US CHINA TRADE WAR–TRUMP TRADE CRISIS, NAFTA NEAR COLLAPSE, NO FTAS, THIRD COUNTRIES BEAT US OUT ON TRADE DEALS, AD CASES MORE POLITICAL, NO SYMPATHY FOR BOMBARDIER, 201 SOLAR, 301 CHINA, TAA FOR COMPANIES

Winder Building United States Trade Representative Washington DC. United States Trade Representative is chief US trade negotiator. Winder Building created 1848

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 20, 2017

Dear Friends,

Having just returned from a month-long trip to Europe, the trade situation under the Trump Administration has heated up to the boiling point, but the target is not just China.  The Trump Administration appears to be attacking all trade with the firm belief that all prior trade deals that the US entered into were a raw deal.  NAFTA negotiations are at a standstill, and many believe Trump’s real intention is to kill NAFTA.

The United States is at a trade crossroads and apparently Trump and his supporters have decided to become much more protectionist, while the rest of the World is moving to free trade agreements.

As also stated below, directly contrary to statements by Trump supporters, the Trump trade policy is not a continuation of President Reagan’s trade policy.  Although President Reagan took pragmatic trade actions when he had to, he was a strong free trader and we know that was his position because he said so.

President Trump is very protectionist and truly does not want free trade deals.  He ripped up the TPP with no attempt at renegotiation.  He has made such strong demands of Canada and Mexico that he knows they will reject with the purpose of eventually killing the deal.

The decisions on TPP and NAFTA have been taken without any real idea of the negative ramifications, the costs, of terminating these deals on US farmers and corporations, many of which have interconnected supply chains that have been finely calibrated to produce lower cost consumer products so as to be competitive with lower priced imports of that final product from China.  Many believe that the real effect of killing NAFTA will be to move production to China or other lower cost countries.

Moreover, Trump won the election because of rural states and the farmers in those rural states but US agriculture is dependent on exports.  When Trump slams trade, he slams his own constituents, farmers in the rural states, which elected him as President.

One of the other losers in the Trump trade policy besides agriculture will be the high tech companies because these two sectors will bear the brunt of the trade retaliation that is coming.

Trump wants to protect the low tech industry, the Steel industry with its 141,000 jobs and the heck with everyone else.

The Trump trade policy is based on one arrogant presumption—the US market is the largest in the World and the rest of the World must kowtow, come on bended knee, to get into the US and that fact gives the US leverage.  But that fact is no longer true.  The 11 countries in the TPP have a larger market than the US.  China has a larger market than the US.

In fact, Canada and Mexico already can fall back on trade agreements they have with other countries, such as Europe.  The United States does not have that luxury.  The US decision by both Trump and the Democrats to go protectionist is further isolating the US in the trade area and is having and will have major negative economic ramifications on the US economy.  The chickens will come home to roost.

Maybe instead of ripping up trade agreements and making US producers less competitive it is time for the United States to find a way to make its companies more competitive in the US and international markets as they exist now rather than erect protectionist barriers to international competition.  Maybe the US should turn to an existing program, which has saved companies injured by imports, the Trade Adjustment Assistance for Firms/Companies program.

Commerce has made antidumping and countervailing duty investigations more political, but the EC wants to change China’s nonmarket economy status to allow a case by case determination.

But there is no sympathy for Bombardier in the Boeing fight at the Commerce Department in Civil Aircraft Preliminary determinations as Bombardier refused to cooperate with the Commerce Department’s antidumping investigation leading to a decision of all facts available.  So there will be no negotiated agreement in that case.  Bombardier has decided to jointly produce the plans with Airbus at its Mobile, Alabama plant, but it is questionable whether that will really work.

The US International Trade Commission (“ITC”) reached an affirmative injury determination in the Solar Section 201 case and now it moves to remedy phase.

USTR has also initiated a section 301 case against forced technology transfers in deals with China, but not many companies showed up for the USTR hearing. This may reflect the point made by my partner, Dan Harris, in his August 30, 2017 article “China US Trade Wars and the IP Elephant in the Room” that many US companies make the mistake of simply handing over their IP rights to Chinese joint venture companies with no protection. The US government cannot protect US companies from stupid mistakes.

Meanwhile, the Section 232 Steel and Aluminum cases remain on hold.

In a decision near and dear to my heart, USTR is charging ahead with a Wine case against BC and Canada at the WTO and now EC, Australia, Argentina and other countries are interested.    Canada and BC’s protectionist position on Wine play right into Trump’s argument that NAFTA is not a free trade agreement.

China has filed an antidumping and countervailing duty case against the United States.  More Antidumping and Countervailing Duty and 337 cases have been filed against China and the trade issue could well become the most important issue in upcoming elections.

If Trump makes unwise protectionist decisions, the US economy will be hurt, jobs will be lost and he will lose in the next election.

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

TRADE AT A CROSSROADS AND IT’S NOT JUST CHINA

Prior to his election, with Trump complaining during the election about China so many times, many voters would have believed that Trump’s primary target in the trade area would be China.

But nine months after his inauguration, it is becoming clearer that Trump’s real target is trade in general.  We are at a trade crossroads, and the Trump Administration with substantial support from the Democrats apparently has decided to move down a very protectionist road.

Trump and his Administration firmly believe that the United States has gotten a raw deal in all the trade deals it has entered into.  In effect, Trump sees trade as economic warfare and the United States is losing the war.  When economic competition from imports causes problems for US companies, it must be unfair trade caused by unfair trade deals.

Although Trump will mouth free trade, when Trump pulled out of the Trans Pacific Partnership, it was the first Free Trade Agreement that the United States had ever refused to join.  As described below under the Costs article, this action has put US exporters, including farmers, at a distinct cost disadvantage in World markets and caused enormous economic damage to Trump’s own constituents, workers and farmers.  Many experts believe that there is a better than 50% chance that Trump will pull out of NAFTA.  See articles below from Wall Street Journal and John Brinkley at Forbes about the costs of pulling out of NAFTA.

But killing the TPP and potentially killing NAFTA gores the agriculture ox.  This is the one fly in the ointment, flaw in Trump’s entire economic strategy.  If the Trump trade policy hurts farmers, Trump could lose the rural states: Iowa, Kansas, North Dakota, South Dakota, Montana, Wisconsin, Oklahoma, and Arkansas, to name a few and that could lead to Trump’s loss in the next Presidential election.  In contrast to arguments made by Trump supporters, rural states are not just manufacturing, they are farmers, agriculture, and one half of all US produced agricultural prorducts is exported.

In addition to agriculture, high tech companies will also be hit as they are perfect retaliation targets and all the side agreements on digital and IP protection in the TPP Agreement have died and will die.

Trump supporters attack not only the trade deals, but the WTO itself because ceding power in a trade deal or to the WTO is giving away the sovereignty of the US people.  The WTO’s job, however, is to provide a forum for negotiations and adjudication of trade disputes between different sovereign countries.  The United States simply cannot dictate its trade policy to other sovereign countries.  It must negotiate trade agreements.  If that be globalism, then so be it.

The real issue is what is the US interest in trade negotiations.  The trade deals that the Trump supporters attack were negotiated by the US government and then approved by Congress.  Are all treaties that create multi-government organizations as a forum for negotiations and adjudication of international disputes to be attacked because they result in giving away US sovereignty?  If so, the World returns to 1914, World War 1, and the Guns of August.  The United States has to negotiate with other sovereign countries.  And in negotiation with other sovereign countries, the United States does not always get everything it wants to get.  That is the essence of negotiations.

As stated before, the simplistic Trump approach to trade is that the United States is the largest market in the World and countries must kowtow to get into the US market.  But that is no longer true.  The remaining countries in the TPP represent a larger market than the US.  That is why during the push for Trade Promotion Authority in the House of Representatives, House Speaker Paul Ryan stated that 75% of all consumers are outside the United States.

The Trump supporters also look at economic competition as economic warfare and, therefore, the United States must win each trade deal.  But as stated below, President Reagan himself believed that economic competition is good for the United States because it is the essence of free markets.

WOULD PRESIDENT REAGAN HAVE SUPPORTED TRUMP’S ECONOMIC PROTECTIONIST NATIONALISM?—I THINK NOT

One of the basic arguments of the Trump supporters in the Trade area is that Trump’s trade policy is simply an extension of Reagan’s trade policy and, therefore, President Ronald Reagan would have supported the protectionist economic nationalism of Donald Trump.  In effect, these supporters argue all trade deals in the past, including NAFTA and China’s entry into the WTO, were raw deals that hurt the US working man.  These supporters argue that the trade deals are the reason for the loss of millions of US manufacturing jobs and even a major reason for the US budget deficit.  Therefore, President Reagan would have opposed all of these trade deals.

But I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department.  I do not remember the Reagan trade policy in the same way as being overly protectionist.  I remember a President, who was the most Free Trade President of my generation, who firmly believed in the power of the free market and economic competition.  Although President Reagan took tough trade actions as needed, he also knew that in the long run protectionism would not work because the US companies themselves would only become weaker.  Reagan’s real trade policy is indicated by his actual words and actions, not summary statements by conservative pundits.

Reagan also understood that when dealing with trade, we are dealing with the interests not only of the United States, but the interests of other countries.  Although the US should always represent its own interests first, it cannot dictate the outcome to other countries, because it does not have the power to do so.  The EC, China, Mexico, Canada, Japan, and Australia are sovereign countries too, and they have a say in international trade negotiations.

On October 14, 2017, at the Values Summit in Washington DC, Fox Contributor Laura Ingraham stated that Reagan was an economic populist and pointed to the 45% tariff issued by President Reagan in the Harley Davidson Motorcycles case and the large duties of 100% against Japanese electronics, such as semiconductors.  She then argued that President Trump’s stance on trade was simply a continuation of the Reagan trade policy.  See https://www.youtube.com/watch?v=qofqnUHPGnc.

During the speech, Ingraham stated that every Free Trade Agreement must be either rewritten or repealed and that Trump like Reagan understands the working class and the need to protect US industry and jobs.  She pointed to present USTR Robert Lighthizer, the former Deputy USTR under Reagan, as an example of Trump’s sterling trade policy.

But I too worked in the Reagan Administration and later under Robert Lighthizer.  I simply do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it.  In the Harley Davidson Motorcycles case, for example, which happened when I was in the General Counsel’s office at the US International Trade Commission, Harley brought a case under Section 201, the Escape Clause, allowing Harley to get short term temporary protection from imports.  After winning the case and after Reagan issued a temporary tariff on imports of motorcycle subassemblies from Japan (Japanese companies had manufacturing facilities in the US too), Harley after only two years asked the Reagan Administration to lift the temporary tariff because it had adjusted to import competition.

Contrast that tariff relief with the tariff relief provided to Mr. Lighthizer’s client in the Steel Industry—30 plus years of protection from imports from many, many antidumping (“AD”) and countervailing duty (“CVD”) orders issued under US AD and CVD laws.  That is not temporary tariff relief; that is permanent tariff relief.  Despite that protection for decades, the US steel industry has declined with Bethlehem Steel going out of business, just as President Ronald Reagan himself predicted.  Trade protection only slows the decline of industries; it does not cure the disease.

Ms. Ingraham’s speech parallels the statements she recently made in her book “Billionaire at the Barricades”, which articulates very well the thinking and many of the arguments from the Trump Administration and his supporters against trade and trade agreements in general.  In the book, Ms. Ingraham states, “Except for Reagan, all modern presidents of both parties campaigned as populists but governed as globalists.”  And that Conservative Populists “are against huge trade deals and international organizations like the World Trade Organization because they take power out of the hands of voters and give it to a far-away and often hostile global elite.”  Page 43.

Ingraham also attacks all trade deals, especially NAFTA, the North American Free Trade Agreement between Mexico and Canada, and China’s entry into the WTO, along with the WTO itself.  With regards to NAFTA, Ingraham states:

“but Perot and millions of Americans—the kind who don’t worship at the Wall Street Journal’s altar of globalism and internationalism for profit’s sake—knew it was a raw deal for workers and bad for America. The biggest “tell” that NAFTA was going to be a boon for elites and a bust for everyone else was the fact that George H. W. Bush and Bill Clinton (as well as their Donor Class” pals) all supported the monstrosity.”

Billionaires at the Barricades at 313 (footnotes omitted).

According to Ingraham, Clinton promised that NAFTA would:

“create the world’s largest trade zone and create 200,000 jobs in this country by 1995 alone . .  .Clinton not only lied, he made a “pledge” to the American working class who opposed NAFTA that they would receive “gains.”

They received pink slips instead.

The populists’ NAFTA predictions proved painfully prescient. Between 1993 and 2013, the U.S. trade deficit with Mexico and Canada went from $17 billion to $177.2 billion.  . .

The effects on American workers have been even more catastrophic. EPI data concluded that in just 10 years, NAFTA was responsible for displacing 851,700 American jobs. To put that in context, that’s more people than live in Columbus, Ohio. “All of the net jobs displaced were due to growing trade deficits with Mexico”.  .. .The destruction of nearly one million jobs and the implosion of American manufacturing—that’s Bill Clinton’s NAFTA legacy.”

Billionaires at the Barricades at 385 to 389.

But Ingram forgets to mention that since NAFTA was enacted, total trade among these three countries has increased from $290 billion in 1993 to $1.1 Trillion in 2016 and that trade was not solely imports, but also US exports to those countries.  According to the US Chamber of Commerce, six million US jobs are dependent on US trade with Mexico.

Ingraham then goes on to attack the decision to let China into the WTO:

“If NAFTA had unleashed a flood of dangerous economic currents crashing into the American working class, his [Clinton’s] decision to pave the path for China’s entry into the World Trade Organization (WTO) by giving it Permanent Normal Trade Relations (PNTR, now known as Most Favored Nation) status swelled into an outsourcing tidal wave. Millions of American manufacturing jobs were washed out to sea – the South China Sea, that is. . .  .

It is “one of the most important foreign policy developments” if you want to understand the destruction of American manufacturing. It is also “one of the most important foreign policy developments” for understanding how millions of U.S. manufacturing jobs were vaporized in record speed, even as China grew at a steroidal rate of muscular economic growth.

Let’s start with the basics. The World Trade Organization was officially created during Bill Clinton’s presidency in January 1995, but it had existed in other forms since 1948. . . .

“Seventeen years hence, it is difficult to overstate the economic destruction wrought by China’s entry into the WTO and Congress and President Clinton’s decision to grant the Chinese permanent” “Most Favored Nation status. A 2016 analysis published in the Annual Review of Economics concluded that between 1999 and 2011, America lost between 2 and 2.4 million jobs.  Others, like the left-leaning Economic Policy Institute, put the American jobs loss figures even higher at 3.2 million jobs, when calculated between the years 2001 and 2013.50

The brutal economic reality was a cruel reversal of Clinton’s promises: all the gains were on the Chinese side, all “the losses and devastation were America’s. American manufacturing jobs were eviscerated. From 2001 to 2011, U.S. manufacturing jobs plunged from 17.1 million to 11.8 million.51 That’s a loss of 5.3 million manufacturing jobs, a figure that’s nearly the population of the entire state of Minnesota.

The narrowing of the trade deficit between the United States and China never materialized either. To the contrary, it exploded. In 2000, the annual trade in goods deficit with China stood at a towering $84 billion. After Clinton ushered China to the front of the line, the trade deficit more than quadrupled to a jaw-dropping $367 billion by 2015.  The year before America let China join the WTO (1999), the United States accounted for 25.78 percent of world GDP. By 2014, that figure had dropped to 22.43—the lowest it has been in government records going back to 1969, according to the Economic Research Service of the U.S. Department of the U.S. Department of Agriculture. In 1999, China’s annual GDP was $1.094 trillion. In 2015, it was more than $11 trillion. In 1999, the U.S. national debt was $5.7 trillion (the good ol’ days!). Today, after the big government globalist policies of the last several presidents, U.S. national debt stands at a mind-bending $20 trillion.”

Id. at 415, 417, 427-431 (footnotes omitted).

Let me make one point very clear.  The China WTO Agreement is not a Free Trade Agreement.  Before China entered the WTO, it was already exporting substantial exports to the US.  I know because I represented Chinese companies and US importers in many antidumping cases long before China entered the WTO.  What China’s entrance into the WTO allowed the US to do was to gain leverage with China by putting Chinese trade practices into a forum, the WTO, which gave the US the ability to call some of China’s trade practices into account and discipline them.  The United States has brought many cases against China at the WTO and won many and caused China to change its trade practices, but it should be noted that China has brought cases against the US at the WTO, especially in the antidumping and countervailing duty area, and won many too.

As Charlene Barshefsky, the USTR, who negotiated the US China WTO Agreement, recently stated to the Wall Street Journal in answer to the question whether China’s entry into the WTO accounted for its enormous economic growth:

”No, I don’t think he’s right. If you go back to the mid-1990s, you saw a China that was already growing at about 8%, 8.5% a year, with the world’s largest standing army, a nuclear power, a permanent member of the U.N. Security Council, a fifth of the world’s population, a reformist premier, Zhu Rongji, and willing to orient toward the West.

In the course of doing the WTO negotiation, China opened its market. The U.S. didn’t alter its trade regime, nor did any other country alter  its trade regime. As in any WTO negotiation, it is the acceding country that needs to reform its economy.

The key point is that, in the context of a country as large as China entering, were there protections built into the agreement to prevent, for example, unexpected surges of imports? And indeed, there were—a mechanism almost never used by the very industries Steve Bannon is pointing to, although it would’ve been entirely protective of their interests.”

To see what Ms. Barshefsky believes is the real China trade problem see the video at https://www.wsj.com/articles/the-impact-of-china-joining-the-wto-1495504981.

During that interview, Barshefsky pointed to the real China problem.  After 2006 China has shifted to a more protectionist trade policy pushing US and other foreign companies and foreign imports out of China.  The Trump trade policy rightly so could demand more reciprocity from China and demand that China drop its barriers to US imports and investment.

On the other hand, killing all trade with China is not the answer.  Although Ms. Ingraham points to the deficits, China has become the largest importer of US products.  On August 21st, in an editorial entitled “Yes, China Steals U.S. Intellectual Property, But That Doesn’t Mean Trade With China Is A Bad Thing” Investors Business Daily states:

“But didn’t the flood of Chinese factory-made goods to the U.S. decimate American manufacturing during this period? That’s a myth. As the U.S. Federal Reserve’s monthly manufacturing index shows, from 2000 to 2006 American factory output rose a healthy 11.5%. It wasn’t decimated by the surge in Chinese exports to the U.S. It only crashed when the financial crisis hit.  . . .

We hope a negotiated solution can be found. At the same time, we might want to think seriously about it before we back a giant U.S.-China trade war that could make all of us, Americans and Chinese, much worse off.”

In addition, when Ms. Ingraham quotes economic data from left leaning groups, she should keep in mind that these groups are very big supporters of labor unions, which provide the backbone of the Democratic Party.  Labor unions traditionally have been very, very protectionist, anti-free market and economic competition, very anti-Republican and very pro- Democratic party.  That is why Senator Chuck Schumer, who Ingraham does not like, supports the Trump protectionist trade policy, but Schumer believes that Trump is not being protectionist enough.   Chuck Schumer’s views are not the views of President Ronald Reagan.

But Ms. Ingraham also states that:

“Trump’s critics would do well to examine the election data on working-class rural Americans—a group who overwhelmingly went for Trump’s message of economic nationalism. Rural voters accounted for nearly one out of five votes in 2016 and were a pivotal part of Trump’s successful Rust Belt strategy. NBC News exit polls revealed that Trump beat Clinton 57 to 38 percent among Michigan’s rural voters (Romney carried the same group but by only seven percentage points). Among Pennsylvania rural voters, Trump destroyed Clinton 71 percent to 26 percent . . ..”

Id. at 1163-1164.

But Ms. Ingraham herself should also watch out because many of those rural voters are farmers and agriculture is dependent on exports.  Those rural voters could turn against Trump and the Republican party and that is why Republican Senators and Congressmen from rural states are so concerned about Trump’s trade policy.  Farmers want trade agreements, even if Trump and his manufacturing supporters do not.  That is why after listening to the complaints of Republican Senators and Congressmen from agricultural states along with complaints of US Ambassador to China and former Iowa Governor Terry Branstad, Trump told Lighthizer in the NAFTA negotiations to do no harm.

In her book, Laura Ingraham points to Reagan’s history, but misses an important point Reagan lived through the Great Depression and he firmly believed that the protectionist policies in the 1930 Smoot Hawley tariff act, which “protected” the US by increasing tariffs on almost every import, made a depression into the Great Depression.  How do I know?  Because President Ronald Reagan said so.

On June 28, 1986, President Reagan from his ranch in Santa Barbara gave the attache speech, BETTER COPY REAGAN IT SPEECH, on International Trade.  This speech is in effect a point by point rebuttal that Reagan was an economic nationalist.  So I would say to Ms. Ingraham to paraphrase Robert Dole, do not distort Ronald Reagan’s record.  I have quoted the entire speech to show that it came directly from President Reagan and is not a characterization.  As Reagan himself stated in the speech:

My fellow Americans:

This coming week we’ll celebrate the Fourth of July and the birthday of the Statue of Liberty, dedicated one century ago this year. Nancy and I will be in New York Harbor for the event, watching fireworks light the sky over the grand old lady who welcomes so many millions of immigrants to our shores. But I’ve often thought that Lady Liberty also represents another symbol of our openness to the rest of the world. With the ships plying the waters of New York Harbor beneath her, she reminds us of the enormous extent of our trade with other nations of the world.

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 flim flammery in American politics. But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth.

 You see, trade barriers and protectionism only put off the inevitable. Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff. Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

Well, since World War II, the nations of the world showed they learned at least part of their lesson. They organized the General Agreement on Tariffs and Trade, or GATT, to promote free trade. It hasn’t all been easy going, however. Sometimes foreign governments adopt unfair tariffs or quotas and subsidize their own industries or take other actions that give firms an unfair competitive edge over our own businesses. On those occasions, it’s been very important for the United States to respond effectively, and our administration hasn’t hesitated to act quickly and decisively.

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

And that’s why I wanted to talk with you today about some legislation that the Congress now has before it that is a throwback to the old protectionist days. It greatly cuts down my flexibility as President to bargain with and pressure foreign governments into reducing trade barriers. While this legislation is still pending before the Senate, it has already passed the House of Representatives. So, the danger is approaching. Should this bill become law, foreign governments would respond, and soon a vicious cycle of trade barriers would be jeopardizing our hard-won economic prosperity. Yes, the politicians are back at it in Washington. And should this unacceptable legislation continue to move through the Congress, I’ll need your help in sending them a message. So, please consider our talk today an early warning signal on free and fair trade, a jobs and growth alert. And stand by, I may need your help in resisting protectionist barriers that would hinder economic growth and cost America jobs.

Until next week, thanks for listening, and God bless you.

Emphasis added.

I too was in the US government during the Reagan Administration, admittedly not a political appointee, but as a line attorney at the US International Trade Commission and the Commerce Department.  I too saw the Reagan trade policy and I do not remember it the way Ingraham and Robert Lighthizer, the current USTR, remember it.  I saw President Ronald Reagan appoint the most free trade Commissioners in its history to the US International Trade Commission—Susan Liebeler and Anne Brunsdale — and they certainly were not economic nationalists.  These free trade ITC Commissioners used to frustrate Robert Lighthizer in cases brought by the US Steel industry because they refused to go affirmative in certain cases and put antidumping and countervailing duty orders in place.

Let me say at the outset, I am not a Libertarian.  I have no problem with trade policy that hammers countries to open markets.  I have no problem with a domestic policy of low taxes and less regulation.  We need to make our companies, farmers and workers more competitive by giving them back the money they have earned.

I also believe that making America great again and putting America’s interests first is a correct policy position.  I am not a globalist, but firmly believe that we first must know what America’s interest is.

But as indicated below, in the post on Trade Adjustment Assistance for Companies, I firmly believe, like Ronald Reagan, who personally approved of the program, that an answer to the trade crisis is not more protectionism, but finding ways to make US companies more competitive.

Like Ronald Reagan, who was a free trader, I do not believe in putting up protectionist trade barriers, which are not temporary and can stay in place for 30 plus years, such as antidumping and countervailing duty orders against steel that wipe out imports and make downstream companies less competitive, is in the interest of the United States.

As President Reagan himself stated, “the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition,” and competition is what makes and will make America great again.

Like Ronald Reagan I do not believe that protection in the long run saves the industries it is trying to protect.  Robert Lighthizer for decades at Skadden, Arps represented US Steel in the Steel Trade Wars.  My former boss, Mike Stein, represented Bethlehem Steel for decades in the Steel Wars along with Lighthizer, but where is Bethlehem Steel today after 40 years of protection from steel imports—green fields.  Green fields when the steel industry has been protected to some degree for decades from steel imports.

Why?  Despite the protection from steel imports, Bethlehem Steel management and union did not take the protection and adjust to import competition so as to make their production facilities more competitive.  In the 90s, when given protection in a Section 201 case from imports, US Steel bought Marathon Oil.  All the trade protection the US can provide will not save the companies if they want to give their workers exorbitant pensions and their management large bonuses and reduce their own competitiveness in the World market.

Antidumping orders against steel imports have led to a higher US steel price than the World market price.  Steel, however, is a raw material input and the antidumping orders against Steel have led to US antidumping orders brought by injured US industries against imports of ironing tables, folding metal tables and chairs, wind towers, stainless steel sinks, boltless steel shelving, steel nails and a myriad of other products that use US steel as a raw material input.  The disease of the steel industry has spread to the downstream steel using industries.

During the speech Laura Ingraham asked what is the problem with trade protectionism?  One major problem is that trade is a two-way street and what the United States does to one country that country can do back to the United States.  The United States cannot dictate trade policy to the other countries in the World because they are sovereign too.  Also the entire world is moving to an open market, when the US appears to be moving backward to a protectionist US market.  This puts US companies and farmers at a distinct cost disadvantage because it means US exports cannot compete on a level playing field, by Trump’s choice

Lighthizer’s and Trump’s answer to trade problems is simply to put up one more brick and build the protectionist wall higher against imports.  If Ms. Ingraham wants a history lesson, I suggest she look at two countries—recently Japan and less recently China, who followed that same strategy.  In the 1980’s when I was at the ITC and Commerce, the big trade target was Japan.  Having worked in Japan I knew that it had numerous non-tariff trade barriers, which blocked many US exports.  Then in the early 1990s Japan’s economy imploded and it entered into the lost decades in large part because of its own trade policy, which explains why Prime Minister Abe wants the TPP.

China also did exactly what Laura Ingraham is proposing.  China closed down and its economy took a nose dive and went back to the Dark Ages.   It took Deng Xiaoping and later Zhu Rongyi to open up China.  China grew not because of the United States, but because it opened its economy up as it was in China’s economic interest to do so.  Many US companies have joint ventures in China.  When GM was having economic problems in the Obama Administration, the one part of the company it was trying to save was its China operations because the GM Buick was the number one selling car in China.  If the US shuts down, it too like China will go back to the dark ages.

Essentially, Trump appears to be adopting the mercantilist trade policies that he has condemned.  With its focus on trade deficits in manufacturing, Trump’s trade policy appears to be that the only trade deals we want are those where the US has a trade surplus.  That is not the way the World works.

THE TRADE WEAKNESS IN DONALD TRUMP’S ECONOMIC POLICY—THE COSTS OF NOT DOING THE TRADE DEALS

As stated in my last blog post, President Trump dropped the Trans Pacific Partnership (TPP) Agreement, has made noises about dropping the US Korea agreement and is on the verge of killing the North American Free Trade Agreement (“NAFTA”) with Mexico and Canada.

During the time when the TPP was being discussed in Congress, its passage was in trouble because many Senators and Congressmen believe the US did not get enough.  Senator Orin Hatch wanted more on biologics and other Senators and Congressmen wanted a a better deal.

But the big problem at the Trump Presidential and Congressional level with regards to these trade agreements was and is the failure to calculate the cost of not doing these trade agreements or of terminating them.  Keep in mind the only party that is more protectionist than Donald Trump is the Democrats.  Also with Steve Bannon’s attacks on “establishment” Republicans, free traders in the Republican party are becoming few and far between.

The Bannon and Trump approach reveal fatal misunderstandings.  Steve Bannon and Donald Trump have not figured out one important point: Not only do companies compete against each other and States compete against each other, but the United States and other countries compete against each other.  The US decision to go the Protectionist route means it has given up competing and has created an open road for the economic competitors of US, including EC, China, Mexico, Canada, Australia and other countries, who are all moving in to replace US exports in those markets.  Trump’s and Bannon’s policy combined with the Democrat’s protectionist policies mean the US will lose the economic war because of the US failure to compete in the international economic marketplace.

The arrogance of the Steve Bannon and the Trump trade policy is based on the principle that the United States is the largest market in the World, and this gives the US leverage and, therefore, countries must kowtow and bend their head to get into the US market.  Although that principle may have been true twenty years ago, it is simply no longer true.

The Trans Pacific Partnership, for example, combines the markets of 12 countries, now 11 with the US exit, into one “huge” trading block.  Since Mexico, Canada, Japan, Australia and New Zealand are part of that block, the TPP market is a much larger market than the US alone.

Also in many ways, with 1.37 billion people China has a larger market than the US.  In 2006, at a speech in Beijing, the US Commercial Attaché stated that 75% of all Chinese, including rural Chinese, have a color television set.  Now that is close to 95% of 1.37 billion.  That is a larger market than the US with its 323 million.

But it is the costs of terminating the TPP deal, which are becoming much more clear.

As stated in my last newsletter, the ox that will be gored by Trump’s trade policy is agriculture and that is just what is happening.  Mexico and Canada are also in a stronger trade position than the US because they already have free trade agreements with a number of other countries, including the EC, and that gives them a substantial competitive advantage getting into those markets.  This fact gives Canada and Mexico leverage in the NAFTA negotiations even though Trump, Lighthizer and Ross simply do not understand the dynamics of the deal.

In that blog post, I quoted extensively from the attache August 7, 2017 article entitled “Trump’s Trade Pullout Roils Rural America”, Trump’s Trade Pullout Roils Rural America – POLITICO Magazine.  To summarize some of the points in that Politico article:

for the already struggling agricultural sector, the sprawling 12- nation TPP, covering 40 percent of the world’s economy, was a lifeline. It was a chance to erase punishing tariffs that restricted the United States—the onetime “breadbasket of the world”—from selling its meats, grains and dairy products to massive importers of foodstuffs such as Japan and Vietnam.

The decision to pull out of the trade deal has become a double hit on places like Eagle Grove. The promised bump of $10 billion in agricultural output over 15 years, based on estimates by the U.S. International Trade Commission, won’t materialize. But Trump’s decision to withdraw from the pact also cleared the way for rival exporters such as Australia, New Zealand and the European Union to negotiate even lower tariffs with importing nations, creating potentially greater competitive advantages over U.S. exports.

A POLITICO analysis found that the 11 other TPP countries are now involved in a whopping 27 separate trade negotiations with each other, other major trading powers in the region like China and massive blocs like the EU. Those efforts range from exploratory conversations to deals already signed and awaiting ratification. Seven of the most significant deals for U.S. farmers were either launched or concluded in the five months since the United States withdrew from the TPP.. . .

In other words, the entire World is moving in the direction of President Ronald Reagan to a more open free trading market, which would have benefitted US companies greatly.  The US is following Trump’s trade policy and moving backward to a more closed protectionist market.

The article went on to state the numerous free trade agreements being negotiated by the other countries in the TPP and now those Agreements are putting US farmers at a distinct disadvantage.  EC pork farmers, which already exports as much pork to Japan as the United States does, have an advantage of up to $2 per pound over U.S. exporters. European wine producers, who sold more than $1 billion to Japan between 2014 and 2016, have a 15 percent tariff advantage over U.S. exporters.

When Donald Trump pulled out of the TPP, Japan turned around and offered the same deal to the EC, which the United States had spent two excruciating years extracting from Japanese trade officials.  The United States is now left out.

Four Latin-American countries—Mexico, Peru, Chile and Colombia, known as the Pacific Alliance are opening negotiations with New Zealand, Australia and Singapore.

Australia is selling beef at a lower price than the US to Japan.  Without the TPP, Australian ranchers eventually will enjoy a 19 percent tariff advantage over U.S. competitors.

With the TPP, economic forecasts already show projected gains for countries involved. Canada, according to one estimate, could permanently gain an annual market share of $412 million in beef and $111 million in pork sales to Japan by 2035, because lower tariffs would enable it to eclipse America’s position in the market.

Over the first five months of 2017, U.S. exports to Japan of chilled pork, which is preferable to frozen meat, are up 2 percent over the previous year. But exports of chilled pork from Canada, a prime competitor, are up 19 percent. Likewise, in frozen pork, U.S. exports are up 28 percent. But exports from the EU, the leading competitor, are up 44 percent.

Now there are more indicators that Canada, Mexico and Japan are turning away from US imports because of the Trump protectionist positions.

COSTS OF PULLNG OUT OF NAFTA AND TPP

CANADA

In an October 16, 2017 article in the Globe and Mail, “Canada must prepare for life after NAFTA” former Canadian trade negotiator Gordon Ritchie stated:

“The Canadian government (as well as the provinces, business and labour) is now forced to contemplate life without a free-trade agreement.  While this is far from a preferred choice, it would not be the end of the world. In the absence of a bilateral agreement, the most-favored-nation rules of the World Trade Organization would apply and offer many of the same protections. Tariffs would be restored, but at a much lower level than before the free-trade agreement, averaging roughly 3.5 per cent on shipments to the United States. Unquestionably, existing economic linkages would be put under stress but most would survive. This is clearly not the option the Canadian government would prefer but it could be better than what is currently on offer from the Trump administration.

Meanwhile, the impact on U.S. businesses would be just as severe if not more so. In an unprecedented statement, the U.S. chamber of commerce, the broadest and perhaps most influential business lobby, came out strongly against dismantling NAFTA, which it earlier estimated underpinned about 12 million American jobs.”

MEXICO

On October 16, 2017 in an article entitled “Mexico Braces for the Possible Collapse of Nafta”, the New York Time reported:

“Mexico is steeling itself for the increasing possibility that the United States will pull out of the North American Free Trade Agreement, envisioning how the Mexican economy would adapt without the deal that has guided relations between the neighbors for a quarter-century. .  .

President Enrique Peña Nieto recently traveled to China to discuss trade, among other issues; Mexico is a member of the Trans-Pacific Partnership trade accord.

Already new suppliers are emerging. In December, Argentina is expected to deliver 30,000 tons of wheat, its first sale ever to Mexico. Crisp Chilean apples have begun to appear on Mexico’s supermarket shelves, next to piles of apples from Washington State. . . .

Still, the question is what a post-Nafta economy would look like. The Mexican government’s view is that the United States market would remain largely open.

Without Nafta, American duties on Mexican goods would revert to levels set by the World Trade Organization.

The figures vary, although the average is estimated to be about 3 percent for manufactured products. Cars assembled in Mexico, for example, would pay a duty of 2.5 percent.

“Do we like those duties? No. Can we live with them? Yes,” said Luis de la Calle, a former trade negotiator for Mexico. “The integration of Mexico, the United States and Canada will continue regardless of the governments. . . .

If tariffs rise, one possible effect could be that companies move more production from the United States to Mexico to reduce the number of parts requiring duty payments.

The other risk is that companies move production to Asia, buying parts there instead of in North America, and paying a single duty when the finished product enters the United States.

Ford Motor Company set the example this year. In January, it scrapped plans to build a factory in Mexico to produce the Focus, a small passenger car, a decision that won praise from Mr. Trump. But in June, the company announced that it would build a new Focus factory in China instead. . . .”

JAPAN

Despite Japanese noises of a bilateral trade agreement with the US after meetings with Vice President Pence, on October 15, 2017 in the attached article entitled “Japan exasperated by Trump’s trade policies”, Japan exasperated by Trump’s trade policies – POLITICO, Politico reported:

“As U.S. farmers suffer under high tariffs, Japanese officials are in no rush to cut a new trade deal with the United States.

TOKYO — Japanese officials are expressing growing frustration with the Trump administration’s economic policies, vowing to continue striking trade deals with other countries that undercut U.S. agricultural exports rather than seek a new trade agreement with the United States.

The frustration comes both from President Donald Trump’s harsh rhetoric on trade and from his pullout from the 12-nation Trans-Pacific Partnership, which Japan still hopes can provide a bulwark against China’s growing influence in the Asia-Pacific region.

Meanwhile, there is growing evidence that the failure of the TPP is taking a sharp toll on rural America. In August, the volume of U.S. sales of pork to Japan dropped by 9 percent year over year, a serious blow to farmers who had been preparing for a big increase in sales because of lower tariffs in the TPP.

Instead, other countries that export meats, grains and fruits have seized on their advantage over American growers and producers in the wake of the U.S. pullout from the TPP. And a new Reuters poll shows Trump’s favorability in rural America — once a great stronghold — dropped from 55 percent last winter to 47 percent in September. The poll also showed a plunge in support for Trump’s trade agenda among rural voters. . . .

in interviews with POLITICO, more than half a dozen senior Japanese officials said they were uneasy with a so-called bilateral — two-nation — deal to replace the TPP, arguing that the goal of the multinational agreement was to create a wide international playing field. They said they are dismayed by Trump’s seeming inability to understand the importance of a multinational pact to establish U.S. leadership in the region and set the trade rules for nations on both sides of the Pacific Ocean as a counterweight to China’s rising influence.

“Our prime minister has made it quite clear that we respect the U.S. decision. … That is our official position, but I think withdrawal from TPP is very wrong,” said one senior official. “Honestly, it has diminished many of things that the U.S. has achieved in the region.”

In response, Japan has continued negotiating with American trade competitors, striking a political deal on a landmark free-trade agreement with the European Union in July while continuing to work toward closing a deal with the 11 remaining members of the TPP. In interviews, the senior Japanese officials made clear their ultimate goal is to persuade the United States to rejoin the TPP.

“In the conduct of our affairs with the United States, we need to have leverage,” said one former senior Japanese Cabinet official. “In order for us to convince the U.S., we need to have our own leverage, and our own leverage needs to be free-trade agreements [with U.S. competitors].”

There are some signs the Japanese strategy is working. Republicans in Congress, many of whom were TPP supporters, are expressing impatience with the administration and a conviction that U.S. agricultural industries are suffering because of tensions unleashed by the TPP pullout.

“We cannot allow much more time to lapse in creating opportunities to have other agreements, and especially when you look at Japan,” said Rep. Dave Reichert of Washington state, chairman of the House Ways and Means Trade Subcommittee, as his panel wrapped up a hearing last week on trade opportunities in the Asia Pacific region.

