggest it may be bad politics, too.

But as also indicated below, that is where Trade Adjustment Assistance for Firms/Companies comes into play.  Trade Agreements are a result of Government action that will change the market, not only around the World but also in the United States. With market barriers dropping in a number of different countries, many US competitive companies will see their exports increase.  Experts predict that the TPP, for example, could increase economic activity by $1 trillion.

But this Government action will also change the US market place, and a number of US companies will face a market that has completely changed, a trade tsunami created by Government action.  Because Government action has created the trade tsunami, the Government has an obligation to help companies adapt to the new marketplace conditions.  When I say companies, I mean not just the management, but the workers in the company too.

As explained more below, the Government has a responsibility to help US companies swim in the new competitive marketplace sea that has been created by the Trade Agreements.

FORMER CONGRESSMAN DON BONKER’S CHINA DAILY ARTICLE ON THE IMPACT OF THE ELECTION ON US CHINA RELATIONS

APCO Executive Director Don Bonker, a former Democratic Congressman and an expert on the political issues in US China Trade Relations, published the following November 7th article in the China Daily on the election, which can be found at http://usa.chinadaily.com.cn/us/2014-11/07/content_18881045.htm.  Don puts the November 4th election into a historical perspective:

Election results a mixed blessing for China

By Don Bonker (China Daily USA)

Republicans exceeded early predictions scoring big time in Tuesday’s election, taking full control of the US Senate, increasing their margin in the House of Representatives along with many victories across the country.  For the next two years, the United States will have a truly divided government with the Republicans claiming a new mandate to push an alternative agenda.

While many factors were in play in the 2014 election (Obama’s poor ratings, huge amounts of campaign spending, etc), the fundamentals in recent history clearly favored the Republican Party.  The party of whoever occupies the White House in mid-term elections suffers nominal loses of Senate and House seats and predictably weakens the President’s political standing. As we are reminded by David Schanzer and Jay Sullivan in the New York Times, “This is a bipartisan phenomenon; Democratic presidents have lost an average of 31 House seats and between 4-5 Senate seats in mid-terms; Republican presidents have lost 20 and 3 seats respectively.”

How will the election results affect the US-China relationship?

Neither Republicans nor Democrats have well-defined or predictable policies toward China. In recent years, a small group in Congress has attacked China on a select number of issues but such actions are not part of either Congressional leader’s agenda.  Existing Federal laws, such a CFIUS, provide opportunities for a single Congressman to go after China, often to lend support to a company in his state.

Republicans, known to be pro-trade and pro-business, taking control of the Senate should be a healthy sign in building closer relations with China, especially since governors in their states are leading trade missions to China, seeking Chinese investments and pursuing markets for their exporting companies.

However, individual Republican Senators have sent letters to CFIUS and other Federal agencies opposing China-related investments and transactions. Many senior Republicans in Congress have expressed skepticism over China due to its government’s Communist Party control, reported human rights concerns, US support of Taiwan and Japan, China’s military build-up, economic espionage and geopolitical or national security threats that could put pressure on the Obama Administration to be more assertive with China.

Several well-positioned Republican Congressmen have caused the biggest headaches for China. The issue, or fear, is rooted in cybersecurity threats and economic espionage that has led to Congressional investigations and legislation that greatly restrict China companies, such as Huawei and ZTE, from having access to telecommunication and related technology markets in the US. The two Congressmen who were responsible for these actions are retiring at the end of this year. The question is whether their replacements will continue such policies.

A related concern is the so-called Tea Party’s growing influence that has put Republican Congressional leaders in a difficult position given the Tea Party’s enduring political base and its extreme views on major issues (education and trade). It will likely affect the China relationship in negative ways, particularly on trade (“protect American jobs”) and on cyber and economic espionage issues.

The Democrats have their own agenda which occasionally proves hostile to China. Several occupy leadership positions on committees that preside over government agencies and assert their political clout to press for higher import tariffs and related trade restrictions. This has more to do with politics than economics, particularly in the election season when labor unions pressure, if not intimidate Democratic candidates to “protect American jobs”. Such protectionist policies are now prompting China to take reciprocal actions that may be placing China and America on the path of a trade war.

Despite the encouraging bilateral discussions on the Bilateral Trade Agreement (BIT), there is no guarantee what happens once it arrives on the doorstep of the US Capitol.

Overall, the newly established Congress preparing for 2015 may be more favorable to China given the departures of some if its Capitol Hill critics, but a great deal of anxiety about China will continue – mistrust, economic and security threats and China’s economy surpassing the US’ in the foreseeable future.

In the Senate, the Republicans taking control will create a different political paradigm but with little indication on how it will play out over the next two years. The new political alignment will offer a narrow window for Congressional Republicans to provide stronger leadership and promote their own agenda and could result in more favorable actions (approval of TPP and TTIP trade pacts).

But that is in the short-term. It is unlikely the Republicans maintain the Senate majority in the 2016 elections, but the House of Representatives will comfortably stay in Republican control (given the shape of Congressional districts) for some time into the future. With a Democrat occupying the White House this will likely guarantee continued gridlock in Washington for the next decade.

The 2016 presidential election may be more favorable to Democrats for the same reasons the Republicans scored well this year. Barack Obama is not on the ballot and the Democrats will be far more unified (under Hillary Clinton) than the Republicans (the party may likely be split).

In 2016, the Republicans will have 23 Senate positions on the ballot compared to 10 for Democrats (also likely retirements/resignations). And the voter turn-out will jump back to 53 percent, which greatly favors Democrats in presidential elections. So whether political history will prevail and the Democrats re-take the Senate in 2016 or Republicans will defy the odds and remain in power is the big question going forward.

BILATERAL US CHINA TRADE AGREEMENTS

APEC AND PRESIDENT OBAMA’S TRIP TO BEIJING

Right after the mid-term elections, President Obama made a major trip to Beijing, China for the Asian Pacific Economic Cooperation (“APEC”) meeting.  As indicated below, President Obama’s Administration had set a target date for completing the Trans Pacific Partnership (“TPP”) talks at the APEC meeting. That did not happen, but there were several historic agreements that did come out of the meetings with the US and Chinese Government.

In the attached White House Statement and Fact Sheet, WHITE HSE STATE CHINA VISIT PRESS CONF CHINA US the US and Chinese governments announced that China will now grant 10 year visas to US businessmen and tourists and that there will be enhanced enforcement against counterfeit goods.

During the attached Joint Press Conference, the two Presidents announced a new Information Technology Agreement (ITA) and an agreement on Climate Change. President Obama stated that a strong, cooperative relationship with China is at the heart of the United States’ policy to Asia, and stated that the United States needs the world’s second-largest economy and the most populous nation on Earth as its partner in order to lead in addressing global challenges. As President Obama stated, “[I]t is a fact that when we work together, it’s good for the United States, it’s good for China, and it is good for the world.”