Trump himself has shown no sign of second- guessing his pullout from the TPP, which he described in an interview with Forbes magazine this month as “a great honor.”

“I consider that a great accomplishment, stopping that. And there are many people that agree with me,” he said. “I like bilateral deals.” .  . . .

Perdue’s comments came amid growing frustration in the farm belt. U.S. producers expect to continue losing market share in meat exports to other countries, even as domestic production reaches an all-time high, until something is done to address high import tariffs on the other side of the Pacific. Japan remains the top market for U.S. beef, and exports are up 22 percent from a year ago, but the impact of a recent hike in tariffs on frozen beef from 38.5 percent to 50 percent — a move that would have been avoidable if the TPP had been in force — will soon be felt, the U.S. Meat Export Federation predicts. The volume of pork exports of pork to Japan, the leading market for the U.S. in terms of value, dropped by 9 percent in August year over year. . . .

But Japan is in no rush to do so, according to the interviews with senior Japanese officials, who suggested that their country’s frustrations with the Trump administration are vast. . . .

For the ever-powerful career officials who sit in the unadorned buildings lining the leafy streets of Tokyo’s government district, there is one concern about the U.S. president that overrides all others: Trump’s determination to measure the effectiveness of trade deals in terms of which side sells more to the other.

Indeed, there are many people in the United States who share the view that free trade grows the global pie, with competition serving to promote efficiency and let countries take advantage of their own assets — such as the vast farming sector in the center of the United States, which has no parallel in Japan. . . .

Trump’s view, backed up by “American first” rhetoric, presumes that countries are inherently competitors, and that there are clear winners and losers.

“We want to avoid the relationship turning into a zero-sum game,” said a senior Japanese official.

“Each country has its own policy objectives, but Japan does not see trade deficits or surplus as the only driving force for trade negotiations,” said another senior government official. “A rules-based system is very important.”

Thus, Japanese officials are watching closely as the Trump administration renegotiates the North American Free Trade Agreement through ongoing talks with Canada and Mexico. To support its America- first agenda, the administration is threatening to blow up the 23-year-old trade deal and unravel complex supply chains that have grown over the life of the pact.

“They’re watching NAFTA and, frankly, in East Asia, they’re saying if the United States is so stupid as to screw up its agreements with its continental powers in Canada and Mexico, what can we in East Asia expect from these guys?” said Robert Zoellick, who served as President George W. Bush’s chief trade negotiator and later as World Bank president. “That’s a realistic question.” . . .

The failure of the TPP is a subject of contention between the two men — because Japan not only risked its economic future in hopes of a multinational trade deal but also pinned much of its national security hopes on the deal.

The need to counter the growing clout of China is an all-consuming priority in Tokyo, and Japanese officials felt that with the TPP they were on the verge of a genuine breakthrough, tying the United States, Canada, Vietnam, Mexico, Chile and other large nations on both sides of the Pacific into an economic alliance greater than anything China could muster. . . .

Seeking to fill the void left by the TPP, China has accelerated the pursuit of its own mega-deal with other Asian nations, called the Regional Comprehensive Economic Partnership, or RCEP.

The United States leaving TPP “created a vacuum in the region, that’s for sure,” the official said. “It’s why RCEP is gaining momentum. That is why the government is asking the U.S. to come back to the TPP. We keep continuing to say so.” . . .

“The Japanese government has no mind of going back to the table for a bilateral negotiation,” said another senior official. “TPP was risky for Abe; a bilateral will require an even bigger leap.”

AGRICULTURE

On September 11, 2017 in article in Bloomberg entitled, “Four Ways to Rebuild Consensus on Agricultural Trade, The U.S. is losing ground fast to global rivals in Asia”, two former US Senators Max Baucus and Richard Lugar stated that they had formed a new group, Farmers for Free Trade stating:

“The financial health of American farmers depends on trade. In what remains the “breadbasket of the world,” U.S. farmers export half of all major commodities they grow, contributing to a projected trade surplus of $20 billion this year alone and supporting millions of direct and indirect jobs. At a time when American farm incomes have been rapidly declining, trade is what’s helping to keep farmers, ranchers and many rural communities afloat.

Not so long ago, we served in Washington D.C. when these realities were well understood. It was a time when bipartisan support for opening new markets to our farmers was assumed and expected. As globalization took hold, we understood that trade agreements were our only tool to ensure that American wheat, soy or beef could out-compete other countries’ products vying for the same markets. It was a consensus that delivered for millions of American farmers. Today, that consensus has faded.

American agricultural trade is facing risks not seen in a generation. Public attitudes toward trade agreements have shifted as protectionist sentiment has grown. Threats of tariffs on U.S. trading partners invite the specter of retaliation. Meanwhile, our competitors plot to assume the mantle of global supplier the U.S. has long occupied.

We need to rebuild consensus on agriculture trade. It must be one that incorporates the position of American farmers; that reflects the needs of rural communities; that is echoed by state and local leaders, and that seeks to heal the deep fissures on trade in Washington D.C.

We believe that consensus can be built around four important steps.

First, we need to get off the sidelines and get back in the business of negotiating trade agreements. The U.S. currently does not have a single ongoing trade negotiation that gives our farmers access to the rapidly growing Asian market. Our absence in Asia means that China is quickly moving into the void with its own trade deals that outflank U.S. agricultural producers. One of those China-led deals, the Regional Comprehensive Economic Partnership, involves 15 other Asia-Pacific countries with growing middle classes, many of whom are clamoring for the agricultural bounty the U.S. once supplied.

Meanwhile, agriculture powerhouses like Canada, New Zealand and Australia are cutting bilateral deals that provide preferential treatment for their commodities.

Take the example of beef. According to the National Cattlemen’s Beef Association, as of this week, the U.S. has now lost out to Australia on more than $165 million in beef sales to Japan. That happened because Australia cut a trade deal with Japan in 2015, and we recently walked away from one.

These sharp competitive disadvantages are becoming the norm, and while it’s difficult to calculate all the untapped gains the U.S. has lost, the numbers are clear on how we reverse the trend. Since 2003, U.S. agricultural exports to countries we do have trade agreements with increased more than 136 percent.

Second, we need to remove the threat of retaliation against U.S. agriculture. Our trading partners are not novices when it comes to whom and what they retaliate against when the U.S. runs afoul of our international commitments. U.S. farmers are always target number one.

That is because our trading partners know it is the economic engine for so many states, and because the pain inflicted is immediate and acute.

For example, the last time Mexico retaliated against the U.S., their targets included everything from corn, to apples, to almonds and grapes. The Department of Agriculture estimated that those measures cost U.S. growers close to $1 billion in lost sales.

We know there are onerous trade practices that must be addressed through diplomacy and other mechanisms for setting disputes. But threatening our closest trading partners with blanket tariffs, border taxes or aggressive enforcement actions risks a trade war that would have no winners.

Third, we need to modernize NAFTA in a way doesn’t erode the enormous gains it has delivered for American farmers and ranchers. That means working to eliminate any remaining tariff and non-tariff barriers, simplifying packaging and labeling requirements, and improving agriculture opportunities through e-commerce platforms.

But it also means doing no harm to a pact that — according to the Farm Bureau — has resulted in an annual jump of agriculture exports from $8.9 billion in 1993 to $38 billion last year.

The Trump administration has a real opportunity to expand on those gains. They should do it quickly and thoughtfully so we can turn to the task of keeping pace with our competitors.

Finally, to rebuild consensus on trade, we need to organize and educate. We know there are officials in the administration and in Congress who understand the value of agricultural trade. Yet, recent trade debates have too often become a microcosm of our broader partisan politics.

To support this effort, we’re launching a bipartisan, not-for-profit organization called Farmers for Free Trade, to build a coalition of farmers, mayors and community leaders in congressional districts across the country. This isn’t only about the over 1 million U.S. jobs supported by agriculture trade, but also the secondary and tertiary jobs it creates in rural communities: from growers, harvesters, processors, and packagers to grain elevator operators, railroad workers, truck drivers and port operators.

Rebuilding consensus on trade begins in the heartland and capitalizes on the great strength of American farmers and ranchers. If we can do that, America wins.”

U.S. ANTI-TRADE STANCE AIDS EU

Meanwhile who benefits from the US decision to turn toward protectionism, other countries and the EU.  Jyrki Katainen, the European Commission’s vice president for jobs, growth, investment and competitiveness recently stated:

“We are willing to negotiate with third countries all the time – it’s part of our economic strategy. And now we have seen that many countries have been concerned about rising protectionism and entities which undermine the multilateral system, so they have been contacting us.”

The Wall Street Journal article below outlines the negative impact of terminating NAFTA on the US automobile industry.

US CHAMBER OF COMMERCE

Instead of listening to the protectionist steel industry and the unions, maybe it is time for the Trump Administration to listen to the winners in the Trade World.  On October 10, 2017, in Mexico City, U.S. Chamber of Commerce President Tom Donohue spoke out against the Trump administration’s approach to negotiating the North American Free Trade Agreement, which he said has been riddled with “unnecessary and unacceptable” poison pill proposals from the U.S. side.  As Donohue stated:

“All of these proposals are unnecessary and unacceptable.  They have been met with strong opposition from the business and agricultural communities, congressional trade leaders, the Canadian and Mexican governments, and even other U.S. agencies. Ladies and gentlemen, we’ve reached a critical moment, and the Chamber has had no choice but ring the alarm bells.

“[NAFTA withdrawal] would abruptly slam the door on future negotiations because those governments have made it very clear they won’t negotiate with a gun to their head.  The United States could then reasonably expect trade retaliation … higher tariffs … broken supply chains … and potentially less cooperation on other priorities like anti-terrorism and anti-narcotics efforts.”

Donohue specifically criticized the foolish reliance on the need for the agreement to reduce the U.S. trade deficit:

“The business community, along with any economist worth his or her salt, has repeatedly explained that the trade balance is not only the wrong way to measure who’s ‘winning’ on trade, it’s the wrong focus, and is impossible to achieve without crippling the economy.”

NAFTA NEGOTIATIONS HAVE STALLED

On August 16th, United States, Canada and Mexico sat down together for the first round of talks to formally reopen NAFTA.  On July 17th, the USTR released its attached “Summary of Objectives for the NAFTA Renegotiation”, USTR NAFTA RENGOTIATION OBJECTIVES:

On October 18th, Politico reported that the NAFTA negotiations are at a standstill as Canada and Mexico have rejected the strident US proposals and potentially insurmountable disagreements on areas ranging from auto rules of origin to dairy market access and a sunset provision. The next round is to start on November 17th in Mexico.

At the closing press conference, the Canadian and Mexican trade ministers attacked the United States for making impractical demands and an overall unwillingness to compromise.

US Robert Lighthizer responded:

“Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners. As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits.

We have seen no indication that our partners are willing to accept any change that will result in a rebalacing and a reduction in these huge trade deficits.  Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantages.”

In a press briefing in his private conference room, Lighthizer later stated that his primary goal is to reduce the trade deficit and:

“take away what I consider to be in many cases artificial incentives to encourage investment overseas that are not market based. If we get that right, we’ll have an agreement that the president will be enthused about and at that point if the president is enthused, I think the Congress will be enthused.”

Lighthizer has also argued that NAFTA is just frosting on the cake for major corporations:

“I think it’s possible to take a little of the sugar away and have them say, ‘Yeah we’re still doing pretty well.  I understand that everybody that’s making money likes the rules the way that they are. That’s how it works and they can make a little less money or make more money in a different way and we can get the trade deficit down and we can also have what I consider at least in the investment realm to be a market-based investment decision. I think if we do that business will be fine, and if we do that labor will come along and say this is a step in the right direction and it’s worth changing the paradigm in doing that.”

On October 16, 2017, in an article entitled Trump’s NAFTA Threat”, the Wall Street Journal made the opposing argument.

“Donald Trump is threatening again to terminate the North American Free Trade Agreement if Canada and Mexico don’t agree to his ultimatums.

If this is a negotiating tactic of making extreme demands only to settle for much less and claim victory, maybe it will work. Otherwise Mr. Trump is playing a game of chicken he is playing a game of chicken that he can’t win

Mr. Trump’s obsession with undoing Nafta threatens the economy he has so far managed rather well. The roaring stock market, rising GDP and tight job market are signs that deregulation and the promise of tax reform are restoring business and consumer confidence. Blowing up Nafta would blowup all that too. It could be the worst economic mistake by a U.S. President since Richard Nixon trashed Bretton-Woods and imposed wage and price controls.

U.S. demands in the Nafta renegotiations­ which returned to Washington last week-are growing more bizarre. U.S. Trade Representative Robert Lighthizer now wants to add a sunset clause, which would automatically kill it in five years unless all three governments agree to keep it. In other words, the U.S. proposes to increase economic uncertainty and raise the incentive for businesses to deploy capital to more reliable investment climates.

The U.S. also wants to change Nafta’s “rules of origin” for autos. Cars now made in North America can cross all three borders duty-free if 62.5% of their content is Nafta-made. Mr. Lighthizer wants to raise that to 85% and add a sub­ clause requiring 50% be made in the U.S.

Mr. Lighthizer needs to get out more. Nafta’s current rules-of-origin for autos are already the highest of any trade agreement in the world, says John Murphy of the U.S. Chamber of Commerce. Raising them would give car makers an incentive to source components from Asia and pay America’s low 2.5% most -favored-nation tariff. A higher-content rule would hurt Mexico, but it won’t bring jobs to the U.S

It’s hard to overstate the damage that ending Nafta would inflict on the U.S. auto industry. Under Nafta, companies tap the comparative advantages of all three markets and have created an intricate web of supply chains to maximize returns. As Charles Uthus at the American Automotive Policy Council said last week, Nafta “brings scale, it brings competitiveness, it brings efficiencies [and] synergies between all three countries, and it brings duty-free trade.” Its demise would be “basically a $10 billion tax on the auto industry in America.”

Last week the Boston Consulting Group also released a study sponsored by the Motor & Equipment Manufacturers Association that found ending Nafta could mean the loss of 50,000 American jobs in the auto-parts industry as Mexico and Canada revert to pre­ Nafta tariffs.

Mexico has elections next year and no party that bows to unreasonable demands by Mr. Trump can win. The Mexican political class appears willing to call his bluff, which is making American business very nervous. More than 300 state and local chambers of commerce signed an Oct. 10 letter to Mr. Trump imploring him to “first ‘do no harm’ in the Nafta negotiations.”

It noted that 14 million American jobs rely on North American daily trade of more than $3.3 billion. “The U.S. last year recorded a trade surplus _o f $11.9 billion with its NAFTA partners when manufactured goods and services are combined,” the letter said. “Among the biggest beneficiaries of this commerce are America’s small and medium-sized businesses, 125,000 of which sell their goods and services to Mexico and Canada.”

Ending Nafta would be even more painful for U.S. agriculture, whose exports to Canada and Mexico have quadrupled under Nafta to $38 billion in 2016. Reverting to Mexico’s pre-Nafta tariff schedule, duties would rise to 75% on American chicken and high-fructose corn syrup; 45% on turkey, potatoes and various dairy products; and 15% on wheat. Mexico doesn’t have to buy American, and last week it made its first wheat purchase from Argentina-30,000 tons for December delivery.

Canada and Mexico know that ending Nafta will hurt them, but reverting to pre-Nafta tariff levels could hurt the U.S. more. Mr. Trump can hurt our neighbors if he wants, but the biggest victims will be Mr. Trump’s voters.”

On October 16, 2017, in an article entitled “Trump Trying To Destroy NAFTA with Pin Pricks Instead Of A Sledgehammer” John Brinkley at Forbes outlined the US demands in the NAFTA negotiations and why they are being rejected:

“It appears increasingly likely that NAFTA is headed for the trash heap. People involved in the re-negotiation of the 23-year-old trade pact are pessimistic about its chances for survival, because the Trump administration seems bent on causing its death by 1,000 cuts.

An inexplicable aspect of this is that there is no constituency in the United States for NAFTA’s termination.

Not even the most fervent NAFTA-haters — e.g., the AFL-CIO, the Sierra Club, Public Citizen’s Global Trade Watch, and Democratic House members from Rust Belt states — have demanded the death of NAFTA. Businesses large and small, farmers and ranchers, mayors of most American cities and most members of Congress want NAFTA to stay in force. No one of note has said NAFTA has to go. So, whose interests is President Trump trying to protect?

It’s clear that what he would like to do is simply withdraw from the agreement, which he can easily do by providing Canada and Mexico six months’ notice in writing. But instead, his negotiators have tabled several proposals – poison pills would be a more apt description – that they know the Canadians and Mexicans won’t accept. This will allow Trump to blame them for NAFTA’s demise.

“Issues are being put on the table that are practically absurd,” former Mexican   Jaime Serra told Reuters during the fourth round of talks, which ended Sunday. “I don’t know if these are poison pills, or whether it’s a negotiating position or whether they really believe they’re putting forward sensible things.”

Here are four of them:

A sunset provision that would automatically terminate NAFTA after five years unless all three countries vote to keep it in force.

Deletion of NAFTA Chapter 19, which allows parties to defend themselves against dumping and illegal subsidies by one another.

A so-called opt-in provision to NAFTA’s investor-state dispute settlement (ISDS) chapter.

A change to automotive rules of origin that would make it more difficult for Canada and Mexico to export cars to the United States.

Let’s look briefly at each of these.

A five-year sunset clause would add so much uncertainty to NAFTA’s future that businesses in all three countries would be reluctant to plan and invest with regard to cross-border trade. It would also trigger a renegotiation of NAFTA every five years.

Scrapping Chapter 19 would end 23 years of fairness and equality in the way the three NAFTA parties pursue anti-dumping and illegal subsidy cases. Conservative opponents of Chapter 19 say it impinges on U.S. sovereignty by requiring the government to adhere to a supranational system. That is an argument based on principle. It has no practical merit.

ISDS allows a private company operating in a foreign country to challenge an action by that country’s government that hurts the company. Allowing one country to opt in or out of ISDS would be like allowing a driver who is pulled over for speeding to opt out of having to obey the law against speeding – sorry, officer, I have my own speed limit and it’s higher than yours.

NAFTA requires that 62.5% of the content of NAFTA-built cars and light trucks originate in the U.S. if those vehicles are to be exported duty-free to the U.S. The Trump administration wants to raise that to 80%. This is a purely protectionist measure that would raise the price of cars sold in the United States, including those made here.

The governments of Mexico and Canada vehemently oppose these proposals and others the administration has presented. But Trump has said, no problem, if the NAFTA renegotiations don’t work out, he’s willing to negotiate separate bilateral free trade agreements with the two countries.

It’s apparent that what he really wants is to get rid of Mexico. He has said most illegal Mexican immigrants were rapists and murderers, vowed to build a wall along the Mexican border, threatened to invade the country to rid it of some unspecified “bad hombres,” and threatened to impose a 20% border tax.

And we’re to believe that he wants to sit down with the Mexican government and negotiate a free trade agreement in good faith?

Yeah, right.”

TRUMP THREATS ARE NOT WORKING WITH THE US SOUTH KOREA TRADE AGREEMENT

Meanwhile, South Korean Trade Minister Kim Hyun-chong recently indicated that Seoul is willing to let President Donald Trump kill the pact, rather than bow to unreasonable U.S. demands for concessions to bring bilateral trade more into balance.

Kim also stated that cutting trade ties with South Korea will only push the country, as a matter of necessity, economically closer to China, the source said.

US ANTIDUMPING AND COUNTERVAILING DUTY CASES BECOME MORE POLITICAL

Recently there has been a distinct difference in the antidumping and countervailing duty area.  Friends have told me that internally at Commerce all countervailing duty and antidumping duty determinations go to the Secretary’s office of his personal review.  That was not true when I was at the Commerce Department during the Reagan Administration.

Countervailing duty and antidumping determinations are legal proceedings that are subject to Court review.  The Court of International Trade and the Court of Appeals for the Federal Circuit can overturn as not based on substantial evidence on the record if there is not a factual underpinning for the Commerce Department decisions.

If politics become a large part of the case, that is a reason for the Court to overturn Commerce decisions as arbitrary and capricious and not based on substantial evidence on the record.

Every time Commerce issues a determination in an antidumping and countervailing duty case, Commerce Secretary Wilbur Ross makes a personal statement.  When the Countervailing Duty preliminary determination of 212% in the Bombardier Civil Aircraft case was issued, Secretary Ross stated:

“The U.S. values its relationships with Canada, but even our closest allies must play by the rules.  The subsidization of goods by foreign governments is something that the Trump Administration takes very seriously, and we will continue to evaluate and verify the accuracy of this preliminary determination.”

In past newsletters, I have argued that Commerce is a hanging judge in AD and CVD determinations finding dumping and subsidization in close to 100 percent of the cases.  But in contrast to a China case, where Commerce uses fake numbers, in a market economy case against Canada, for example, Commerce is to use actual domestic prices and costs to determine dumping and actual government payments to determine subsidization in the case and actual commercial values in that country to value them.  Thus, in counseling foreign companies in antidumping and countervailing duty cases, if they are in market economy countries, I tell them that they can use computer programs to run their numbers and make sure that they are not dumping.  Also companies can usually figure out whether they have taken subsidies from the Government.

As indicated in the Article about the Bombardier/Civil Aircraft case below, however, although the AD and CVD rates were very high at 219% and 79%, Commerce did give reasoned decisions as to how it calculated those high rates.

NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.

Just before the countervailing duty preliminary determination in the Civil Aircraft from Canada case, I was interviewed by BBC radio and by various investment companies asking me for my views on the case.  During those interviews, I emphasized that the US countervailing duty and antidumping cases against Canada were legal proceedings and that the Commerce Department’s preliminary determinations were normal operating procedure pursuant to the US antidumping (“AD”) and countervailing duty (“CVD”) law.  The Commerce Department must follow the statutory requirements of the AD and CVD law, and these preliminary determinations were not political decisions.  They were legal decisions made pursuant to the law and the statutory deadlines in those laws.

With all the political arguments from both the Canadian and UK Governments in the wind, during those interviews, however, I also suggested the case could result in a negotiated suspension government to government agreement, much like happened in the Canadian Lumber case.  After the CVD preliminary determination, USTR Lighthizer also mentioned the possibility of a government to government negotiated deal in the Bombardier case.

But then Commerce issued a preliminary CVD rate of 219.63%.  Immediately the Canadian government complained about the unfairness of the decision, and the UK government threatened a trade war with the US because Bombardier has a production plant in Northern Ireland.

Commerce issued the very high CVD rate as indicated in the attached Commerce Department’s Issue and Decision Memo, 2017.09.26 Aircraft Prelim I&D Memo, because of the massive equity infusion of $1 billion by the Quebec Government directly into Bombardier, making it in effect a state-owned company, much like the Chinese state-owned companies.

The entire purpose of the US CVD law and CVD laws in general is that private companies should not have to compete in commercial markets against the Government and that is just what has happened.

Although the argument is made that Boeing is financed by its military sale of airplanes to the US government, Boeing itself is a publicly traded company on the New York stock exchange and certainly has not received $1 billion in a direct equity infusion into the company by a Government to finance its production operations.

But then Bombardier seriously damaged its own chances for a negotiated government to government suspension agreement because Commerce issued an antidumping preliminary determination of 79.82% antidumping rate based on All Facts Available (“AFA”) because Bombardier refused to provide sales information regarding its contracts with Delta and Air Canada and cost information.

Essentially an AFA rate is a penalty for a respondent refusing to cooperate in the Commerce Department’s investigation.  The Canadian Government would have reached an identical decision in the Antidumping Case if a a respondent refused to provide requested information in its questionnaire response.  The EC takes the same position. If a respondent refuses to cooperate in EC antidumping and countervailing duty cases, the EC will use all facts available.

I firmly believe that because of the decision not to cooperate with Commerce, the Trump Administration will refuse to do a suspension agreement in this case.  Commerce will not reward bad behavior in AD cases.  A company cannot refuse to cooperate with Commerce and give them the information they need to make a decision and then expect Commerce to give it a political deal.

Also the UK threat of a trade war indicates an ignorance of how AD and CVD law works, which is understandable because all AD and CVD cases in the EC are handled in Brussels.  As stated above, these preliminary determinations were legal determinations under the US AD and CVD law, which are based on the WTO Antidumping and Countervailing Duty Agreements and agreed to by all countries in the WTO, including Canada, the EC and through the EC, the UK.

Bombardier argued that it could not provide the sales information because the airplanes had not been exported to the US.  As indicated in the attached AFA memo, ANTIDUMPING AFA BOMBARDIER, the US Antidumping Law, which is based on the WTO Antidumping Agreement, covers “sales” and in the absence of sales offers for sale.  As the AFA Memo states:

Additionally, section 772 of the Act defines export price and constructed export price as the price at which merchandise under consideration is first sold or agreed to be sold. Moreover, 773(a)(1)(B) of the Act states that normal value is the price at which:

the foreign like product is first sold (or, in the absence of a sale, offered for sale) for consumption in the exporting country, in the usual commercial quantities and in the ordinary course of trade and, to the extent practicable, at the same level of trade as the export price or constructed export price.

In addition, as previously mentioned, under 19 CFR 351.102(b)(43), the term “sale” includes a contract to sell. Furthermore, a Ways and Means Committee report describes the reason for amending the countervailing duty law, along the lines of what already existed in the antidumping duty law, to make clear that the Department could initiate countervailing duty cases and render determinations in situations where actual importation had not yet occurred but a sale for importation had been completed or was imminent. The House Report explained that “{a}ntidumping law has, since its inception, applied not only to imports, but to sales or likely sales. This report additionally explained that the amendment (including the phrase “or sold (or likely to be sold) for importation” in section 701(a) of the Act) was “particularly important in cases involving large capital equipment, where loss of a single sale can cause immediate economic harm and where it may be impossible to offer meaningful relief if the investigation is not initiated until after importation takes place.” This logic described in the House Report is relevant in this antidumping duty investigation as well. For these reasons, the Department appropriately requested information related to Bombardier’s purchase contracts for merchandise under investigation in the United States and the home market.

According to Commerce, Bombardier only submitted arguments in response to sections B through D of the questionnaire.  It did not provide the facts to support those arguments.  Under US AD law, however, Commerce Department decisions and respondent’s arguments have to be based on the facts on the Administrative Record.  When there are no facts, Commerce will use All Facts Available.

Through intermediaries, I have been told that Bombardier refused to release that information to Commerce because of fear it would be released to Boeing.  If that is true, it reveals the failure of Bombardier’s outside lawyers to discuss how Commerce Department Administrative Protective Orders work in AD and CVD cases.  Under US AD and CVD law, only outside counsel, not Boeing’s inside counsel, are granted access to Bombardier information and if those outside lawyers reveal that information to Boeing, they can be disbarred.  Trade counsel in the US take very seriously the APO requirements under the US AD and CVD Law.  In addition, Bombardier’s outside counsel has had access to Boeing’s confidential information under Administrative Protective at the US International Trade Commission so there is simply no sympathy for Bombardier’s arguments.

Finally, the latest news is that Bombardier is asking Airbus to take a majority share in its production of C Series Aircraft and Airbus will shift the production to Mobile, Alabama to get out of the case.  Boeing has argued that Boeing’s move will not have an effect on the case because any orders issued will cover parts.

But that is not quite correct.  The jurisdiction in AD and CVD cases is in rem over the things, products, being imported into the US.  So the critical issue is how did Boeing describe the products to be covered by the case and that are in the Scope of the Merchandise Section in the Federal Register notice issued by the Commerce Department.

The Scope of the Merchandise Section in the Federal Register notice states that the AD and CVD orders will cover imports of:

“aircraft, regardless of seating configuration, that have a standard 100- to 150-seat two-class seating capacity and a minimum 2,900 nautical mile range, as these terms are defined below. . . .

The scope includes all aircraft covered by the description above, regardless of whether they enter the United States fully or partially assembled, and regardless of whether, at the time of entry into the United States, they are approved for use by the FAA.”

The scope does not include “parts thereof” language so the real question is whether Customs will consider any parts imported into the United States to be “partially assembled” civil aircraft.

The key point is that the desperate measure to joint venture with Airbus, however, means Bombardier has given up on a government to government Suspension Agreement to settle the case.  I suspect Bombardier will have major problems going forward.

SECTION 201 SOLAR CELLS 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.

The ITC had to 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 reached an affirmative injury determination in the case on September 22, 2017, and now it has entered a remedy phase on which remedy to recommend to the President.

The Commission will issue its report to the President on November 13, 2017 and the President within 60 days must decide whether or not to impose import relief, which can be in the form of increased tariffs, quotas or an orderly marketing agreements.

Although the ITC remedy phase is important, the real remedy will be determined by President Donald Trump with the assistance of the USTR after November 13th.

On October 3, 2017, the ITC held a hearing in the remedy phase.  The proposed remedies from the parties are:

The petitioners, Suniva and SolarWorld Americas, in their public briefs, proposed two remedies: a tariff plus a price floor for solar cells, or a tariff plus a quota. The two companies agree that the commission should choose one.

The Solar Energy Industries Association, the users coalition, along with solar producer SunPower, argued that a tariff will result in the loss of 62,800 jobs in 2018 and 80,000 jobs in later years. Tariffs will simply increase the price of panels, which will kill solar projects. SEIA in its brief also argued that if tariffs are imposed, the big winner will be Arizona-based thin-film manufacturer First Solar, which does much of its manufacturing in Malaysia.

At the hearing, Suniva and SolarWorld requested a 32-cent-per-watt tariff on crystalline silicon photovoltaic cells.  Suniva continued to push for a price floor on solar panels of 74 cents per watt, while SolarWorld wants a quota on imported cells and panels to cap import supply; both support each other’s idea in the alternative.  In its brief, Suniva stated:

“The crisis caused by foreign market overcapacity now facing the U.S. CSPV cell and module industry is so extreme, the financial losses so great, that, to be effective, any remedy … must be bold, extensive and multifaceted.  [A] strong and effective remedy is required to stop the industry’s bleeding, and then provide breathing space for this American-invented manufacturing technology to grow and thrive.”

But SEIA, which maintains that such trade barriers will devastate the entire U.S. solar industry by raising prices and crippling demand, says the two manufacturers are failing for internal and not external reasons and have asked for more help than the government can grant. Since the ITC must recommend a remedy by mid-November with Trump then to decide within 60 days, SEIA offers these alternatives: technical assistance and job training assistance from government agencies, and an import licensing fee to fund manufacturing growth.

The interesting point is that Suniva and Solar World failed to submit an adjustment plan to the ITC to show, in direct contrast to Harley Davidson, how they will adjust to import competition if they are given relief.

SEIA argued in its brief:

“The commission should rely on its trade policy expertise to create and recommend constructive advice instead of resorting to trade restraints.  Denying the existence of the tens of thousands of jobs that are at stake, denying the reality and importance of grid parity, and denying the domestic industry’s internal problems in favor of scapegoating imports will not help the industry or serve the national interest.”

TRUMP AND CHINA

But what about developments regarding trade with China, as indicated below new trade cases are being filed against China in the antidumping and countervailing duty area and for IP violations under Section 337.

During her speech mentioned above, Laura Ingraham argues that there is no remedy if imports come into the US that infringe US intellectual property rights.  That simply is not true.

Under Section 337, 19 USC 1337, Petitioners holding valid IP rights can filed a Section 337 case at the US ITC and after a year long proceeding, the ITC will issue an order excluding the infringing imports at the border.

In addition, if the imports infringe US trademarks or copyrights, Petitioner can go directly to Customs, which will exclude the infringing exports at the border.

In addition, if Chinese exports infringe US intellectual property rights, such as trademarks and copyrights, a US company can go directly to Chinese Customs and stop the export of infringing exports.

But with China’s decision to help on North Korea, I suspect that during Trump’s visit to China in November deals will be reached.  But as Charlene Barshefsky has indicated in her speech to the Wall Street Journal above, the real problem is China’s decision to close down areas to US investment and put up barriers to US imports.

In light of the US position in the NAFTA talks, we can expect the US to demand reciprocity.  Trump and Congress may well take the position that we will close off the US market to the Chinese investment in the same areas where China blocks US investment in.  The US should also consider closing off Chinese imports into sectors where the US cannot export into.  That is reciprocity.

There are many fights to come.

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD

In the attached August 18th Federal Register notice based on an August 14th Presidential Memorandum, 301 INITIATION NOTICE, President Trump pulled the trigger on the Section 301 Intellection property case against China.  The Section 301 investigation could take a year and probably will lead to negotiations with the Chinese government on technology transfer.  If the negotiations fail, the US could take unilateral action, such as increasing tariffs, or pursue a case through the World Trade Organization.  Unilateral actions under Section 301, however, also risk a WTO case against the United States in Geneva.

The notice states that the USTR will specifically investigate the following specific types of conduct:

First, the Chinese government reportedly uses a variety of tools, including opaque and discretionary administrative approval processes, joint venture requirements, foreign equity limitations, procurements, and other mechanisms to regulate or intervene in U.S. companies’ operations in China, in order to require or pressure the transfer of technologies and intellectual property to Chinese companies. Moreover, many U.S. companies report facing vague and unwritten rules, as well as local rules that diverge from national ones, which are applied in a selective and non-transparent manner by Chinese government officials to pressure technology transfer.

Second, the Chinese government’s acts, policies and practices reportedly deprive U.S. companies of the ability to set market-based terms in licensing and other technology-related negotiations with Chinese companies and undermine U.S. companies’ control over their technology in China. For example, the Regulations on Technology Import and Export Administration mandate particular terms for indemnities and ownership of technology improvements for imported technology, and other measures also impose non-market terms in licensing and technology contracts.

Third, the Chinese government reportedly directs and/or unfairly facilitates the systematic investment in, and/or acquisition of, U.S. companies and assets by Chinese companies to obtain cutting-edge technologies and intellectual property and generate large-scale technology transfer in industries deemed important by Chinese government industrial plans.

Fourth, the investigation will consider whether the Chinese government is conducting or supporting unauthorized intrusions into U.S. commercial computer networks or cyber-enabled theft of intellectual property, trade secrets, or confidential business information, and whether this conduct harms U.S. companies or provides competitive advantages to Chinese companies or commercial sectors.

The United States Trade Representative (“USTR”) held a hearing on October 10th at the International Trade Commission.  During the October 10th hearing, only two US companies appeared to argue that their IP was stolen by Chinese government actions.  Juergen Stein, CEO of SolarWorld Americas stated that his company was a victim of Chinese “state-sponsored hacking and theft” while it was pursuing his AD and CVD cases against China.  Stein further stated that this “greatly weakened SolarWorld’s first-mover status, and again left SolarWorld vulnerable to China’s relentless effort to take over the U.S. solar industry through the sale of solar cells and panels below the cost of production,”

Just one other company, American Superconductor Corp., testified that it had been badly hurt by Chinese theft of its intellectual property.  The company accused a Chinese state-owned enterprise, Sinovel Wind Group, of stealing its intellectual property. AMSC has lost over $1.6 billion in company value and 70 percent of its workforce over the past six years as a result, AMSC President Daniel Patrick McGahn said.

“We believe that over 8,000 wind turbines – most owned by large Chinese utility state-owned enterprises – currently are operating on stolen AMSC IP I personally believe such actions should have consequences. The negative impact of Sinovel’s IP theft on the financial health of AMSC has been dramatic.”

A third company, ABRO Industries, said it had learned to work within the Chinese intellectual property protection system to address problems when they arise. William Mansfield, director of intellectual property at ABRO, also urged the Trump administration to refrain from rash action, stating, “The time for gunboat diplomacy is long since past.”

Acting Assistant USTR for China Terry McCartin, commenting on the dearth of business witnesses, said some companies had expressed concern “about retaliation or other harm to their businesses in China if they were to speak out in this proceeding.”

But as indicated in an article by Dan Harris, the problem may be that US companies on their own gave away their IP because of bad business decisions.  The US government cannot protect US companies from the consequences of bad business decisions.  See August 30, 2017 article by Dan Harris entitled “China-US Trade Wars and the IP Elephant in the Room”, on his China law blog at http://www.chinalawblog.com/2017/08/china-us-trade-wars-and-the-ip-elephant-in-the-room.html.

CHINA NME STATUS

On the question of China’s nonmarket economy status in AD and CVD cases, in light to the expiration of the 15-year deadline in the China-WTO Agreement on December 16, 2016 and a Chinese case in the WTO, the EU on October 3rd reached agreement with the European Council and Parliament to overhaul its antidumping procedures.  Pursuant to the Agreement, the EU will decide the issue on a case-by-case basis, leaving it up to the EU Government to determine whether a Chinese industry has demonstrated enough independent from the Chinese government.

In the announcement, the EU stated:

“The new legislation introduces a new methodology for calculating dumping margins for imports from third countries in case of significant market distortions, or a pervasive state’s influence on the economy.  The rules are formulated in a country- neutral way and in full compliance with the EU’s WTO obligations.”

EU Trade Commissioner Cecilia Malmström further stated:

“Having a new methodology in place for calculating dumping on imports from countries which have significant distortions in their economies is essential to address the realities of today’s international trading environment. The commission has repeatedly stressed the importance of free but fair trade and the agreement today endorses that view.”

WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA

In the attached complaint filed by the United States against Canada on Wine, WTO WINE COMPLAINT, a case which is near and dear to my heart, on October 2, 2017 the Trump administration revived an Obama-era World Trade Organization case against Canadian rules that have allegedly kept U.S. wine off grocery store shelves in British Columbia, according to a WTO document circulated on Monday.

According to the US complaint:

“The BC wine measures provide advantages to BC wine through the granting of exclusive access to a retail channel of selling wine on grocery store shelves.  The BC measures appear to discriminate on their face against imported wine by allowing only BC wine to be sold on regular grocery store shelves while imported wine may be sold in grocery stores only through a so-called store within a store.”

According to prior statements from the government and the industry backing the case, many retailers in Canada have not taken the necessary steps to set up their “store within a store” to sell foreign wine, likely because of the high costs associated with controlled access and separate cash registers.

According to the complaint:

“These measures appear to be inconsistent with Canada’s obligations … because they are laws, regulations or requirements affecting the internal sale, offering for sale, purchase or distribution of wine and fail to accord products imported into Canada treatment no less favorable than that accorded to like products of Canadian origin.”

In the following months, Argentina, Australia, the European Union and New Zealand all asked to join the case, according to the World Trade Organization website.

USTR asserts the provincial regulations discriminate against imported wine because they only allow wine from British Columbia to be sold on regular grocery store shelves. In contrast, imported wine may only be sold in the province’s grocery stores through a so-called store within a store.

“British Columbia’s discriminatory regulations continue to be a serious problem for U.S. winemakers,” USTR spokeswoman Amelia Breinig said. “USTR is requesting new consultations to ensure that we can reach a resolution that provides U.S. wine exporters fair and equal access in British Columbia.”

In fact, BC Wine regulations are probably the most protectionist in the World, worse than China requiring the equivalent of an 80% tariff to sell imported wine.  BC protectionist measures on wine simply feed right into the Trump argument on NAFTA that it is not a free trade agreement.

SECTION 232 STEEL AND ALUMINUM CASES REMAIN STALLED

The Section 232 Steel and Aluminum cases appear to have stalled for the time being.  No news on the Section 232 front raises the question what can be done for US Steel and Aluminum companies injured by imports without distorting the US market and expanding the problems.  Across the board tariffs on steel imports would create enormous collateral damage on the many US producers that use steel as a raw material input to produce downstream steel products.  Such a remedy would probably result in the loss of 100s of thousands of US job.

That is the problem with purely protectionist decisions.  They distort the US market and simply transfer the problems of the steel industry to other downstream industries.

But does that mean the US government should simply let the US Steel industry and other manufacturing industries die?  The election of Donald Trump indicates that politically that simply is not a viable option.

Although Joseph Schumpeter in his book Capitalism, Socialism and Demcracy coined the term “creative destructionism”, which conservatives and libertarians love to quote, they do not acknowledge the real premise of Schumpeter’s book that capitalism by itself could not long survive.  Schumpeter himself observed the collateral damage created by pure capitalism.

So what can be done for the steel and other manufacturing industries?  Answer work with the companies on an individual basis to help them adjust to import competition and compete in the markets as they exist today.  Moreover, there is already a government program, which can serve as a model to provide such a service—the Trade Adjustment Assistance for Companies Program.

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 stop wallowing in international trade victimhood and to cure its own ills first before always blaming the foreigners.  That is exactly what TAA for Companies does—helps US companies cure their own ills first by making them competitive again.

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

As stated above, there is another more productive way to solve the Steel crisis and fix the trade problem and help US companies, including Steel and other companies, adjust to import competition.  This program has a true track record of saving US companies injured by imports.

This was a problem personally approved by President Ronald Reagan.  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 on an individual basis 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.

But as stated in the video below, for companies to succeed they must first give up the mentality of international trade victimhood.

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.

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.  To retrain the worker for a new job, the average cost per job is $50,000.  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 TAA for Companies has been cut to the bone.  On August 22, 2017, in the attached press release, US Commerce Department Announces $133 Million to Boost Competitiveness of US Ma, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers.

Are such paltry sums really going to help solve the manufacturing crisis in the Steel and other industries?  Of course not!!

But when the program was originally set up, the budget was much larger at $50 to $100 million.  If the program was funded to its full potential, yes steel companies and other companies could be saved.

To those libertarian conservatives that reject such a program as interference in the market, my response is that this program was personally approved by your icon, President Ronald Reagan.  He understood that there was a price for free trade and avoiding protectionism and that is helping those companies injured by import competition.  But teaching companies how to be competitive is a much bigger bang for the buck than simply retraining workers.  And yes companies can learn and be competitive again in the US and other markets.

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

PTFE RESIN

On September 28, 2017, the Chemours Company FC LLC filed AD and CVD cases against imports of Polytetrafluoroethylene (PTFE) Resin from China and India.

FORGED STEEL FITTINGS

On October 5, 2017, the Bonney Forge Corporation and the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union filed AD and CVD cases against imports of Forged Steel Fittings from China Italy and Taiwan.

UNIVERSAL TRADE WAR CONTINUES

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

CHINESE ANTIDUMPING CASES AGAINST US AND JAPAN

HYDRIOC ACID FROM THE US and JAPAN

On October 16, 2917, China Ministry of Commerce (“MOFCOM”) published the attached initiation notice of antidumping investigation against Hydriodic Acid from the USA and Japan, Initiation Notice_Hydriodic Acid_EN.  The alleged dumping margin on the US imports is 36.09% and Japanese imports is 41.18%

The Target companies in the US are: USA: Iofina Chemical, Inc.; IOCHEM Corporation and Ajay North America, LLC

The Target Companies in Japan are: SE Chemicals Corporation, NIPPOH CHEMICALS CO., LTD. and TOHO Earthtech, Inc.

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.2017.37 Team’s newsletter-EN Vol.2017.38 Team’s newsletter-EN Vol.2017.39 Team’s newsletter-EN Vol.2017.40

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

REUSABLE DIAPERS

On September 19, 2017, Cotton Babies, Inc filed a section 337 case against imports of Certain Reusable Diapers, Components Thereof, and Products Containing the Same.  The respondent companies named in the complaint are:

Alvababy.com, China; Shenzhen Adsel Trading Co., Ltd.d/b/a Alva, China; and Huizhou Huapin Garment Co., Ltd., China.

AMORPHOUS METALS

On September 19, 2017, Metglas, Inc. and Hitachi Metal, Ltd. filed a section 337 case against imports of amorphous metals and products containing same.  The named respondents in the case are:

Advance Technology & Materials, China; AT&M International Trading Co., Ltd., China; CISRI International Trading Co., Ltd., China; Beijing ZLJG Amorphous Technology Co., Ltd., China; Qingdao Yunlu Energy Technology Co., Ltd., China; Dr. Hideki Nakamura, Japan; and Mr. Nobrou Hanai. Japan.

LED LIGHTING

On September 21, 2017, Philips Lighting North America Corp. and Philips Lighting Holding B.V. filed a section 337 case against imports of LED Lighting Devices and LED Power Supplies.  The named respondents in the case are:

Feit Electric Company, Inc., Pico Rivera, California;  Feit  Electronic  Company,  Inc., (China),  China;  Lowe’s  Companies,  Inc.,  Mooresville,  North  Carolina; L G Sourcing,  Inc., North  Wilkesboro,  North Carolina; MSi Lighting, Inc., Boca Raton, Florida; RAB Lighting Inc., Northvale, New Jersey; Satco Products, Inc., Brentwood, New York;  Topaz  Lighting Corp.,   Holtsville, New York; Wangs Alliance Corporation d/b/a WAC Lighting Co., Port Washington, New York; and WAC Lighting (Shanghai) Co. Ltd. , China.

REUSABLE RAZORS
On September 27, 2017, The Gillette Company LLC filed a section 337 case against imports of Certain Shaving Cartridges, Components Thereof and Products Containing Same.  The named respondents in the case are:

Edgewell Personal Care Company, Chesterfield, Missouri; Edgewell Personal Care Brands, LLC, Shelton, Connecticut; Edgewell Personal Care, LLC, Shelton, Connecticut; Schick Manufacturing, Inc., Shelton, Connecticut; and Schick (Guangzhou) Co., Limited, China.

BEVERAGE CONTAINERS

On September 28, 2017, YETI Coolers, LLC filed a section 337 case against imports of Insulated Beverage Containers, Components, Labels, and Packaging Materials.  The named respondents are:

Alibaba (China) Technology Co., Ltd., Hong Kong; Alibaba Group Holding Limited, c/o Alibaba Group Services Limited, Hong Kong; Alibaba.com Hong Kong Limited, Hong Kong; Alibaba.com Singapore E-Commerce Private Limited, Hong Kong; Bonanza.com, Inc., Seattle, Washington; ContextLogic, Inc. d/b/a Wish, San Francisco, California; Dunhuang Group, China; Hangzhou Alibaba Advertising Co., Ltd., Hong Kong; Huizhou Dashu Trading Co., Ltd., China; Huagong Trading Co., Ltd., China; Tan Er Pa Technology Co., Ltd., Hong Kong; Shenzhen Great Electronic Technology Co., Ltd., China; and SZ Flowerfairy Technology Ltd., China.

If you have any questions about these cases or about the Trump Trade Crisis, NAFTA, FTAs, , including the impact on agriculture, the impact on downstream industries, the Section 232 cases, the 201 case against Solar Cells, 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 TRADE AGENDA, INTERNAL TRADE BATTLES, LIGHTHIZER, BORDER ADJUSTMENT TAXES, AGRICULTURE, NAFTA, TRADE ADJUSTMENT ASSISTANCE, CFIUS, ZTE AND SECTION 337

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR UPDATE APRIL 21, 2017—MANY NEW TRADE CASES BEING FILED

The Trump trade war has escalated big time with new antidumping and countervailing duty cases against Mechanical Tubing, Tool Chests and a new Section 232 National Security case against all Steel imports.  Many importers simply do not realize how fast these trade cases move and how fast they can find themselves liable for antidumping and countervailing duties and other trade sanctions. With a sympathetic Trump Administration and a very sympathetic Wilbur Ross as the new Secretary of Commerce, more cases are going to be filed against China and numerous other countries.

In addition to the new trade cases, two section 337 patent cases has been filed against China on sockets for mobile electronic devices and robotic vacuum cleaning devices.

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, as indicated in the attached notice, ITC PRELIM MECHANICAL TUBING NOTICE, the ITC will conduct its preliminary injury hearing on May 10, 2017.  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.

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

If Importers want to fight the case, they must move quickly.  The first ITC hearing in the case will be on May 10, 2017, which is the part of the proceeding where importers can have a real impact.

Atttached is a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Indian, Chinese, Korean, German, Swiss and Italian exporters/producers and US importers, please feel free to contact me.  INJURY EXCERPT SCOPE IMPORTERS EXERPT MECHANICAL TUBING FOREIGN PRODUCERS EXCERPT MECHANICAL TUBING

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.

As indicated in the attached notice, ITC PRELIM MECHANICAL TUBING NOTICE, in the Tool Chests case, the ITC will conduct its preliminary injury hearing on May 2, 2017.  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 Importers want to fight the case, they must move quickly.  The first ITC hearing in the case will be on May 2, 2017, which is the part of the proceeding where importers can have a real impact.

Attached is a copy of the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese and Vietnamese exporters/producers and US importers, Tool chests CHN VNM petition vol 1 narrative.  If anyone has any questions, please feel free to contact me.

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

NEW NATIONAL SECURITY SECTION 232 CASE AGAINST STEEL IMPORTS FROM NUMEROUS COUNTRIES, INCLUDING CHINA

On April 20, 2017, as indicated in the attached documents, Presidential Memorandum Prioritizes Commerce Steel Investigation _ Department of Commerce Section 232 Investigation on the Effect of Imports of Steel on U.S, President Trump announced a new trade investigation of steel imports under section 232 to determine if the tariffs should be imposed because the increased steel imports pose a threat to national security.  The trade action will be conducted under Section 232 of the Trade Expansion Act since 2001.

If the Commerce Department determines that the steel imports are a threat to national security, President Trump will be empowered to levy high tariffs and quotas on imports of steel products from various countries.

Under Section 232, the Commerce Department will conduct an investigation into the potential national security threat posed by the entry of foreign steel into the U.S. market. Commerce must issue its findings to the White House within 270 days, along with recommendations on what steps to take.

Commerce Secretary Wilbur Ross has stated, however, that the investigation may move along a faster track.  Once Commerce’s review is completed, the President has 90 days to decide whether to accept or reject its recommendations and to impose trade restraints, including tariffs or quotas on steel imports.

This may be the first attack, not just against China, but all steel imports from every country.  The problems with Commerce self-initiating antidumping and countervailing duty cases is the International Trade Commission.  The Administration does not control the ITC, but it does control Commerce.  By bringing a section 232 case, the Administration skips the injury test by the ITC and assuming the Commerce Department reaches an affirmative determination, the President is empowered to impose import relief in the form of tariffs and quotas.  From the Administration’s point of view, there is more than one way to solve the import problem.

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 the antidumping and countervailing duty cases, Section 232 Steel case, Trump and Trade, US trade policy, or 337 IP/patent law, please feel free to contact me.

Best regards,

Bill Perry

US CHINA TRADE WAR MARCH 26, 2017

Dear Friends,

Although politicians in Washington DC have been focused on Obamacare and Russian involvement in the election, trade issues lurk beneath the surface.  Trade was stirred up with the release of Trump’s Trade Agenda, Lighthizer Confirmation Hearings, rumors of internal fights in the Trump trade team and meetings with foreign leaders, including Angela Merkel of Germany.  In fact, the amount of material on trade is mountainous.

One of the pillars for Trump’s objective of hitting a 3 percent annual growth rate (Obama never got over 2%,), is increased US exports, but as indicated above, trade is a two-way street.  As Democratic Congressman Rick Larson of Washington stated recently at the Washington Council on International Trade Meeting on March 13, the Trump Administration has to choose between a trade policy of Trade Agreements or Border Adjustment Taxes.  If the Trump Administration intends to hit imports with increased Border Adjustment Taxes, it will be very difficult to negotiate trade agreements with the many countries on Trump’s list.

On March 21st, in pushing the Republicans in the House of Representatives to push for the Obamacare repeal bill, President Trump stated that without the Obamacare repeal, the Republicans cannot take up the Tax Bill.  But with the collapse of the Obamacare repeal on March 24th, Congress is pivoting to Tax Reform.  That means tax reform, including the Border Adjustment Taxes, will be front and center.  The target of Trump and the Republican Congress is to pass a tax reform bill by August.

Thus the Trump Administration will be soon at a crossroads—increased taxes/tariffs on imports or trade agreements.  It will be very difficult, if not impossible, to have both.

Meanwhile, the decision of Senate Democrats to stall on the Confirmation of Robert Lighthizer has hurt the trade debate in the Administration.  Lighthizer knows trade law.  Many of the officials, such as Steve Bannon and Peter Navarro, in the Administration, do not know trade law and the Democratic decision to stall the confirmation truly has hurt the United States.

In addition to Border Adjustment taxes, this newsletter contains several articles about Trump and Trade or the Trump Trade Report.  There are growing arguments between Administration officials and by Republican Senators and Representatives outside the Administration on the Trump Trade Policy as officials and Senators and Congressmen understand the ramifications of a protectionist trade policy on the constituents in their States and Districts.

Agriculture is waking up. During the recent March 14 Confirmation Hearing of Robert Lighthizer, one could see the concerns of Senators from Agricultural States as they realize that agricultural exports, their ox will be the one gored by the new Trump trade policy.

Meanwhile, NAFTA will be renegotiated; CFIUS may include reciprocity: China is taking a divide and conquer strategy on the Non-Market Economy Issue in Antidumping Cases; and new trade cases have been filed on Aluminum Foil and Silicon Metal.

ZTE has agreed to pay record fines because of its export control violations; and a recent section 337 patent case stated that the US production of the patent lessee can be used to meet the domestic industry requirement.

In addition, hopefully Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them without curtailing imports, will expand.

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 TRADE REPORT

TRUMP ADMINISTRATION ISSUES ITS 2017 TRADE POLICY AGENDA AND IT CREATES CONCERNS

On March 1, 2017, the Trump Administration issued its attached National Trade Policy Agenda for 2017 pursuant to 19 U.S.C. § 2213(a)(l)(B), 2017 TRUMP Trade Agenda.  In the short summary, which was released on March 1st, Trump stated in part:

“The overarching purpose of our trade policy – the guiding principle behind all of our actions in this key area – will be to expand trade in a way that is freer and fairer for all Americans. Every action we take with respect to trade will be designed to increase our economic growth, promote job creation in the United States, promote reciprocity with our trading partners, strengthen our manufacturing base and our ability to defend ourselves, and expand our agricultural and other exports.

As a general matter, we believe that these goals can be best accomplished by focusing on bilateral negotiations rather than multilateral negotiations – and by renegotiating and revising trade deals when our goals are not being met. Finally, we reject the notion that the United States can strengthen its geopolitical position by adopting trade measures that make American workers, farmers, ranchers, and businesses less competitive in global markets.”

In other words, the Trump Administration will take a much stronger position on trade agreements and trade policy.

The most controversial part of the Trade Policy Agenda is the strict approach to the WTO.  Thus, one of the key objectives of the Agenda is”

“Resisting efforts by other countries – or international bodies like the World Trade Organization (“WTO”) – to weaken the rights and benefits of, or increase the obligations under, the various trade agreements to which the United States is a party.”

The Agenda then states under the section “Defending Our National Sovereignty Over Trade Policy”:

“it has been a basic principle of our country that American citizens are subject only to laws and regulations made by the U.S. government – not rulings made by foreign governments or international bodies. This principle remains true today.  Accordingly, the Trump Administration will aggressively defend American sovereignty over matters of trade policy.”

One of the key objectives, just like other Administrations, will be to reduce and eliminate foreign barriers to US exports, but the Agenda then goes on to state:

“It is time for a more aggressive approach. The Trump Administration will use all possible leverage – including, if necessary, applying the principle of reciprocity to countries that refuse to open their markets – to encourage other countries to give U.S. producers fair access to their markets. The purpose of this effort is to ensure that more markets are truly open to American goods and services and to enhance, rather than restrict, global trade and competition.”

One key principle the administration said it plans to apply is a form of trade quid pro quo called “reciprocity” to countries that refuse to open up their markets.  Lawmakers and the Trump administration are considering toughening up national-security reviews of foreign investments into the U.S. to leverage better trade terms with China. If Beijing does not open up its markets to U.S. investors or exports, for example, the administration could use its powers to block Chinese deals to buy U.S. assets, or threaten higher tariffs on  Chinese imports.

The Agenda also expresses an interest in using Section 301 of the Trade Act of 1974 to open up restraints in foreign countries to US exports.  But 301 has not been used since the WTO’s 1995 inception.  The Agenda states

“Properly used, Section 301 can be a powerful lever to encourage foreign countries to adopt more market-friendly policies.  The Trump administration believes that it is essential to both the United States and the world trading system that all U.S. trade laws be strictly and effectively enforced.”

The Agenda also singles out trade deficits with China, Mexico, Canada and Korea and calls for a renegotiation of trade agreements and a more aggressive approach to trade enforcement.  Although these policies are very aggressive on paper, the question is how will the new Trump Administration apply these policies.

In conclusion, the Agenda states:

“For more than 20 years, the United States government has been committed to trade policies that emphasized multilateral agreements and international dispute settlement mechanisms. The hope was that by giving up some of our willingness to act independently, we could obtain better treatment for U.S. workers, farmers, ranchers, and businesses, Instead, we find that in too many instances, Americans have been put at an unfair disadvantage in global markets. Under these circumstances, it is time for a new trade policy that defends American sovereignty, enforces U.S. trade laws, uses American leverage to open markets abroad, and negotiates new trade agreements that are fairer and more effective both for the United States and for the world trading system, particularly those countries committed to a market-based economy.”

The Trump Administration also stated that it intends to update the document when Congress confirms Robert Lighthizer as the next US Trade Representative.

Parts of the policy document contain arguments similar to those in a widely attached circulated memorandum Mr. Lighthizer wrote in 2010 to the US China Commission, LIGHTHIZER 2010 STATEMENT US CHINA ECONOMIC SECURITY COMMISSION. At the time, Mr. Lighthizer told a congressionally mandated China commission that the U.S. could put its WTO commitments on hold, restricting imports from China until the country changes its behavior in key areas.

When the Trump Trade Agenda came out, the Press reported that the Trump Administration will ignore adverse decisions from the WTO.  During the Obama Administration, however, although WTO decisions were not ignored, they were slow walked, especially in the antidumping and countervailing duty area, with only small changes made in response to the WTO decision.

The Trump Administration will probably follow the same procedures.  The rubber will only meet the road when in response to adverse WTO decisions, foreign countries work up retaliation lists.  Then the Administration will have to decide whether to ignore the WTO decision or not.

In fact, after the Agenda was released, Presidential spokesman Sean Spicer stated that noncompliance with the WTO was not the formal policy of the administration.

In addition, many trade experts believe that the Trade Agenda was just rhetoric and we will need to see whether in the future there truly will be a fundamental shift in actual trade policy.  As one trade expert told me, it will take years for this policy to actually work out.

Moreover, as indicated below, Agriculture is waking up.  Now that Agricultural Senators and Congressmen realize that if there is a trade war, their ox is the one that will get gored, agriculture exports will be seriously hurt, the Trump Administration will probably slow up its aggressive trade policy as the hot protectionist rhetoric meets the realities of the international trade system where trade is a two way street.

If the United States truly signals it will not comply with WTO decisions, and other countries impose retaliatory penalties against U.S. imports, it could usher in an era of economic protectionism worldwide, which could trigger a global trade war that could disrupt international business and growth.  But that also would mean that the Trump Administration will not meet its 3% GDP growth target for the entire economy.

The real issue that the Trump Administration simply does not understand is that even though there may be trade deficits, free trade rises all boats.  The US now has over $1 trillion in exports, but the Trump Administration is focused on trade deficits with countries, such as China, Mexico and Germany.  The Trump Administration ignores the trade surpluses with other countries.  More importantly, free trade agreements have caused all boats to rise, increasing economic activity in the United States and creating jobs.  Because of NAFTA, US exports have quintupled creating millions of new jobs, but the Trump Administration appears to focus only on the trade deficit, which is relatively small in comparison to the surge in US exports.

At the same time that the White House issued its trade agenda on March 1, John Brinkley of Forbes, in an article entitled,Trump’s Trade Ideas As Bad As Ever,” responded to on President Trump’s first “State of the Union” address to the Congress where Trump stated:

“I believe strongly in free trade, but it also has to be fair trade.

Fine, but how do you achieve fair trade? Is it to punish other countries whose trade policies aren’t advantageous to the United States? Or is it to work with them collegially to get them to change those policies?
The latter course is the one that all presidents since World War II have chosen. They have negotiated 14 free trade agreements with 20 countries – agreements that require parties to eliminate tariffs and give fair and equitable treatment to one another.

Previous presidents helped set up the GATT and then the World Trade Organization as a forum for ensuring that countries play by the rules of global trade. Since the WTO was created in 1994, the United States has quietly resolved hundreds of trade disputes in its favor through WTO-sponsored consultations.

When consultations don’t solve the problem, the government can file a formal complaint in the WTO’s Dispute Resolution Body. If it rules in our favor, we can impose temporary, retaliatory tariffs or demand compensation.

That is fair trade. Accusing other countries of taking advantage of us, threatening them with exorbitant tariffs, and declaring that the United States is not beholden to WTO rules, as the Trump administration did today, is not fair trade. It’s more like anarchy.

On March 8, 2017 after the Trade Policy Agenda was issued, John Brinkley of Forbes published another article entitled, “Trump’s Disdain For WTO Portends Only Trouble” stating:

After the World Trade Organization was established in 1995, the Clinton, Bush and Obama administrations made good use of its dispute settlement system. The United States is batting about .500 in cases that proceeded to a final ruling; most of them don’t. Barack Obama had a perfect record in the WTO when he left office, but some of the complaints his administration filed are still pending.

None of the three presidents said the system was unfair or tried to make an end run around it.

Then came Donald Trump. He has nothing but disdain for the WTO and for the very idea of an international organization making and enforcing rules that the United States has to obey. So, in keeping with Trump’s “America First” ideology, the White House declared last week that America doesn’t have to follow those rules.

When one country accuses another of a trade rule violation, such as dumping a product in the host country at below-market value or unfairly subsidizing a domestic industry, the first step toward resolving it is a WTO-sponsored consultation between the two governments. If that fails, the accuser can request a hearing by a dispute settlement panel. The loser of that proceeding can take its case to the WTO’s Appellate Body.

Between 1995 and 2015, the United States filed 109 complaints to the WTO’s Dispute Settlement Body and had 124 filed against it. The U.S. government has settled about two-thirds of them through consultations, thus making recourse to a hearing unnecessary. Like most diplomatic initiatives, these results are achieved out of the public eye and without fanfare.

It’s hard to know what the Trump administration finds objectionable about this system, or why he considers the WTO “a disaster.” None of the WTO’s 163 other members seem to have a problem with it.

But Trump and his merry band of protectionists think they know a better way: to ignore the WTO if it issues a ruling they don’t like.

The President’s Trade Policy Agenda for 2017 says legislation enacted in 1994 lets the administration decide arbitrarily whether to comply with a WTO dispute settlement ruling that goes against the United States.

“If a WTO dispute settlement report is adverse to the United States, [the U.S. Trade Representative shall] consult with the appropriate Congressional committees concerning whether to implement the report’s recommendation, and, if so, the manner of such implementation and the period of time needed for such implementation,” the Trade Policy Agenda says.

In other words, the United States will comply with WTO decisions – decisions based on rules that the United States helped write – if it feels like it. Incredibly, Trump, et al, seem to think this approach would have no negative consequences.

If the U.S. government refuses to comply with a dispute settlement ruling against it, the WTO can authorize retaliation by the aggrieved party. That is likely to be a tariff increase targeted at the industry whose trade practices led to the adverse ruling. If a targeted tariff increase isn’t feasible, the aggrieved country can raise tariffs against some other industry.

Presumably, Trump would then retaliate against the retaliator and off we’d go into a destructive trade war.

It’s important to understand that the United States was intimately involved in the creation of the WTO and the drafting of its rules. During previous administrations, the U.S. ambassador to the WTO was in Geneva almost every day protecting the interests of the American industries and workers. Contrary to what Trump says, the WTO is not a foreign body accountable to no one. It’s a democratic institution, accountable to its members.

As former U.S. Trade Representative Michael Froman said in the President’s Trade Agenda for 2014:

“A robust international trading system offers the greatest economic benefits when all trading partners abide by their commitments and play by the same rules.”

LIGHTHIZER CONFIRMATION HEARING

On March 14, 2017, the Senate Finance Committee held its confirmation hearing on Robert Lighthizer as United States Trade Representative.  One can see the confirmation hearing in its entirety at https://www.c-span.org/video/?425333-1/us-trade-representative-nominee-testifies-confirmation-hearing

But as of March 23, 2017, Lighthizer’s confirmation vote is being held up in the Committee and on the Senate floor because his status as an advocate more than 30 years ago for the Brazilian government in a 1985 trade case, prior to the time when I was an associate at Skadden, Arps, appears to require a waiver in order for him to assume his role at USTR.  Unfortunately, this decision has left Lighthizer, the best trade lawyer on Trump’s team, out of the internal discussions on trade policy.

The White House has itself pushed to make the waiver vote unnecessary. White House counsel Donald F. McGahn wrote to Hatch and Senate Majority Leader Mitch McConnell, R-Ky., on March 3 citing a Clinton-era Office of Legal Counsel opinion as a challenge to the waiver rule.

A week after the March 21st confirmation hearing, Senator Pat Roberts of Kansas stated:

“I think we made it clear, I think [Finance Chairman] Orrin Hatch made it very clear that it’s not needed. But I don’t know what mood our friends across the aisle are in, and I have no idea what they’re going to do.”

Senator Ron Wyden ranking Democrat on the Senate Finance Committee, however, stated:

“We’ve made it clear we’re going to insist on the waiver. There’s this quaint idea that the law should actually matter, and the law says a person in his position has got to get a waiver.”

Thus Lighthizer’s nomination has been held up “for what feels like eons” according to Wyden, but at this point in time it is still not moving.

Meanwhile on March 22, 2017, the U.S. Chamber of Commerce in the attached letter, chamber_letter, pushed for a quick vote Lighthizer for USTR stating:

“Mr. Lighthizer has led a distinguished career as a trade policy practitioner and has a reputation as a staunch advocate for American industry. The Chamber believes he will represent the nation’s interests well as he works with international partners and addresses trade challenges at the negotiating table and before the World Trade Organization. The Chamber encourages a swift vote on his nomination and looks forward to working with him as the next U.S. Trade Representative.”

During the Confirmation hearing, Lighthizer had bipartisan support with many Democratic and Republican Senators vouching support for his candidacy.  One of the two issues of primary importance was the decision to break mega deals, such as the TPP, into bilateral deals with individual countries.

The problem, however, is that trade deals take a lot of time to negotiate.  The TPP took almost 10 years to negotiate with the 12 countries involved.  But by abandoning the TPP, with an objective of creating individual trade deals with the TPP member companies, the US Government has probably quintupled its work load, if not increased it twelve fold.

Although Lighthizer indicated that USTR would use the TPP draft agreement as a basis to negotiate a number of bilateral agreements, negotiating that many trade deals will take an enormous amount of work by a very small agency – USTR—with only just over 200 employees at offices in Brussels Belgium, Geneva Switzerland and Washington DC.  Trump’s budget is not clear whether USTR will get an increase in budget or whether its budget will be cut.

The second point is the importance of Trade Deals to US Agriculture exports.  In the Lighthizer confirmation hearing, all of a sudden Senators from agriculture states started to wake up.  If the TPP had passed, the biggest winner would have been US agriculture exports with tariffs dropping on more than 18,000 different products, many being agricultural products.  Now the TPP is gone and countries are racing into those overseas markets to replace US agricultural products.

Agriculture Senators and Congressmen want trade deals now because the United States is exporting billions of dollars in agricultural products to the rest of the World.  Mexican government officials recently declared that since Trump wants to be tough on trade with Mexico, they will cut $2.4 billion in imports of corn from the United States and replace the US corn with corn from Brazil and Argentina.  Congressman Newhouse at a recent Washington Council on International Trade stated that after the Korea FTA, exports of Washington State cherries doubled and Washington State French fries increased by 52%.  Increased exports means more jobs.

With a decision not to do the TPP, Senators and Congressmen from agricultural states fear that other countries will replace the United States and get those benefits.  As indicated below, that is a real and justified fear.

TRUMP TRADE AGENDA—OPPOSITION TO THE TRUMP TRADE POLICY IN THE ADMINISTRATION AND IN CONGRESS

Part of the Trump trade problem is the perception by Trump and many on his internal trade staff, such as Peter Navarro, that trade is a one-way street.  The Administration apparently believes it can simply issue an executive order raising tariffs, taxes or barriers to imports with no reaction by foreign countries.

But the Trump Administration is now in the international arena.  Although Trump won the Presidency, he has no political power over foreign countries.  Trade is a two-way street and as stated in several past newsletters, Mexico, Canada, China, and Germany have all threatened retaliation if the US imposes trade restraints, including Border Adjustment Taxes.  Deals have to be negotiated, but most countries, including the US, will not negotiate a deal when a gun is pointed at their head.

INTERNAL ADMINISTRATION TRADE FIGHTS—NAVARRO CREATES AN INTERNAL TRADE WAR

On March 10th the Financial Times reported that a trade war had broken out in White House in what was called “a fiery meeting” in the Oval Office pitting economic nationalists close to Donald Trump against pro­trade moderates in Treasury and the Economic Council from Wall Street.

Navarro is the ultra-nationalist economist who has angered Berlin and other European allies by accusing Germany of currency manipulation and exploiting a “grossly undervalued” euro and calling for bilateral discussions with Angela Merkel’s government over ways to reduce the US trade deficit with Germany.

The fight was between trade hardliners, such as Steve Bannon and Peter Narvarro, against the free trade economic faction led by Gary Cohn, the executive from Goldman Sachs, who heads the National Economic Council.  Note that since Lighthizer has not been confirmed, he could not be part of the discussion.  Bannon and Navarro support the Border Adjustment Tax while Cohn and Treasury Secretary Mnuchin oppose it.

During the last several weeks, Navarro appeared to be losing influence. But during the recent Oval Office fight, Mr Trump appeared to side with the economic nationalists.

Mr Navarro’s case has angered Republicans in Congress because he was criticized for being ill­prepared and vague at a closed­door briefing he held with Senators in February.

Reports have been made that Mr Navarro is becoming increasingly isolated in the administration. He has been operating with a very small staff out of an office in the Old Executive Office Building adjacent to the White House, while Mr Cohn has been adding staff to his NEC base inside the West Wing of the White House.

On March 5th, Navarro published an op-ed in the Wall Street Journal on why trade deficits matter:

Do  trade  deficits matter? The question is important because America’s trade deficit in goods is large and persistent, about $2 billion every day. . . .

Reducing a trade deficit through tough, smart negotiations is a way to increase net exports—and boost the rate of economic growth. . . .

Similarly, if the U.S. uses its leverage as the world’s largest market to persuade India to reduce its notoriously high tariffs and Japan to lower its formidable nontariff barriers, America will surely sell more Washington apples, Florida oranges, California wine, Wisconsin cheese and Harley-Davidson motorcycles. Just as surely, the U.S. trade deficit would fall, economic growth would increase, and real wages would rise from Seattle and Orlando to Sonoma and Milwaukee. . . .

But running large and persistent trade deficits also facilitates a pattern of wealth transfers offshore. . .

Might we lose a broader hot war because America has sent its defense-industrial base abroad on the wings of a persistent trade deficit?

Today, after decades of trade deficits and a mass migration of factories offshore, there is only one American company that can repair Navy submarine propellers—and not a single company that can make flat-panel displays for military aircraft or night-vision goggles. Meanwhile, America’s steel industry is on the ropes, its aluminum industry is flat on its back, and its shipbuilding industry is gathering barnacles. The U.S. has begun to lose control of its food-supply chain, and foreign firms are eager to purchase large swaths of Silicon Valley’s treasures.

Much of Wall Street and most economists simply don’t care. But to paraphrase Mike Pence on the 2016 campaign trail, the people of Fort Wayne know better. The analysts at the Pentagon know better, too. That’s why, for both economic and national-security reasons, it is important to bring America’s trade back into balance—through free, fair and reciprocal trade.

As indicated below, however, do trade deficits justify increased US barriers to imports?  Wouldn’t a policy of making companies more competitive with imports, such as Trade Adjustment Assistance for Companies, explained below be a better option.  TAA does not risk retaliation from other countries.

Moreover, as stated above, focusing on trade deficits ignores the enormous increase in US exports to those countries.  Navarro focuses on a trade deficit and ignores the fact that US exports are over $1 trillion and support millions of jobs.  A trade war will cut those exports and jobs in half.  That will not make America great again.

Recently Navarro attempted to intervene in an antidumping duty case at the Commerce Department on Oil Country Tubular Goods from Korea sparking outrage from the trade lawyers representing the Korean steel mills.  Navarro should keep in mind that the Commerce Department in antidumping cases makes its decision based on the facts on the administrative record and the Commerce Department’s determinations are subject to Court review by the Court of International Trade and the Court of Appeals for the Federal Circuit.  In the past, Courts have made clear that when a Government agency, such as the Commerce Department, makes a decision based on politics, that is a reason for depositions of the government official.  Navarro might be deposed in any appeal of the OCTG case to the Court.

On March 13, John Brinkley of Forbes in an article entitled, “Commerce Secretary Ross Thinks U.S. Is In A Trade War”, which also addressed Navarro’s thinking, stated:

Commerce Secretary Wilbur Ross, responding to concerns that the Trump administration is pushing the United States toward a trade war, said we were already in one.

“We’ve been in a trade war for decades,” he said last week in an interview with Bloomberg News. “That’s why we have the (trade) deficits.”

But not to worry, Ross said. “It’s not going to be a shooting war. If people know you have the big bazooka, you probably don’t have to use it.”

That’s the Luca Brasi negotiating method: bend to our will or we’ll blow you to smithereens. Peter Navarro, the head of the White House National Trade Council, recently suggested that future trade agreements include a rule stating that they can be renegotiated any time the U.S. runs a trade deficit with the partner country. That is, to put it mildly, a non-starter.

Ross’s and Navarro’s remarks are symptomatic of the Trump administration’s singular obsession with trade deficits. However, the fact that the United States has a global trade deficit does not mean we’re in a trade war. It doesn’t mean our trading partners are cheating us any more than that we’re cheating Canada and the United Kingdom by running trade surpluses with them. It means we import more than we export. One of the reasons for that is the strength of the dollar in foreign exchange markets. A strong dollar makes imports less expensive and exports more expensive. That, in turn, leads to more choices and lower prices for American consumers.

Navarro said in a recent speech that trade surpluses were synonymous with economic growth. History suggests otherwise. The U.S. economy added 235,000 jobs in February and the unemployment rate fell to 4.7%. The trade deficit in January (February not available yet) was $48.5 billion, the highest it’s been since March  2012.

The trade deficit decreased during the recession of 2008-09. The United States ran a trade surplus through most of the Great Depression.

Ross didn’t say who the enemy was in this supposed trade war, but President Trump has made it clear that he has it in for China and Mexico, our second and third largest trading partners, respectively. Our largest bilateral trade deficits are with those countries.

So, Trump intends to renegotiate NAFTA. And, he has threatened China with punitive tariffs. He has said doing these things would erase the U.S. trade deficit, cause a renaissance of American manufacturing jobs and bring the 3% GDP growth he promised.

They would do none of those things.

“Withdrawal from the Trans-Pacific Partnership, renegotiation of the North American Free Trade Agreement, and launching trade actions against China ensure political headlines, but they will not make much difference to the global U.S. trade deficit. Nor will they bring more jobs and higher wages to U.S. workers,” said Gary Clyde Hufbauer and Euijin Jung of the Peterson Institute of International Economics in an article published in February.

They also noted that the trade deficit is financed in part by foreign direct investment, which is unquestionably beneficial to the U.S. economy. Foreign-owned companies operating in the United States directly employ 6.1 million Americans, according to the U.S. Commerce Department. FDI stock in the U.S. stands at almost $3 trillion.

One way to reduce the trade deficit would be to devalue the dollar against the Chinese yuan and other currencies.  That would be politically difficult because it’s what Trump (wrongly) accuses China of doing on a regular basis. It would also raise the prices of imported food and manufactured goods and, possibly, cause inflation. That would hurt low-income Americans the most.

A better idea would be for the Trump trade triumvirate to calculate America’s balance of trade with its 20 free trade agreement partners. They would find that we have an aggregate trade surplus with them. Maybe then they’d reconsider their plans to renegotiate or withdraw from those agreements.

If Ross thinks we’re in a trade war now, let him propose raising tariffs against Mexico and China over and above the World Trade Organization’s Most Favored Nation rates. Then, we’d be in a trade war for real.

NAVARRO’S STANDING WITH CONGRESS DROPS

On March 16th, senior trade officials from the administration, minus Robert Lighthizer, headed up to Capitol Hill to talk with members of the House Ways and Means Committee about NAFTA, among other trade topics – marking the latest step in what one administration official described as a series of ongoing consultations between the administration and Congress before the White House formally moves to reopen the agreement.

The next step will be for the administration to formally notify Congress that its NAFTA  plans to begin talks, triggering a congressionally mandated 90-day consultation period before the renegotiation can start.

Commerce Secretary Wilbur Ross stated that the White House hopes to send that notification letter “sometime in the next couple of weeks,” meaning formal talks are likely to begin around early summer. Ross is expected attended the March 16th meeting, as did senior members of the Office of the U.S. Trade Representative including general counsel and acting USTR Stephen Vaughn, and deputy general counsel Maria Pagan.

Peter Navarro, however, did not go to the Capital Hill meeting. After a meeting with the Senate Finance Committee in February – which was described as “a disaster” – Navarro made such a poor impression that Senators viewed it as a reason for why they need to get USTR nominee Robert Lighthizer confirmed as soon as possible.  That meeting also spurred additional questions about who is really in charge on trade and led to strong reminders that USTR holds the statutory authority.