President Xi Jinping of China made several important points in response to questions, but several of the most important are:

“The strategic significance of China-U.S. relations is on the rise. . . . Both President Obama and I believe that when China and the United States work together, we can become an anchor of world stability and a propeller of world peace. China stands ready to work with the United States to firm up our confidence, exercise our wisdom, and take action to strengthen our coordination and cooperation bilaterally, regionally and globally; and to effectively manage our differences on sensitive issues so that we can make new gains in building the new model of major-country relations between China and the United States, which serves the fundamental interests of our two peoples and the people elsewhere in the world.

China and the United States have different historical and cultural traditions, social systems, and faces of development. So it’s natural that we don’t see eye to eye on every issue. But there have always been more common interests between China and the United States than the differences between us. Both sides respect each other’s core interests and major concerns and manage our differences in a constructive fashion, full dialogue and consultation so as to uphold the overall interests of stable growth of China-U.S. relations. . . .

China and the United States are different countries in the world. It’s perfectly normal for there to be different views expressed about us in the international media. And I don’t think it’s worth fussing over these different views. And I don’t see any of the regional free-trade arrangements as targeting against China. China is committed to open regionalism. And we believe the various regional cooperation initiatives and mechanisms should have positive interaction with each other, and that is the case at the moment.”

On Tuesday November 12th, President Obama’s state visit to China ended with the ITA and Climate agreements, joint pledges to continue talks on a bilateral investment treaty (BIT), a new international deal curbing export credits, and continued dialogue regarding their persisting differences over the use of agricultural biotechnology.

President Obama had planned to press China on several other issues, including alleged discriminatory enforcement of its anti-monopoly law (AML), intellectual property (IP) protections, including cyber theft of IP, and China’s slow approval process for biotechnology traits. Only biotechnology, however, was addressed in a White House fact sheet on U.S.-China economic relations, stating:

“The United States and China reached consensus to intensify science-based agricultural innovation for food security. The United States and China commit to strengthen dialogue to enable the increased use of innovative technologies in agriculture.”

At the Press Conference, President Obama stated that he did address IP, “I stressed the importance of protecting intellectual property as well as trade secrets, especially against cyber-threats.”

The other major announcement that came out of Obama’s visit to China was in the area of climate change. On that issue, the two sides reached an agreement on the targets for the cuts they will make to carbon emissions post-2020.

Last week CSPAN, the US Public Affairs station, did a 45 minute interview with Dorsey Partner, Tom Lorenzen on the US China Climate Change agreement. Until joining Dorsey in 2013, Tom was at the Justice Department from 2004 where he was the Assistant Chief in the U.S. Department of Justice’s Environment and Natural Resources Division (ENRD). During that time, he supervised the federal government’s legal defense of all Environmental Protection Agency rules, regulations and other final actions judicially reviewable under the various federal pollution control statutes. See the video at http://www.c-span.org/video/?322770-3/washington-journal-thomas-lorenzen-uschina-carbon-reduction-deal.

On November 12th, the China Daily stated with regards to the Information Technology Agreement (ITA):

“The two countries reached a breakthrough on Tuesday in Beijing to accelerate the expansion of the World Trade Organization’s Information Technology Agreement (ITA), which could help eliminate $1 trillion in tariffs on high-tech product sales globally. The deal would allow the “swift conclusion” on talks to enlarge the ITA at the WTO meeting in Geneva later this year.”

USTR Michael Froman stated in Beijing that it was good news for US companies that are keen to see global tariffs further cut on products such as medical equipment, GPS devices, video game consoles and next generation semiconductors.  The agreement now covers more than $4 trillion in annual trade.

With regards to ITA, the US government announced on November 10th that it had convinced China to eliminate tariffs on tech goods like advanced semiconductors and medical devices. The Chinese government has agreed to U.S. demands to eventually eliminate tariffs on advanced semiconductors known as MCOs, magnetic resonance imaging (MRI) machines, and high-tech testing equipment, but the deal does not include tariff elimination on flat-panel displays.

But the Agreement between China and the United States in the High Tech area will lead to additional negotiations with other countries at the WTO in Geneva, which are scheduled to resume in December. The ITA negotiations broke down in November 2013, after the U.S. and other participants rejected China’s tariff offer as insufficient. Since then, the U.S. and European Union have been trying to persuade China to come back to the table with a better offer.

The agreement between the U.S. and China does not mean the ITA talks are concluded. The two parties will now have to go back to the more than two-dozen other participants – including the European Union, Japan and South Korea – to negotiate a final ITA package. But sources in Geneva are cautiously optimistic that the deal could move forward. The expanded ITA would also eliminate import duties on a range of additional technology products including high-tech medical devices, video cameras, and an array of high-tech ICT testing instruments.  A White House fact sheet stated that the expansion of the ITA pact would eventually eliminate tariffs on roughly $1 trillion in annual global sales of information technology products and boost the annual global GDP by an estimated $190 billion.

On November 14th it was reported that sources in Geneva predicted that the ITA agreement could result in a final deal this December. Although other countries are not expected to block the deal, other countries will push for changes. EU Trade Commissioner Cecilia Malmstrom stated that she welcomed the U.S.-China understanding and that the EU “[intends] to take all necessary steps to finalize the agreement in the coming weeks.”

If the agreement is completed, it will take very little for the U.S. to implement the lowered tariffs. This is because Congress had already authorized further tariff reductions when it passed the Uruguay Round Agreements Act in 1994. This is in contrast to the TPP and the Transatlantic Trade and Investment Partnership (“TTIP”), which are two new agreements that would require congressional authorization before they went into effect.

On November 12th, President Obama and President Xi also announced an agreement to speed up talks on a comprehensive Bilateral Investment Treaty (“BIT”), which is considered to be the foundation for future United States-China trade agreements. At the Press Conference President Xi announced that “We agreed to accelerate the negotiations of the BIT, and we will make efforts to reach agreement on the core issues and the major articles of the treaty text.” The two countries also agreed to “work together to promote innovation in agriculture and food security.”

Trade pundits were reporting that the Republican victory along with the movement in Beijing will give a much-needed boost to the WTO and Obama’s ambitious trade agenda. This has led to a bullish optimistic attitude about the next two years of trade policy.

As indicated below, this victory in Beijing with the close of the APEC meeting was followed on November 13th by a break through with India on the Trade Facilitation Agreement (“TFA”), which the Indian Government had held up on food security grounds.  On November 13th U.S. and Indian trade officials announced they had reached a deal to end the impasse over the WTO trade facilitation Agreement.  Under the deal, India agreed to drop its opposition to the trade facilitation pact in exchange for a commitment from the U.S. to keep in place a so-called peace clause that would shield developing countries’ food security programs from legal challenges until the WTO agrees on a new set of rules governing those programs.

Numerous observers, including new European Union Trade Commissioner Cecilia Malmstrom, hailed the bilateral agreement as a boost for the WTO, which had been criticized as irrelevant as a forum for global trade talks in light of the trade facilitation breakdown. Commissioner Malmstrom stated, “I am particularly pleased today as the breakthrough gives new momentum to the WTO and restores trust among members and the credibility of multilateral trade negotiations.”

TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND—NO FINAL DEAL AT APEC MEETING IN BEIJING

TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

As mentioned in past newsletters, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP), Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations and the WTO.  The TPP is a free trade agreement being negotiated by officials from the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These trade negotiations could have a major impact on China trade, as trade issues become a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

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

But then came the November 4th Republican wave election changing the Trade Politics dramatically in Washington DC.  Elections have consequences and in 2015 Republicans will take the Senate and increase their numbers in House.

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

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

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

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track.  But to date no details have been given about exactly what Smart Track will mean, and the Republican victory on November 4th probably means that Smart Track will be washed away by the Republican wave.

On July 17th, all Republican members of the House Ways and Means Committee sent the attahed letter to USTR Froman, HOUSE REPS WAYS MEANS, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Now the story continues . . . .

On October 15th in Tokyo, acting Deputy U.S. Trade Representative Wendy Cutler emerged from four days of meetings in Tokyo stating that both sides are working “as hard and creatively as possible” to resolve their bilateral issues. She went on to state:

“We were encouraged by the progress we made this week during our negotiations, but we need to underscore that the issues before us are tough. The issues range from achieving meaningful market access across all agricultural products to establishing a strong and effective dispute settlement mechanism in the auto sector.”

The difficult negotiating areas include five agricultural categories—rice, wheat and barley, beef and pork, dairy products and sugar—as well as autos and auto parts.

After ending the talks with his counterpart, Japanese negotiator Hiroshi Oe added, however, that both sides have “mountains of work to do. We are far from saying, ‘We did it.’ We still have the most difficult areas that have yet to be resolved.”

The U.S.-Japan meetings closed just a day after Mexico’s top trade official, Mexican Economy Minister Ildefonso Guajardo, speaking in Washington, D.C. made clear that the rest of the TPP countries view the US Japan negotiations as a critical step toward progress in the full negotiations,  “It is clear for anybody that knows about trade negotiations that if these two big trading partners, Japan and the U.S. do not come to an agreement, it has domino consequences on the rest of the 12 countries.”

But then came Sidney and then Beijing with no breakthrough in part because of no TPA Agreement.

Meanwhile, on October 16th, according to analysis of the document by Public Citizen, it was reported that a leaked draft of the TPP Intellectual Property Chapter obtained by WikiLeaks could lead to delayed access to pharmaceutical drugs in a dozen countries, including the U.S., and would contradict White House policies aimed at cutting Medicare and Medicaid costs. According to Public Citizen, at issue in the draft is a U.S. proposal to give an advantage to the pharmaceutical industry and “provide long automatic monopolies for biotech drugs or biologics” contradicting the pledge included in past White House budgets to shorten the same monopoly periods to reduce cost burdens on Medicare and Medicaid.

Public Citizen said it remains concerned that these provisions would give large brand-name drug firms a way to “impose rules” on Pacific Rim economies that “will raise prices on medicine purchases for consumers and governments. If the TPP is ratified with this U.S.-proposed provision included, Congress would be unable to reduce monopoly periods without risking significant penalties and investor-state arbitration.”

In Sidney the leaked IP draft resulted in a number of civil society organizations and Australian lawmakers voicing opposition to the deal citing many trouble spots.  A group of Australian politicians along with public health and copyright experts convened at Australia’s Parliament house lawn to condemn possible TPP trade-offs as talks resumed in Canberra.  Australian green party Sen. Peter Whish-Wilson stated that “the leaked documents indicate that the government is on course to hand over protections for human rights, public health, the environment and Internet freedom.”

On October 24th, in a letter six Congressmen, including Sens. Ron Wyden, D-Ore., Orrin Hatch, R-Utah, Jay Rockefeller, D-W.V., and John Thune, R-S.D., the ranking members of the Senate Finance and Commerce committees, stated that USTR Michael Froman should oppose any proposals in the TPP negotiations that would needlessly limit internet traffic, including the cross-border transfer, storage or processing of data, and protect the unfettered transfer of commercial data and digital trade.  According to the letter, eight countries, including TPP members Mexico and Vietnam, have or are considering policies to limit their Internet traffic.

As a result of all these concerns, Rep. Sander Levin, D-Mich, ranking Democratic Congressman on the House Ways and Means Committee, traveled to Sydney, Australia, to closely observe the status of the TPP talks. Levin took the unusual step of arranging meetings with trade ministers from the TPP nations during their Oct. 25-27 session in an effort to gather more information about TPP’s more contentious unsettled areas. Levin, who is from Detroit, has long been an advocate of the U.S. automotive industry, which has been blocked out of the Japanese market for decades. More broadly, Levin also called for the final TPP to bind its member countries to upholding the highest possible environmental, labor and human rights protections.

On October 27th in Sidney, Australia trade ministers for countries negotiating the TPP hailed “significant progress” in the talks during their three-day meeting in Australia, but stopped short of announcing a breakthrough.  Opening the meeting, USTR Michael Froman stressed that the outstanding TPP issues are among the most contentious in the agreement, but that negotiators have taken efforts to ensure that they are resolved as smoothly as possible.  President Obama had targeted the APEC meeting in Beijing on November 10th as a “deadline” to conclude the negotiations, but critical to the conclusion of the 12-nation TPP talks are the bilateral deliberations between the U.S. and Japan, which also continued in Australia.

After returning from Sidney, Congressman Levin expressed his concern about the current status of the TPP talks in Australia calling for more transparency in negotiations and an increased focus on its details.  Levin stated that “it is “vital to have an open door for a broad understanding and involvement on how they should be resolved, with increased transparency.”

Levin said that although a compromise he helped negotiate, referred to as the “May 10 agreement,” had significantly improved the TPP in the realms of workers’ rights, environmental protections and access to medicines, it is “vital that TPP build on them, not weaken them.” Levin noted the opportunities and challenges inherent with the diversity of economies represented within the TPP membership, pointing out Malaysia’s and Vietnam’s “very different” economies from the U.S.

On October 27th, following the negotiations in Sidney, the Ministers and Heads of Delegation for the TPP countries issued the attached statement, TPP ACTUAL JOINT STATEMENT AUSTRALIA, which provides in part:

“We consider that the shape of an ambitious, comprehensive, high standard and balanced deal is crystallizing. We will continue to focus our efforts, and those of our negotiating teams, to consult widely at home and work intensely with each other to resolve outstanding issues in order to provide significant economic and strategic benefits for each of us. We now pass the baton back to Chief Negotiators to carry out instructions we have given.”