G-20 BECOMES MORE PROTECTIONIST

On March 18th, the trade protectionist rhetoric increased as it was reported that the G-20 member states dropped the no-protectionism pledge, which indicates more trade storms to come.  The G­20 is an informal forum on economic cooperation made up of 19 countries plus the European Union.  Finance ministers from the Group of 20 countries met in the southern German town of Baden­Baden and issued a statement saying only that countries “are working to strengthen the contribution of trade” to their economies.  In last yearʹs meeting under the Obama Administration, called on countries to resist “all forms” of protectionism, which can include border tariffs and rules that keep out imports to shield domestic companies from competition.

During the press conference, I was told that U.S. Treasury Secretary Steven Mnuchin, was peppered with questions about the border adjustment tax.  Munchin did state that trade deals need to offer a win-win scenario and went on to state:

“We believe in free trade: we are one of the largest markets in the world, we are one of the largest trading partners in the world.  Having said that, we want to re­examine certain agreements… And to the extent that agreements are old agreements and need to be renegotiated weʹll consider that as well.”

AGRICULTURE WAKES UP BECAUSE IT REALIZES HOW MUCH IT WILL LOSE WITH A PROTECTIONIST ANTI TRADE POLICY

In the past, many reporters have asked me what could China or other countries retaliate against.  The United States does not export much.  US exports are simply too small.  In the face of large trade deficits with China, Mexico and other countries in the manufacturing area, what is the US exporting that can be a retaliation target?

US trade data indicate that US exports for 2016 were over $1 trillion.  In the Robert Lighthizer confirmation hearings, you could hear the real concern of many Senators, especially from the agriculture states, that products from their states could be retaliation targets.  Their worry is certainly justified.

As Senator Pat Roberts stated at the Lighthizer Confirmation hearings:

“I’m going to try and demonstrate that we are going through a pretty rough patch in agriculture.  If Trump makes good on his promises to turn U.S. trade policy into a war against imports, “we are going to get into a very difficult situation.”

During the Confirmation Hearing, Roberts, Grassley and other Agriculture Senators extracted a pledge from Lighthizer that in negotiating trade agreements he would push agriculture interests to the top of the list. Senators and Congressmen from Agriculture states fear that if no new trade agreements are negotiated, US agriculture will lose market share and will become the retaliation target of other countries.

Mexico, in fact, is one of the largest buyers of US corn, much of which comes from Kansas and Iowa.  US exports about $2.4 billion in corn to Mexico.  Now Mexico is talking about retaliation and buying its corn from Brazil and Argentina.  What goes around comes around.

U.S. Senators and Congressmen noticed when a Mexican lawmaker introduced legislation favoring Latin American products over American- exported corn, a key winner in Nafta. That move followed warnings from Mr. Trump that Nafta would be renegotiated and Mexico would have to pay for a new border wall.  In response, Republican Senator Joni Ernst of Iowa stated:

“I have been worried because other countries have pushed back: ‘You want us to build a wall, well we’re not going to take your corn.’  If we’re talking about renegotiating Nafta, we actually stand to lose ground in agriculture—so we would really have to work that very, very carefully.”

On March 6th, leaders of the US Dairy industry were in Mexico to attempt and protect their exports from uncertainty over the future of NAFTA. After NAFTA was signed in 1994, American dairy exports to Mexico more than quadrupled to $1.2 billion, accounting for nearly one-fourth of all U.S. dairy exports last year. Because of Trump’s attacks on Mexico, it has encouraged Mexican importers to find other suppliers in the European Union and New Zealand, which are eager to get into the market, and in New Zealand’s case are part of the TPP.

In response to the criticism that Trump is putting his trade focus on the plight of the U.S. manufacturing sector at the expense of the export-dependent agriculture sector, on March 21st Trump pivoted to agriculture.  Sean Spicer, the President’s press secretary stated:

“While our farmers are the most efficient in the world, margins have been tightening, regulations have been multiplying, and exports, which has historically counted for over one- fifth of the U.S. farm production, have been declining due to unwise trade policies.  The President promised the many people in the agriculture industry and throughout rural America that he would not allow this to continue and he will continue to pursue policy changes that will reverse this disturbing trend.”

John Bode, president and CEO of the Corn Refiners Association praised the statement saying that Trump’s proclamation recognizes that “improved trade balances and a successful agriculture sector are inextricably linked.”  He further stated:

“Our industry’s exports not only deliver jobs at home, they are among America’s fundamental strengths abroad.  We are heartened to know that this White House agrees and that they will seek to increase agricultural exports as they examine existing and future trade agreements.”

Ray Starling, special assistant to the president for agriculture on the National Economic Council, recently stated at a National Ag Day event in Washington:

“The President has talked a lot about our manufacturing imbalance on trade, but that is not meant to neglect ag. That is essentially to say we know ag is doing a good job, we are making strides there, we need to do more.”

Now we have to wait and see if Trump truly means what he says or whether he wants a trade war, which will hurt US exports, especially in the agriculture area.

SENATORS AND CONGRESSMEN WANT MORE TRADE DEALS–BILATERAL VERSUS MULTILATERAL DEALS

Back on January 26, 2017 in an interview with Sean Hannity on Fox News, Trump explained that he did not like multilateral trade deals, such as the TPP, because they are a mosh pit and fall to the lowest common denominator.

During his confirmation hearing, Commerce Secretary Wilbur Ross stated that it easy to negotiate bilateral deals than multilateral deals.  But the question is, will it be easier to negotiate 12 bilateral deals with 12 different countries when one deal, the TPP, would have done it.  More importantly, although the US will renegotiate NAFTA and start trade deals with Japan and eventually Britain, is it truly realistic for the very small USTR to have continual negotiations with dozens of countries at the same time.  The TPP took 10 years to negotiate.  Maybe Ross is just playing a game and does not want more trade deals.

At a recent trade conference on March 13th here in Seattle held by the Washington Council on International Trade, however, it was very apparent that Washington State Congressmen, both Democrats and Republicans, want more trade deals.

At the Conference Congressman Dave Reichert, WA Republican, and Chairman of the Subcommittee on Trade, House Ways and Means, stated that the Trump Administration intends to do more bilateral deals.  He also stated that since NAFTA is a trilateral agreement, all three countries, Mexico, Canada and the US need to be at the table.

Reichert also stated that we cannot give up trade agreements because the cost would be too high.  China will benefit.  He also stated that the United States needs to set the international trade standards through trade agreements or China will do so and 95% of the World’s population and markets are outside US.

Reichert stated that the longer we wait to do trade deals, the more market shares we lose.  He pointed to the FTA with Korea, which dramatically reduced the 24% Korean tariff on cherries, and Washington State cheery exports doubled and Washington French Fries went up 53%.

When NAFTA took place US exports to Mexico doubled reaching $180 billion.  There is now over $500 billion in trade between US and Mexico

Following Reichert, Republican Congressman Dan Newhouse, who represents large Agricultural interests in the Center of Washington stated, “We cannot afford to waste any time as we create opportunities for local producers and exporters to gain access to new markets.”

Congressman Rick Larsen stated that the Administration has to decide whether it will do Border Adjustment taxes or trade deals.  Larsen went on to state that trade is much bigger than just agreements. It is soft power.  Asian countries see the US leading with military power, but the US relationship with the other Asian countries is less secure if the only relationship is military and not trade.

Democratic Congressman Denny Heck stated that TPP went too far too fast and was not politically possible.  Echoing Donald Trump, Heck stated that the white working man has seen no increase in income in 40 years.

But Newhouse stated that after the Korea FTA, Washington State potato growers saw an increase in exports of 670,000 tons of French Fries to Korea.  That is jobs.

On March 22nd, John Brinkley in an article entitled, Trump’s “Trade Policies Would Take From the Many and Give To a Few” points out the problem of relying only on bilateral agreements as compared to multilateral agreements:

“Politics can be defined as taking something from someone and giving it to someone else. Done right, the winners outnumber the losers and the sacrifice will have been worthwhile.

This seems lost on the Trump administration, whose trade proposals are likely to create a lot more losers than winners.

Let’s start with his plan to eschew multilateral trade agreements and negotiate only bilateral ones. With a multilateral agreement, like the Trans-Pacific Partnership, all parties play by the same rules. That means exporters don’t have to figure out what the rules of origin are country-by- country. They’re all the same.

Deciphering and complying with rules of origin under a free trade agreement are among the most difficult and time-consuming chores that exporting companies have to perform. If the rule says 70 percent of a truck’s parts have to have been made in the United States, the company has to go to its suppliers and say, where did the door handles come from? Where did the tires come from?

A lot of smaller companies find it isn’t worth the time and expense, so they ship the product and pay the tariff. Or they don’t export at  all.

Having a series of bilateral agreements makes it even harder, because each agreement would have its own rules of origin. American manufacturers were looking forward to ratification of the TPP, because it was to be a 12-country trading bloc with one set of rules. But Trump withdrew the United States from it.

Renegotiating NAFTA is another idea that would take from the many for the benefit of a few.

Breaking up NAFTA and negotiating separate bilateral agreements with Mexico and Canada would be even worse. U.S. Trade Representative nominee Robert Lighthizer said during his Senate confirmation hearing that the administration might take that course.

NAFTA has been in effect for 23 years. Whatever impacts it had on American employment and economic growth are well in the past. If you look under NAFTA’s hood, you see a complex network of supply chains crossing the three countries’ borders. They make it easy and cost-effective for American manufacturers to buy parts from Mexico or Canada and have them delivered quickly and duty-free.

About half of Mexico’s exports to the United States are parts for products that are built here – car parts, electronic components and so  on.

Making those parts more expensive would make the products they go into more expensive and would reduce the importing companies’ revenues, leading to lay-offs or worse. That is basic economics.

Trump said yesterday that renegotiating NAFTA was “going to be an easy one.” Everyone who has ever been a trade negotiator probably got a chuckle out of that. . .. .

“The United States has been treated very, very unfairly by many countries over the years, and that’s going to stop,” he said last week during a joint press conference with German Chancellor Angela Merkel.

Poor little us. We’re being pushed around by those mean bullies from South Korea and Mexico.

Nonetheless, the U.S. and global economies have been growing at a healthy pace. The U.S. unemployment rate is 4.7 percent, about as low as it can go, and median wages have finally started to increase for the first time since the recession of 2008.

This seems to call for an economic policy of caution and restraint to keep the recovery going rather than taking a machete to our trade agreements and punishing our trading partners for transgressions they have not committed.

That would harm vastly more Americans than it would help.

On February 28th, however, it was reported that the EU expects the Trump Administration to negotiate with the entire block as EU countries pushed back on Trump’s bilateral dreams.  European countries in the EU bloc have been unified against the Trump administration’s reported attempts to bring individual EU countries into direct, bilateral trade deals with the U.S. The EU ambassador at a recent National Press Club meeting stated that bilateral deals are “nonsense”.  David O’ Sullivan stated:

“It’s nonsense to talk about bilateral deals with countries that are part of a single market.  Would American companies really want 28 separate FTAs?”

In Germany, Martin Schäfer, spokesperson for the German foreign ministry, stated:

“The [European] Commission carries out trade negotiations and concludes trade agreements for Europe and for us. This is the legal status, about which we have nothing critical to say.  The new political constellation in the U.S. and elsewhere should not tempt anybody to take up a different position.”

European Trade Commissioner Cecilia Malmstrom also stated recently:

“The U.S. administration seems to favor bilateral relations over multilateralism. And some of the proposals we have seen floated, such as a border adjustment tax, could be at odds with WTO rules. Countries should be able to protect themselves from distortions and unfair trade practices. But that has to be done within the framework of the WTO. Global rules mean everyone playing fair, by a consistent, predictable and transparent rulebook.

In an age when some want to rebuild walls, re-impose barriers, restrict people’s freedom to move … we stand open to progressive trade with the world.”

On March 6th, a top European official stated that U.S. President Donald Trump’s protectionist stance may propel Asian, Middle Eastern and Latin American economic powers into market-opening alliances with the European Union.  Jyrki Katainen, a vice president of the European Commission, the EU’s executive arm, said Trump’s rejection of multilateral commercial deals and border-tax threat are giving impetus to the 28-nation bloc’s push for free- trade or investment pacts with countries including Japan, China, India, Saudi Arabia, the United Arab Emirates, Mexico, Brazil and Argentina.

Katainen stated that:

“When there has been some signals to raise protectionism, especially from the U.S. side, the rest of the world seems to be fighting back and saying that this is not our line, this is something which we don’t want. This is music to our ears.”

The comments signal that Trump’s “America First” approach that seeks to reduce the U.S.’s $502 billion trade deficit may be as much an opportunity as a threat to the EU.

Recently, the US equipment manufacturing industry, which supports more than 1.3 million jobs, expressed its concern about exports.  A report by the Association of Equipment Manufacturers stated that about 30 percent of the construction equipment and about 30 percent of the agricultural equipment manufactured in the United States is designated for export – and would therefore be hit hardest by any slowdown in global trade:

“Slow international growth combined with uncertainty about trading rules under the Trump administration could act as a drag on the equipment manufacturing industry’s overall performance.  Any steps the Trump administration might take to revisit or exit existing trade agreements could further complicate the challenging economic environment outside the United States.

It is difficult to precisely forecast how the Trump administration might rewrite existing trading rules, but any steps that make it more difficult for manufacturers to export their products could hinder growth in the industry.”

TPP CONTINUES WITHOUT THE US

On March 14th Government officials from the 12 Trans-Pacific Partnership nations minus the United States held a two-day summit in Chile to discuss a path forward on trade following the US decision to withdraw from the TPP.

New Zealand Trade Minister Todd McClay stated:

“I have recently visited Australia, Japan, Singapore and Mexico, met with ministers from Brunei and Malaysia and talked directly with trade ministers from all other TPP countries.  It is clear our partners remain committed to the benefits high quality trade agreements provide.”

Even though the TPP requires that at least six countries composing at least 85 percent of the entire TPP’s collective economic production, with the US withdrawal, the other 11 countries have decided to move forward with the TPP.  As Wendy Cutler, a former trade negotiator at USTR, stated:

“A TPP agreement without the U.S. is still relevant and would have significant economic value.  You’d still have four of the world’s 20 largest economies — Japan, Canada, Australia, and Mexico — alongside significant emerging economies, like Vietnam and Malaysia.”

In other words, other countries will replace US exports in those markets because they will have the benefit of the TPP.

After the meeting in Chile, Australian Trade Minister Steven Ciobo stated:

“I was particularly pleased there was continuing movement on the TPP.  Countries remain committed to exploring all the avenues and opportunities in relation to the TPP. There was broad agreement on the high level of ambition in the TPP being a benchmark and something we shouldn’t just let slip away.”

Japanese State Minister Takao Ochi stated:

“As long as Japan is concerned we don’t want to exclude any possible ways and we would like to take initiative in discussing with each of the member countries.”

The 11 countries will now work to preserve the trade deal’s innovations, which included new rules on digital trade, disciplines for state-owned companies and what have been touted as the toughest labor and environment protections of any modern trade agreement. The innovations also include new market access that countries negotiated on everything from milk powder to insurance services.

BORDER ADJUSTMENT TAXES

As stated in my last newsletters, the big issue in the trade area right now is border adjustment taxes and tax reform.  New Treasury Secretary Mnuchin says tax reform will take place in August 2017 and it is a priority for the Trump Administration.  Part of that reform is Border Adjustment Taxes (“BAT”).  See http://www.foxbusiness.com/politics/2017/02/23/treasury-secretary-mnuchin-lays-out-aggressive-timeline-for-tax-reform.html.  As Mnuchin states, a US deficit of $20 trillion, which was doubled by President Obama, is a concern, but more important is economic growth, which will result in more tax revenue.  To get economic growth, taxes and regulations have to be cut.

But with the failure of Obamacare in the House, taxes, including border adjustment taxes, move to the front of the Congressional calendar.  Trump and Republicans in the Congress, especially the House, appear to be moving ahead with an alternative to tariffs to spur US manufacturing and that is taxes.  There is now an attempt in Congress to give American-made products a big tax advantage over their foreign competitors through border adjustment taxes, and, in effect, counter the value added taxes used in other countries to deter imports.  As Kevin Brady, Chairman of House Ways and Means, argues, almost 80% of countries border adjust their taxes.  That includes Mexico, Canada, China, and the European countries, putting US exports at a substantial disadvantage.  For Brady’s argument, see videos at the following links, https://www.youtube.com/watch?v=1yYHGoFmNEk&feature=youtu.be and

https://waysandmeans.house.gov/icymi-chairman-brady-cnbc-makes-case-ending-made-america-export-tax/.

Under a border adjustment tax (“BAT”), a 20% tax would be applied against all domestic products and imported products.  But the domestic producer would be allowed to deduct all the domestic costs associated with producing that product.  Thus if a $100 product was produced in the US, the domestic producer could deduct $70 in costs, resulting in a 20% tax on $30 or a $6 tax.  But there would be no deduction of domestic costs for a $100 import resulting in a 20% tax on the full $100 or a $20 tax, giving the domestic product a 14% tax advantage.  The BAT would not apply to exports.

This proposal has welled up from the House of Representatives and is strongly supported by House Speaker Paul Ryan and the Chairman of House Ways and Means, Kevin Brady.  Their argument is that border adjustment tax is needed to offset value added taxes in other countries.  Brady argues that the BAT is the only way to end the “Made in America” tax.

One example given is that if an automobile is produced in the US and exported to Mexico, a 35% corporate tax is levied on the profits of the US automaker and then the US automobile is hit with a 16% value added tax when it comes into Mexico.  On the other hand, when an automobile is produced in Mexico for shipment to the US, there is no corporate tax on the export and no corresponding tax in the US on the Mexican export to the US.  In effect, Ryan and Brady argue that this is a tremendous incentive to move manufacturing out of the United States to countries with value added taxes, such as Mexico, China, Canada, EU and many other countries.

Border adjustments serve as a way to level the playing field and alter value-added consumption taxes many countries, including European countries, Mexico, Canada and China, impose on each stage of production, as products are sold internationally.  Proponents argue that the BAT is not trade policy and does not favor exports over imports.  To see the companies that have VAT taxes in place, see the Ways and Means website at https://waysandmeans.house.gov/ending-made-america-tax-three-major- wins-american-people/.

The Trade War in the Administration on border adjustment taxes has become clear as Bannon, Navarro and others are in favor, but Cohn and Treasury Secretary Mnuchin are opposed.  Wilbur Ross is on the fence.  Trump himself has not taken a position.

On March 25th During a morning interview, Mnuchin said he had been overseeing work on the administration’s tax bill over the past two months and it would be introduced soon. He said the goal was still to win Congressional approval of the tax measure by August. But if the timeline is delayed, he said he expected the proposal to pass by the fall.  Mnuchin did not reveal whether the administration will include the Border Adjustment tax.

On March 9th Bloomberg reported that the BAT is in deep trouble.  The BAT is important because it is expected to raise more than $1 trillion in revenue, which would offset the cut to corporate tax rates:

Companies that rely heavily on exports, such as Boeing Co. and Oracle Corp., love the plan—for obvious reasons. Beyond profits, they also say a BAT would make American manufacturers more competitive by putting them on equal footing with foreign competitors around the world.

Importers hate the BAT. Big retailers such as Walmart Stores Inc. and Best Buy Co. contend that border adjustments will dent profit margins and force them to raise prices on everything from avocados and furniture to Nike shoes and French cheese. In a Feb. 28 letter to congressional leaders, the Americans for Affordable Products coalition said the tax would raise consumer costs “by as much as $1,700” in the first year. . . .

Companies are taking their message to consumers. In late February the National Retail Federation, which opposes the BAT, started airing TV commercials that parody an OxiClean infomercial, telling shoppers that “the all-new BAT tax is specially designed to make your disposable income—disappear!” Proponents, through the American Made Coalition that includes Johnson & Johnson and Pfizer Inc., launched a Twitter feed to support the tax. Both sides have created Facebook pages and websites with auto-form letters that viewers can send to Congress. Both, too, routinely pepper media outlets with press releases citing prominent people in the private sector and academia who either love or hate it.

As Bloomberg further states in Congress the BAT is running into opposition from Republicans:

A core group of House Republicans has come out in recent weeks against the BAT, citing the higher prices they’d inflict on consumers. Republican Senate support is in doubt, too. Tom Cotton, a Republican from Walmart’s home state of Arkansas, told a Senate floor session on Feb. 15 that border adjustments are “a theory wrapped in speculation inside a guess.” The next day, Senate Majority Whip John Cornyn, a Texas Republican, said, “The hard reality is the border tax is on life support.”

But as Bloomberg further states:

“Ryan and Brady aren’t backing down. Without border adjustments, they say, their plan to rewrite the tax code can’t happen. That $1.1 trillion in revenue is crucial to the politics of the BAT, since it helps keep it deficit- neutral, a prerequisite for passing a tax bill through the Senate without Democratic votes. “What it boils down to is that it’s a way to pay for the rest of the tax plan,” says Veronique de Rugy, an economist at George Mason University. “Only revenue comes from this feature—economic growth doesn’t.” That $1 trillion is also crucial to how the BAT might affect the economy. Says Ross, “That is way too big a number to get wrong.”

EUROPE, THE WTO AND CHINA

Meanwhile, other countries are lining up to retaliate if the BAT is passed.  On February 28th, it was reported that the EU is preparing a legal challenge against Donald Trump’s US border tax plan in what could be biggest trade dispute in a century.  Jyrki Katainen, the European Commission’s Vice President, told the newspaper: “If someone is behaving against our interests or against international rules in trade then we have our own mechanisms to react.”  He said the EU was seeking to avoid a potential trade war with the US as it would be “disastrous” for the world economy.

“We have all the legal arrangements within the EU but we are also part of global arrangements like the WTO and we want to respect the global rule base when it comes to trade.”

One WTO trade dispute expert estimated that a defeat in such a case could see around $385bn a year in trade retaliation against the US.  Volker Kauder, parliamentary floor leader of Merkel’s conservatives, also recently stated:

“If Donald Trump imposes punitive tariffs on German and European products, then Europe should also impose punitive tariffs on U.S. products.”

Meanwhile, the Chinese government has been seeking advice from think tanks and policy advisers on how to retaliate against trade penalties imposed by the US.  China’s strongest responses would likely include finding alternative suppliers of agricultural products, machinery and manufactured goods, and reducing the number of consumer goods like cellphones and laptops that it exports to the United States. Other possibilities could include levying a tax or other penalty on major U.S. companies that do business in China or restricting access to the country’s services sector.

NAFTA RENEGOTIATION

The first trade agreement, which the Trump Administration will negotiate is NAFTA.  President Trump has already formally notified both Canada and Mexico that he intends to renegotiate NAFTA.  The negotiations will probably start sometime this summer.

On March 12, 2017, Commerce Secretary Wilbur Ross stated that the Trump administration has yet to determine what the trade agreement replacing NAFTA will look like.  As Ross stated:

“One size doesn’t fit all.  The issues of automotive are not the same as the issues of agriculture; they’re not the same as the issues of electronics, or steel. It’s a very, very complicated situation. So it’s very hard to paint just with one big broad brush.”

On March 16, 2017, Canadian Prime Minister Trudeau stated:

“NAFTA’s been … improved a dozen times over the past 20 years. There’s always opportunities to talk about how we can make it better. It has led to a lot of great jobs for a whole lot of people on both sides of the border and I very much take him [Trump] at his word when he talks about just making a few tweaks. Because that’s what we’re always happy to do.

“We’ve got auto parts crisscrossing the border six times before they end up in a finished product. You’ve got over $2 billion a day going back and forth. So, making sure that the border is … secure but also smooth in its flow of goods and people is essential to good jobs on both sides of the border.”

Meanwhile, there are a number of meetings between US, Canadian and Mexican officials preparing for the NAFTA negotiations.

On March 21st, the Trump administration created the attached list, KEY ELEMENTS, of more than 20 foreign trade practices it would like to address in a renegotiation of NAFTA and in any bilateral trade deal it might pursue.  The list includes relatively new areas like foreign currency manipulation, where achieving agreement could be difficult, but also a host of others like intellectual protection that have long been mainstays in U.S. trade agreements.  Payne Griffin, deputy chief of staff at the Office of U.S. Trade Representative, stated:

“These are market problems that the administration has identified either through vigorous consultations with Congress or their own internal research.  It is a non-exhaustive list of things that may be addressed in these bilateral trade agreements.”

CHINA NONMARKET ECONOMY

China has initiated a mandatory 60-day consultation period with both economies before deciding to request a dispute settlement panel to hear its complaint.  China has now decided to only target the EU, which is in the process of trying to change antidumping methodology. Brussels is trying to come up with a new way of treating China under its trade remedy law while still recognizing that Beijing intervenes heavily in its economy.

The United States has said it would only consider a change in response to a formal request from China to be treated as a market economy, something it has not done since 2006.

Apparently, China is trying a strategy of ‘divide and conquer’.  Take on the EU first, because it is already revising its law and they might get a good WTO decision, then face the tougher battle against the U.S.”

MORE TRADE CASES COMING

A law firm that specializes in bringing antidumping (“AD”) and countervailing duty (“CVD”) trade cases recently told me that they are in the process of preparing a number of new cases against China and other countries.  With a sympathetic Trump Administration and a very sympathetic Wilbur Ross as the new Secretary of Commerce, more cases are going to be filed.

ALUMINUM FOIL FROM CHINA

On March 9, 2017, the US Aluminum Foil Trade Enforcement Working Group, including Aleris Inc., Alpha Aluminum, Golden Aluminum, Granges Americas Inc., JW Aluminum Company, Novelis Corporation, Republic Foil Inc., Reynolds Consumer Products, and United Aluminum Corporation, filed major AD and CVD cases against more than $658 million of aluminum foil imports from China in 2016.

The petition alleges duties ranging from at a minimum of 38 percent to a high of 134 percent and targets 232 Chinese exporters and producers of aluminum foil.  The aluminum foil covered by the complaint covers household aluminum foil as well as aluminum foil used in cookware, product packaging and heat exchangers found in cars and HVAC systems.

US importers can be liable for CVD duties on aluminum foil imports from China as soon as August 6, 2017 and AD duties on October 5, 2017.

Attached are the relevant parts of the AD and CVD complaints along with a list of the targeted Chinese exporters/producers and US importers, 2017.03.08 CHN-ALUMINUM FOIL Petition Vol I 1Narrative IMPORTERNAMES.  If anyone has any questions, please feel free to contact me.

SILICON METAL FROM AUSTRALIA, BRAZIL, KAZAKHSTAN AND NORWAY

Although the US industry may believe AD and CVD petitions will move the Chinese imports share to the US industry, that is not necessarily the case.  Case in point, on March 8, 2016, Globe Specialty Metals Inc. filed major AD and CVD cases against imports of Silicon Metal from Australia, Brazil, Kazakhstan and Norway.  Chinese silicon metal has been under an AD order with shut out rates since 1991.

Attached are the relevant parts of the AD and CVD complaints along with a list of the targeted foreign exporters/producers and US importers, SMALL SILICON METAL PETITION.

The first hearing at the ITC is March 29th.  Commerce will issue questionnaires probably in the first week of April.  Commerce Department preliminary determinations in the Countervailing Duty cases, which is when liability for importers begins, can happen as soon as August.

If anyone has any questions, please feel free to contact me.

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

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

Previous newsletters stated Wilbur Ross has made it very clear to reach the 3% plus growth rate, the US must increase exports.  Yet, at the same time, the Trump Administrations keeps concentrating on deficits and accusing foreign governments of treating US companies unfairly.  Trump and his Administration do not look internally and try to find ways to make the US companies more competitive, which will not create a trade war.

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.

As stated in my last blog post, 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

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

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

Because of this situation, this part of the newsletter will concentrate on trade cases in other countries and how other countries see the trade problem with the United States.  It will also discuss potential US exports that can be retaliation targets.

MEXICO

On March 6, 2017, Alexandro N. Gomez-Stozzi, a Mexican trade lawyer, at the Gardere firm in Mexico City sent me the following summary of Antidumping and Countervailing Duty Investigations in Mexico:

Mexican Antidumping and Countervailing (AD/CVD) Investigation Procedures Factsheet

  • AD/CVD investigations in Mexico may take from 12 to 18 months as of the publication in the Diario Oficial regarding the initiation of investigation. Terms within the investigative process may be extended with cause, at the discretion of the authority. Investigations are generally conducted as follows (variation of a chart created by Mexican authorities):
  • There is a single investigating authority, the Ministry of Economy´s International Trade Practices Unit (known by its Spanish acronym UPCI, for Unidad de Prácticas Comerciales Internacionales). UPCI makes all relevant findings: (i) dumping or countervailing, (ii) material injury or threat thereof and (iii) causation. Final AD/CVD orders are signed by the Minister of Economy; although informally, trade policy considerations in other sectors come into play before deciding to issue an AD/CVD order. UPCI is also in charge of safeguard investigations.  
  • Investigations are usually requested by Mexican producers representing at least 25% of the total production, although UPCI may initiate investigations if it deems so appropriate.
  • Exporters and importers of affected goods are strongly encouraged to retain Mexican counsel, as all appearances have to be made in Spanish and a domestic service address has to be designated.
  • When issuing a preliminary determination, the authority may: (1) impose a preliminary AD/CVD duty and continue with investigation, (2) continue the investigation without an AD/CVD duty, or (3) terminate the investigation on insufficient evidence grounds.
  • In its final determination, the authority may (i) confirm or modify its preliminary determination to impose an AD/CVD duty, or (2) declare the investigation concluded without imposing an AD/CVD duty. Under stringent circumstances, final determinations may impose retroactive duties for up to three months from date of publication of the preliminary determination.
  • During the course of an investigation, Mexican law allows for interested parties to ask UPCI to convene conciliatory meetings, at which proposals may be presented to resolve the case and terminate the investigation. These proceedings coexist with Antidumping Agreement´s price undertakings.
  • AD/CVD orders remain in effect for 5 years. They may be renewed for similar periods when warranted after a sunset review which covers both dumping (or countervailing) and injury.  Circumvention, actual coverage of AD/CVD orders, and similar proceedings can also be initiated as long as orders are in effect.
  • World Trade Organization (WTO)´s Antidumping and Subsidies Agreements are applied as is in Mexican investigation proceedings. Mexican trade-remedy law and regulations may sometimes be contradictory with WTO agreements; in case of conflict, the WTO Agreements would prevail in court.

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.2017.09.

CFIUS—WILL INVESTMENT RECIPROCITY BE A NEW REQUIREMENT??

There is movement within the United States to establish investment reciprocity as a criteria in investigations by the Committee on Foreign Investment in the United States into its national security reviews of inbound transactions, a policy shift that would weigh the heaviest on Chinese buyers if enacted.

Investment reciprocity — the idea that the U.S. should block a foreign entity’s investment in a particular industry when a U.S. buyer would be similarly blocked in that entity’s country — has been on politicians’ radar since before Donald Trump took office.

Trump made no secret of his leanings on the campaign trail, criticizing in particular a Chinese investment group’s acquisition of the 130-year-old Chicago Stock Exchange, a deal that has since been cleared by CFIUS.

If the U.S. does decide to go this route, there are at least a couple ways the government could go about it. The President could direct CFIUS to focus more heavily on particular industries or use a broader definition of national security, as long as those directives don’t stray too far from the regulations dictated by the Foreign Investment and National Security Act of 2007, or FINSA. Congress can also amend FINSA to expand either the range of industries susceptible to national security review, or even expand the review itself from one focused solely on national security to a review that more broadly considers foreign investments in the U.S.

CHINESE MILITARY BUILDUP TO PROTECT ITS TRADE INTERESTS???

As mentioned in prior blog posts, there is a close relationship between defense/security and trade.  The Japanese attack on Pearl Harbor was created, in part, by the US naval embargo of Japan.

One of the strongest arguments for the Trans Pacific Partnership was the geo-political argument that the TPP would bring us closer to the Asian countries.  Former defense secretary Ash Carter stated at one point that the TPP was equivalent to another US aircraft carrier.

On March 15, 2017, Malia Zimmerman for Fox News in an article entitled “China next US threat? Beijing beefs up military to protect trade”, stated:

With a laser-like focus on protecting its lifeblood – trade – China is dramatically altering its military operations, creating specialized teams that can protect its maritime resources, routes and territorial expansion plans. . . .

Harry Kazianis, director of the Washington, D.C.-based Defense Studies for The Center for the National Interest, stated:

“The great Achilles heel of China is trade—especially natural resources that come via sea and into its ports—and a big reason it will inevitably become a globally deployed military power. Beijing’s armed forces are working to slowly but surely reinforce and protect its overseas hubs as well as trade routes that move from Europe, the Middle East and Africa and into China’s territorial waters.”

ZTE HIT WITH SANCTIONS FOR VIOLATING EXPORT CONTROLS ACT

On March 7, 2007, in a notice and judgement, which will be attached to my blog, judgment 3-22ZTE Corporation Agrees to Plead Guilty and Pay Over $430, the US Justice Department announced that ZTE Corp, has agreed to plead guilty and pay a combined a penalty of $1.1.9 billion for violating U.S. sanctions by sending U.S.-origin items to Iran.  As the Justice Department notice states:

ZTE Corporation has agreed to enter a guilty plea and to pay a $430,488,798 penalty to the U.S. for conspiring to violate the International Emergency Economic Powers Act (IEEPA) by illegally shipping U.S.-origin items to Iran, obstructing justice and making a material false statement. ZTE simultaneously reached settlement agreements with the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) and the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC). In total ZTE has agreed to pay the U.S. Government $892,360,064. The BIS has suspended an additional $300,000,000, which ZTE will pay if it violates its settlement agreement with the BIS. . . .

“ZTE Corporation not only violated export controls that keep sensitive American technology out of the hands of hostile regimes like Iran’s – they lied to federal investigators and even deceived their own counsel and internal investigators about their illegal acts,” said Attorney General Sessions. “This plea agreement holds them accountable, and makes clear that our government will use every tool we have to punish companies who would violate our laws, obstruct justice and jeopardize our national security.  . . .”

“ZTE engaged in an elaborate scheme to acquire U.S.-origin items, send the items to Iran and mask its involvement in those exports. The plea agreement alleges that the highest levels of management within the company approved the scheme. ZTE then repeatedly lied to and misled federal investigators, its own attorneys and internal investigators. Its actions were egregious and warranted a significant penalty,” said Acting Assistant Attorney General McCord. “The enforcement of U.S. export control and sanctions laws is a major component of the National Security Division’s commitment to protecting the national security of the United States. Companies that violate these laws – including foreign companies – will be investigated and held to answer for their actions.”

“ZTE Corporation not only violated our export control laws but, once caught, shockingly resumed illegal shipments to Iran during the course of our investigation,” said U.S. Attorney Parker. “ZTE Corporation then went to great lengths to devise elaborate, corporate-wide schemes to hide its illegal conduct, including lying to its own lawyers.”

“The plea agreement in this case shows ZTE repeatedly violated export controls and illegally shipped U.S. technology to Iran,” said Assistant Director Priestap. “The company also took extensive measures to hide what it was doing from U.S. authorities. This case is an excellent example of cooperation among multiple

U.S. agencies to uncover illegal technology transfers and make those responsible pay for their actions.”

The plea agreement, which is contingent on the court’s approval, also requires ZTE to submit to a three- year period of corporate probation, during which time an independent corporate compliance monitor will review and report on ZTE’s export compliance program. ZTE is also required to cooperate fully with the Department of Justice (DOJ) regarding any criminal investigation by U.S. law enforcement authorities.  . . .”

According to David Laufman, chief of the counterintelligence and export control section at the DOJ’s National Security Division, it was “extraordinarily difficult” to obtain key documents and witnesses located in China until on March 7, 2016, the Commerce decision to add ZTE to the so-called Entity List.  According to Laufman, “The game-changing event in this case, was the Commerce Department’s decision to pursue an entity listing of ZTE, demonstrating the efficacy of the whole-of- government approach” to national security.

Companies end up on the Entity List after Commerce determines they are tied to illicit weapons programs, terrorism or other national security threats, and thereafter can’t trade with U.S. companies without a special dispensation from the agency.

This may be the first case in which the Commerce Department has used an Entity List designation to force a foreign company to cooperate in a probe.  Commerce will probably start using this strategy in future investigations.

SECTION 337 AND IP CASES

DOMESTIC INDUSTRY FROM PATENT LICENSEE

On March 8, 2017, the US International Trade Commission (“ITC”) issued the attached interesting decision, 2 PAGE ONE PAGE DI, in the Section 337 case Certain Silicon-On-Insulator Wafers.  In that decision, the ITC Administrative Law Judge determined that it could find a domestic industry in a Section 337 if the US patent licensee’s activities show domestic activity.  Even though the patent holder was a non-practicing entity, the ALJ determined:

Silicon Genesis Corporation (“SiGen”), has established contingently a domestic industry in the United States through the activities of its licensee, SunEdison Semiconductor Limited (“SunEdison”) . . . through its licensee, SunEdison, SiGen has proven by a preponderance of evidence that it has made a significant domestic investment in plant and equipment, in capital and labor, and a substantial investment in research and development to produce certain silicon-on-insulator (“SOI”) products at issue in this Investigation.

The decision did not break new ground, but it reminds nonpracticing entities, (“NPEs”) that one way to meet the domestic industry requirement under Section 337 is through the actions of patent licensee in the United States.

NEW 337 CASES AGAINST CHINA

On March 10, 2017, in the attached ITC notice, Intravascular Sets, Curlin Medical, Inc., Moog, Inc., and Zevex, Inc. filed a section 337 case against imports of Intravascular Administration Sets from Yangzhou WeiDeLi Trade 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.

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–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–DEVELOPMENTS IN TRADE , TAA, 337/IP, ANTITRUST AND SECURITIES

US Capitol South Side Fountain Night Stars Washington DC TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER NOVEMBER 25, 2014

DECEMBER 12, 2014 UPDATE–SOLAR NEGOTIATIONS AND NEW SOLAR ANTIDUMPING AND COUNTERVAILING DUTY CASE IN CANADA

Dear Friends,

On January 21st, I will be speaking at the Brooklyn Law School in New York City on US China Trade Disputes. The invitation to the speech is set forth below.

I look forward to seeing any of my friends at the speech.