On October 30, 2014, despite a push from numerous business groups, it was reported that it would be very difficult to pass TPA in the lame duck session, which is the time between the election on November 4th and the inauguration of the new Congress in January 2015.

On October 31st, USTR Mike Froman made clear that the 12 nations negotiating the TPP deal did not expect a final deal at the Asia-Pacific Economic Cooperation (“APEC”) conference in Beijing. As Froman stated:

“No, we do not expect to have a final agreement on TPP at APEC. All the TPP leaders will be present, so it will be a good opportunity to have conversations with each other about TPP, about whatever outstanding issues are left … and to give more political impetus to getting it done.”

Froman said that negotiators are still at work on the deal:

“We are making very good progress in closing out issues, narrowing the differences on remaining issues but we still have a ways to go and we are going to continue to work. We think the substance of the negotiation ought to drive the timetable. We’re not going to live by an arbitrary deadline but we are all focused on getting it done as soon as possible.”

On November 6th, after the election, business Leaders announced that they were increasing pressure to take up the TPA during the lame duck, but Mike Dolan, Teamsters’ legislative representative, said that fast track “won’t go anywhere during Lame Duck.” A broad coalition of labor, consumer groups sent over half a million petition signatures to Congress opposing TPA for the pending TPP.

In response to a question about the chance for a vote in the remaining weeks of the current Congress, Senate Finance Committee ranking Republican Orrin Hatch (R-Utah) stated, “Whether that happens during the lame duck is ultimately up to Democratic leadership.” Senator Hatch also stated that he believes there would be strong support to pass trade promotion authority in the “lame duck” session of Congress if Senate Democratic leaders decide to allow a vote. Senator Hatch, the new Chairman of the Senate Finance Committee, introduced the TPA bill along with former Senate Finance Chairman Max Baucus, now the U.S. ambassador to China, and House Ways and Means Chairman Dave Camp, R-Mich.

On November 10th in Beijing President Barack Obama and the leaders of the other 11 countries negotiating the TPP stated that a final agreement is now “coming into focus,” but declined to set a firm deadline for the completion of the talks. The 12 leaders, meeting on the sidelines of the APEC summit in Beijing, issued a joint statement commending the progress made by their negotiating teams over the past several weeks and kept up the pressure to finalize the TPP in the near future. The leaders stated:

“With the end coming into focus, we have instructed our ministers and negotiators to make concluding this agreement a top priority so that our businesses, workers, farmers and consumers can start to reap the real and substantial benefits of the TPP agreement as soon as possible.”

On November 11th, John Ivison, a Canadian reporter, issued an opinion piece in the National Post of Canada stating that any “‘significant progress’ made on the Trans-Pacific Partnership trade deal is pure bureaucratic BS.” See http://fullcomment.nationalpost.com/2014/11/11/john-ivison-any-significant-progress-made-on-the-trans-pacific-partnership-trade-deal-is-pure-bureaucratic-bs/.

As Ivison stated:

Trade sources suggest two major problems with negotiations that run contrary to the sunny optimism of the official statement.

One is that the Americans have approached the talks on a bilateral basis, preferring to hammer out deals country by country. “This is a typical U.S. approach, trying to run it like a hub-and-spoke negotiation,” said Mr. Clark.

Without knowing the outcome of talks between the two largest TPP participants — the U.S. and Japan — no one else has tabled a serious offer.

“Things are no closer than they were six months ago. No country will make an offer setting the starting point for ‘level of ambition’ without knowing the ambition levels of the U.S. and Japan.  You only give further from your first offer,” said one person with knowledge of the negotiations.

The second impediment to real progress is lack of Trade Promotion Authority — fast-track — on the part of President Barack Obama. No one wants to strike a deal that then becomes a bargaining chip in the internecine politics between the president and Congress.

There have been some suggestions that the newly empowered Republicans in the Senate might offer fast-track authority, in return for the president giving the Keystone XL pipeline the green light. But for now, President Obama cannot sign off on a deal using his executive authority.

Canada’s intransigence on supply management of poultry and dairy is likely to become a problem at some point.

In Beijing, TPP trade ministers highlighted the four areas where issues remain unresolved in the proposed deal: intellectual property, state-owned enterprises, the environment and investment. The ministers called intellectual property “one of the most complex and challenging areas of the agreement.”

On November 13th, over 200 business groups sent a letter to leaders of both the House and Senate, urging them to pass a new fast-track trade bill during the lame-duck legislative session this year. Specifically, the Trade Benefits America Coalition sent the letter urging passage of bipartisan Trade Promotion Authority (TPA) legislation to House Speaker John Boehner, R-Ohio, Senate Majority Leader Harry Reid, D-Nev., House Majority Leader Nancy Pelosi, D-Calif., and Senate Minority Leader Mitch McConnell, R-Ky., on behalf of more than 200 U.S. associations and companies including the American Farm Bureau, National Foreign Trade Council and National Association of Manufacturers.  The letter concluded, “With 95 percent of potential customers outside the United States and more than one in five American jobs supported by trade, we need to seize on opportunities — such as ongoing and future U.S. trade agreements — to expand U.S. commerce with other countries.”

On November 15th President Obama vowed to continue pushing toward a swift TPP deal, which he said has the potential to yield a “historic” trade deal. At the G20 meeting Obama stated:

“It is our chance to put in place new, high standards for trade in the 21st century that uphold our values. It’s about a future where instead of being dependent on a single market, countries integrate their economies so they’re innovating and growing together. That’s what TPP does. That’s why it would be a historic achievement.”

On November 18th, Prime Minister Abe in Japan called a snap election on December 14th to seek a mandate for his economic decisions, but this too will complicate the TPP negotiations.

On November 18th Deputy USTR Robert Holleyman stated that the U.S. is seeking provisions in the TPP requiring civil and criminal responses to the theft of trade secrets. As Holleyman stated:

“Many in this room have certainly paid attention to the damage that’s being caused by the theft of valuable trade secrets in foreign marketplaces. And in the TPP agreement, we’re seeking both civil and criminal responses to this problem, including to the issue around the growing problem of cyber-theft of trade secrets.”

TTP FOR CHINA??

But what about China? Could it eventually join the TPP?

On October 15th, the Peterson Institute for International Economic (”IIE”) released a study touting the benefits of a theoretical free trade agreement between China and the United States, including increased income and export gains, while also acknowledging that such an agreement could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span.

There are clear signs that China is interested in joining TPP. Citing an unnamed high-ranking U.S. official, Bergsten of IIE said “not a week goes by” that the administration does not receive an inquiry from China about TPP. But China has not officially sought entry into the initiative because it believes it would be denied at this stage in the negotiations. U.S. officials have made clear they want to close the deal with the current 12 participants.