Best regards,

Bill Perry

Wednesday, January 21, 2015 * Subotnick Center, 250 Joraelmon Street * Brooklyn Law School

2 FREE CLE credits

Two judges from the US Court of International Trade * partners from two leading law firms handling China trade disputes * professors from four law schools * former chairman of Federal Trade Commission * former congressman focused on US-China trade * former general counsel of MasterCard

REGISTRATION PROGRAM RECEPTION
5:30 PM 6-8 PM 8 PM onward

WELCOME Professor Nicholas W. Allard

Joseph Crea Dean and Professor of Law, Brooklyn Law School

INTRODUCTION

Professor Robin Effron

Co-Director, Dennis J. Block Center for the Study of International Business Law, Brooklyn Law School

FIRST PANEL: PURE TRADE DISPUTES

MODERATOR

Geoffrey Sant, Esq.

Adjunct Professor, Fordham Law School

Special Counsel, Dorsey & Whitney LLP

PANELISTS

The Honorable Donald Pogue

Senior Judge, US Court of International Trade

Professor Bill Kovacic

Global Competition Professor, George Washington Law School

Former Chairman of Federal Trade Commission

  

Bill Perry, Esq.

Partner, Dorsey & Whitney LLP

Formerly in Office of General Counsel, US International Trade Commission; Office of Chief Counsel and Office of Antidumping Investigation, U.S. Department of Commerce

Don Bonker

Executive Director, APCO Worldwide, Inc.

Former US Congressman (D-WA); former Chairman of Subcommittee on International Economic Policy and Trade

SECOND PANEL: DISPUTES BETWEEN TRADE PARTNERS

MODERATOR

  1. Augustine Lo, Esq.

Dosey & Whitney LLP

PANELISTS

Chris Cloutier, Esq.

Partner, King & Spalding LLP

Former Acting Deputy Director of Trade Remedy Compliance, US Department of Commerce (at US Embassy in Beijing, China)

Professor Thomas Lee

Leitner Family Professor of International Law, Fordham Law School

Noah Hanfft, Esq.

President; CEO of International Institute for Conflict Prevention and Resolution

Former General Counsel of MasterCard

Professor Zhao Yun

Director of the Center for Chinese Law, University of Hong Kong

CLOSING REMARKS The Honorable Claire Kelly

Judge, US Court of International Trade

Trustee, Brooklyn Law School

RECEPTION

8 PM onward

THIS EVENT IS FREE, BUT RSVPS ARE REQUIRED

RSVP to events@cblalaw.org

About the Program The United States and China are major trading partners. Trade issues between the two nations take center stage as leaders negotiate new trade treaties and struggle to resolve disputes under existing legal frameworks. Brooklyn Law School and the Chinese Business Lawyers Association present an evening of dialogue among leading practitioners and professors who will examine current issues in trade disputes between the U.S. and China.

Sponsored by the Dennis J. Block Center for International Business Law, Chinese Business Law Association (CBLA), ABA Section of International Law, and the Trade Secrets Institute(TSI).

WE EXPECT ALL SEATS TO BE RSVP’D.  TO ATTEND, PLEASE RSVP AS SOON AS POSSIBLE TO events@cblalaw.org OR TO www.brooklaw.edu/tradedisputes

For directions, please visit: www.brooklaw.edu/directions

Thank you!

Geoffrey Sant, Director

Chinese Business Lawyers Association

This course provides two (2) CLE credits in the State of New York. Partial credit is not available. The credits are transitional and non-transitional and the category is Professional Practice.

US CHINA SOLAR NEGOTIATIONS

Several companies have asked me about a possible US-China settlement in the Solar Cells/Solar Products cases.  Today, December 12th, USTR Michael Froman acknowledged that Washington and Beijing have held talks about the Solar cases for “some time”.  During a conference call with Reporters, Froman stated that a stable environment for trade in solar products and polysilicon would have three components.  The first is to ensure that trade laws are being enforced. The second and third components are to enable the further deployment of clean technology and address issues like climate change, and “to maintain world class industries in both our countries to manufacture these important products.”

But knowledgeable people stated that talks have slowed in recent weeks, following a period of intense engagement prior to President Obama’s state visit to China in November, which ended without an agreement.  A major reason for this failure is because SolarWorld Americas, the petitioner in the U.S. trade remedy cases, stated that it could not accept the parameters that Chinese producers were willing to offer, and the U.S. government was unwilling to push the company to give ground.  In contrast to Europe, Canada, many other countries and even China, the United States does not have a public interest test in its US antidumping and countervailing duty laws and, therefore, the US government has less power to push a settlement.

The deadline for Commerce to accept a potential agreement to suspend the ongoing antidumping (AD) or countervailing duty (CVD) cases against Chinese solar panels has long passed. Thus settling the dispute will require a broader agreement, such as in 2006 U.S.-Canada Softwood Lumber Agreement, under which Canada agreed to impose export taxes and/or quotas on its exports of softwood lumber to the United States, in return for the U.S. government stopping the collection of trade remedy duties on those products.

SolarWorld has stated that it could accept a package that would do away with the various trade cases if four key conditions were met. The first three are that the agreement be enforceable by Commerce, set a floor price on imports of Chinese solar cells, and include a quantitative restriction on the volume of imports. The fourth condition is that the floor price on imports of Chinese solar cells be indexed to the market price for polysilicon.  Knowledgeable sources, however, have said that the floor price is key sticking point.

Commerce Secretary Penny Prtizker also stated that she did not expect the final Solar Products determination to have any impact on the JCCT negotiations, which will soon take place in Chicago.

The bottom line is that the Solar Products case will go to Antidumping and Countervailing Duty order and any deal would have to be extremely unique, such as the US Canadian Lumber Agreement.  The chance of such an agreement is probably small.

CANADA SOLAR CASE

An importer has contacted me about a new Solar Module and Panel Antidumping and Countervailing Duty Petition filed in Canada. On December 5, 2014, the Canadian government initiated the investigation. See the attached petition and announcement of the Canadian government.  CANADIAN SOLAR COMPLAINT CANADIAN SOLAR ANNOUNCEMENT

The Solar Trade War with China is now beginning to follow a similar pattern with other trade wars against Chinese products. An antidumping/countervailing duty case is filed in the US or the EU followed by many, many cases around the World.

In the early 1990s, a US antidumping case was brought against Garlic from China. I represented a number of US importers in the case and tried to represent the Chinese exporters/producers. In a very unusual situation, an official at the Chinese Chamber of Commerce refused to let any Chinese company respond to the US antidumping case and since the Chamber controlled export licenses, the official had the power to stop participation.

As a result, the Commerce Department levied antidumping duties of 376% against Chinese garlic, and that antidumping order is in place today, almost 20 years after the petition was filed.  But that was not the worst part of the case, the Garlic case spread to numerous other countries, including EU, India, Japan, Korea, Brazil, Mexico and other countries. Pretty soon 20 to 30 countries had trade orders against Chinese garlic blocking all exports of Chinese garlic, and Chinese garlic prices dropped like a rock. Garlic was very cheap in Beijing.

Chinese solar cells and panels appear to be on the same trade path as Europe, the US, India and now Canada have brought antidumping and countervailing duty cases against China. Many countries may soon block Chinese solar cells and panels out of their market.

If anyone has any questons about this case or the ongoing US Solar Cells and Solar Products case, please feel free to contact me.

If anyone wants specific help on the Canadian case, please let me know and I will put them in touch with Canadian trade counsel.

NOVEMBER 25, 2014 POST

There have been major developments in the trade politics, trade, trade agreements, trade adjustment assistance, 337/IP, US/Chinese antitrust, and securities areas.

This month the blog post has grown substantially because there have been so many developments in the trade and political area, especially with regards to China.

TRADE POLITICS AND TRADE AGREEMENTS WITH CHINA

THE REPUBLICAN WAVE ELECTION CHANGES THE TRADE POLITICAL LANDSCAPE IN WASHINGTON DC

No matter whether you are a Republican or a Democrat, in looking at trade issues, including the trade laws and the relationship between the US and China, one must deal with political reality in Washington DC. Elections have consequences, and the November 4th Republican wave election will have consequences for years to come.

Not only did the Republicans take the Senate, but no one expected the Republicans to take 8 seats with potentially another coming from Louisiana so Republicans at the end of January 2015 will control the Senate 53 or 54 to 47 or 46.

In the House of Representatives with 5 races still undecided Republicans gained 12 sets. They now hold 245 seats to 187. One can see how the political map has changed in the House by looking at http://www.politico.com/2014-election/results/map/house/. In the House, the United States has turned into a red Republican sea.

As it stands now, this is the largest Republican majority since 1946. If 3 of the 5 outstanding House seats go Republican, it will be the largest Republican majority since the 1930s under Herbert Hoover, before Franklin Delano Roosevelt was President. To say that this election was historic is an understatement.

As Dana Milbank, a Washington Post columnist, who is not viewed as a Republican/conservative partisan, states in his November 14th Washington Post column:

“There are five 2014 House races still to be decided before we can answer the question of historical interest:

Was this the worst election for House Democrats since 1928? Or was it merely their worst since 1946?

Either way, the results do not reflect well on the House Democratic leader, Nancy Pelosi – a conclusion that seems to have escaped Nancy Pelosi.

“I do not believe what happened the other night is a wave”, the former speaker informed Politico. . . . She preferred to describe what happened in the House elections as an “ebb tide.”

If Democrats lose three of the five undecided races, they will have ebbed all the way back to the day Herbert Hoover won the Presidency. To fail to see that as a wave, Pelosi must be far out to sea.”

The 2014 election for Democrats was not a wave. It was a tsunami, and now the political reality has changed dramatically in Washington DC. The most dramatic impact will be in the trade area because that is the one area that Senate and House Republicans can work on together with President Obama.

As indicated below, under the Trade Agreements discussion, President Obama’s problem in the Trade area is not with the Republicans, but with the Democrats. Although many Democrats want to call themselves progressive, because of substantial Union support, a number of powerful Democrats do not want progress on trade. They are opposed to Free Trade Agreements that lower barriers to imports. In fact, several Democrats want to raise barriers to imports.

Most Republicans are not opposed to the Free Trade Agreements because they firmly believe that Free Markets will result in more business and a substantial increase in economic activity for US companies and more jobs for US workers.

On November 5th the day after the election, many former US government officials were predicting that Trade Promotion Authority (“TPA”), which will lead to the Free Trade Agreements, such as the Trans Pacific Partnership (“TPP”), would be one of the first issues taken up by the new Republican majority.   TPA is the centerpiece of the administration’s trade policy, as it will set forth negotiating priorities for the next several years.

While a bipartisan TPA bill emerged earlier this year, Senate Majority Leader Harry Reid, D-Nev refused to introduce the bill on the floor. The change of the majority to the trade-friendly Republicans removes that problem.

According to former United State Trade Representative (“USTR”) Clayton Yeutter, with the Obama administration pushing for a final 12-nation Trans-Pacific Partnership as soon as possible, securing TPA will be the number one objective and will likely rise to the top of the Republican agenda. As former USTR Yeutter stated:

“The challenge will be to get fast-track done as early as possible and I believe that all the folks in congressional leadership positions understand that fully. I would look for it to be one of the very first issues on the Congressional agenda next year.”

Present USTR Michael Froman also expressed optimism, stating:

“I think ultimately this is an area where there’s a lot of bipartisan support for trade. It’s one of the areas that cuts across party lines, one area that we think we can make progress in, and we look forward to working with Congress after the election on Trade Promotion Authority and on our trade agenda more generally, in a way that has broad bipartisan support.”

In addition, the new Chairman of the Senate Finance Committee will be Republican Senator Orrin Hatch of Utah and he has a close working relationship with the present Chairman, Democratic Sen. Ron Wyden of Oregon. As indicated in past newsletters, Senator Hatch has been very open about the need to pass TPA through the Congress and he will be very active on this issue.

The chances of passing a fast-track bill in the upcoming lame-duck session of Congress are slim because the objective according to recent reports is to end the session on December 11th.  In the new Congress, however, TPA will be very important because Republicans have publicly warned the Administration not to conclude the TPP talks before TPA is concluded. As indicated below, without TPA no final deal will be concluded because countries like Japan and Canada will not put their best proposals on the table.  Japanese Prime Minister Shinzo Abe, for example, in particular, will be reluctant to strike a deal if there is a chance it could be altered legislatively at a later date.

As former USTR Yeutter stated:

“It will be exceedingly difficult to wrap up TPP without TPA. Abe and Japan don’t want to have to make tough political decisions twice.”

As a further example, in the attached e-mail, WAYS AND MEANS TRADE A PLUS on November 13, 2014, the House Ways and Means Committee released an article by Bryan Riley from The Hill stating:

Free Trade is a Winner in Recent Elections

By Bryan Riley, The Hill contributor

Riley is the Heritage Foundation’s Jay Van Andel Senior Policy Analyst in Trade Policy.

In Georgia, Iowa, Massachusetts and North Carolina, the midterm elections proved that candidates shouldn’t be afraid to talk about the benefits of trade. They also demonstrated that candidates tempted to employ protectionist scare tactics in their campaigns should think twice.

In Iowa, Republican Senate candidate Joni Ernst’s campaign argued: “Congressman [Bruce] Braley’s Anti-Free Trade Votes are bad for Iowa Farmers.”

According to Politico: Iowa Republicans, in one of the tightest Senate races in the country, are trying to capitalize on Democratic Rep. Bruce Braley’s record of voting against trade agreements to help hand their candidate, Joni Ernst, the victory. Braley, whose state is heavily dependent on farm exports, voted against free trade pacts with South Korea, Colombia and Panama in 2011, even after President Barack Obama’s administration re-negotiated several provisions to round up more Democratic support. “The South Korean trade deal was huge,” Agriculture Secretary Bill Northey told POLITICO in an interview. “Everyone knew it was a clear, clear win for agriculture and it would have been a terrible not to have it. For him to vote against that I just think is a major red flag.”

Ernst defeated Braley, 52.2 percent to 43.7 percent.

In North Carolina’s Senate race, Democratic incumbent Kay Hagan said:

“Unfair trade agreements have contributed to the loss of more than 286,000 North Carolina manufacturing jobs in the last decade — the fourth-largest decline in the nation. It is time we start protecting jobs here at home.” Her campaign spokesman added: “Kay opposed trade agreements that ship North Carolina jobs overseas because she will always put North Carolina jobs first.”

Her Republican opponent, Thom Tillis, disagreed: “As agriculture exports increase, Thom believes we must promote policies that make trade with other nations free and efficient in order to stimulate our economy and allow North Carolina farmers and ranchers to expand their businesses.”

Tillis defeated Hagan, 49.0 percent to 47.3 percent.

In Massachusetts, the Democratic Governors Association released an ad attacking Republican gubernatorial candidate Charlie Baker: “Baker won the Outsourcing Excellence Award at the ‘Oscars of Outsourcing’ for his work destroying jobs here at home.” Baker replied that outsourcing some jobs to India allowed Massachusetts insurer Harvard Pilgrim to save thousands of jobs at home. Former Massachusetts Attorney General Thomas F. Reilly (D) called the outsourcing attacks “exactly the kind of nonsense that drives people away from the political process.”

Baker defeated Democrat Martha Coakley, 48.5 percent to 46.6 percent.

In Georgia, Democratic senatorial hopeful Michelle Nunn attempted to smear her Republican opponent David Perdue for outsourcing jobs to other countries: “David Perdue, he’s not for you,” her ad proclaimed. When a reporter asked Perdue to defend his use of outsourcing, he replied: “Defend it? I’m proud of it. … It’s the lack of understanding of the free enterprise system that I’m running against here.”

Perdue beat Nunn, 53.0 percent to 45.1 percent.

After the Massachusetts and Georgia elections, Computerworld reported:

“Offshore outsourcing fails as election issue: A longtime Democratic bludgeon isn’t enough to move needle.” In contrast, candidates who embraced the benefits of trade, like Joni Ernst and Thom Tillis, emerged victorious.

Promoting free trade is good economics, too. A comparison of trade policy around the world, developed by the Heritage Foundation and The Wall Street Journal in the annual Index of Economic Freedom, shows a strong correlation between trade freedom and prosperity.

Washington Post columnist Steven Pearlstein observed that outsourcing saves U.S. businesses and consumers billions of dollars each year:

“Those savings and those extra profits aren’t put under the mattress. Most of it is spent or invested in the United States in ways that are hard to track but have surely created hundreds of thousands of jobs in other companies and other industries. Those who hold those jobs would have no reason to know that they are beneficiaries of the process of outsourcing and globalization. But in a very real sense, they are.”

Most economists agree that criticizing trade is bad policy. Last week’s election results suggest it may be bad politics, too.

But as also indicated below, that is where Trade Adjustment Assistance for Firms/Companies comes into play.  Trade Agreements are a result of Government action that will change the market, not only around the World but also in the United States. With market barriers dropping in a number of different countries, many US competitive companies will see their exports increase.  Experts predict that the TPP, for example, could increase economic activity by $1 trillion.

But this Government action will also change the US market place, and a number of US companies will face a market that has completely changed, a trade tsunami created by Government action.  Because Government action has created the trade tsunami, the Government has an obligation to help companies adapt to the new marketplace conditions.  When I say companies, I mean not just the management, but the workers in the company too.

As explained more below, the Government has a responsibility to help US companies swim in the new competitive marketplace sea that has been created by the Trade Agreements.

FORMER CONGRESSMAN DON BONKER’S CHINA DAILY ARTICLE ON THE IMPACT OF THE ELECTION ON US CHINA RELATIONS

APCO Executive Director Don Bonker, a former Democratic Congressman and an expert on the political issues in US China Trade Relations, published the following November 7th article in the China Daily on the election, which can be found at http://usa.chinadaily.com.cn/us/2014-11/07/content_18881045.htm.  Don puts the November 4th election into a historical perspective:

Election results a mixed blessing for China

By Don Bonker (China Daily USA)

Republicans exceeded early predictions scoring big time in Tuesday’s election, taking full control of the US Senate, increasing their margin in the House of Representatives along with many victories across the country.  For the next two years, the United States will have a truly divided government with the Republicans claiming a new mandate to push an alternative agenda.

While many factors were in play in the 2014 election (Obama’s poor ratings, huge amounts of campaign spending, etc), the fundamentals in recent history clearly favored the Republican Party.  The party of whoever occupies the White House in mid-term elections suffers nominal loses of Senate and House seats and predictably weakens the President’s political standing. As we are reminded by David Schanzer and Jay Sullivan in the New York Times, “This is a bipartisan phenomenon; Democratic presidents have lost an average of 31 House seats and between 4-5 Senate seats in mid-terms; Republican presidents have lost 20 and 3 seats respectively.”

How will the election results affect the US-China relationship?

Neither Republicans nor Democrats have well-defined or predictable policies toward China. In recent years, a small group in Congress has attacked China on a select number of issues but such actions are not part of either Congressional leader’s agenda.  Existing Federal laws, such a CFIUS, provide opportunities for a single Congressman to go after China, often to lend support to a company in his state.

Republicans, known to be pro-trade and pro-business, taking control of the Senate should be a healthy sign in building closer relations with China, especially since governors in their states are leading trade missions to China, seeking Chinese investments and pursuing markets for their exporting companies.

However, individual Republican Senators have sent letters to CFIUS and other Federal agencies opposing China-related investments and transactions. Many senior Republicans in Congress have expressed skepticism over China due to its government’s Communist Party control, reported human rights concerns, US support of Taiwan and Japan, China’s military build-up, economic espionage and geopolitical or national security threats that could put pressure on the Obama Administration to be more assertive with China.

Several well-positioned Republican Congressmen have caused the biggest headaches for China. The issue, or fear, is rooted in cybersecurity threats and economic espionage that has led to Congressional investigations and legislation that greatly restrict China companies, such as Huawei and ZTE, from having access to telecommunication and related technology markets in the US. The two Congressmen who were responsible for these actions are retiring at the end of this year. The question is whether their replacements will continue such policies.

A related concern is the so-called Tea Party’s growing influence that has put Republican Congressional leaders in a difficult position given the Tea Party’s enduring political base and its extreme views on major issues (education and trade). It will likely affect the China relationship in negative ways, particularly on trade (“protect American jobs”) and on cyber and economic espionage issues.

The Democrats have their own agenda which occasionally proves hostile to China. Several occupy leadership positions on committees that preside over government agencies and assert their political clout to press for higher import tariffs and related trade restrictions. This has more to do with politics than economics, particularly in the election season when labor unions pressure, if not intimidate Democratic candidates to “protect American jobs”. Such protectionist policies are now prompting China to take reciprocal actions that may be placing China and America on the path of a trade war.

Despite the encouraging bilateral discussions on the Bilateral Trade Agreement (BIT), there is no guarantee what happens once it arrives on the doorstep of the US Capitol.

Overall, the newly established Congress preparing for 2015 may be more favorable to China given the departures of some if its Capitol Hill critics, but a great deal of anxiety about China will continue – mistrust, economic and security threats and China’s economy surpassing the US’ in the foreseeable future.

In the Senate, the Republicans taking control will create a different political paradigm but with little indication on how it will play out over the next two years. The new political alignment will offer a narrow window for Congressional Republicans to provide stronger leadership and promote their own agenda and could result in more favorable actions (approval of TPP and TTIP trade pacts).

But that is in the short-term. It is unlikely the Republicans maintain the Senate majority in the 2016 elections, but the House of Representatives will comfortably stay in Republican control (given the shape of Congressional districts) for some time into the future. With a Democrat occupying the White House this will likely guarantee continued gridlock in Washington for the next decade.

The 2016 presidential election may be more favorable to Democrats for the same reasons the Republicans scored well this year. Barack Obama is not on the ballot and the Democrats will be far more unified (under Hillary Clinton) than the Republicans (the party may likely be split).

In 2016, the Republicans will have 23 Senate positions on the ballot compared to 10 for Democrats (also likely retirements/resignations). And the voter turn-out will jump back to 53 percent, which greatly favors Democrats in presidential elections. So whether political history will prevail and the Democrats re-take the Senate in 2016 or Republicans will defy the odds and remain in power is the big question going forward.

BILATERAL US CHINA TRADE AGREEMENTS

APEC AND PRESIDENT OBAMA’S TRIP TO BEIJING

Right after the mid-term elections, President Obama made a major trip to Beijing, China for the Asian Pacific Economic Cooperation (“APEC”) meeting.  As indicated below, President Obama’s Administration had set a target date for completing the Trans Pacific Partnership (“TPP”) talks at the APEC meeting. That did not happen, but there were several historic agreements that did come out of the meetings with the US and Chinese Government.

In the attached White House Statement and Fact Sheet, WHITE HSE STATE CHINA VISIT PRESS CONF CHINA US the US and Chinese governments announced that China will now grant 10 year visas to US businessmen and tourists and that there will be enhanced enforcement against counterfeit goods.

During the attached Joint Press Conference, the two Presidents announced a new Information Technology Agreement (ITA) and an agreement on Climate Change. President Obama stated that a strong, cooperative relationship with China is at the heart of the United States’ policy to Asia, and stated that the United States needs the world’s second-largest economy and the most populous nation on Earth as its partner in order to lead in addressing global challenges. As President Obama stated, “[I]t is a fact that when we work together, it’s good for the United States, it’s good for China, and it is good for the world.”

President Xi Jinping of China made several important points in response to questions, but several of the most important are:

“The strategic significance of China-U.S. relations is on the rise. . . . Both President Obama and I believe that when China and the United States work together, we can become an anchor of world stability and a propeller of world peace. China stands ready to work with the United States to firm up our confidence, exercise our wisdom, and take action to strengthen our coordination and cooperation bilaterally, regionally and globally; and to effectively manage our differences on sensitive issues so that we can make new gains in building the new model of major-country relations between China and the United States, which serves the fundamental interests of our two peoples and the people elsewhere in the world.

China and the United States have different historical and cultural traditions, social systems, and faces of development. So it’s natural that we don’t see eye to eye on every issue. But there have always been more common interests between China and the United States than the differences between us. Both sides respect each other’s core interests and major concerns and manage our differences in a constructive fashion, full dialogue and consultation so as to uphold the overall interests of stable growth of China-U.S. relations. . . .

China and the United States are different countries in the world. It’s perfectly normal for there to be different views expressed about us in the international media. And I don’t think it’s worth fussing over these different views. And I don’t see any of the regional free-trade arrangements as targeting against China. China is committed to open regionalism. And we believe the various regional cooperation initiatives and mechanisms should have positive interaction with each other, and that is the case at the moment.”

On Tuesday November 12th, President Obama’s state visit to China ended with the ITA and Climate agreements, joint pledges to continue talks on a bilateral investment treaty (BIT), a new international deal curbing export credits, and continued dialogue regarding their persisting differences over the use of agricultural biotechnology.

President Obama had planned to press China on several other issues, including alleged discriminatory enforcement of its anti-monopoly law (AML), intellectual property (IP) protections, including cyber theft of IP, and China’s slow approval process for biotechnology traits. Only biotechnology, however, was addressed in a White House fact sheet on U.S.-China economic relations, stating:

“The United States and China reached consensus to intensify science-based agricultural innovation for food security. The United States and China commit to strengthen dialogue to enable the increased use of innovative technologies in agriculture.”

At the Press Conference, President Obama stated that he did address IP, “I stressed the importance of protecting intellectual property as well as trade secrets, especially against cyber-threats.”

The other major announcement that came out of Obama’s visit to China was in the area of climate change. On that issue, the two sides reached an agreement on the targets for the cuts they will make to carbon emissions post-2020.

Last week CSPAN, the US Public Affairs station, did a 45 minute interview with Dorsey Partner, Tom Lorenzen on the US China Climate Change agreement. Until joining Dorsey in 2013, Tom was at the Justice Department from 2004 where he was the Assistant Chief in the U.S. Department of Justice’s Environment and Natural Resources Division (ENRD). During that time, he supervised the federal government’s legal defense of all Environmental Protection Agency rules, regulations and other final actions judicially reviewable under the various federal pollution control statutes. See the video at http://www.c-span.org/video/?322770-3/washington-journal-thomas-lorenzen-uschina-carbon-reduction-deal.

On November 12th, the China Daily stated with regards to the Information Technology Agreement (ITA):

“The two countries reached a breakthrough on Tuesday in Beijing to accelerate the expansion of the World Trade Organization’s Information Technology Agreement (ITA), which could help eliminate $1 trillion in tariffs on high-tech product sales globally. The deal would allow the “swift conclusion” on talks to enlarge the ITA at the WTO meeting in Geneva later this year.”

USTR Michael Froman stated in Beijing that it was good news for US companies that are keen to see global tariffs further cut on products such as medical equipment, GPS devices, video game consoles and next generation semiconductors.  The agreement now covers more than $4 trillion in annual trade.

With regards to ITA, the US government announced on November 10th that it had convinced China to eliminate tariffs on tech goods like advanced semiconductors and medical devices. The Chinese government has agreed to U.S. demands to eventually eliminate tariffs on advanced semiconductors known as MCOs, magnetic resonance imaging (MRI) machines, and high-tech testing equipment, but the deal does not include tariff elimination on flat-panel displays.

But the Agreement between China and the United States in the High Tech area will lead to additional negotiations with other countries at the WTO in Geneva, which are scheduled to resume in December. The ITA negotiations broke down in November 2013, after the U.S. and other participants rejected China’s tariff offer as insufficient. Since then, the U.S. and European Union have been trying to persuade China to come back to the table with a better offer.

The agreement between the U.S. and China does not mean the ITA talks are concluded. The two parties will now have to go back to the more than two-dozen other participants – including the European Union, Japan and South Korea – to negotiate a final ITA package. But sources in Geneva are cautiously optimistic that the deal could move forward. The expanded ITA would also eliminate import duties on a range of additional technology products including high-tech medical devices, video cameras, and an array of high-tech ICT testing instruments.  A White House fact sheet stated that the expansion of the ITA pact would eventually eliminate tariffs on roughly $1 trillion in annual global sales of information technology products and boost the annual global GDP by an estimated $190 billion.

On November 14th it was reported that sources in Geneva predicted that the ITA agreement could result in a final deal this December. Although other countries are not expected to block the deal, other countries will push for changes. EU Trade Commissioner Cecilia Malmstrom stated that she welcomed the U.S.-China understanding and that the EU “[intends] to take all necessary steps to finalize the agreement in the coming weeks.”

If the agreement is completed, it will take very little for the U.S. to implement the lowered tariffs. This is because Congress had already authorized further tariff reductions when it passed the Uruguay Round Agreements Act in 1994. This is in contrast to the TPP and the Transatlantic Trade and Investment Partnership (“TTIP”), which are two new agreements that would require congressional authorization before they went into effect.

On November 12th, President Obama and President Xi also announced an agreement to speed up talks on a comprehensive Bilateral Investment Treaty (“BIT”), which is considered to be the foundation for future United States-China trade agreements. At the Press Conference President Xi announced that “We agreed to accelerate the negotiations of the BIT, and we will make efforts to reach agreement on the core issues and the major articles of the treaty text.” The two countries also agreed to “work together to promote innovation in agriculture and food security.”

Trade pundits were reporting that the Republican victory along with the movement in Beijing will give a much-needed boost to the WTO and Obama’s ambitious trade agenda. This has led to a bullish optimistic attitude about the next two years of trade policy.

As indicated below, this victory in Beijing with the close of the APEC meeting was followed on November 13th by a break through with India on the Trade Facilitation Agreement (“TFA”), which the Indian Government had held up on food security grounds.  On November 13th U.S. and Indian trade officials announced they had reached a deal to end the impasse over the WTO trade facilitation Agreement.  Under the deal, India agreed to drop its opposition to the trade facilitation pact in exchange for a commitment from the U.S. to keep in place a so-called peace clause that would shield developing countries’ food security programs from legal challenges until the WTO agrees on a new set of rules governing those programs.

Numerous observers, including new European Union Trade Commissioner Cecilia Malmstrom, hailed the bilateral agreement as a boost for the WTO, which had been criticized as irrelevant as a forum for global trade talks in light of the trade facilitation breakdown. Commissioner Malmstrom stated, “I am particularly pleased today as the breakthrough gives new momentum to the WTO and restores trust among members and the credibility of multilateral trade negotiations.”

TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND—NO FINAL DEAL AT APEC MEETING IN BEIJING

TPA FACED HEADWINDS IN CONGRESS BUT THEN THE ELECTION HAPPENED

As mentioned in past newsletters, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP), Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations and the WTO.  The TPP is a free trade agreement being negotiated by officials from the U.S., Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. These trade negotiations could have a major impact on China trade, as trade issues become a focal point in Congress and many Senators and Congressmen become more and more protectionist.

This has been a problem because the protectionism is coming from the Democratic side of the aisle.  Democratic Senators and Congressmen are supported by labor unions.  Although Democratic Congressmen have expressed interest in the TPP, to date, President Obama cannot get one Democratic Congressman in the House of Representatives to support Trade Promotion Authority (“TPA”) in Congress. Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the elections as soft on trade.

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

But then came the November 4th Republican wave election changing the Trade Politics dramatically in Washington DC.  Elections have consequences and in 2015 Republicans will take the Senate and increase their numbers in House.

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted in my February post, was introduced into Congress. The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

Under the US Constitution, Congress, not the President, has the power to regulate trade with foreign countries. Article 1, Section 8, Clause 3, of the Constitution empowers Congress “to regulate Commerce with foreign nations” Thus to negotiate a trade agreement, the Congress gives the Executive Branch, the Administration/The President and United States Trade Representative (“USTR”), the Power to negotiate trade deals.

Because trade deals are negotiated with the foreign countries, the only way to make the system work is that under the TPA law when the Trade Agreement is negotiated, the Congress will agree to have an up or down vote on the entire Agreement and no amendments to the Agreement that has already been negotiated will be allowed.

On April 9, 2014, the new Senate Finance Committee Chairman Senator Ron Wyden announced at a speech to the American Apparel & Footwear Association Conference that he was introducing a new TPA bill, what Senator Wyden calls Smart Track.  But to date no details have been given about exactly what Smart Track will mean, and the Republican victory on November 4th probably means that Smart Track will be washed away by the Republican wave.

On July 17th, all Republican members of the House Ways and Means Committee sent the attahed letter to USTR Froman, HOUSE REPS WAYS MEANS, urging the Administration to build support for Trade Promotion Authority (TPA) and directing the Administration not to complete the Trans-Pacific Partnership (TPP) before TPA is enacted into law.

Now the story continues . . . .

On October 15th in Tokyo, acting Deputy U.S. Trade Representative Wendy Cutler emerged from four days of meetings in Tokyo stating that both sides are working “as hard and creatively as possible” to resolve their bilateral issues. She went on to state:

“We were encouraged by the progress we made this week during our negotiations, but we need to underscore that the issues before us are tough. The issues range from achieving meaningful market access across all agricultural products to establishing a strong and effective dispute settlement mechanism in the auto sector.”

The difficult negotiating areas include five agricultural categories—rice, wheat and barley, beef and pork, dairy products and sugar—as well as autos and auto parts.

After ending the talks with his counterpart, Japanese negotiator Hiroshi Oe added, however, that both sides have “mountains of work to do. We are far from saying, ‘We did it.’ We still have the most difficult areas that have yet to be resolved.”

The U.S.-Japan meetings closed just a day after Mexico’s top trade official, Mexican Economy Minister Ildefonso Guajardo, speaking in Washington, D.C. made clear that the rest of the TPP countries view the US Japan negotiations as a critical step toward progress in the full negotiations,  “It is clear for anybody that knows about trade negotiations that if these two big trading partners, Japan and the U.S. do not come to an agreement, it has domino consequences on the rest of the 12 countries.”

But then came Sidney and then Beijing with no breakthrough in part because of no TPA Agreement.

Meanwhile, on October 16th, according to analysis of the document by Public Citizen, it was reported that a leaked draft of the TPP Intellectual Property Chapter obtained by WikiLeaks could lead to delayed access to pharmaceutical drugs in a dozen countries, including the U.S., and would contradict White House policies aimed at cutting Medicare and Medicaid costs. According to Public Citizen, at issue in the draft is a U.S. proposal to give an advantage to the pharmaceutical industry and “provide long automatic monopolies for biotech drugs or biologics” contradicting the pledge included in past White House budgets to shorten the same monopoly periods to reduce cost burdens on Medicare and Medicaid.

Public Citizen said it remains concerned that these provisions would give large brand-name drug firms a way to “impose rules” on Pacific Rim economies that “will raise prices on medicine purchases for consumers and governments. If the TPP is ratified with this U.S.-proposed provision included, Congress would be unable to reduce monopoly periods without risking significant penalties and investor-state arbitration.”

In Sidney the leaked IP draft resulted in a number of civil society organizations and Australian lawmakers voicing opposition to the deal citing many trouble spots.  A group of Australian politicians along with public health and copyright experts convened at Australia’s Parliament house lawn to condemn possible TPP trade-offs as talks resumed in Canberra.  Australian green party Sen. Peter Whish-Wilson stated that “the leaked documents indicate that the government is on course to hand over protections for human rights, public health, the environment and Internet freedom.”

On October 24th, in a letter six Congressmen, including Sens. Ron Wyden, D-Ore., Orrin Hatch, R-Utah, Jay Rockefeller, D-W.V., and John Thune, R-S.D., the ranking members of the Senate Finance and Commerce committees, stated that USTR Michael Froman should oppose any proposals in the TPP negotiations that would needlessly limit internet traffic, including the cross-border transfer, storage or processing of data, and protect the unfettered transfer of commercial data and digital trade.  According to the letter, eight countries, including TPP members Mexico and Vietnam, have or are considering policies to limit their Internet traffic.

As a result of all these concerns, Rep. Sander Levin, D-Mich, ranking Democratic Congressman on the House Ways and Means Committee, traveled to Sydney, Australia, to closely observe the status of the TPP talks. Levin took the unusual step of arranging meetings with trade ministers from the TPP nations during their Oct. 25-27 session in an effort to gather more information about TPP’s more contentious unsettled areas. Levin, who is from Detroit, has long been an advocate of the U.S. automotive industry, which has been blocked out of the Japanese market for decades. More broadly, Levin also called for the final TPP to bind its member countries to upholding the highest possible environmental, labor and human rights protections.

On October 27th in Sidney, Australia trade ministers for countries negotiating the TPP hailed “significant progress” in the talks during their three-day meeting in Australia, but stopped short of announcing a breakthrough.  Opening the meeting, USTR Michael Froman stressed that the outstanding TPP issues are among the most contentious in the agreement, but that negotiators have taken efforts to ensure that they are resolved as smoothly as possible.  President Obama had targeted the APEC meeting in Beijing on November 10th as a “deadline” to conclude the negotiations, but critical to the conclusion of the 12-nation TPP talks are the bilateral deliberations between the U.S. and Japan, which also continued in Australia.

After returning from Sidney, Congressman Levin expressed his concern about the current status of the TPP talks in Australia calling for more transparency in negotiations and an increased focus on its details.  Levin stated that “it is “vital to have an open door for a broad understanding and involvement on how they should be resolved, with increased transparency.”

Levin said that although a compromise he helped negotiate, referred to as the “May 10 agreement,” had significantly improved the TPP in the realms of workers’ rights, environmental protections and access to medicines, it is “vital that TPP build on them, not weaken them.” Levin noted the opportunities and challenges inherent with the diversity of economies represented within the TPP membership, pointing out Malaysia’s and Vietnam’s “very different” economies from the U.S.

On October 27th, following the negotiations in Sidney, the Ministers and Heads of Delegation for the TPP countries issued the attached statement, TPP ACTUAL JOINT STATEMENT AUSTRALIA, which provides in part:

“We consider that the shape of an ambitious, comprehensive, high standard and balanced deal is crystallizing. We will continue to focus our efforts, and those of our negotiating teams, to consult widely at home and work intensely with each other to resolve outstanding issues in order to provide significant economic and strategic benefits for each of us. We now pass the baton back to Chief Negotiators to carry out instructions we have given.”

On October 30, 2014, despite a push from numerous business groups, it was reported that it would be very difficult to pass TPA in the lame duck session, which is the time between the election on November 4th and the inauguration of the new Congress in January 2015.

On October 31st, USTR Mike Froman made clear that the 12 nations negotiating the TPP deal did not expect a final deal at the Asia-Pacific Economic Cooperation (“APEC”) conference in Beijing. As Froman stated:

“No, we do not expect to have a final agreement on TPP at APEC. All the TPP leaders will be present, so it will be a good opportunity to have conversations with each other about TPP, about whatever outstanding issues are left … and to give more political impetus to getting it done.”

Froman said that negotiators are still at work on the deal:

“We are making very good progress in closing out issues, narrowing the differences on remaining issues but we still have a ways to go and we are going to continue to work. We think the substance of the negotiation ought to drive the timetable. We’re not going to live by an arbitrary deadline but we are all focused on getting it done as soon as possible.”

On November 6th, after the election, business Leaders announced that they were increasing pressure to take up the TPA during the lame duck, but Mike Dolan, Teamsters’ legislative representative, said that fast track “won’t go anywhere during Lame Duck.” A broad coalition of labor, consumer groups sent over half a million petition signatures to Congress opposing TPA for the pending TPP.

In response to a question about the chance for a vote in the remaining weeks of the current Congress, Senate Finance Committee ranking Republican Orrin Hatch (R-Utah) stated, “Whether that happens during the lame duck is ultimately up to Democratic leadership.” Senator Hatch also stated that he believes there would be strong support to pass trade promotion authority in the “lame duck” session of Congress if Senate Democratic leaders decide to allow a vote. Senator Hatch, the new Chairman of the Senate Finance Committee, introduced the TPA bill along with former Senate Finance Chairman Max Baucus, now the U.S. ambassador to China, and House Ways and Means Chairman Dave Camp, R-Mich.

On November 10th in Beijing President Barack Obama and the leaders of the other 11 countries negotiating the TPP stated that a final agreement is now “coming into focus,” but declined to set a firm deadline for the completion of the talks. The 12 leaders, meeting on the sidelines of the APEC summit in Beijing, issued a joint statement commending the progress made by their negotiating teams over the past several weeks and kept up the pressure to finalize the TPP in the near future. The leaders stated:

“With the end coming into focus, we have instructed our ministers and negotiators to make concluding this agreement a top priority so that our businesses, workers, farmers and consumers can start to reap the real and substantial benefits of the TPP agreement as soon as possible.”

On November 11th, John Ivison, a Canadian reporter, issued an opinion piece in the National Post of Canada stating that any “‘significant progress’ made on the Trans-Pacific Partnership trade deal is pure bureaucratic BS.” See http://fullcomment.nationalpost.com/2014/11/11/john-ivison-any-significant-progress-made-on-the-trans-pacific-partnership-trade-deal-is-pure-bureaucratic-bs/.

As Ivison stated:

Trade sources suggest two major problems with negotiations that run contrary to the sunny optimism of the official statement.

One is that the Americans have approached the talks on a bilateral basis, preferring to hammer out deals country by country. “This is a typical U.S. approach, trying to run it like a hub-and-spoke negotiation,” said Mr. Clark.

Without knowing the outcome of talks between the two largest TPP participants — the U.S. and Japan — no one else has tabled a serious offer.

“Things are no closer than they were six months ago. No country will make an offer setting the starting point for ‘level of ambition’ without knowing the ambition levels of the U.S. and Japan.  You only give further from your first offer,” said one person with knowledge of the negotiations.

The second impediment to real progress is lack of Trade Promotion Authority — fast-track — on the part of President Barack Obama. No one wants to strike a deal that then becomes a bargaining chip in the internecine politics between the president and Congress.

There have been some suggestions that the newly empowered Republicans in the Senate might offer fast-track authority, in return for the president giving the Keystone XL pipeline the green light. But for now, President Obama cannot sign off on a deal using his executive authority.

Canada’s intransigence on supply management of poultry and dairy is likely to become a problem at some point.

In Beijing, TPP trade ministers highlighted the four areas where issues remain unresolved in the proposed deal: intellectual property, state-owned enterprises, the environment and investment. The ministers called intellectual property “one of the most complex and challenging areas of the agreement.”

On November 13th, over 200 business groups sent a letter to leaders of both the House and Senate, urging them to pass a new fast-track trade bill during the lame-duck legislative session this year. Specifically, the Trade Benefits America Coalition sent the letter urging passage of bipartisan Trade Promotion Authority (TPA) legislation to House Speaker John Boehner, R-Ohio, Senate Majority Leader Harry Reid, D-Nev., House Majority Leader Nancy Pelosi, D-Calif., and Senate Minority Leader Mitch McConnell, R-Ky., on behalf of more than 200 U.S. associations and companies including the American Farm Bureau, National Foreign Trade Council and National Association of Manufacturers.  The letter concluded, “With 95 percent of potential customers outside the United States and more than one in five American jobs supported by trade, we need to seize on opportunities — such as ongoing and future U.S. trade agreements — to expand U.S. commerce with other countries.”

On November 15th President Obama vowed to continue pushing toward a swift TPP deal, which he said has the potential to yield a “historic” trade deal. At the G20 meeting Obama stated:

“It is our chance to put in place new, high standards for trade in the 21st century that uphold our values. It’s about a future where instead of being dependent on a single market, countries integrate their economies so they’re innovating and growing together. That’s what TPP does. That’s why it would be a historic achievement.”

On November 18th, Prime Minister Abe in Japan called a snap election on December 14th to seek a mandate for his economic decisions, but this too will complicate the TPP negotiations.

On November 18th Deputy USTR Robert Holleyman stated that the U.S. is seeking provisions in the TPP requiring civil and criminal responses to the theft of trade secrets. As Holleyman stated:

“Many in this room have certainly paid attention to the damage that’s being caused by the theft of valuable trade secrets in foreign marketplaces. And in the TPP agreement, we’re seeking both civil and criminal responses to this problem, including to the issue around the growing problem of cyber-theft of trade secrets.”

TTP FOR CHINA??

But what about China? Could it eventually join the TPP?

On October 15th, the Peterson Institute for International Economic (”IIE”) released a study touting the benefits of a theoretical free trade agreement between China and the United States, including increased income and export gains, while also acknowledging that such an agreement could lead to 500,000 to 1 million lost U.S. jobs over a 10-year span.

There are clear signs that China is interested in joining TPP. Citing an unnamed high-ranking U.S. official, Bergsten of IIE said “not a week goes by” that the administration does not receive an inquiry from China about TPP. But China has not officially sought entry into the initiative because it believes it would be denied at this stage in the negotiations. U.S. officials have made clear they want to close the deal with the current 12 participants.

The study predicts that a comprehensive agreement between China and the U.S. would create income gains for the U.S. of up to $130 billion while creating $330 billion in income gains for China. Under the agreement, the U.S. is projected to achieve export gains of $373 billion, and China — $472 billion. Similarly, U.S. exports to China would increase 108 percent and Chinese exports to the U.S. would increase 40 percent, according to the study.

But the study also finds that if a bilateral agreement is reached, the U.S. would suffer “adjustment costs” in the magnitude of 50,000 to 100,000 U.S. workers losing their jobs each year over a 10-year period. In other words, the deal could cost the U.S. economy up to a million job losses over a decade.

That is where Trade Adjustment Assistance for Companies comes into play. The Peterson study contends that because the economic benefits equate to roughly $1.25 million in national income gains per job lost, the U.S. should consider policy alternatives to offset job loss rather than simply abandon an FTA with China. Such alternatives could include a bolstered trade adjustment assistance program, lengthy phase-ins of the liberalization of sensitive sectors, and larger wage-loss insurance and training and relocation programs.

Over the past year, China has undergone a radical shift in its stance on TPP because Beijing realizes it stands to suffer financial losses if it is not a member of the agreement, according to the authors of the study. The study claims that if TPP is concluded, China would lose $82 billion in gross domestic product and $108 billion in export revenue due to diverted trade flows.

CHINA AUSTRALIA FTA

To add more fuel to the fire, on November 17th, Australia and China signed a free trade agreement to allow greater Australian agricultural exports and greater investment in China and increased Chinese exports to Australia. According to the Australian Prime Minister, the Agreement is predicted to add billions to the Australian economy create jobs and drive higher living standards.

Prime Minister Tony Abbott stated:

“It greatly enhances our competitive position in key areas such as agriculture, resources and energy, manufacturing exports, services and investment. Australian households and businesses will also reap the benefits of cheaper goods and components from China, such as vehicles, household goods, electronics and clothing, placing downward pressure on the cost of living and the cost of doing business.”

When the deal takes effect, more than 85 percent of Australian goods exports will be tariff free and that number will climb to 95 percent. Those goods were previously saddled with tariffs of up to 40 percent. US companies that attempt to export products to China can face very high tariffs, some in the 40 to 60 plus percent range.

China, meanwhile, will face less scrutiny in its investments in Australia per the deal. The Chinese government told Australia it estimates it will spend $1.3 trillion over the next decade in investments in Australia.

TTIP FTA WITH EUROPE

Meanwhile the TTIP FTA with Europe moves forward on November 16th with President Obama and prominent EU leaders ordering their respective negotiating teams to continue negotiations. A Joint Statement provides:

“We remain committed, as we were when we launched these negotiations in June 2013, to build upon the strong foundation of our six decades of economic partnership to promote stronger, sustainable and balanced growth, to support the creation of more jobs on both sides of the Atlantic and to increase our international competitiveness.”

But former USTR Clayton Yeutter predicted that despite the problems, the negotiations would likely finish up after Obama leaves office in early 2017. As Yeutter stated:

“There were a lot of miscalculations as to how long TTIP was going to take. This is not a negotiation that’s going to conclude anytime soon. In my view there is no practical chance of doing it during the Obama presidency.”

On November 18th the new EU Trade Commissioner Cecilia Malmstrom responded to criticisms that the TTIP will only serve the interests of large multinational Corporations by stating that the Agreement must benefit consumers:

“Trade agreements can lower prices, widen choice and create high-quality jobs. TTIP must do exactly that.”

Malmstrom also called for the negotiations to be more transparent, stating that the agreement needed input from “the whole range of civil society groups: trade unions, business associations, environmental organizations and, of course, consumers.”

INDIA BILATERAL DEAL WITH THE US MOVES TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI FORWARD

Many World Trade Organization (“WTO”) and US officials have warned that India’s decision to block the implementation of the Trade Facilitation Agreement (“TFA”) negotiated in Bali has had a “freezing effect” on the WTO’s work in a number of different areas. But after substantial pressure from the APEC countries, India and the US announced a breakthrough in the negotiations over the Agreement.

On July 31st, the WTO announced that the Trade Facilitation Agreement negotiated in Bali would not be implemented on schedule because of the substantial opposition from developing nations led by India as a result of food security initiatives.

On September 30th, in his first meeting with President Obama, although indicating that a solution should come soon, Indian Prime Minister Modi reaffirmed his government’s position linking the WTO Trade Facilitation Agreement with support for the deal to act on food security issues.

On October 16, WTO Director-General Roberto Azevêdo reported to the Trade Negotiations Committee:

As a result we missed the deadline for the adoption of the protocol of amendment on the Trade Facilitation Agreement, which was the first deadline that Ministers set us in Bali. I said at the time that I feared there would be serious consequences. . . . as I feared, this situation has had a major impact on several areas of our negotiations. It appears to me that there is now a growing distrust which is having a paralyzing effect on our work across the board. . . .

it is my feeling that a continuation of the current paralysis would serve only to degrade the institution — particularly the negotiating function. . . . This could be the most serious situation that this organization has ever faced. I have warned of potentially dangerous situations before, and urged Members to take the necessary steps to avoid them. I am not warning you today about a potentially dangerous situation — I am saying that we are in it right now.

At the Trade Negotiations Committee meeting, Deputy USTR and U.S. ambassador to the WTO Michael Punke slammed India and the other opponents of the TFA protocol for perpetuating an “unnecessary and counterproductive crisis.” Those members’ inability to concede their position on food security has “significantly undermined” the entire Bali package and may doom any prospects for a “fully multilateral agreement.”

Although some of the trade pundits were suggesting that India be dropped off the back of the bus and the TFA move forward without India, others indicated that the real role of the TFA was symbolic—a way to get the WTO negotiating function going again.

On October 31st, Director-General Roberto Azevêdo reported to heads of delegations that there had been progress, and on November 10th, Azevedo asked APEC members, who were meeting in Beijing, to help push the TFA Agreement through. On that same day trade ministers for the 21 APEC countries, including China, vowed to throw their full weight behind resolving the current stalemate in the World Trade Organization surrounding the implementation of a trade facilitation agreement and the expansion of a tariff-cutting pact. In the attached statement released in Beijing, APEC ANNOUNCEMENT BALI TPP, the APEC Ministers stated:

2014 APEC Ministerial Meeting

  1. We, the Asia-Pacific Economic Cooperation (APEC) Ministers, met on 7-8 November 2014, in Beijing, China. The meeting was co-chaired by H.E. Wang Yi, Minister of Foreign Affairs of the People’s Republic of China, and H.E. Gao Hucheng, Minister of Commerce of the People’s Republic of China. . . .
  1. We welcome the participation in the meeting of the Director General of the WTO . . . .
  1. We reaffirm our confidence in the value of the multilateral trading system and stand firmly to strengthen the rules-based, transparent, non-discriminatory, open and inclusive multilateral trading system as embodied in the WTO.
  1. We highly commend the Bali Package achieved at the 9th Ministerial Conference (MC9) in Bali, Indonesia. We express our grave concern regarding the impasse in the implementation of the Trade Facilitation Agreement (TFA) which has resulted in stalemate and uncertainties over other Bali decisions. These developments have affected the credibility of the WTO negotiating function. In finding solutions to the implementation of the Bali decisions, APEC will exert creative leadership and energy together with all WTO members in unlocking this impasse, putting all Bali decisions back on track, and proceeding with the formulation of Post-Bali Work Program, as a key stepping stone to concluding the Doha Round.
  1. Bearing in mind that open markets are vital for economic growth, job creation and sustainable development, we reaffirm our commitment and recommend that our Leaders extend a standstill until the end of 2018, and roll back protectionist and trade-distorting measures. We remain committed to exercising maximum restraint in implementing measures that may be consistent with WTO provisions but have a significant protectionist effect and to promptly rectifying such measures, where implemented. In this context, we support the work of the WTO and other international organizations in monitoring protectionism.

Emphasis added.

Significantly, India is not a member of APEC, and the ministers’ statement made clear that they would exhaust all resources in order to convince New Delhi to change its stance and enable the WTO to carry on with its more substantive work.

On November 12th, in Beijing President Obama expressed optimism saying that he was “actually confident that there’s an opportunity for us to resolve them fairly soon.”

On November 13th, the US and India announced that they had reached an agreement to move the TFA forward. Under the bilateral deal, India agreed to drop its opposition to the TFA to streamline international customs procedures while the U.S. agreed to leave a so-called peace clause shielding India’s food stockpiling measures from legal challenges in place until the WTO crafts a permanent solution on that issue.

On November 14th Azevedo predicted that the implementation of a deal streamlining global customs procedures would earn quick approval from the WTO members within two weeks following the Indian government’s move to drop its opposition to the pact.

On November 16, the G-20 leaders in Australia welcomed “the breakthrough” between the U.S. and India that would allow for the “full and prompt” implementation of the TFA. The leaders also pledged to implement other agreements in Bali and swiftly define “a WTO work program on the remaining issues of the Doha Development Agenda to get negotiations back on track,” which it said would “be important to restore trust and confidence in the multilateral trading system.”

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL—RESPONSE TO OPPOSING ARGUMENTS

As stated in my last newsletter and in my October blog post, I have made the case for the Trade Adjustment Assistance Program for Firms/Companies, which is presently funded at $16 million nationwide. With only a relatively small part of that low budget, the Northwest Trade Adjustment Assistance Center (“NWTAAC”) has been able to save 80 percent of the companies that participated in the program since 1984.

In my last newsletter and my blog, I also argued that President Reagan himself indirectly approved of the TAA for Firms/Companies (“TAAF”) program because it does not interfere with the market in any ways and yet has been able to save a number of US companies. In fact, the TAA programs could be funded by the over $1 billion collected every year by the US government in antidumping and countervailing duties.

But there are two programs. The first program is the $500 million to $1 billion program of TAA for workers and then there is the $16 million TAAF program for companies. Congress should consider reworking the two programs to accomplish the objective of saving the jobs and the companies that are hurt by trade liberalization. There needs to be more coordination between the two programs.

One way to adjust the programs is put the TAAF for Companies program first and give it more funding so it can help larger companies, such as Steel and Tire Companies, where more jobs are located. TAAF for Companies could be used to create a program where the best of technologies and advisory services could be brought to bear to help US companies challenged by globalization and trade liberalization. The Worker program then comes afterwards, after the jobs have been lost. Data that is needed for the Worker program can be supplied as part of the Company program.

But several questions have been raised that need to be answered.

  1. Isn’t TAAF for Companies crony capitalism?

Many opponents might argue that TAAF for Companies is simply crony capitalism. Under the TAAF program, however, very little money actually goes to the companies. Most of the money goes to business consultants that can help the company change its business model or change its marketing strategy.

In fact, as it stands now, the Program only provides $75,000 in matching funds, which means the Company itself must put in the matching $75,000. Although relatively small, the Federal money has been critical in helping US companies develop a strategy to deal with the new import competition in the market place and adjust to market conditions.

The TAAF program also cannot provide hard assets to the company, just business strategy advice and help on soft projects, such as help designing a marketing website, developing software for the company in its production process or designing a dam for an Idaho sheep farm. This is not corporate welfare because the company has to put much of its own assets in both money and labor into the assistance.

WTO also does not consider this a subsidy. No money or assets go to the company. The amount is low and does not harm international trade.

Although the TAAF program could be strengthened so that it could provide TAA for larger companies, such as Steel and Tire companies, the matching funds provision and the limitation on providing only soft projects and consulting is important so that the program cannot be targeted as simply another government subsidy.

TAAF for companies is not another Solyndra program.

  1. Isn’t TAA for Firms/Companies picking winners and losers in the market?

Any company that has been injured by imports/is being impacted by trade competition can apply to enter the program. At its core, the TAAF for companies program provides advice to the company on how to swim in the newly competitive marketplace from business experts, who know how to turn a company around.

In addition, the initial write up of the application is done by experts at TAA Centers around the country, who work with the companies at the local level on a one to one basis to develop a plan to fit the specific needs of the company. Because the program is implemented at the local level by neutral officials, there is no picking winners and losers. Although the final adjustment plan must be approved at Commerce, by that time the politics has been bled out of the situation and the question is can the company meet the criteria in the statute.

  1. Why shouldn’t TAA money go to workers and not companies?

TAA for firms/companies is not TAA for management. The company includes both the management and the workers. If you talk to workers, which have been hit by trade competition, they would rather have their job then just take assistance from the Federal Government.

Although Unions have pushed unfair trade cases, in fact, many of these unfair trade cases do not work. They do not protect the companies, and more importantly the workers from import competition. It is impossible to bring antidumping and countervailing duty cases against every country in the World.

I have met workers at a company that has been saved by the TAA for Firms/Companies program, which helped the company adjust its business plan to compete in the new trade impacted market. The worker in question had been at the factory for over 30 years and was very grateful that the program had saved his job.

In fact, the split between workers and management may be one of the problems that should be addressed by TAA. Often with the small companies, however, the employees and management have been together for years and look upon each other as one in the same. They are all in the company boat together.

Also TAA for Firms/Companies is not an entitlement, a net flow out of the US government. The TAAF program keeps the company alive and keeps the taxes from the company and the company’s management and workers flowing to the US and State Treasuries, which is money going into the US and State treasuries. That is real bank for the buck.

  1. Why can’t Private Investment/Equity funds pick up the slack and thus there is no need for TAA for Firms/Companies?

Private investment companies are often targeting short term profits so if the company cannot achieve short term profits, the company is closed and the assets are sold. Mitt Romney’s company, Bain Capital LLC, invested substantial money into GS Industries, the parent company of Georgetown Steel.  Although Bain made money, it did so by cutting more than 1,750 jobs, closing a division that had been around for 100 years and eventually Georgetown Steel sank into bankruptcy.

TAAF for companies is working long term to save the company and the jobs that go with that company. This is the only long term assistance program in the US government. So the short term profitability of the company is not the issue. The issue is can the company be turned around so that it can become profitable and very profitable in the long term.

Private Equity Firms and TAAF have very different objectives.

  1. What makes TAA for Firms/Companies different from other Economic Assistance to US companies?

TAAF for companies is a trade program, not just a Government assistance program. Trade problems for companies often happen because Government action has changed the US market, be it a free trade agreement, such as the TPP, or a change in government regulations, which has exposed the US companies to import competition.

Since the Government has created the problem in the short term by its own action, it has a responsibility to help US companies and workers that have been impacted by this Government action.

Under the Constitution Congress controls trade, not the President. TAAF is a program that was started to allow Congress and the Administration to negotiate international trade deals, which help the US economy as a whole, but have the effect of creating winners and losers in the US market.

To help building public support for these Free Trade Agreements, TAA has been provided to companies and workers to help them adjust to increased import competition. Although over time, the TAAF for companies program has declined in funding, with the new trade agreements, such as the TPP and the TTIP, the program needs to be built up again to help companies that have been hurt by changes in the US trade laws, which encourage US exports, but also imports from other countries. As stated at the top of this newsletter, trade is a two way street.

In addition, the TAAF program is the only long term assistance program in the US, and it monitors the companies to make sure they implement the plans that they have agreed to.

  1. The TAAF Program Is Too Small To Be Effective

The $16 million TAAF program may be small, but it is very effective.  Since 1984, NWTAAC has been able to save 80% of the companies in the program.

The 2013 NWTAAC report from Commerce points out that all the companies that entered the program since 2011 are still alive today.

In fact, TAAF should be expanded so it can help larger companies, such as Steel and Tire companies, deal with increased competition in the US market as trade agreements reduce barriers to imports.

  1. Why help old line US industries and companies that technology and changing trade patterns have left behind and should die a natural death?

This is the basic creative destructionism argument from famous Harvard economist, Joseph Schumpeter, and it is true if companies do not change with changing market conditions, they will die a natural death.

But TAAF for companies gives companies the opportunity to change and adapt to the changing market conditions. Many TAAF employees that have been working at the Centers for years firmly believe that any company that enters the program can be helped. It may be a new marketing strategy or a change in company equipment, or improvements in their business strategy.  The staff has seen too many success stories to not believe in the power of the program.

In Seattle we had a company making ceramic flowerpots that was being injured by imports of flower pots from Mexico. The company came into the program and as a result started producing ceramic molds for titanium parts for Boeing.  Changing the business plan is one of the best strategies to keep the company alive and the jobs that go with that company.

TAA REAUTHORIZATION NEEDED BY DECEMBER 31ST

On November 20th, in the attached announcements CONGRESS E-MAIL Reauthorize Trade Adjustment Assistance Before It Expires on December 31 REAUTHORIZATION SEAL, House and Senate Democrats urged Congress to reauthorize TAA before it expires December 31st. Although the emphasis is on the TAA for Workers program, the Reauthorization would also apply to TAA for firms/companies. As it stands now, as of January 1, 2015, TAA will no longer be able to provide trade adjustment assistance to new companies that want to enter the program. If TAA for Companies is not reauthorized by June 1, 2015, all the TAAC centers around the country will close their doors and the program will cease to exist.

As indicated below, funding TAA is the essence of compassionate conservatism.

CONGRESSIONAL E-MAIL NOTICES

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

From: The Honorable Adam Smith Sent By: Mina.Garcia@mail.house.gov Bill: H.R. 4163 Date: 11/20/2014

November 20, 2014

Reauthorize Trade Adjustment Assistance Before It Expires on December 31, 2014

Dear Colleague,

We write to draw to your attention to five stories that illustrate the importance of reauthorizing the Trade Adjustment Assistance (TAA) program. TAA provides financial support and re-employment training for workers whose jobs are lost due to trade. It also provides assistance to U.S. companies that have been injured by imports so they can continue to remain competitive and not resort to mass lay-offs or closures.  Funding for service workers expired at the end of 2013. Funding for the remainder of the program – which supports manufacturing workers, farmers, ranchers, fishermen, and firms – will expire on December 31 unless we act to renew it.

In 2013, 100,000 workers qualified for TAA and the results prove the program’s success.  More than 75% of workers who completed the program found jobs within six months, and of those, 90% were still employed a year later.  More than 75% of workers who completed training in 2013 received a degree or industry-recognized credential.   Here are five TAA success stories:

  •  A 74 year-old Seattle die forging firm experienced trade impact and entered the Trade Adjustment Assistance for Firms program (TAAF) in the mid 2000’s. With the assistance of the Northwest Trade Adjustment Assistance Center (NWTAAC), the firm implemented a strategy of adopting certain innovations to develop capabilities in advance of competitors worldwide. NWTAAC assisted the firm in three ways that relied heavily on outside expertise: implementation of a data management system; commercialization of a new alloy; and a revision of the Firm’s website. Two years after completing TAAF, the Firm has increased employment by 11% and sales by 141%.
  •  Rodney Cox worked for 13 years on machinery, most recently at a local hospital in rural Oregon.  He was laid off in September 2010 and could not find another job.  With only a GED, he realized he would need more education to make the wage he had earned as a millwright.  Working with a TAA case manager, he opted to attend a community college that offered an Associate’s degree in Biomedics.  His TAA benefits allowed him to live, temporarily, near the training facility 177 miles away from his home (and family).  Rodney earned his degree and accepted a position as a Bio-Medical Equipment Technician.  He is earning a wage higher than what he earned when he was a millwright.  Of TAA, Rodney said, “Things couldn’t have worked out better for me.  My case managers helped me every step of the way.  I was hired two days after I moved back home with my family.”
  •  Kim Franklin is a single mother with two children.  She worked for a manufacturing company.  When she was laid off, she could not find a similar job.  She realized she needed to consider a new career and to get new skills. Through TAA, she completed Medical Assistance training.  She is now employed as a medical assistant at a health clinic in her community.
  •  Juan Bustamante worked as a machine operator in California for over 11 years making aluminum rims for cars.  When the nearby car facility moved operations out of the country, Juan – and 300 of his colleagues – lost their jobs.  Through TAA, Juan was able to obtain remedial education in English, Math, and Speech at the Los Angeles Valley College Job Training Center.  After completing the coursework, Juan qualified for the Transportation Metro Bus Operator Bridge Training Program.  After completing that program, he received a position with LA Metro and has full benefits.
  •  Judith Fischer worked for a publishing firm in New York and lost her job.  Through TAA, she explored career options and decided to pursue occupational therapy, concentrating on the psychological effects of diminished quality of life issues.  She earned an Associate’s Degree and received a job as a Community Rehabilitation Instructor and Case Manager, working with the developmentally disabled.  Judith plans to pursue a Master of Science in Social Work.  Of her new career, Judith said that it is “rewarding in every way, especially being able to connect with these children and I feel all the love they have to give.”

These examples demonstrate that TAA helps workers find new jobs and firms stay in business when they face new competition from abroad. We urge you to extend the program before it expires on December 31.

/s/                                                                             /s/ SANDER LEVIN                                                         ADAM  SMITH Member of Congress                                                   Member of Congress

/s/                                                                             /s/ CHARLES B. RANGEL                                               DEREK KILMER Member of Congress                                                   Member of Congress

/s/ RON KIND Member of Congress

 United States Congress

SECOND CONGRESSIONAL NOTICE

FOR IMMEDIATE RELEASE

Thursday, November 20, 2014

Contact: Rep. Smith- Ben Halle, (202) 570-2771

            Rep. Levin- Caroline Behringer, (202) 226-1007

            Rep. Kilmer- Jason Phelps  (202)-225-3459

            Rep. Rangel- Hannah Kim, (202)-225-4365

House Dems Urge Congress to Reauthorize TAA Before it Expires December 31st

Washington, D.C.- Today, Senator Sherrod Brown introduced a Senate companion bill to the Trade Adjustment Assistance (TAA) Act of 2014, introduced by Representatives Adam Smith (D-WA), Sander Levin (D-MI), Derek Kilmer (D-WA), and Charles B. Rangel (D-MI). These bills would renew TAA, which is set to expire on December 31, 2014. Reps. Smith, Levin, Rangel, and Kilmer released the following statement calling for the immediate passage of the TAA:

“It is critical that Congress pass Trade Adjustment Assistance legislation before it expires at the end of the year. Both the House and Senate TAA bills provide critical work training, income support, and health care to help dislocated American workers transition and learn new skills for new careers in competitive industries.  This vital assistance helps American workers and businesses adapt and compete in a rapidly evolving world economy.”

Background: Congress created the TAA program in 1962 in response to the loss of jobs among hard-working Americans as a result of increasing global competition, as well as to promote American competitiveness.  TAA benefits have several components: training assistance, income support while in training, and job search and relocation assistance.  The program assists workers dislocated by the elimination of tariffs and other barriers to trade.  Additional programs assist farmers, fishermen, and firms with the development and implementation of business plans to enable them to regain a competitive foothold. Click here for the full text of the Trade Adjustment Assistance (TAA) Act of 2014.

TAA by the numbers:

  • 2,192,910:  The number of workers served by TAA since it was created in 1974
  • 104,158:  The number of workers eligible to apply for TAA in 2013
  • 50:  The number of states with workers eligible for TAA benefits in 2013
  • 75%: The percentage of TAA workers who got a job within six months of finishing the program
  • 90%: The percentage of those TAA workers who remained employed at the end of the year

ANTIDUMPING, COUNTERVAILING DUTY AND OTHER TRADE CASES

THE MAGNESIUM CASE — WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US PRODUCERS

As stated in numerous past newsletters, market economy for China is important for US end user production companies. The importance of market economy for the United States is illustrated by the Magnesium from China antidumping case. Recently a large Western company came to me because they were thinking of exporting Chinese magnesium to the United States to help the US magnesium die casting industry. But after discussions, at least in the short term, the company gave up because there is no longer a viable magnesium die casting industry in the United States. The Antidumping Order on Magnesium from China has killed the downstream industry.

In antidumping cases Commerce does not use actual prices and costs in China to determine whether a company is dumping. Dumping is defined as selling at prices in the United States below prices in the home market or below the fully allocated cost of production.

As mentioned before, however, in contrast to Japan, Korea, India, Iran and almost every other country in the World, China is not considered a market economy country in antidumping cases. Commerce, therefore, refuses to look at actual prices and costs in China to determine whether a Chinese company is dumping. Instead Commerce constructs a cost for the Chinese company by taking consumption factors from the Chinese producer for all inputs used to produce the product in question, including raw materials, energy, and labor, and then goes to a Third Surrogate Country to get Surrogate Values often from Import Statistics in the surrogate country to value those consumption factors.

In the past Commerce looked for surrogate values in only one country, India, but recently Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and those countries and import values can change from annual review investigation to annual review investigation.

Thus, it is impossible for the Chinese company to know whether it is dumping because it cannot know which surrogate value that Commerce will pick to value the consumption factors and thus the US importer cannot know whether the Chinese company is dumping.

In the Magnesium from China antidumping case, one of the key inputs is electricity. Electricity from hydro power in China, where many of the Chinese companies are located, can be as low as 3 cents a kilowatt hour. The average electricity cost in the US is 6 cents a kilowatt hour. What price did Commerce use as a surrogate value for electricity in the recent Magnesium review investigation? 7 cents a kilowatt hour.

This is very important because as of February 2014, there were 121 Antidumping and Countervailing Duty orders. 75 of those orders are for raw material products, such as metals, chemicals and steel, which go into downstream US production.

The Commerce Department has broad discretion to determine surrogate countries and values and their choices can change from annual review investigation to annual review investigation, exposing US importers to millions of dollars in retroactive liability based on a process, which is inherently arbitrary, because Commerce does not look at actual prices and costs in China.

Not only is there a problem with retroactive liability for US importers, US end user companies are often blocked from using the competitive Chinese raw material input, which, in turn, exposes the US downstream producers, such as foundries, automobile and chemical producers, to competition from Chinese companies and foreign companies that do have access to the lower cost raw materials. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

One example of the devastating impact of the US Antidumping Law is the impact of the US Magnesium from China antidumping case on the US Magnesium Die Casters. As the North American Die Casting Association stated in June 2010:

North American Die Casting Association

June 7, 2010 ·

NADCA Supports Magnesium Die Casters with a Filing to Help Lift Tariffs

May 27, 2010 by NADCA in NADCA News Wheeling, IL

NADCA recently filed a response to the International Trade Commission (ITC) in hopes to help lift ITC’s tariffs on imported magnesium alloy. Since many die casters have been harmed by the excessive prices being charged by the sole magnesium alloy producer in the U.S., NADCA has filed this response in regards to the Sunset Review of this particular ITC tariff. . . .

NADCA is concerned about magnesium die casters having access to alloy magnesium in the U.S. at globally competitive prices. The antidumping duty orders effectively bar Russian and Chinese alloy magnesium from the U.S. market. Prices for alloy magnesium are higher in the U.S. than elsewhere due to the antidumping duty orders currently in place in the U.S. but not in other major consumer markets.

The lack of effective competition in the U.S. market ― there is only one significant U.S. producer of alloy magnesium, US Magnesium LLC ― has harmed die casters since the imposition of the antidumping duty orders in 2005. NADCA estimates that as many as 1,675 direct jobs and 8,000 supporting jobs have been lost in the die casting industry due to the imposition of these orders.

US Magnesium has not made significant efforts to maintain or increase its sales of alloy magnesium in the U.S. since the imposition of the antidumping duty orders. For example, US Magnesium has not joined in efforts initiated by magnesium end-users to develop new uses of magnesium.

Thus an antidumping order to protect more than 450 production jobs in Utah has resulted in the loss of 9,657 jobs in the downstream market.

What did the ITC do in the face of this argument?

Left the antidumping order against magnesium from China in place for another five years.

Now in 2014, what has been the effect of the ITC’s decision to leave the Antidumping Order on Chinese Magnesium in place—more closed companies and more lost jobs. In 2004-2005 43 US companies sold magnesium die castings in the US market.   According to NADCA, less than 12 US companies now produce magnesium die castings in the United States.

NADCA estimates that 31 US companies have ceased pouring magnesium in the United States because of the antidumping order against magnesium from China.  US companies, such as Lunt in Illinois, simply went out of business because of the Magnesium from China Antidumping order. In 2010, when NADCA did the survey, it estimated a job loss of 1,675 direct jobs. Now the jobs loss has swelled to over 2,000 and closer to 10,000 supporting jobs.

12 companies have survived because they fall into two categories. The major market for magnesium die casting is auto parts. The first set of companies use the magnesium die castings that they produce ( i.e. Honda).

The second set of US companies are those strong in other metals, such as aluminum, and have shifted from producing magnesium die castings to aluminum die castings.

Where did the magnesium jobs and companies go? Many companies and projects simply moved to Mexico or Canada.

Many OEM magnesium auto parts manufacturers moved all their production to Mexico. Five Tier 1 steering wheel manufacturers, for example, have magnesium die casting and wheel assembly plants in Mexico, including TRW, AutoLiv, Takata, Key Safety Systems and Neaton.

The other impact of the antidumping order on Magnesium from China has been to push North American car companies away from magnesium auto parts, necessary for light weight cars, especially powertrain, mainly because of the supply uncertainty.   Lack of access to 80% of the world’s production of magnesium in China and not having globally priced metal inputs is a huge risk to car companies. Magnesium powertrain die casters, such as Spartan, have simply switched to aluminum further reducing magnesium die casting capacity and expertise in the US.

This further diminishes US auto makers acceptance of magnesium auto parts.  This US situation greatly contrasts with Europe where magnesium powertrain components are more than 50% of the magnesium auto applications. EU OEMs are much more advanced at building lighter cars now than their US peers.

Now NADCA has given up because it is “simply too difficult to fight city hall”. My potential client also told me that it was just not worth it to fight the Magnesium antidumping order because the downstream market for the product had simply died in the United States.

The Antidumping law in truth is a jobs destroyer, not a jobs creator.

THE WOODEN BEDROOM FURNITURE ANTIDUMPING CASE—NO HELP TO THE DOMESTIC INDUSTRY BUT 100S OF MILLIONS OF DOLLARS IN RETROATIVE LIABILITY FOR US IMPORTERS AND BANKRUPTCIES

On November 18, 2014, in Mark David, a Division of: Baker, Knapp & Tubbs, Inc. et al v. United States, CIT MAOJI, the Court of International Trade (“CIT”) affirmed a Commerce Department decision of a 216% rate for Maoji, a major Chinese exporter, in the Wooden Bedroom Furniture case creating probably 10s of millions of dollars in retroactive liability for US importers.

In that decision, Judge Tsoucalis stated:

“Maoji does not dispute that they failed to participate fully in the review, and that they therefor can be subjected to an AFA rate. The issue before the court is instead whether Commerce’s application of the 216.01% PRC-wide AFA rate to Maoji was reasonable. Plaintiff argues that the 216.01% PRC-wide AFA rate was neither reliable nor relevant. . . . According to Plaintiff, Commerce applied an “outdated” and “unsupported” margin that did not reflect Maoji’s commercial reality. . . .

Plaintiff does not appear to dispute Commerce’s finding that Maoji failed to rebut the presumption of government control in the Final Results. During the review Maoji notified Commerce that it was not practicable for it to provide a response to the Section D questionnaire or the supplemental Section A questionnaire. . . . Commerce determined that Maoji was a part of the PRC-wide entity. . . . Because Maoji failed to respond to Commerce’s questionnaires regarding its separate rate eligibility during the review, Commerce reasonably concluded that Maoji failed to demonstrate its absence of government control. . . .

Unlike Orient in Lifestyle I, here, Maoji failed to qualify for separate rate status. As a result it received the PRC-wide AFA rate. Because Maoji was part of the PRC-wide entity, Commerce was not required to calculate a separate AFA rate relevant to Maoji’s commercial reality. . . . Commerce was only required to corroborate the rate to the PRC-wide entity. . . . Therefore, Plaintiff’s reliance on Lifestyle I is misplaced. Lifestyle I does not call into question the PRC-wide rate as applied to the PRC-wide entity, rather it only discredits its application to Orient, which successfully established the absence of both de jure and de facto government control.”

Several years ago, an importer asked me to meet with Maoji in Shanghai and talk to them about the Wooden Bedroom Furniture case. From talking to the importer, I knew that Maoji was exporting a lot of furniture from different Chinese manufacturers and asked the Manager from Maoji, what would happen if Commerce picked Maoji as a mandatory respondent in the review investigation and it had to report factors of production/consumption factors from all Maoji’s suppliers? Instead of replying, the Manager got mad and started yelling at me, “Who told you we would have to supply production information for all our suppliers?” End of conversation.

In this case, apparently Maoji could not supply its response to Section D of the questionnaire because it was not practicable. Section D of the questionnaire requires the exporters to report consumption factors for its wooden bedroom furniture suppliers/producers. Too many producers apparently did not want to cooperate with Maoji and supply their production information.

But now all the importers that imported from Maoji are exposed to retroactive liability of 216% on imports. Based on my past experience, this means that importers will owe millions and possibly 10s of millions of dollars on these imports.

A month ago while in Beijing during a meeting with the Chamber of Light Industrial Products, a Chinese Chamber official told me that he regarded the Wooden Bedroom Furniture case as a victory for Chinese companies. My response was that this same case has created retroactive liability of close to, if not more than, $1 billion for US importers. Last year, exports of furniture from Vietnam went by exports of furniture from China. So if the Wooden Bedroom Furniture case was a victory, I would hate to see a loss. In fact, this case has been a disaster.