The study predicts that a comprehensive agreement between China and the U.S. would create income gains for the U.S. of up to $130 billion while creating $330 billion in income gains for China. Under the agreement, the U.S. is projected to achieve export gains of $373 billion, and China — $472 billion. Similarly, U.S. exports to China would increase 108 percent and Chinese exports to the U.S. would increase 40 percent, according to the study.

But the study also finds that if a bilateral agreement is reached, the U.S. would suffer “adjustment costs” in the magnitude of 50,000 to 100,000 U.S. workers losing their jobs each year over a 10-year period. In other words, the deal could cost the U.S. economy up to a million job losses over a decade.

That is where Trade Adjustment Assistance for Companies comes into play. The Peterson study contends that because the economic benefits equate to roughly $1.25 million in national income gains per job lost, the U.S. should consider policy alternatives to offset job loss rather than simply abandon an FTA with China. Such alternatives could include a bolstered trade adjustment assistance program, lengthy phase-ins of the liberalization of sensitive sectors, and larger wage-loss insurance and training and relocation programs.

Over the past year, China has undergone a radical shift in its stance on TPP because Beijing realizes it stands to suffer financial losses if it is not a member of the agreement, according to the authors of the study. The study claims that if TPP is concluded, China would lose $82 billion in gross domestic product and $108 billion in export revenue due to diverted trade flows.

CHINA AUSTRALIA FTA

To add more fuel to the fire, on November 17th, Australia and China signed a free trade agreement to allow greater Australian agricultural exports and greater investment in China and increased Chinese exports to Australia. According to the Australian Prime Minister, the Agreement is predicted to add billions to the Australian economy create jobs and drive higher living standards.

Prime Minister Tony Abbott stated:

“It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment. Australian households and businesses will also reap the benefits of cheaper goods and components from China, such as vehicles, household goods, electronics and clothing, placing downward pressure on the cost of living and the cost of doing business.”

When the deal takes effect, more than 85 percent of Australian goods exports will be tariff free and that number will climb to 95 percent. Those goods were previously saddled with tariffs of up to 40 percent. US companies that attempt to export products to China can face very high tariffs, some in the 40 to 60 plus percent range.

China, meanwhile, will face less scrutiny in its investments in Australia per the deal. The Chinese government told Australia it estimates it will spend $1.3 trillion over the next decade in investments in Australia.

TTIP FTA WITH EUROPE

Meanwhile the TTIP FTA with Europe moves forward on November 16th with President Obama and prominent EU leaders ordering their respective negotiating teams to continue negotiations. A Joint Statement provides:

“We remain committed, as we were when we launched these negotiations in June 2013, to build upon the strong foundation of our six decades of economic partnership to promote stronger, sustainable and balanced growth, to support the creation of more jobs on both sides of the Atlantic and to increase our international competitiveness.”

But former USTR Clayton Yeutter predicted that despite the problems, the negotiations would likely finish up after Obama leaves office in early 2017. As Yeutter stated:

“There were a lot of miscalculations as to how long TTIP was going to take. This is not a negotiation that’s going to conclude anytime soon. In my view there is no practical chance of doing it during the Obama presidency.”

On November 18th the new EU Trade Commissioner Cecilia Malmstrom responded to criticisms that the TTIP will only serve the interests of large multinational Corporations by stating that the Agreement must benefit consumers:

“Trade agreements can lower prices, widen choice and create high-quality jobs. TTIP must do exactly that.”

Malmstrom also called for the negotiations to be more transparent, stating that the agreement needed input from “the whole range of civil society groups: trade unions, business associations, environmental organizations and, of course, consumers.”

INDIA BILATERAL DEAL WITH THE US MOVES TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI FORWARD

Many World Trade Organization (“WTO”) and US officials have warned that India’s decision to block the implementation of the Trade Facilitation Agreement (“TFA”) negotiated in Bali has had a “freezing effect” on the WTO’s work in a number of different areas. But after substantial pressure from the APEC countries, India and the US announced a breakthrough in the negotiations over the Agreement.

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India as a result of food security initiatives.

On September 30th, in his first meeting with President Obama, although indicating that a solution should come soon, Indian Prime Minister Modi reaffirmed his government’s position linking the WTO Trade Facilitation Agreement with support for the deal to act on food security issues.

On October 16, WTO Director-General Roberto Azevêdo reported to the Trade Negotiations Committee:

As a result we missed the deadline for the adoption of the protocol of amendment on the Trade Facilitation Agreement, which was the first deadline that Ministers set us in Bali. I said at the time that I feared there would be serious consequences. . . . as I feared, this situation has had a major impact on several areas of our negotiations. It appears to me that there is now a growing distrust which is having a paralyzing effect on our work across the board. . . .

it is my feeling that a continuation of the current paralysis would serve only to degrade the institution — particularly the negotiating function. . . . This could be the most serious situation that this organization has ever faced. I have warned of potentially dangerous situations before, and urged Members to take the necessary steps to avoid them. I am not warning you today about a potentially dangerous situation — I am saying that we are in it right now.

At the Trade Negotiations Committee meeting, Deputy USTR and U.S. ambassador to the WTO Michael Punke slammed India and the other opponents of the TFA protocol for perpetuating an “unnecessary and counterproductive crisis.” Those members’ inability to concede their position on food security has “significantly undermined” the entire Bali package and may doom any prospects for a “fully multilateral agreement.”

Although some of the trade pundits were suggesting that India be dropped off the back of the bus and the TFA move forward without India, others indicated that the real role of the TFA was symbolic—a way to get the WTO negotiating function going again.

On October 31st, Director-General Roberto Azevêdo reported to heads of delegations that there had been progress, and on November 10th, Azevedo asked APEC members, who were meeting in Beijing, to help push the TFA Agreement through. On that same day trade ministers for the 21 APEC countries, including China, vowed to throw their full weight behind resolving the current stalemate in the World Trade Organization surrounding the implementation of a trade facilitation agreement and the expansion of a tariff-cutting pact. In the attached statement released in Beijing, APEC ANNOUNCEMENT BALI TPP, the APEC Ministers stated:

2014 APEC Ministerial Meeting

  1. We, the Asia-Pacific Economic Cooperation (APEC) Ministers, met on 7-8 November 2014, in Beijing, China. The meeting was co-chaired by H.E. Wang Yi, Minister of Foreign Affairs of the People’s Republic of China, and H.E. Gao Hucheng, Minister of Commerce of the People’s Republic of China. . . .
  1. We welcome the participation in the meeting of the Director General of the WTO . . . .
  1. We reaffirm our confidence in the value of the multilateral trading system and stand firmly to strengthen the rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system as embodied in the WTO.
  1. We highly commend the Bali Package achieved at the 9th Ministerial Conference (MC9) in Bali, Indonesia. We express our grave concern regarding the impasse in the implementation of the Trade Facilitation Agreement (TFA) which has resulted in stalemate and uncertainties over other Bali decisions. These developments have affected the credibility of the WTO negotiating function. In finding solutions to the implementation of the Bali decisions, APEC will exert creative leadership and energy together with all WTO members in unlocking this impasse, putting all Bali decisions back on track, and proceeding with the formulation of Post-Bali Work Program, as a key stepping stone to concluding the Doha Round.
  1. Bearing in mind that open markets are vital for economic growth, job creation and sustainable development, we reaffirm our commitment and recommend that our Leaders extend a standstill until the end of 2018, and roll back protectionist and trade-distorting measures. We remain committed to exercising maximum restraint in implementing measures that may be consistent with WTO provisions but have a significant protectionist effect and to promptly rectifying such measures, where implemented. In this context, we support the work of the WTO and other international organizations in monitoring protectionism.