But this case along with the comments of the Chamber official indicate that Chinese companies simply do not understand the impact of these cases on US importers and in some cases, simply do not care. I have met with company owners in High Point, North Carolina, who have seen their entire $50 million dollar blow up because they had the temerity to import Chinese wooden bedroom furniture from China under an antidumping order.

The irony of the Wooden Bedroom Furniture case is illustrated by the December 2010 ITC determination in the Wooden Bedroom Furniture from China Sunset Review investigation, where ITC Commissioner Pearson stated the antidumping order has not helped the US industry:

this investigation . . . raises some troubling questions. . . . This industry would have faced difficulties during the period of review under any circumstances, given the depth of the recession and its extensive effects on the housing market. But even before the recession began, the industry was not apparently gaining much benefit from the imposition of the order. The domestic industry’s market share continued to decline after the order, as did production, capacity utilization, and employment. In the long run the domestic industry might have been expected to struggle to retain any benefits from this order as importers and retailers sought supply in other, lower-cost markets outside China. But the record here suggests that the domestic industry gained little even before those adjustments began to be made. . . .

I am mindful that the law does not require that an antidumping order or countervailing duty order be shown to benefit the domestic industry in order to reach an affirmative finding in a five-year review. . . .In this particular investigation, additional costs and distortions have been added by the use of the administrative review and settlement process, with little evidence that these distortions have yielded any benefits to the industry overall, the U.S. consumer, or the U.S. taxpayer.

So if the antidumping order does not benefit the US industry, why doesn’t the US industry simply lift the order? Two reasons, first the US industry and the lawyers representing the industry have made money from private settlements with Chinese companies and US importers. Second, although the AD order may not have helped the US industry directly, it has had the effect of eliminating a number of the US industry’s direct competitors, which are US importers forcing them into bankruptcy because they imported furniture under an antidumping order against China.

IMPORT ALLIANCE FOR AMERICA

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

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

Recently, the Import Alliance established its own website. See http://www.importallianceforamerica.com.

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

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

Congressmen have agreed to meet importers to listen to their grievances regarding the US antidumping and countervailing duty laws. In addition to contacting US importers, we are now contacting many Chinese companies to ask them to contact their US import companies to see if they are interested in participating in the Alliance.

At the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement because the 15 years is in a treaty and not in the US antidumping and countervailing duty law. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

On August 7, 2014, we held an organizational meeting in Beijing, China at the headquarters of China Ocean Shipping Company (“COSCO”) with interested Chambers of Commerce and Chinese companies to explain the project in more detail and to seek help in contacting US importers about the Alliance.

We spoke to about 40 attendees, including attendees from the legal departments of the top 10 chambers of commerce, including Chemicals, Machinery and Electronics, Light Industrial Products, and Food, and the Steel, Wood Products and Hydraulics and Pneumatics & Seals Association.

In addition to describing the Import Alliance and the issues regarding 2016 in the US China Accession Agreement, we also discussed the US China Trade War in general. Introductory videos for the Organizational Meeting from Cal Scott of Polder Inc., the President of the Import Alliance, can be found at the following link https://vimeo.com/103556227 and for former Congressmen Don Bonker and Cliff Stearns of APCO can be found at the following link https://vimeo.com/103556226. The PowerPoint we used to describe the Import Alliance, the specific provisions in the US China WTO Agreement and the Trade War in general is attached FINAL BEIJING IMPORT ALLIANCE POWERPOINT.

TRADE

SOLAR CASES—POSSIBLE SCOPE EXPANSION TO INCLUDE PANELS PRODUCED IN CHINA AND TAIWAN FROM THIRD COUNTRY SOLAR CELLS AND SEPARATE RATES PROBLEM

SOLAR PRODUCTS

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%. On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

Posted on my October blog post are the Commerce Department’s Factsheet, Federal Register notice, Issues and Decision memo from the Antidumping Preliminary Determination along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, which will help importers understand what products are covered by this case. Also attached to the October blog post is the ITC scheduling notice for its final injury investigation in the Solar Products case. The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce, which is posted on my blog, expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department. Although some preliminary discussions have been held, no Agreement has been released for comment as required by the Antidumping and Countervailing Duty law.

Meanwhile, the case moves on and expands. In an October 3, 2014 memo, which is posted in my October post, on its own motion Commerce has proposed to expand the scope of the Solar Panels case to cover all panels produced in Taiwan and China from third country solar cells.

On October 16, 2014, on behalf of two importers that import solar panels with third country solar cells in it, we filed a brief to argue that a change this late in the Solar Products investigation expanding the products subject to investigation violates due process because of the lack of notice to US importers and Chinese exporter and producers. The problem with changing the scope this late in the antidumping and countervailing investigation is that Commerce Department’s record is now closed and those Chinese companies that exported solar panels with third country solar cells in them along with the US companies that import those products have no opportunity to prove that the Chinese companies are separate and independent from the Chinese government. The Chinese companies, therefore, will automatically get an antidumping rate of 167%.

Moreover, the entire antidumping and countervailing duty proceedings at Commerce as well as the injury investigation at the US International Trade Commission (“ITC”) are based on the premise that the products covered by this investigation are solely those solar panels that have solar cells wholly or partially produced in the subject countries, Taiwan or China. If Commerce accepts the proposal, that will no longer be the case. The Solar Products cases will cover Chinese and Taiwan solar panels with third country solar cells in them when there is no specific determination at the Commerce Department that those Chinese and Taiwan solar panels with third country solar cells, in fact, were dumped or that the Chinese companies producing those panels received subsidies and no determination at the ITC that the solar panels with third country solar cells in them caused injury to the US industry.

One reason that Commerce may have decided to expand the scope is because the AD and CVD orders will be difficult to administer and enforce. It will be difficult for Customs officials at the border to determine where the components of a solar cell in a particular panel from China or Taiwan originated. But that is a problem with the scope in Solar World’s initial petition that it filed in this case. Substantially changing the game at this stage in the proceedings raises enormous due process questions in this proceeding.

We now await the Commerce Department’s final determination on December 16th.

SOLAR CELLS—THE SEPARATE RATES ISSUE

On November 20, 2014, in the attached Jiangsu Jiansheng Photovoltaic Technology Co., Ltd. v. United States decision, CIT JIANGSU SEPARATE RATES, the Court of International Trade (“CIT”) granted the Commerce Department’s request to take another look at the separate rates issue regarding certain “state-owned” Chinese companies. In doing so the Court stated that even though there was a possibility of government influence that was not enough to deny a Chinese company separate rates. As indicated below, this decision seems to be at odds with the Diamond Sawblades case and the Tetrafluoroethane case.  As the Court stated:

“Specifically, SolarWorld argues that Commerce gave insufficient weight to evidence that Chinese laws permit the government to intervene in Chinese companies’ operations in a variety of ways. But by definition, the laws of an NME country will generally permit the government of such country to intervene in the operations of its companies. Thus to require NME companies to prove complete legal autonomy would introduce an internal inconsistency into the analysis. Instead, as Commerce explained in this case, the agency determines whether the legal possibility exists to permit the company in question to operate as an autonomous market participant, notwithstanding any residual authority for potential governmental intervention, and if so, whether that company should be exempted from the NME system-wide analysis because it in fact managed its production, pricing, and profits as an autonomous market participant. Here, Commerce first determined that, as a matter of de jure possibility, the respondents in question could have acted as sufficiently autonomous market participants to deserve separate rates; then, having made this threshold determination, Commerce determined that the evidence in the record reasonably supported the conclusion that these respondents in fact did act sufficiently autonomously in terms of managing production and profit and setting prices during the POI.

Commerce requests and is granted permission to reconsider the record evidence regarding whether certain respondents were sufficiently autonomous from the Chinese government in the conduct of their export activities as to qualify for rates separate from the PRC-wide entity. In doing so, Commerce need not require proof of complete freedom from any mere legal possibility of government control. . . .

Commerce has determined that the weight of the evidence suggests the contrary conclusion, and SolarWorld has not pointed to any specific nonspeculative evidence to cast doubt upon this determination. Accordingly, because Commerce has considered and relied upon sufficient evidence to reasonably support the agency’s conclusion that the respondents in question were sufficiently autonomous from government control over their export activities to qualify for a separate rate, and because SolarWorld presents no specific evidence to impugn these reasonable determinations Commerce’s findings with regard to these separate-rate recipients are supported by substantial evidence.. . . ,

SolarWorld also argues that Commerce’s decision to grant separate-rate status to these respondents was arbitrary because, in the past, Commerce has denied such status to respondents who submitted ownership evidence that was later contradicted at verification. But the issue presented here is not analogous to the prior decisions on which SolarWorld relies because the respondents in those cases had submitted ownership information that was contradicted at verification, whereas here there was no similar impeachment of any of the evidence submitted by the challenged separate-rate recipients . . . .

Essentially, SolarWorld believes that the potential for governmental control through such managers or board directors categorically precludes a finding that such companies in fact acted autonomously in conducting their own export activities. The core of SolarWorld’s argument is that these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI.

Fundamentally, SolarWorld’s arguments regarding the de facto autonomy of the challenged separate-rate recipients suffer from the same analytical defect as its arguments regarding de jure autonomy – namely that, in an NME country, there will usually be state involvement and authority to intervene in these respondents failed to establish de facto autonomy because 1) some of these companies’ shareholders are SOEs (i.e., wholly state-owned companies), with the power to recommend or appoint the company’s board members and senior managers; and 2) some of these companies’ senior managers or board directors contemporaneously also held membership or positions within organizations such as the CPC, NPC, and/or CPPCC. But these facts alone are not dispositive of the de facto autonomy inquiry, because they speak solely to the possibility for governmental control over export activities through these persons, not whether such control was in fact reasonably likely to have been exercised during the POI. . . .

But this fact alone does not necessarily lead to the conclusion that all NME producers and exporters should be categorically treated as in fact setting their prices according to some centralized strategy. Here, each of the challenged separate-rate recipients submitted evidence that “(1) [t]heir [export prices] are not set by, and are not subject to, the approval of a governmental agency; (2) they have authority to negotiate and sign contracts and other agreements; (3) they have autonomy from the government in making decisions regarding the selection of management; and (4) they retain the proceeds of their export sales and make independent decisions regarding the disposition of profits or financing of losses.” Moreover, “[a]ll of the separate rate respondents at issue reported that neither SASAC nor the government was involved in the activities of the board of directors.”

Footnotes omitted, emphasis added.

TETRAFLUORETHANE CASE—COMMERCE FINDS VERY HIGH ANTIDUMPING MARGINS, BUT ITC SAYS NO INJURY AND DISMISSES THE ENTIRE CASE

On October 15, 2014 in the attached fact sheetfactsheet-prc-1112-Tetrafluoroethane-ad-cvd-final-101514, Commerce found dumping and countervailable subsidization of Imports of 1,1,1,2-Tetrafluoroethane from the People’s Republic of China with antidumping rates for all of China of 280%, in part, by refusing to give Chinese state-owned companies their own antidumping rates. Such a high antidumping rate meant that all 1,1,1,2-tetrafluoroethane from China would be excluded from the US market.

On November 12, 2014, however, the US International Trade Commission based on a 4-2 vote in the attached fact sheet, ITC NO INJURY VOTE TETRFLUORETHANE, determined that the US industry was not injured by reason of imports of 1,1,1,2-Tetrafluorethane from China. The case, therefore, is dismissed and no antidumping and countervailing duty orders will be issued.

CAFC SAWBLADES CASE—NO SEPARATE ANTIDUMPING RATES FOR CHINESE STATE OWNED COMPANIES

On October 24th, in the attached one-sentence opinion, DIAMOND SAWBLADES CAFC DECISION, the Court of Appeals for the Federal Circuit (“CAFC”) in Advanced Technology & Materials Co. v. United States affirmed a decision by the CIT that found Chinese diamond saw blade companies had not done enough to show their independence from China’s government to deserve their own anti-dumping order rates, overturning 20 years of past cases by the Commerce Department. The CAFC affirmed the Commerce Department’s determination to provide Advanced Technology a 164.1 percent margin as the China-wide rate, not the 2.82 percent rate that had been assigned to them separately.

As stated in the September newsletter, in response to the CIT decisions in the Diamond Sawblades case, which are attached to my September blog post, Commerce is making it more difficult for Chinese state owned companies that are under the supervision of the PRC’s State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) to get their own separate antidumping rate. Commerce continued that position in the 1,1,1, 2 Tetrafluoroethane from China case, but ITC threw out the case for no injury.

TIRES FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE

Although Senator Kay Hagan sent a letter to Commerce regarding the Tires case, she lost her reelection fight in North Carolina to Republican Tom Tillis apparently, in part, because of her position on trade issue. But there will still be substantial political heat on the Commerce Department over the Tires case.

On November 22, 2014, Commerce announced its preliminary determination in the Tires countervailing duty investigation.  Attached are the Federal Register notice and Commerce Department factsheet  factsheet-prd-passenger-vehicle-light-truck-tires-cvd-prelim-112414 Tires PRC CVD Prelim FR as signed (3). The CVD rates ranged from moderate to very high, with the average rate being moderate.  GITI Tire (Fujian) Co., Ltd. and certain cross-owned companies received 17.69%; Cooper Kunshan Tire Co., Ltd and certain cross-owned companies 12.50%; Shandong Yongsheng Rubber Group Co., Ltd. 81.29% and all other Chinese exporters receiving a rate of 15.69%.

Commerce has found critical circumstances applying countervailing duties to imports 90 days prior to the preliminary determination to cover imports as early as late August.  As it stands now, imports since late August will now be covered by the Countervailing Duty case exposing importers to millions of dollars in retroactive liability.

ALUMINUM EXTRUSIONS

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

On the other hand Senator Mitch McConnell sent a May 8th letter about circumvention of the aluminum extrusions antidumping order followed by a letter from Senator Orrin Hatch. Senator Mitch McConnell in January will be the Senate Majority leader as the ranking Republican in the Senate, and Senator Orrin Hatch will be the new Chairman of the Senate Finance Committee. So both Senators will have enormous influence in the new Congress.

On September 4, 2014, Assistant Secretary for Enforcement and Compliance Paul Piquado in a letter posted on my October blog post assured the lawmakers that the agency is “committed to the robust enforcement of the trade remedy laws” to help provide U.S. firms and workers the opportunity to “compete on a level playing field.”

CARBON AND ALLOY STEEL WIRE ROD FROM CHINA FINAL ANTIDUMPING DETERMINATION

On September 2, 2014, in a factual statement, which is posted on my September blog post, the Department of Commerce (Commerce) announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of carbon and certain alloy steel wire rod from the People’s Republic of China (China).  Since the Chinese companies failed to respond to the Commerce Department’s questionnaire, they received a preliminary dumping margin of 110.25 percent with the separate rate steel companies receiving a preliminary dumping rate of 106.19 percent.

Because no Chinese companies participated in the initial investigation, on November 13, 2014, in the attached fact sheet, factsheet-prc-carbon-certain-alloy-steel-wire-rod-ad-cvd-final-111314, Commerce announced its final determination finding dumping and Countervailable Subsidization of Imports of Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China. Commerce handed out 110.25 percent “adverse facts available” anti-dumping duty rates, countervailable subsidies ranging from 178.46 percent for Hebei Iron & Steel to 193.31 percent for Benxi Steel. All other Chinese producers not named were assessed a CVD rate of 185.89.

The agency found critical circumstances that warranted remedial, retroactive duties to be paid by US importers for imports of carbon steel wire rod three months prior to the Commerce Department’s preliminary determination from all Chinese companies in the CVD investigation and all but three Chinese exporters in the AD investigation.

ITC AFFIRMATIVE FINAL INJURY DETERMINATION MONOSODIUM GLUTAMATE FROM CHINA

On November 17, 2014, in the attached Federal Register notice, ITC MONOSODIUM Glutamate, the ITC determined that the US industry was materially injured by reason of imports of monosodium glutamate from China and Indonesia and antidumping and countervailing duty orders will be issued in that case.

COMMERCE DEPARTMENT AFFIRMATIVE PRELIMINARY ANTIDUMPING DETERMINATION—DOMESTIC DRY SEA CONTAINERS FROM CHINA

On November 20, 2014, in the attached fact sheet, factsheet-prc-53ft-domestic-dry-containers-ad-prelim-112014, Commerce announced its affirmative preliminary antidumping determination in the 53-foot domestic dry containers (domestic dry containers) from China case finding dumping margins ranging from 24.27% to 153.24%.

NOVEMBER ANTIDUMPING ADMINISTRATIVE. REVIEWS

On November 3, 2014, Commerce published in the Federal Register the attached notice, NOV REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Certain Cut-to-Length Carbon Steel Plate, Certain Hot-Rolled Carbon Steel Flat Products, Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Diamond Sawblades and Parts Thereof, Fresh Garlic, Lightweight Thermal Paper, Paper Clips, Polyethylene Terephthalate Film, Sheet and Strip, Pure Magnesium in Granular Form, Refined Brown Aluminum Oxide, Seamless Carbon and Alloy Steel Standard Line, and Pressure Pipe, Seamless Refined Copper Pipe and Tube.

The specific countervailing duty cases are:

Certain Coated Paper Suitable for High-Quality Print Graphics Using Sheet-Fed Presses, Lightweight Thermal Paper, Seamless Carbon and Alloy Steel Standard, Line, and Pressure Pipe.

For those US import companies that imported Carbon Steel Plate, Coated Paper, Diamond Sawblades, Garlic and the other products listed above from China during the antidumping period November 1, 2013-October 31, 2014 or during the countervailing duty review period of 2013 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

On October 30, 2014, in the attached notice, OCT REVEW INVESTIGATIONS, based on requests in September, Commerce initiated several review investigations against a substantial number of Chinese companies in the Lined Paper Products, Kitchen Appliance Shelving and Racks, Certain New Pneumatic Off-The-Road Tires, Freshwaters Crawfish Tailmeat, and Narrow Woven Ribbons with Woven Selvedge cases.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST MELAMINE FROM CHINA

On November 12, 2014, Cornerstone Chemical Company filed a new antidumping and countervailing duty petition against Melamine from China and Trinidad and Tobago.  The petition alleges antidumping rates of 263.76 to 374.14 on imports of Chinese melamine.

Melamine is “a fine, white crystalline powder that is used primarily to manufacture amino resins, the major end uses of which include surface coatings, laminates, molding compounds, paper treatment, adhesives, and textile-treatment applications in the automotive, appliance, dinnerware, furniture, fabric, and wood paneling industries.

Attached are  a short version of the petition along with an Extract which includes a list of the Chinese companies and US Import Companies that are the targets of this case,  Petition on Melamine from PRC & Trinidad and Tobago ExtractPage1. The targeted Chinese companies are listed below.

Allied Chemicals Inc. China, Anhui Garments Shoes & Caps Industrial Group Co. China, Anhui Jinhe Industrial Co., Ltd., Anhui Sunson Chemical Group Co., Ltd., ChemChina, China Haohua (Group) Corp., Chengdu Yulong Chemical Co., Ltd., CNPC Urumqi Petrochemical General Factory, CNSG Anhui Hong Sifang Co., Ltd., Dalian Rion Chen Intl. Trade Co. Ltd. China, Dezhou Defeng Chemical Co., Ltd., Far-Reaching Chemical Co., Ltd. China, Forwarder Chinese, Fujian Sangang (Group), Full Shine Group Co., Ltd. China, Future Foam Asia Inc. China, Hebei Jinglong Fengli Chemical Co., Ltd., Hefei Tianfeng Import & Export Co Ltd China, Henan Jinshan Chemical Group Co., Ltd., Henan Yuhua Fine Chemical Co., Ltd., Henan Zhongyuan Dahua Group Co., Ltd., Holitech Technology Co., Ltd. China, Hubei Huaqiang Chemical Group Co., Ltd., JianFeng Chemicals, Jiangsu Heyou Group Co., Ltd., Jiangsu Sanmu Group Corporation, Kaiwei Investment Group, Kingboard (Panyu Nansha) Petrochemical Co., Ltd., M And A Chemicals Corp China, Nanjing Deju Trading Co Ltd China, Nanjing Jinxing Petrochemical Enterprise, Nantong Zixin Industrial Co., Ltd., OCI Trading (Shanghai) Co., Ltd. China, Panjin Zhongrun Chemical Co., Ltd., Puyang San’an Chemical Co., Ltd., Qingdao Shida Chemical Co., Ltd. China, Shandong Jinmei Mingshui Chemical Co., Ltd., Shandong Liaherd Chemical Industry Co. Ltd., Shandong Luxi Chemical Co., Ltd., Shandong Sanhe Chemical Co., Ltd., Shandong Shuntian Chemical Group Co. China, Shandong Xintai Liaherd Chemical Co., Ltd., Shandong Yixing Melamine Co., Ltd., Shanxi Fenghe Melamine Co., Ltd., Shanxi Tianze Coal Chemical Group Co., Ltd., Sichuan Chemical Works Group Ltd., Sichuan Golden-Elephant Sincerity Chemical Co., Ltd., Sichuan Meifeng Group Co., Ltd., Sichuan Jade Elephant Melamine Scientific and Technological Co., Ltd., Sinopec Jinling Petrochemical Co., Ltd., Well Hope Enterprises Limited, Xinji Jiuyuan Chemical Co. Ltd. China, Zhejiang Fuyang Yongxing Chemical Co., Ltd., Zhejiang Medicines & Health Product Imp. & Exp. Co. Ltd. China, Zhongyuan Dahua Group Company Ltd China, Zhucheng Liangfeng Chemical Co., Ltd.

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

On September 3, 2014, I spoke in Vancouver Canada on the US Sanctions against Russia, which are substantial, at an event sponsored by Deloitte Tax Law and the Canadian, Eurasian and Russian Business Association (“CERBA”). Attached are a copy of the powerpoint for the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE

There is a great deal of confusion and uncertainty surrounding business with Russian companies. As sanctions continue to expand against Russia, any company interested in doing business with Russia must constantly check the regulations and hire legal counsel. Every single transaction with Russian entities is a potential target of the sanctions, and, therefore, any US company interested in doing business with Russia must be extremely vigilant. The US regulations mirror regulations in Canada and the EU, but there are differences.

There are two groups of US regulations. The most powerful regulations are administered by Treasury—Office of Foreign Assets Control (“OFAC”). A second group of regulations have been issued by the Commerce Department’s Bureau of Industry and Security (BIS) blocking exports of certain energy-sector technologies.

With regards to the sanctions administered by OFAC, US Presidential Executive Orders 13660, 13661, and 13662 define how U.S. Government will identify targets of sanctions (e.g., financial services, energy, metals and mining, engineering, and defense sectors and government agencies and officials). The specific OFAC regulations regarding Ukraine are set forth in 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting transactions with specific persons and entities. The regulations have been posted on my blog, but they do change as the sanctions evolve.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). A US person must also block the property or interest in property of SDNs that they hold or that is located in the United States. The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also: www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank.

On July 29, 2014, OFAC issued a new “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions. See: www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx. U.S. persons are prohibited from engaging in certain transactions with persons and entities on the SSI List, but are not required to “freeze” or “block” property or interests in property of such persons and entities as if they were SDNs.

Thus companies or persons on the SSI list may become named SDNs in the future. SSI and SDN Lists are not static but evolving. Lists will likely expand and have expanded based on Russian behavior in Ukraine. Everything could change overnight. Do not rely on a dated list. Keep checking. www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx

On September 11, 2014, the US and the European Union announced new restrictions on Russian access to capital market. The new sanctions target Russian financial, energy and defense companies and make it more difficult to make loans to the five Russian state-owned banks, by tightening debt financing restrictions by reducing the maturity period of the new debt issued by those institutions from 90 days to 30 days. The companies targeted in the new round of OFAC sanctions include OAO Gazprom, Roseneft, Lukoil OAO, pipeline operator, Transneft, and Rostec, a Russian institution dealing in industrial technology products, along with the nation’s largest financial institution, Sberbank of Russia.

OFAC also added another set of Commerce export restrictions on certain oil development technologies by broadening the scope of the items that are banned and adding Gazprom, Lukoil and three other energy firms to the list of specifically banned export destinations.

On November 11, 2014, the White House indicated that the latest fighting between the Ukraine, which has been triggered by Russian aid to the separatists, is likely to trigger another round of sanctions. Deputy National Security Adviser Ben Rhodes stated, “What Russia will find is, if they continue to do that, it’s a recipe for isolation from a broad swath of the international community.”

Putin’s isolation was indicated by his presence at the G20 talks in Australia, where he was given a very “frosty” reception, which, in part, led to a decision to leave the talks early.

CUSTOMS

We have observed many instances where Customs is cracking down on imports of Chinese solar panels with third country solar cells in them. Customs forces the company to provide extensive documentation to prove that the third country solar cells are actually in the Chines solar panels. Many importers are not able to comply and face antidumping rates as high as 250% on imports.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

SUPREMA CASE—INDUCED PATENT INFRINGEMENT 337 CASES

On October 15th, the ITC filed the attached brief, ITC COMMISSION BRIEF, at the Court of Appeals for the Federal Circuit (“CAFC”) in the En Banc appeal in the Suprema Inc. V. US International Trade Commission case. In the prior panel decision, the CAFC held that the ITC could not use induced patent infringement to issue an exclusion order because at the time of the infringement, the imported products did not directly infringe the patents in question. The imported products infringed the patent only after arriving in the United States and being combined with other products in the United States. The ITC asked the entire CAFC to review the panel determination, and the CAFC agreed to an en banc proceeding before all the CAFC judges.

In the brief the ITC argues that the case will have “significant implications for patent holders that rely on inducement liability for protection of their inventions, especially those that hold claims to inventive methods and those that operate industries in the United States.”

The Commission went on to state in the brief:

“Appellants contend that when Congress prohibited the importation of “articles that—infringe” a patent under section 337, Congress meant to excuse the importation of articles intended to induce patent infringement. There is absolutely no support in the language of the statute or the legislative history of section 337 for Appellants’ construction. The importation of “articles that—infringe” via inducement under § 271(b) of the Patent Act is no less prohibited by section 337 than the importation of “articles that—infringe” directly under § 271(a).

The legislative history of the Tariff Act makes clear that it was intended to prevent “every type and form of unfair practice” in the importation of goods. . . . From the beginning, courts understood inducement of patent infringement to be an unfair practice within the scope of the Act. . . .

The only way the Court could adopt Appellants’ interpretation of section 337 would be to ignore the Patent Act, the language of section 337, the intent of Congress, and decades of established practice. This the Court should not do.

To prove the importation of “articles that—infringe” via inducement under section 337 requires proof of three essential elements: (1) importation of an article that is the means of infringement; (2) an intent that the imported article be used to infringe a patent, or willful blindness to infringement; and (3) an act of direct infringement involving the article. . . . The record on review contains substantial evidence of each element. . . .”

The US Government through the Justice Department filed the attched Amicus Brief, US GOVERNMENT SUPREMA BRIEF, which states in part:

Congress charged the International Trade Commission (“Commission” or “ITC”) with the responsibility to exclude from the United States “articles that . . . infringe a valid and enforceable United States patent.” 19 U.S.C. § 1337(a)(1)(B)(i). The Commission reasonably interprets that statutory command to prohibit the importation not merely of fully assembled patented inventions, but of all articles for which infringement liability may be imposed under the Patent Act. No one disputes that, in an ordinary civil action for infringement in district court, a person who imports articles in an intentional scheme to induce infringement of a patent within the United States “shall be liable as an infringer.” 35 U.S.C. § 271(b). The Commission sensibly construes Section 337 in pari materia with that undisputed interpretation of the Patent Act, treating the articles imported in such an infringing scheme as “articles that . . . infringe.”

The Commission acted well within its discretion in adopting that construction of the Tariff Act. The Commission has no choice but to exercise interpretative judgment in applying Section 337(a)(1)(B)(i). As appellants recognize . . ., nothing in the Tariff Act defines the phrase “articles that . . . infringe.” Nor do the patent laws speak in terms of infringing “articles.” Under the Patent Act, persons infringe, not things.  The article by itself cannot literally “infringe” under Section 271 any more than a tract of land can trespass. Thus, in enacting Section 337(a)(1)(B)(i), Congress necessarily expected and intended that the Commission would interpret “articles that . . . infringe” in a manner that appropriately translates the domestic in personam liability provisions of the Patent Act into the in rem framework of exclusion proceedings under the Tariff Act.

The Commission’s construction of Section 337 reasonably resolves that conceptual dilemma by construing the phrase “articles that . . . infringe” to encompass any article whose importation would support infringement liability under the Patent Act, including articles imported for the purpose of inducing patent infringement. That interpretation is consistent with the plain language of both Section 337 and Section 271(b) and with the underlying policies and purposes of the trade laws.

And it has the significant benefit of preventing importers from evading the prohibitions of the Tariff Act through “the most common and least sophisticated form of circumvention, importation of the article in a disassembled state.”

There is little doubt, moreover, that the Commission’s interpretation best effectuates Congress’s intent in 1988 when it enacted Section 337(a)(1)(B)(i). . . . In an uncodified portion of the 1988 legislation, Congress expressly found that Section 337 “has not provided United States owners of intellectual property rights with adequate protection against foreign companies violating such rights,” and declared that the purpose of the 1988 legislation was “to make [Section 337] a more effective remedy for the protection of United States intellectual property rights.”. . . .

That statutory declaration of purpose is impossible to reconcile with the panel’s view that Congress intended to render the Commission “powerless to remedy acts of induced infringement.” . . . By the time of the 1988 amendments, the Commission had for many years construed Section 337 to prohibit, as an unfair trade practice, the active inducement of patent infringement in the United States. It is difficult to imagine why a Congress seeking to enhance the protection of intellectual property rights in Commission proceedings would simultaneously have acted to strip the Commission of its power to redress such infringement.

And it is even more doubtful that Congress would have done so silently and obliquely, without any explanation or even acknowledgment in the legislative history. Congress does not, as the Supreme Court has observed, “hide elephants in mouseholes.” . . . .

In sum, the Commission construes Section 337 to provide remedies against the same forms of infringement at the border that district courts are empowered to redress through in personam infringement actions within the United States. Because that interpretation is reasonable and consistent with “the language, policies and legislative history” of the Tariff Act, it is entitled to deference. . . .

In addition, the atthached briefs were filed by ITC Trial Lawyers Association and Nokia in support of the ITC, ITC TLA Suprema BRIEF Nokia Suprema BRIEF.

SECTION 337 COMPLAINTS

NEW 337 COMPLAINT AGAINST FOOTWARE PRODUCTS FROM CHINA

On October 14th, Converse Inc. filed a new 337 IP case against footwear products/sneakers from China for infringement of Converse’s registered and common law trademarks. Relevant parts of the petition are posted on my October blog post along with the ITC notice. The respondent companies are set forth below:

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Footwear Products . The proposed respondents are: Skechers U.S.A., Inc., Manhattan Beach, CA; Wal-Mart Stores, Inc., Bentonville, AR; A-List, Inc., d/b/a Kitson, Los Angeles, CA; Aldo Group, Canada; Brian Lichtenberg, LLC, Los Angeles, CA; Cmerit USA, Inc., d/b/a Gotta Flurt, Chino, CA; Dioniso SRL, Italy; Edamame Kids, Inc., Canada; Esquire Footwear, LLC, New York, NY; FILA U.S.A., Inc., Sparks, MD; Fortune Dynamic, Inc., City of Industry, CA; Gina Group, LLC, New York, NY; H & M Hennes & Mauritz LP, New York, NY; Highline United LLC d/b/a Ash Footwear USA, New York, NY; Hitch Enterprises Pty Ltd d/b/a Skeanie Unit 3, Australia; Iconix Brand Group, Inc., d/b/a Ed Hardy, New York, NY; Kmart Corporation, Hoffman Estates, IL; Mamiye Imports LLC d/b/a Lilly of New York, Brooklyn, NY; Nowhere Co., Ltd. d/b/a Bape, Japan; OPPO Original Corp., City of Industry, CA; Orange Clubwear, Inc., d/b/a Demonia Deviant, Westminster, CA; Ositos Shoes, Inc., d/b/a Collection’O, South El Monte,CA; PW Shoes Inc., Maspeth, NY; Ralph Lauren Corporation, New York, NY; Shenzhen Foreversun Industrial Co., Ltd (a/k/a Shenzhen Foreversun Shoes Co., Ltd), China; Shoe Shox., Seattle, Washington; Tory Burch LLC, New York, NY; Zulily, Inc., Seattle, Washington; Fujian Xinya I & E Trading Co., Ltd., China; Zhejiang Ouhai International Trade Co., Ltd., China; and Wenzhou Cereals Oils & Foodstuffs Foreign Trade Co., Ltd., China.

On November 12, 2014, the ITC in the attached notice instituted the 337 case against Footwear from China, ITC INSTITUTION CONVERSE CASE. Chinese companies must respond to the complaint in about 30 days. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

On the same day that Converse filed the section 337 case, it also filed a trademark complaint for damages in the Federal District Court in Brooklyn, which is attached to my October blog post.

NEW 337 CASE AGAINST SEMICONDUCTOR CHIPS FROM TAIWAN AND HONG KONG

On November 21, 2014, Samsung Electronics Co., Ltd. and Samsung Austin Semiconductor,LLC filed a section 337 case against Graphics Processing Chips, Systems on a Chip. The respondent companies are listed below:

NVIDIA Corporation, Santa Clara, California; Biostar Microtech International Corp.. Taiwan; Biostar Microtech (U.S.A.) Corp., City of Industry, California; Elitegroup Computer Systems Co. Ltd., Taiwan; Elitegroup Computer Systems, Inc., Newark, California; EVGA Corp., Brea, California; Fuhu, Inc., El Segundo, California; Jaton Corp., Fremont, California; Mad Catz, Inc., San Diego, California; OUYA, Inc., Santa Monica, California; Sparkle Computer Co., Ltd., Taiwan; Toradex, Inc., Seattle, Washington; Wikipad, Inc., Westlake Village, California; ZOTAC International (MCO) Ltd., Hong Kong; ZOTAC USA, Inc., Chino, California.

PATENT AND IP CASES IN GENERAL

INTERDIGITAL WINS JURY CASE AGAINST ZTE

On October 28, 2014, in the attached jury form, ZTE Verdict, a Delaware federal jury determined that smartphones made by Chinese company, ZTE, infringed three patents of InterDigital Communications. The Jurors also determined that ZTE failed to prove the patents obvious. This jury verdict came after a series of setbacks for InterDigital, which lost a series of cases, including a 337 case at the ITC.

InterDigital creates revenue by licensing thousands of patents it develops to various high tech companies and filing cases against companies, such as ZTE and Nokia, that refuse to pay licensing fees.

MADE IN THE USA—FTC AND CALIFORNIA FALSE ADVERTISING PROBLEM

Recently cases involving the Made in US requirement have increased because of stricter requirements by the State of California. FTC guidelines state that an unqualified “Made in USA” label can go on any goods that are “all or virtually all” made domestically in the United States, but the words “virtually all” are open to interpretation based on the specific facts of the case.

But California has stricter guidelines than the FTC requiring the entire product to be made in the US. If even one small part of a product is foreign, California state law says calling the product “Made in the USA” amounts to false advertising. This law has provoked a number of consumer/class action lawsuits filed in California against US manufacturers and retailers.

The California law was passed in 1961 to shield domestic producers from competitors who might get a pricing edge by using large amounts of cheap imported parts to manufacture goods labeled “Made in USA.” The problem is that it has become increasingly difficult to avoid using at least some imported content in a US product.

COURT REFUSES TO DISMISS JEANS CASE AGAINST NORDTROM AND MADE IN USA JEANS

On October 27th, in the attached David Paz v. AG Adriano Goldschmeid Inc. et al, JEANS COURT ORDER, a California Federal Judge refused to dismiss a case for falsely marketing jeans as Made in USA, which they actually contain foreign parts. The Judge stated:

“Although the laws set out different standards for the use of “Made in U.S.A.” labels, it would not be impossible for Defendants to comply with both laws. Outside California, Defendants could use the “Made in U.S.A.” labels, but inside California, they could not. This may be burdensome for Defendants, but it is not impossible for them to do so.” . . .

LAND’S END

On October 29th in the Elaine Oxina v. Lands’ End Inc. case, Elaine Oxina  filed a new Made in USA class action case against clothing retailer Lands’ End Inc. accusing the company of labeling foreign-made apparel as produced in the U.S., a tactic that a California consumer alleges has allowed the business to sell items at a higher price. The complaint alleges:

“Consumers generally believe that ‘Made in USA’ products are of higher quality than their foreign-manufactured counterparts. Due to Defendants’ scheme to defraud the market, members of the general public were fraudulently induced to purchase Defendant’s products at inflated prices.”

The complaint says that Oxina purchased a necktie from Lands’ End’s online store under the assumption that the product was produced domestically. The necktie “was described using the ‘Made in U.S.A.’ country of origin designation, when the product actually was made and/or contained component parts made outside of the United States.”

The complaint also states that an inspection of a fabric tag attached to the necktie revealed that the item “is wholly made” in China. The complaint asserts claims against Lands’ End for false advertising and violations of California’s business code, adding that the alleged damages are in excess of $5 million.

Many retailers are now facing class actions over California’s tough “Made in the USA” labeling law. Retailers are allegedly selling apparel marketed as being American-made, but including foreign-made fabrics, zippers, buttons, rivets and other components.

The lawsuits also illustrate why California differs from the Federal Trade Commission, which also oversees product labeling but has a more relaxed position that is followed by other states. Unlike California, which says every component must be domestic, the FTC allows for some flexibility, saying a “Made in the USA” label can be used if “all or virtually all” of a specific product is made domestically. Getting every component of a piece of clothing from the U.S. has become increasingly difficult as business supply chains have become global.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE AND TAIWAN COMPANIES

On October 22, 2014, in the attached complaint, CHINA COY SUES US COY PATENT INFRINGE, a Chinese company sued Dongguan Prestige Sporting Products Co., Ltd. V. Merits Co. Ltd., a Chinese company, and Merits Health Product Inc., a Florida corporation, for patent infringement of a folding seat rack.

On October 30, 2014, in the attached compliant, CHINA TRADEMARK CASE, Samsung Techwin America, Inc. filed a grey market trademark case against Xtreme Micro LLC and Zhangzhou Peiyu Jinhe Trading Co., Ltd.

On November 5, 2014, Robert Bosch filed the attached patent case, NINGBO WINDSHIELD WIPER CASE, for wiper blades against Ningbo Xinhai Aiduo Automobile Wiper Blade Manufactory Co., Ltd.