Emphasis added.

Significantly, India is not a member of APEC, and the ministers’ statement made clear that they would exhaust all resources in order to convince New Delhi to change its stance and enable the WTO to carry on with its more substantive work.

On November 12th, in Beijing President Obama expressed optimism saying that he was “actually confident that there’s an opportunity for us to resolve them fairly soon.”

On November 13th, the US and India announced that they had reached an agreement to move the TFA forward. Under the bilateral deal, India agreed to drop its opposition to the TFA to streamline international customs procedures while the U.S. agreed to leave a so-called peace clause shielding India’s food stockpiling measures from legal challenges in place until the WTO crafts a permanent solution on that issue.

On November 14th Azevedo predicted that the implementation of a deal streamlining global customs procedures would earn quick approval from the WTO members within two weeks following the Indian government’s move to drop its opposition to the pact.

On November 16, the G-20 leaders in Australia welcomed “the breakthrough” between the U.S. and India that would allow for the “full and prompt” implementation of the TFA. The leaders also pledged to implement other agreements in Bali and swiftly define “a WTO work program on the remaining issues of the Doha Development Agenda to get negotiations back on track,” which it said would “be important to restore trust and confidence in the multilateral trading system.”

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL—RESPONSE TO OPPOSING ARGUMENTS

As stated in my last newsletter and in my October blog post, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which is presently funded at $16 million nationwide. With only a relatively small part of that low budget, the Northwest Trade Adjustment Assistance Center (“NWTAAC”) has been able to save 80 percent of the companies that participated in the program since 1984.

In my last newsletter and my blog, I also argued that President Reagan himself indirectly approved of the TAA for Firms/Companies (“TAAF”) program because it does not interfere with the market in any ways and yet has been able to save a number of US companies. In fact, the TAA programs could be funded by the over $1 billion collected every year by the US government in antidumping and countervailing duties.

But there are two programs. The first program is the $500 million to $1 billion program of TAA for workers and then there is the $16 million TAAF program for companies. Congress should consider reworking the two programs to accomplish the objective of saving the jobs and the companies that are hurt by trade liberalization. There needs to be more coordination between the two programs.

One way to adjust the programs is put the TAAF for Companies program first and give it more funding so it can help larger companies, such as Steel and Tire Companies, where more jobs are located. TAAF for Companies could be used to create a program where the best of technologies and advisory services could be brought to bear to help US companies challenged by globalization and trade liberalization. The Worker program then comes afterwards, after the jobs have been lost. Data that is needed for the Worker program can be supplied as part of the Company program.

But several questions have been raised that need to be answered.

  1. Isn’t TAAF for Companies crony capitalism?

Many opponents might argue that TAAF for Companies is simply crony capitalism. Under the TAAF program, however, very little money actually goes to the companies. Most of the money goes to business consultants that can help the company change its business model or change its marketing strategy.

In fact, as it stands now, the Program only provides $75,000 in matching funds, which means the Company itself must put in the matching $75,000. Although relatively small, the Federal money has been critical in helping US companies develop a strategy to deal with the new import competition in the market place and adjust to market conditions.

The TAAF program also cannot provide hard assets to the company, just business strategy advice and help on soft projects, such as help designing a marketing website, developing software for the company in its production process or designing a dam for an Idaho sheep farm. This is not corporate welfare because the company has to put much of its own assets in both money and labor into the assistance.

WTO also does not consider this a subsidy. No money or assets go to the company. The amount is low and does not harm international trade.

Although the TAAF program could be strengthened so that it could provide TAA for larger companies, such as Steel and Tire companies, the matching funds provision and the limitation on providing only soft projects and consulting is important so that the program cannot be targeted as simply another government subsidy.

TAAF for companies is not another Solyndra program.

  1. Isn’t TAA for Firms/Companies picking winners and losers in the market?

Any company that has been injured by imports/is being impacted by trade competition can apply to enter the program. At its core, the TAAF for companies program provides advice to the company on how to swim in the newly competitive marketplace from business experts, who know how to turn a company around.

In addition, the initial write up of the application is done by experts at TAA Centers around the country, who work with the companies at the local level on a one to one basis to develop a plan to fit the specific needs of the company. Because the program is implemented at the local level by neutral officials, there is no picking winners and losers. Although the final adjustment plan must be approved at Commerce, by that time the politics has been bled out of the situation and the question is can the company meet the criteria in the statute.

  1. Why shouldn’t TAA money go to workers and not companies?

TAA for firms/companies is not TAA for management. The company includes both the management and the workers. If you talk to workers, which have been hit by trade competition, they would rather have their job then just take assistance from the Federal Government.

Although Unions have pushed unfair trade cases, in fact, many of these unfair trade cases do not work. They do not protect the companies, and more importantly the workers from import competition. It is impossible to bring antidumping and countervailing duty cases against every country in the World.

I have met workers at a company that has been saved by the TAA for Firms/Companies program, which helped the company adjust its business plan to compete in the new trade impacted market. The worker in question had been at the factory for over 30 years and was very grateful that the program had saved his job.

In fact, the split between workers and management may be one of the problems that should be addressed by TAA. Often with the small companies, however, the employees and management have been together for years and look upon each other as one in the same. They are all in the company boat together.

Also TAA for Firms/Companies is not an entitlement, a net flow out of the US government. The TAAF program keeps the company alive and keeps the taxes from the company and the company’s management and workers flowing to the US and State Treasuries, which is money going into the US and State treasuries. That is real bank for the buck.

  1. Why can’t Private Investment/Equity funds pick up the slack and thus there is no need for TAA for Firms/Companies?

Private investment companies are often targeting short term profits so if the company cannot achieve short term profits, the company is closed and the assets are sold. Mitt Romney’s company, Bain Capital LLC, invested substantial money into GS Industries, the parent company of Georgetown Steel.  Although Bain made money, it did so by cutting more than 1,750 jobs, closing a division that had been around for 100 years and eventually Georgetown Steel sank into bankruptcy.

TAAF for companies is working long term to save the company and the jobs that go with that company. This is the only long term assistance program in the US government. So the short term profitability of the company is not the issue. The issue is can the company be turned around so that it can become profitable and very profitable in the long term.

Private Equity Firms and TAAF have very different objectives.

  1. What makes TAA for Firms/Companies different from other Economic Assistance to US companies?

TAAF for companies is a trade program, not just a Government assistance program. Trade problems for companies often happen because Government action has changed the US market, be it a free trade agreement, such as the TPP, or a change in government regulations, which has exposed the US companies to import competition.

Since the Government has created the problem in the short term by its own action, it has a responsibility to help US companies and workers that have been impacted by this Government action.

Under the Constitution Congress controls trade, not the President. TAAF is a program that was started to allow Congress and the Administration to negotiate international trade deals, which help the US economy as a whole, but have the effect of creating winners and losers in the US market.

To help building public support for these Free Trade Agreements, TAA has been provided to companies and workers to help them adjust to increased import competition. Although over time, the TAAF for companies program has declined in funding, with the new trade agreements, such as the TPP and the TTIP, the program needs to be built up again to help companies that have been hurt by changes in the US trade laws, which encourage US exports, but also imports from other countries. As stated at the top of this newsletter, trade is a two way street.

In addition, the TAAF program is the only long term assistance program in the US, and it monitors the companies to make sure they implement the plans that they have agreed to.

  1. The TAAF Program Is Too Small To Be Effective

The $16 million TAAF program may be small, but it is very effective.  Since 1984, NWTAAC has been able to save 80% of the companies in the program.

The 2013 NWTAAC report from Commerce points out that all the companies that entered the program since 2011 are still alive today.

In fact, TAAF should be expanded so it can help larger companies, such as Steel and Tire companies, deal with increased competition in the US market as trade agreements reduce barriers to imports.

  1. Why help old line US industries and companies that technology and changing trade patterns have left behind and should die a natural death?

This is the basic creative destructionism argument from famous Harvard economist, Joseph Schumpeter, and it is true if companies do not change with changing market conditions, they will die a natural death.

But TAAF for companies gives companies the opportunity to change and adapt to the changing market conditions. Many TAAF employees that have been working at the Centers for years firmly believe that any company that enters the program can be helped. It may be a new marketing strategy or a change in company equipment, or improvements in their business strategy.  The staff has seen too many success stories to not believe in the power of the program.

In Seattle we had a company making ceramic flowerpots that was being injured by imports of flower pots from Mexico. The company came into the program and as a result started producing ceramic molds for titanium parts for Boeing.  Changing the business plan is one of the best strategies to keep the company alive and the jobs that go with that company.

TAA REAUTHORIZATION NEEDED BY DECEMBER 31ST

On November 20th, in the attached announcements CONGRESS E-MAIL Reauthorize Trade Adjustment Assistance Before It Expires on December 31 REAUTHORIZATION SEAL, House and Senate Democrats urged Congress to reauthorize TAA before it expires December 31st. Although the emphasis is on the TAA for Workers program, the Reauthorization would also apply to TAA for firms/companies. As it stands now, as of January 1, 2015, TAA will no longer be able to provide trade adjustment assistance to new companies that want to enter the program. If TAA for Companies is not reauthorized by June 1, 2015, all the TAAC centers around the country will close their doors and the program will cease to exist.

As indicated below, funding TAA is the essence of compassionate conservatism.

CONGRESSIONAL E-MAIL NOTICES

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

From: The Honorable Adam Smith Sent By: Mina.Garcia@mail.house.gov Bill: H.R. 4163 Date: 11/20/2014

November 20, 2014

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

Dear Colleague,

We write to draw to your attention to five stories that illustrate the importance of reauthorizing the Trade Adjustment Assistance (TAA) program. TAA provides financial support and re-employment training for workers whose jobs are lost due to trade. It also provides assistance to U.S. companies that have been injured by imports so they can continue to remain competitive and not resort to mass lay-offs or closures.  Funding for service workers expired at the end of 2013. Funding for the remainder of the program – which supports manufacturing workers, farmers, ranchers, fishermen, and firms – will expire on December 31 unless we act to renew it.

In 2013, 100,000 workers qualified for TAA and the results prove the program’s success.  More than 75% of workers who completed the program found jobs within six months, and of those, 90% were still employed a year later.  More than 75% of workers who completed training in 2013 received a degree or industry-recognized credential.   Here are five TAA success stories:

  •  A 74 year-old Seattle die forging firm experienced trade impact and entered the Trade Adjustment Assistance for Firms program (TAAF) in the mid 2000’s. With the assistance of the Northwest Trade Adjustment Assistance Center (NWTAAC), the firm implemented a strategy of adopting certain innovations to develop capabilities in advance of competitors worldwide. NWTAAC assisted the firm in three ways that relied heavily on outside expertise: implementation of a data management system; commercialization of a new alloy; and a revision of the Firm’s website. Two years after completing TAAF, the Firm has increased employment by 11% and sales by 141%.
  •  Rodney Cox worked for 13 years on machinery, most recently at a local hospital in rural Oregon.  He was laid off in September 2010 and could not find another job.  With only a GED, he realized he would need more education to make the wage he had earned as a millwright.  Working with a TAA case manager, he opted to attend a community college that offered an Associate’s degree in Biomedics.  His TAA benefits allowed him to live, temporarily, near the training facility 177 miles away from his home (and family).  Rodney earned his degree and accepted a position as a Bio-Medical Equipment Technician.  He is earning a wage higher than what he earned when he was a millwright.  Of TAA, Rodney said, “Things couldn’t have worked out better for me.  My case managers helped me every step of the way.  I was hired two days after I moved back home with my family.”
  •  Kim Franklin is a single mother with two children.  She worked for a manufacturing company.  When she was laid off, she could not find a similar job.  She realized she needed to consider a new career and to get new skills. Through TAA, she completed Medical Assistance training.  She is now employed as a medical assistant at a health clinic in her community.
  •  Juan Bustamante worked as a machine operator in California for over 11 years making aluminum rims for cars.  When the nearby car facility moved operations out of the country, Juan – and 300 of his colleagues – lost their jobs.  Through TAA, Juan was able to obtain remedial education in English, Math, and Speech at the Los Angeles Valley College Job Training Center.  After completing the coursework, Juan qualified for the Transportation Metro Bus Operator Bridge Training Program.  After completing that program, he received a position with LA Metro and has full benefits.
  •  Judith Fischer worked for a publishing firm in New York and lost her job.  Through TAA, she explored career options and decided to pursue occupational therapy, concentrating on the psychological effects of diminished quality of life issues.  She earned an Associate’s Degree and received a job as a Community Rehabilitation Instructor and Case Manager, working with the developmentally disabled.  Judith plans to pursue a Master of Science in Social Work.  Of her new career, Judith said that it is “rewarding in every way, especially being able to connect with these children and I feel all the love they have to give.”

These examples demonstrate that TAA helps workers find new jobs and firms stay in business when they face new competition from abroad. We urge you to extend the program before it expires on December 31.

/s/                                                                             /s/ SANDER LEVIN                                                         ADAM  SMITH Member of Congress                                                   Member of Congress

/s/                                                                             /s/ CHARLES B. RANGEL                                               DEREK KILMER Member of Congress                                                   Member of Congress

/s/ RON KIND Member of Congress

 United States Congress

SECOND CONGRESSIONAL NOTICE

FOR IMMEDIATE RELEASE

Thursday, November 20, 2014

Contact: Rep. Smith- Ben Halle, (202) 570-2771

            Rep. Levin- Caroline Behringer, (202) 226-1007

            Rep. Kilmer- Jason Phelps  (202)-225-3459

            Rep. Rangel- Hannah Kim, (202)-225-4365

House Dems Urge Congress to Reauthorize TAA Before it Expires December 31st

Washington, D.C.- Today, Senator Sherrod Brown introduced a Senate companion bill to the Trade Adjustment Assistance (TAA) Act of 2014, introduced by Representatives Adam Smith (D-WA), Sander Levin (D-MI), Derek Kilmer (D-WA), and Charles B. Rangel (D-MI). These bills would renew TAA, which is set to expire on December 31, 2014. Reps. Smith, Levin, Rangel, and Kilmer released the following statement calling for the immediate passage of the TAA:

“It is critical that Congress pass Trade Adjustment Assistance legislation before it expires at the end of the year. Both the House and Senate TAA bills provide critical work training, income support, and health care to help dislocated American workers transition and learn new skills for new careers in competitive industries.  This vital assistance helps American workers and businesses adapt and compete in a rapidly evolving world economy.”

Background: Congress created the TAA program in 1962 in response to the loss of jobs among hard-working Americans as a result of increasing global competition, as well as to promote American competitiveness.  TAA benefits have several components: training assistance, income support while in training, and job search and relocation assistance.  The program assists workers dislocated by the elimination of tariffs and other barriers to trade.  Additional programs assist farmers, fishermen, and firms with the development and implementation of business plans to enable them to regain a competitive foothold. Click here for the full text of the Trade Adjustment Assistance (TAA) Act of 2014.

TAA by the numbers:

  • 2,192,910:  The number of workers served by TAA since it was created in 1974
  • 104,158:  The number of workers eligible to apply for TAA in 2013
  • 50:  The number of states with workers eligible for TAA benefits in 2013
  • 75%: The percentage of TAA workers who got a job within six months of finishing the program
  • 90%: The percentage of those TAA workers who remained employed at the end of the year

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

THE MAGNESIUM CASE — WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US PRODUCERS

As stated in numerous past newsletters, market economy for China is important for US end user production companies. The importance of market economy for the United States is illustrated by the Magnesium from China antidumping case. Recently a large Western company came to me because they were thinking of exporting Chinese magnesium to the United States to help the US magnesium die casting industry. But after discussions, at least in the short term, the company gave up because there is no longer a viable magnesium die casting industry in the United States. The Antidumping Order on Magnesium from China has killed the downstream industry.

In antidumping cases Commerce does not use actual prices and costs in China to determine whether a company is dumping. Dumping is defined as selling at prices in the United States below prices in the home market or below the fully allocated cost of production.

As mentioned before, however, in contrast to Japan, Korea, India, Iran and almost every other country in the World, China is not considered a market economy country in antidumping cases. Commerce, therefore, refuses to look at actual prices and costs in China to determine whether a Chinese company is dumping. Instead Commerce constructs a cost for the Chinese company by taking consumption factors from the Chinese producer for all inputs used to produce the product in question, including raw materials, energy, and labor, and then goes to a Third Surrogate Country to get Surrogate Values often from Import Statistics in the surrogate country to value those consumption factors.

In the past Commerce looked for surrogate values in only one country, India, but recently Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and those countries and import values can change from annual review investigation to annual review investigation.

Thus, it is impossible for the Chinese company to know whether it is dumping because it cannot know which surrogate value that Commerce will pick to value the consumption factors and thus the US importer cannot know whether the Chinese company is dumping.

In the Magnesium from China antidumping case, one of the key inputs is electricity. Electricity from hydro power in China, where many of the Chinese companies are located, can be as low as 3 cents a kilowatt hour. The average electricity cost in the US is 6 cents a kilowatt hour. What price did Commerce use as a surrogate value for electricity in the recent Magnesium review investigation? 7 cents a kilowatt hour.

This is very important because as of February 2014, there were 121 Antidumping and Countervailing Duty orders. 75 of those orders are for raw material products, such as metals, chemicals and steel, which go into downstream US production.

The Commerce Department has broad discretion to determine surrogate countries and values and their choices can change from annual review investigation to annual review investigation, exposing US importers to millions of dollars in retroactive liability based on a process, which is inherently arbitrary, because Commerce does not look at actual prices and costs in China.

Not only is there a problem with retroactive liability for US importers, US end user companies are often blocked from using the competitive Chinese raw material input, which, in turn, exposes the US downstream producers, such as foundries, automobile and chemical producers, to competition from Chinese companies and foreign companies that do have access to the lower cost raw materials. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

One example of the devastating impact of the US Antidumping Law is the impact of the US Magnesium from China antidumping case on the US Magnesium Die Casters. As the North American Die Casting Association stated in June 2010:

North American Die Casting Association

June 7, 2010 ·

NADCA Supports Magnesium Die Casters with a Filing to Help Lift Tariffs

May 27, 2010 by NADCA in NADCA News Wheeling, IL

NADCA recently filed a response to the International Trade Commission (ITC) in hopes to help lift ITC’s tariffs on imported magnesium alloy. Since many die casters have been harmed by the excessive prices being charged by the sole magnesium alloy producer in the U.S., NADCA has filed this response in regards to the Sunset Review of this particular ITC tariff. . . .

NADCA is concerned about magnesium die casters having access to alloy magnesium in the U.S. at globally competitive prices. The antidumping duty orders effectively bar Russian and Chinese alloy magnesium from the U.S. market. Prices for alloy magnesium are higher in the U.S. than elsewhere due to the antidumping duty orders currently in place in the U.S. but not in other major consumer markets.

The lack of effective competition in the U.S. market ― there is only one significant U.S. producer of alloy magnesium, US Magnesium LLC ― has harmed die casters since the imposition of the antidumping duty orders in 2005. NADCA estimates that as many as 1,675 dir