On November 7, 2014, Aztrazeneca Pharmaceuticals LP and Astrazeneca UK Ltd. filed the attached pharmaceutical patent case, TAIWAN PHARMA COMPLAINT, against a Taiwan company, Pharmadax USA, Inc., Pharmadax Inc., and Pharmadax Guangzhou Inc.

On November 10, 2013 Dura-Lite Heat Transfer Products Ltd., a Canadian corp., Glacier Radiator Manufacturing Ltd., and Philip Lesage filed the attached patent case, ZHEJIANG MACHINERY, against Zhejiang Yinlun Machinery Co., Ltd. and Yinlun USA, Inc.

On November 14, 2014, the attached complaint, CHANGZHOU KAIDI, was filed by Linak A/S and Linak U.S., Inc. v. Changzhou Kaidi Electrical Co. and Kaidi LLC for patent infringement of innovative electric linear actuator systems for use in many product sectors, including hospital and healthcare equipment.

On November 17, 2014, Tenax SPA filed the attached trademark case, WUHAN TRADEMARK against Wuhan Keda Marble Protective Materials Co., Ltd. for imports of adhesive resins.

PRODUCTS LIABILITY

On October 17, 2014, Joan Kazkevicius filed the attached products liability case, CHINA PRESSURE COOKER CASE, regarding pressure cookers against HSN, Inc., HSNI LLC, W.P. Appliances, Inc., Wolfgang Puck Worldwide, Inc., W.P. Productions, Inc., Zhanjiang Hallsmart Electrical Appliances Co., Ltd., and Guangdong Chuang Sheng Stainless Steel Products Co., Ltd.

FOOD AND FDA RESTRICTIONS

US LIFTS RESTRICTIONS ON CHICKEN AND CITRUS IMPORTS

Despite objections from public consumer groups, on November 5th, the U.S. Department of Agriculture’s Food Safety and Inspection Service stated that it had certified four Chinese poultry product producers to export processed chicken products to the U.S. The USDA accepted the certification of the facilities to export chicken products as long as they are heat-treated or cooked and made from birds originally slaughtered in the U.S. or another approved country such as Canada. The facilities still must be certified for this purpose by Chinese authorities.

The irony is that the Chinese government continues to block US chicken using its antidumping law.

Despite objections from US citrus growers, the U.S. Department of Agriculture (USDA) has proposed to open the continental United States to imports of citrus fruits from China. US citrus companies argue that the Chinese imports could introduce devastating pests to U.S. orchards and invite heavy economic competition from subsidized Chinese farmers.

SEAFOOD

On November 12th, the FDA announced that it may decrease port-of-entry inspections of farm-raised seafood from China and increasingly entrust Chinese authorities with verifying that the country’s aquaculture exports are free of illegal animal drug residues.

CHINESE RESTRICTIONS ON US FOOD PRODUCTS

On Aug. 22, 2014, Agriculture Secretary Tom Vilsack announced that California citrus farmers will be able to resume exports to China this season. A series of scientific exchanges between the USDA’s Animal and Plant Health Inspection Service (APHIS) and China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) resulted in an agreement for California citrus to again be exported to China. APHIS and USDA’s Foreign Agricultural Service worked closely with the U.S. citrus industry to ensure the successful outcome.

In April 2013, California-origin citrus was suspended from entering the Chinese market due to interceptions of brown rot (Phytophthora syringae), a soil fungus that affects stored fruit. Over the next year, USDA worked with China to address China’s plant health concerns and reopen the market for California citrus exports.

In a statement following the USDA announcement, Western Growers Association Executive Vice President Matt McInerney said China was the third-largest market for California citrus exports before the ban. The USDA release said California citrus exports have a total annual value of $30 million.

On September 15th, it was announced that USDA and USTR officials were in Beijing to discuss the implementation of the Trade Facilitation Agreement (TFA) and in particular a meeting of the sanitary and phytosanitary (SPS) working group of the U.S.-China Joint Commission on Commerce Trade (JCCT), where the agenda will likely touch upon issues like China’s ban on U.S. beef and its regulatory process for approving biotechnology traits. China closed its beef market to U.S. exports due to a 2003 outbreak of bovine spongiform encelopathy (BSE) – or “mad cow” disease — and has since set a number of preconditions for opening it, including a U.S. livestock traceability system.

CHINA LIFTS RESTRICTIONS ON WASHINGTON APPLES

On October 31, 2014, in the attached statement from Washington State, CHINA LIFTS WASHINGTON APPLE SUSPENSION, Agriculture Secretary Tom Vilsack announced that China is lifting its suspension of red and golden delicious apple imports from Washington State. The Chinese market for Washington apples was valued at $6.5 million in calendar year 2011.

In 2012, China’s General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) suspended access for Washington red and golden delicious apples due to the repeated interception of three apple pests AQSIQ considers significant: speck rot, bull’s-eye rot, and Sphaeropsis rot. To lift this suspension, USDA’s Animal and Plant Health Inspection Service (APHIS) worked with the U.S. apple industry to develop additional safeguarding measures that address China’s concerns about these pests. Some of these new measures include cold storage of apples and visual inspection of apples prior to shipping to ensure there is no evidence of disease.

CHINESE INVESTMENT AND PRODUCTION IN UNITED STATES

See the very powerful video about Chinese investment in the US creating 70 to 80,000 US Production Jobs. The investment is in the billions and includes textiles.

http://money.cnn.com/video/news/economy/2014/10/23/we-the-economy-made-by-china-in-america.cnnmoney/index.html?iid=HP_River

ANTITRUST—SOLAR AND MAGNESITE

There have been major developments in the antitrust area both in the United States and in China.

SOLAR ANTITRUST CASE DISMISSED

On November 3, 2014, a Federal Judge in Michigan, in the attached opinion, ACTUAL ORDER DISMISS CHINESE SOLAR ANTITRUST CASE, dismissed a $950 million antitrust lawsuit accusing several Chinese solar panel producers of participating in a price-fixing scheme by finding that the US company have failed to establish standing. The US Judge ruled that the Chinese companies did not have the power to set up barriers to entry into the solar panels market and therefore could not eventually charge supracompetitive prices to recoup losses from selling solar panels at below cost in order to gain market share. As the Judge stated: “The court finds that plaintiff has failed to allege a dangerous probability of recoupment and, therefore, has failed [to] allege antitrust standing.”

On November 17th, in the attached complaint, RECONSIDERATION SOLAR CHINA PRICE FIX, Energy Conversion Devices Inc. urged a Michigan federal judge on Friday to reconsider his decision. ECD accused the Chinese companies of orchestrating a complex price-fixing scheme to sell inferior solar panels in the U.S. at artificially low prices by dumping their products in the US and thereby achieve market domination. The Judge’s original dismissal opinion had found that below-cost pricing alone is not enough to prove antitrust injury.

NEW MAGNESIUM ANTITRUST COMPLAINT

In response to the Court order dismissing the Magnesium Antitrust case, with options to amend the complaint, which is attached to my last blog post, on November 3, 2014, Animal Science Products, Inc., Resco Products, Inc., and S&S Refractories filed the attached new antitrust complaint, NEW MAGNESIUM COMPLAINT. The complaint, which will be attached to my blog, is against Chinese magnesium companies, Xiyang Fireproof Material, Co., Ltd., Sinosteel Corp., Sinosteel Trading Co., Liaoning Jiayimetals & Minerals Co., Ltd., Liaoning Foreign Trade General Corp., Liaoning Jinding Mangnesite Group., Dalian Golden Sun Import & Export Corp., Haicheng Houying Corp., Ltd., and Haicheng Huayu Group Import & Export Co., Ltd, Haicheng Pailou Magnesite Ore Co., Ltd. and Yingkou Huachen (Group) Co., Ltd.

AUTO NEWS — CONFESSIONS OF A PRICE FIXER

On November 16, 2014 Auto News published an interesting article “Confessions of a Price Fixer”. See http://www.autonews.com/article/20141116/OEM10/311179961/confessions-of-a-price-fixer

The article described how a Japanese executive used to the comfortable expat life, was one of dozens of white collar criminals arrested and jailed for what has become the largest price fixing antitrust case brought by the US Justice Department. The article goes on to state that the Japanese executive’s guilty plea and prison time came with a special offer from the Japanese company for which he fixed the prices. You get to keep your job after you leave prison and the company “will support me for the rest of my life.”

Today, the Japanese executive has spent his time in prison, but is now back at work at the company. But that situation is not unusual, the unwritten rule in Japanese culture is that the Japanese executive gets rewarded for not spilling the beans and cooperating with the Government’s investigation.

In America, the case has already made history with record fines more than $2.4 billion. 31 auto parts suppliers, mostly Japanese, have pled guilty to prices for parts from wire harnesses to wiper switches. Forty-six individuals, almost exclusively Japanese, have been charged. No one has challenged the charges in court; 26 individuals agreed to prison instead. Another 20 have yet to enter pleas or are otherwise ignoring their indictments.

But most the executives are still employed by their companies, even though the executives were indicted by the U.S. government on felony charges, which carry a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals.

The corporate leniency has become a major international issue as U.S. Assistant Attorney General William Baer warned that his antitrust division would consider probation and corporate monitors for companies harboring sensitively placed executives who have not answered the charges against them.  As one Justice Department official stated, “A U.S. company would never keep employing those individuals. In the United States, the first thing they would want to do is fire everybody. But that’s not the instinct at Japanese companies.”

The Japanese company did play tough pressuring the Japanese executive to plead guilty because a company can expect lower fines if it cooperates promptly.

In exchange, the company would take care of his family while he was in jail and find a position for him after he was freed.

Price fixing in Japan is an administrative crime and there is no real enforcement in the criminal area, but Japanese companies and executives have become very afraid. Now the Japanese companies are facing private triple damage actions brought by angry consumers.

CHINA ANTI-MONOPOLY CASES

Although this issue was raised by President Obama at the meetings with the Chinese government officials in Beijing, nothing of substance was reported

T&D MICROSOFT ARTICLE

In the October 2014 report on Chinese antitrust law by the Chinese T&D Law Firm, T&D Monthly Antitrust Report of September 2014, Chinese antitrust lawyer John Ren had this to say about the allegation that the Chinese Anti-Monopoly law discriminates against foreign companies:

NDRC Responded to the Query about Unfair Anti-Monopoly Practices: All People Are Equal before Law

October 30, 2014

The Anti-Monopoly Law has been effective since 2008 and was reinforced with respect to law enforcement in 2013, and then several significant anti-monopoly actions caused great sensations this year. Throughout this period, all circles have increasingly focused on ruling markets by law, breaking down monopoly privilege, and ensuring fair competition among market players. In the meantime, law enforcement with regard to anti-monopoly has drawn great attention.

Recently, several foreign-funded enterprises and foreign brands have been under investigation, and some wonder “whether China’s anti-monopoly undertaking only focuses on foreign-funded companies and is thus unfair”. Concerning this situation, Li Pumin, Secretary General of NDRC (National Development and Reform Commission), stressed in today’s “NDRC with regard to Acceleration of Building Rule of Law Authorities” press conference that all people are equal before the law, and anyone violating Chinese law shall be punished, whether they are foreign-funded or domestic companies.

He pointed out that China’s anti-monopoly law enforcement was not just targeting foreign-funded enterprises; NDRC, in line with the Anti-Monopoly Law, enforced the law with regard to those enterprises and actions restraining fair competition, which involved not only domestic enterprises but also foreign-funded enterprises.

”The Anti-Monopoly system has been rigorously designed. A vast number of large enterprises are involved, various market players are concerned about the system, and NDRC has been promoting the system, as well. In the past few years, NDRC kept summing up and exploring, and has enacted regulations on anti-price monopolies and procedure of administrative execution regarding anti-price monopoly” said Li Kang, the Chief in Laws and Regulations Department of NDRC, in regard to the work that NDRC has done in improving anti-monopoly law enforcement.

Li Kang pointed out that anti-monopoly law enforcement shall be quantified, standardized, and elaborated upon, aiming at ensuring fair, just and open anti-price monopoly enforcement. He stated further that NDRC will expand the anti-monopoly law in both substantive and procedural aspects to raise its enforceability, and in the meantime will confine and normalize NDRC’s law enforcement activities. . . .

SECURITIES

CHINESE COMPANY PUDA COAL DEFAULTS IN SECURITIES CASE

On November 18, 2014, in In re: Puda Coal Inc., a Federal District Court entered the attached default judgment, DEFAULT JUDGMENT PUDA COAL. against Chinese company Puda Coal Securities Inc., which had been sued by an investor class, for selling its sole asset to a private equity firm without telling investors for months and lying about in its IPO plans.

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

DORSEY ANTICORRUPTION DIGEST 0CTOBER 2014

The attached Dorsey’s October 2014 Anticorruption Digest, Anti_Corruption_Digest_Oct2014, had this to say about China:

“National Development and Reform Commission

According to reports, Liu Tienan, former deputy of the National Development and Reform Commission, confessed in court to taking bribes from various companies, including a Toyota Motor Corporation joint venture. The court said that: “The oral representation made by the defendants Liu Tienan on the allegations is: I have taken the initiative to confess to these facts of the allegations.”

He and his son, Liu Decheng, were reportedly charged with taking $5.8 million in bribes. Reports indicated that Mr. Decheng collected most of the bribe money. The allegations indicate that between 2002 and 2011, Mr. Tienan took bribes to facilitate project approvals and filings for a number of companies such as Nanshan Group, Ningbo Zhongjin Petrochemical Co Ltd, Guangzhou Automobile Group, Guangzhou Toyota Motor Co Ltd and Zhejiang Hengyi Group. Mr. Tienan also reportedly aided in the approval procedures for several projects from Guangzhou Automobile Group, which in return hired his son as a special Beijing representative for one of the Group’s subsidiaries.

Mr. Tienan could face life imprisonment. However, reports indicated that he is more likely to receive a lesser sentence as a result of his confession.

Reports indicate that Mr. Tienan was fired from the National Development and Reform Commission after Caijing magazine’s deputy editor Luo Changping accused him of corruption, loan fraud and counterfeiting his degree.

Pharmaceutical sector

Last month, GSK was fined $489 million in China for corruption there. Further to the Changsha Intermediate People’s Court in Hunan province’s verdict, GSK’s Chief Executive, Sir Andrew Witty, reportedly said that: “Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK. We have and will continue to learn from this. GSK has been in China for close to a hundred years and we remain fully committed to the country and its people. GSK fully accepts the fact and evidence of the investigation, and the verdict of the Chinese judicial authorities. Furthermore, GSK sincerely apologizes to the Chinese patients, doctors and hospitals and to the Chinese government and the Chinese people. GSK deeply regrets the damage caused.”

In the wake of the Chinese case, other major drugmakers have also been under increased review. It has been reported that Sanofi, the French drugmaker, informed US authorities that it was investigating allegations of employees paying bribes to healthcare professionals in the Middle East and East Africa to persuade them to prescribe its drugs.”

APEC RESOLUTION

At the end of the APEC meeting in Beijing, the APEC members issued the following resolutions about foreign corrupt practices:

“Anti-Corruption

  1. We resolve to strengthen pragmatic anti-corruption cooperation, especially in key areas such as denying safe haven, extraditing or repatriating corrupt officials, enhancing asset recovery efforts, and protecting market order and integrity.
  1. We endorse the Beijing Declaration on Fighting Corruption (Annex H), the APEC Principles on the Prevention of Bribery and Enforcement of Anti-bribery Laws, and the APEC General Elements of Effective Corporate Compliance Programs.
  1. We welcome the establishment of the APEC Network of Anti-Corruption and Law Enforcement Agencies (ACT-NET) with the finalization of its Terms of Reference. We expect to deepen international cooperation, information and intelligence exchange and experience sharing among anticorruption and law enforcement practitioners from APEC member economies through the ACT-NET and other platforms.
  1. We appreciate the efforts of the Anti-Corruption and Transparency Working Group in collaborating with other APEC fora to improve transparency in this region.”

JUSTICE DEPARTMENT SPEECH ON FCPA

On November 19, 2014 Assistant Attorney General Leslie R. Caldwell in the attached speech, DOJ FCPA STATEMENT, spoke about the Foreign Corrupt Practices Act:

“At the Criminal Division, we are stepping up our efforts in the battle against corruption, at home and abroad. . . .

More relevant to this audience, we are also deeply committed to fighting corruption abroad. Now, more than ever, we are bringing to justice individuals and corporations who use foreign bribery as a way to gain a business advantage. In part, we are doing this using the tools and methods that have made our past enforcement efforts so successful – FCPA prosecutions and penalties. . . .

And now we also are prosecuting the bribe takers, using our money laundering and other laws. And, importantly, we have begun stripping corrupt officials of the proceeds of their corruption involving both bribes and kleptocracy, using both criminal and civil authorities. . . .

We also attack corruption at its source – by prosecuting and seizing the assets of the corrupt officials who betray the trust of their people.

Another big change – one that has been building for years but now has really developed momentum – is that we increasingly find ourselves shoulder-to-shoulder with law enforcement and regulatory authorities in other countries. Every day, more countries join in the battle against transnational bribery. And this includes not just our long-time partners, but countries in all corners of the globe.

Together with our foreign law enforcement and regulatory partners we are taking a truly global approach to rooting out international corruption. And make no mistake, this international approach has dramatically advanced our efforts to uncover, punish and deter foreign corruption. . . .

Since 2009, we have convicted more than 50 individuals in FCPA and FCPA-related cases, and resolved criminal cases against more than 50 companies with penalties and forfeiture of approximately $3 billion. Twenty-five of the cases involving individuals have come since 2013 alone. And those are just the cases that are now public. . . .

Fighting corruption is not a choice we have made. It is, increasingly, a global imperative. Given the critical nature of this mission, we are bringing more resources to bear than ever before – and we will continue doing so. We have achieved significant successes using our traditional FCPA enforcement tools. We are building on those successes and continuing to evolve our enforcement efforts. Especially with the power of so many countries now standing by our side, we are determined to use every lawful means available to hold the perpetrators of corruption to account. . . .”

SECURITIES COMPLAINTS

In the attached complaint on October 28, 2014, Dragon State International Inc. filed a class action securities case against Keyuan Petrochemicals, Inc., Chenfeng Tao, and Aichun Li.  KEYUAN PETROCHEMICAL

In the attached complaint, PINGYUAN FISHING, on November 24, 2014, Tyler Warriner fled  a class action securities case against Pingtan Marine Enterprise Ltd., Xinrong Zhou, Roy Yu, Jin Shi, and Xuesong Song.

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

Best regards,

Bill Perry

US CHINA TRADE WAR-DEVELOPMENTS IN TRADE, TRADE ADJUSTMENT ASSISTANCE, CUSTOMS, IP/337, ANTITRUST AND SECURITIES

Jinshang Park from Forbidden City Yellow Roofs Gugong Palace Bei“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER OCTOBER 16, 2014

Dear Friends,

There have been major developments in the trade, trade adjustment assistance, Trade Agreements, Customs, 337/IP, US/Chinese antitrust, and securities areas.

TRADE PROTECTIONISM INCLUDING UNFAIR TRADE CASES DO NOT WORK

The problem with trade protectionism, including “unfair” antidumping and countervailing duty cases, is they do not work. Antidumping and countervailing duty cases do not accomplish their objective of protecting the US industry from “unfair” imports.

Note the quotes around unfair, because in the context of China, since the United States refuses to use actual prices and costs in China to determine whether Chinese companies are dumping, the US government simply does not know whether the Chinese companies are dumping.  Instead for the last 30 years Commerce has used Alice in Wonderland surrogate values from surrogate countries that have no relationship with economic reality in China to construct the “cost” of production in China.

With regard to accomplishing its objective of protecting the domestic industry, however, as stated in my January newsletter, on June 28, 1986 in his attached speech from his Santa Barbara ranch, BETTER COPY REAGAN IT SPEECH, President Ronald Reagan realized the simple point that trade restrictions, including unfair trade cases, do not work. As President Reagan stated:

“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.

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.”

Emphasis added.

President Reagan understood the inherent dangers of trade protectionism. As Winston Churchill stated, those who do not learn from history are doomed to repeat it.

A 21st TRADE ADJUSTMENT ASSITANCE PROGRAM—A MODEST PROPOSAL

While in Washington DC two weeks ago to discuss the Trade Adjustment Assistance for Firms program, I was told by senior aides in a position to know that Unions no longer favor trade adjustment assistance (“TAA”) and instead oppose the new trade agreements, including the Trans Pacific Partnership and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership. As the senior aide also mentioned to me, in all likelihood, TPP and TTIP will go through eventually, but the Trade Adjustment Assistance Programs may die.

As readers of this newsletter know, I am on the Board of Directors of the Northwest Trade Adjustment Assistance (“NWTAAC”). We provide trade adjustment assistance to companies that have been injured by imports.

As mentioned in previous newsletters, the Trade Adjustment for Firms (“TAAF”) program is the only Trade Program that works. In my over thirty years of experience in the international trade area, first in the US Government and later defending US importers and end user companies in antidumping cases, there is one overarching lesson that I have learned–protectionism simply does not work. US industries that cannot compete in global markets cannot run from global competition by bringing trade cases.

These cases simply fail to protect the domestic industry from import competition. In response to antidumping orders, Chinese furniture and tissue paper companies have moved to Vietnam, where labor rates are LOWER than China. While in private practice and later at the International Trade Commission (“ITC”) and Commerce Department, I watched Bethlehem Steel bring more than a hundred antidumping and countervailing duty cases against steel imports from various countries, receiving protection, in effect, from imports for more than 30 years. Where is Bethlehem Steel today? Green fields. When faced with import competition, it is simply too difficult to bring antidumping cases against all the countries in the world, which have lower priced production than the US.

With regards to trade adjustment assistance, however, there are two programs. The major trade adjustment assistance is the $1 billion program for employees/workers that have been injured by imports and the smaller $16 million TAAF program.   TAAF happened as an adjunct to TAA for Workers.

Congress started the TAA adjustment assistance programs in 1962 as part of the Trade Expansion Act and as a means of securing support for the Kennedy Round of multilateral trade negotiations. Trade Adjustment Assistance essentially was a tradeoff. If Unions and Workers would support trade liberalization, including free trade agreements, workers would be compensated because of the disruption caused by increased imports.

Many free market Republican types attack the TAA for workers as simply another entitlement that does not need to be paid and can be covered by other programs. In the early 1980s, President Reagan himself put in requirements to set up standards so that Trade Adjustment Assistance for Workers would not simply be an open ended entitlement.

But my belief is that President Reagan indirectly approved the Trade Adjustment Assistance Program for Firms/Companies. Why? Jim Munn.

As stated in the attached 2002 obituary, JIM MUNN, Jim Munn was a famous criminal lawyer in Seattle and an early supporter and personal friend of Ronald Reagan. When I started to get involved in the Northwest Trade Adjustment Assistance Center, I was told that the Center was in place because President Reagan himself asked Jim Munn to look into the program.

Both President Reagan and Jim Munn were firmly opposed to government interference in the marketplace. What did Jim Munn discover when he looked into the Trade Adjustment Assistance Program for Companies? It works. Jim Munn decided to head up NWTAAC for the next 22 years.

In the Workers program, TAA is provided at the state and local levels but overseen by the US Department of Labor. The reemployment services provided include counseling, resume-writing, job-search and referral assistance, travel costs for job searches, relocation allowance, training, income support while the worker is in training and a health coverage tax credit. Although the actual amount paid can be much less, the training itself is up to $22,500 per person, almost the amount given to each company. The rationale is that if an employee loses a job in trade impacted industry, the jobs in the industry are fewer and, therefore, the worker will need to be trained to do something else.

One question, however, is why the Unions do not want the TAA and simply want to oppose the trade agreements? One reason could be that TAA is after the workers have lost their jobs and the training may be for jobs that do not exist.

In contrast to TAA for workers, TAAF is provided by 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.

Total cost to the US Taxpayer for this nationwide program is $16 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.

The success of TAA for Firms is based on the fact that it focuses on the U.S. manufacturers, service companies and agricultural producing firms individually. The recovery strategy is custom-made for each firm. Once this strategy is approved by the Commerce Department, experts are hired to implement the strategy. The only interaction the program has with the imports is to verify that imports are “contributing importantly” to the sales and employment decline of the U.S. company.

Moreover, in contrast to other economic assistance programs, TAA for Firms is a long term assistance program, which monitors the companies and makes sure that the company succeeds in completing its trade adjustment assistance program that it has agreed to do. TAAF is focused on helping small and medium size enterprises as the support provided to the companies is only $75,000, which must be matched by the companies.

Although at first glance, free market advocates would not support this program, TAA for Firms works. We have published a cost/benefit analysis, which shows that nearly 80 percent of the firms it has assisted since 1984 are still in business. That is eight out of ten companies saved.

In the recent annual Commerce report on TAAF, which is posted on my blog, it is reported that all US companies that joined the program in 2011 were alive in 2013. If the company can be saved then most of the jobs at that company can be saved. In fact, the attached chart, shows that after entering the program, jobs have increased at the companies. TAAF Change in Employment 2009-13

One reason that TAAF may succeed so well is that small and medium enterprise often have a knowledge gap. Although the companies may hire consultants, many enterprises do not undertake the projects that change the essential economic circumstances of the business, such as lean manufacturing, quality system certification, new product development, or strategic marketing overhaul.

Most managers are not looking for solutions until there is a problem. For a small and medium enterprise, trade impact is one of those problems that require a solution. That solution will in nearly all cases entail outside expertise.

In a sense, TAAF is “retraining the company” so it never has to lose jobs, rather than waiting for the layoffs and retraining the individuals. This works because when companies lose out to trade, it’s like a tsunami hits them. Everything changes. Things the company thought they knew about their product, how to make it, and how to sell it, are no longer true. What they need is the knowledge and innovation to succeed in these new circumstances. That knowledge and innovation comes from the Center Staff and outside expertise – consultants and contractors. For each company, the Staff of the Trade Adjustment Assistance Center analyzes the needs of the firm, prepares a recovery strategy, facilitates the hiring of the outside consultant and then monitors the projects until completion. If the companies get to the right place in terms of product and market, they no longer have to lose out to imports. Instead they grow.

Trade Adjustment Assistance for Firms (TAAF) specifically targets these circumstances. TAAF is based on the recognition that trade impact leads to a knowledge gap in individual firms that is cured by innovation implemented through outside expertise.

TAAF offers qualified trade impacted firms a matching fund for outside expertise. It is a substantial fund, available over a long term, and highly flexible to meet the unique requirements of diverse firms. The cost of outside expertise would normally come as an exceptional operating expense, in other words, it would come from profit. But for a trade impacted small and medium enterprise that may be losing sales under severe price competition, profit is often in short supply.

TAAF offers access to the critical resource, outside expertise, at a time when the firm needs it the most and would be least prepared to acquire it. The exceptional results of the TAAF program all derive from this connection: trade disruption equals knowledge gap; knowledge gap overcome by innovation; innovation implemented through outside expertise, outside expertise enabled by TAAF. To learn more about the TAAF program, please see the website of NWTAAC, http://www.nwtaac.org.

TAA for workers/employees looks for the businesses that are laying off people and gets those people into a service stream. The idea is that imports increased, some people lost jobs, so retrain those people or get them into some other job situation.

In the alternative, TAAF looks for those businesses that are beginning to lose out in a trade impacted market and then works with those businesses to make them stronger so that they do not have to lay off people anymore, and, as happens in most cases, actually add jobs in time.

In talking with Republicans, although thinking that TAA for workers is simply another entitlement, when the TAAF program is described, they are much more interested.

But that brings us to the present problem. We have two TAA programs that are completely separate. One is the $1 billion program to retrain workers with applications made to the Department of Labor, and the other program is the TAAF program with applications made to Commerce Department. There is little interaction between the two programs and little is done by Commerce and Labor to facilitate such communication.

In the TAA for Workers program, because the companies have the data needed to approve the application, the Labor Department tells the companies that they need to provide data in a relatively short time to the Labor Department under threat of subpoena. Similar data is provided to the Commerce Department in the TAAF program, but the company is given weeks to submit the data.

To move the Trade Agreements forward, TAA for workers and TAA for firms need to be reworked and readjusted to make sure that the programs 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 TAA for Companies program first and give it more funding so it can help larger companies, such as Steel Companies, where more jobs are located. TAA 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.

One interesting point is that when the Korean government examined the US Trade Adjustment Assistance programs, that government decided not to have a workers program, only a company program, to save the jobs before they are lost.

Legislators may ask where should the money to fund these programs come from? Every year the US government collects more than $1 billion in antidumping and countervailing duties. Although the WTO has determined that the antidumping and countervailing duties cannot be given to Petitioning companies that have filed for antidumping and countervailing duties, those duties could be used to help all companies and workers hurt by imports. The WTO allows countries to provide money to companies to adjust to import competition.

Congress needs to create a 21st Trade Adjustment Assistance Program so that support for the new trade agreements can be generated in the broad population. As indicated below, the TPP alone is predicted to increase economic activity by $1 trillion. With such a huge benefit, trade agreements will eventually go through and the question now is how can the US government help workers and companies adjust to the new competitive marketplace?

WHY MARKET ECONOMY IN ANTIDUMPING CASES AGAINST CHINA IS SO IMPORTANT FOR US IMPORTERS, US END USER PRODUCERS AND CHINESE COMPANIES

As stated in numerous past newsletters, market economy for China is important in antidumping cases because the Commerce Department has substantial discretion to pick surrogate values. As mentioned many times before, in contrast to Japan, Korea, Indonesia, India, Iran and almost every other country in the World, because China is not considered a market economy country in antidumping cases Commerce refuses to look at actual prices and costs in China to determine dumping. Instead Commerce takes 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 Country to get values often from Import Statistics in third surrogate countries to value those consumption factors.  Commerce then constructs a “cost” for the Chinese company, which often has no relationship to the actual reality in China.

In the past Commerce looked for surrogate values in only one country, India, but now Commerce looks at numerous countries, including Indonesia, Thailand, Philippines, Bulgaria, Columbia, and Ukraine to name a few and uses import values in those countries to consctruct the cost.  Those import values and the surrogate country itself 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 country and which surrogate value that Commerce will pick to value the consumption factors.  Since it is impossible for the Chinese company to know whether it is dumping, the US importer cannot know whether the Chinese company is dumping.

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.

This point was recently reinforced by a Court of Appeals for the Federal Circuit (“CAFC”) decision in the Garlic from China antidumping case. On September 10, 2014, in the attached Qingdao Sea-Line Trade Co., Ltd. v. United States, in affirming the Commerce Department’s determination in the Garlic case, CAFC OPINION GARLIC WHY MARKET ECONOMY SO IMPORTANT FROM CHINA, the CAFC stated:

“In an administrative review of a non-market economy, Commerce is required to calculate surrogate values for the subject merchandise using the “best available information.” 19 U.S.C. § 1677b(c)(1). Commerce has broad discretion to determine what constitutes the best available information, as this term is not defined by statute. Commerce generally selects, to the extent practicable, surrogate values that are publicly available, are product specific, reflect a broad market average, and are contemporaneous . . .

We also hold that Commerce may change its conclusions from one review to the next based on new information and arguments, as long as it does not act arbitrarily and it articulates a reasonable basis for the change. Indeed, the Trade Court has recognized that each administrative review is a separate exercise of Commerce’s authority that allows for different conclusions based on different facts in the record.”

Emphasis added.

Thus, 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.

Just like a toothpaste tube, when you squeeze to help one producer, you often hurt the downstream US producer. In other words, the US antidumping and countervailing duty laws, rob Peter to pay Paul.

IMPORT ALLIANCE FOR AMERICA

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

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

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 is attached.FINAL BEIJING IMPORT ALLIANCE POWERPOINT

TRADE

SOLAR CASES—POSSIBLE SETTLEMENT??—CORRECTION

POSSIBLE SCOPE EXPANSION TO INCLUDE PANELS PRODUCED IN CHINA AND TAIWAN FROM THIRD COUNTRY SOLAR CELLS

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice have been posted on my blog. The Countervailing Duty Rates range from 18.56% for Trina to 35.21% for Wuxi Suntech and all other Chinese companies getting 26.89%.

On July 25th, the Commerce Department announced its preliminary antidumping determination in the Chinese solar products case establishing 47.27% combined rates (20.38% Antidumping, 26.89% Countervailing Duty) wiping out billions of dollars in imports of Chinese solar products into the United States.

Posted on my blog are the Commerce Department’s Factsheet, Federal Register notice, Issues and Decision memo from the Antidumping Preliminary Determination along with Commerce instructions to Customs in the Solar Products Antidumping and Countervailing Duty cases, which will help importers understand what products are covered by this case. Also attached is the ITC scheduling notice for its final injury investigation in the Solar Products case. The ITC hearing is scheduled for December 8, 2014.

On August 15th, after an extension, the Chinese government filed a letter at Commerce, which is posted on my blog, expressing an interest in a suspension agreement, but no proposed formal agreement has been filed with the Department.

On the possibility of a suspension agreement in the New Solar Products case or a comprehensive agreement settling all the cases, however, there are indications of ongoing negotiations between the US and Chinese governments.  After being corrected, I checked the law again and the Commerce Department does not need consent from Solar World to go forward with a Suspension Agreement.  But they do need to consult with Solar World. There is no indication that Solar World has been consulted. Commerce is also required to issue a Federal Register notice requesting comments on an Agreement, but nothing so far.

Very recently, however, there have been indications that negotiations are ongoing between the US and Chinese governments in the Solar cases. The talks are confidential and Commerce has refused to even say whether it received a proposal from China for a suspension agreement.

But sources have reported that the two sides have had several meetings since August, when China said it was interested in negotiating a settlement in a public filing. This source said the frequency of these meetings provides at least some indication that there may be movement to finally resolve the solar trade cases.

But there is little time left to conclude an Agreement so the Solar Products case in all probability will go to final determination. Antidumping and countervailing duty orders will probably be issued and could be in place for 5 to 30 years. Chinese companies and US importers will simply then try and get around the situation by setting up production in third countries.

As a result of the Solar cases and the corresponding Polysilicon antidumping and countervailing duty case brought by the Chinese government against the United States, Washington State officials have told me that REC Silicon, which has the largest polysilicon production facility here in Moses Lake, Washington, is about to set up a joint venture in China to produce polysilicon in that country.

Meanwhile, the case moves on and expands.

In the attached October 3, 2014 memo, DOC MEMO, on its own motion Commerce has proposed to expand the scope of the Solar Products case to cover all panels produced in Taiwan and China from third country solar cells. As Commerce states in the October 3, 2014 memo, which will be posted on my blog:

“Interested parties have submitted comments on the scopes of the above-referenced antidumping duty (AD) and countervailing duty (CVD) investigations, including certain concerns about the scope’s administrability and enforcement. In response, the Department is considering the possibility of the scope clarification described below and is providing interested parties with an opportunity to submit comments. Currently, the scopes of the AD and CVD investigations of certain crystalline silicon photovoltaic products from the People’s Republic of China (PRC) and the scope of the AD investigation of certain crystalline silicon photovoltaic products from Taiwan contain the following language:

“For purposes of this investigation, subject merchandise includes modules, laminates and/or panels assembled in the subject country consisting of crystalline silicon photovoltaic cells that are completed or partially manufactured within a customs territory other than that subject country, using ingots that are manufactured in the subject country, wafers that are manufactured in the subject country, or cells where the manufacturing process begins in the subject country and is completed in a non-subject country.”

Specifically, we are considering a scope clarification that would make the following points:

For the PRC investigations, subject merchandise includes all modules, laminates and/or panels assembled in the PRC that contain crystalline silicon photovoltaic cells produced in a customs territory other than the PRC.

For the Taiwan investigation, subject merchandise includes all modules, laminates and/or panels assembled in Taiwan consisting of crystalline silicon photovoltaic cells produced in Taiwan or a customs territory other than Taiwan. In addition, subject merchandise will include modules, laminates, and panels assembled in a third- country, other than the PRC, consisting of crystalline silicon photovoltaic cells produced in Taiwan.”

Today October 16, 2014, on behalf of two importers that import solar panels with third country solar cells in it, we filed a brief to argue that a change this late in the Solar Products investigation expanding the products subject to investigation violates due process because of the lack of notice to US importers and Chinese exporter and producers.  The problem with changing the scope this late in the antidumping and countervailing investigation is that Commerce Department’s record is now closed and those Chinese companies that export solar panels with third country solar cells in them along with the US companies that import those products have no opportunity to prove that the Chinese companies are separate and independent from the Chinese goverment.  The Chinese companies, therefore, will automatically get an antidumping rate of 167%.

Moveover, the entire antidumping and countervailing duty proceeding at Commerce as well as the injury investigation at the US International Trade Commission (“ITC”) are based on the presmise that the products covered by this investigation are solely those solar panels that have solar cells wholly or partially produced in the subject countries, Taiwan or China.  If Commerce accepts the proposal, that will no longer the case.  The Solar Products cases will cover solar panels with third country solar cells in them when there is no specific determination at the Commerce Department that those solar panels with third country solar cells, in fact, were dumped or that the Chinese  companies producing those panels received subsidies and no determination at the ITC that the solar panels with third country solar cells in them caused injury to the US industy.

One reason that Commerce may have decided to expand the scope is because the AD and CVD orders will be difficult to administer and enforce. It will be difficult for Customs officials at the border to determine where the components of a solar cell in a particular panel from China or Taiwan originated.  But that is a problem with the scope in Solar World’s initial petition that it filed in this case.  Substantially changing the game at this stage in the proceedings raises enormous due process questions in this proceeding.

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

As mentioned in past newsletters, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP), Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations and the WTO.  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 is particularly a problem because the protectionism is coming from the Democratic side of the aisle. Democratic Senators and Congressmen are supported by labor unions. Although 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 mid-term elections as soft on trade.

As mentioned in prior newsletters, on January 29th, 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.

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted on this blog in the 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, other than more oversight by Congress and input by the Public in the trade negotiations.

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.

Recently, former USTR Ron Kirk in an opinion piece urged the negotiators to conclude an agreement without approval of the TPA. In discussing the situation with senior Republican aides in the US Congress, it was made clear that without TPA no TPP can be concluded. When asked about the Kirk statement, the response of one Republican aide recently was “I hope we are over that point.”

Now the story continues . . . .

On September 5th, it was reported that a coalition of unions and advocacy groups called on U.S. Trade Representative Michael Froman to make sure that public health programs are immune to challenges from powerful pharmaceutical firms under U.S. trade deals. The AFL-CIO, Center on Budget and Policy Priorities, AARP and other groups in a letter to Froman, said that if an investor-state dispute settlement mechanism — or ISDS — is included in the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership, it must contain a shield for Medicare, Medicaid and other government health initiatives. The groups fear that pharmaceutical companies could use the ISDS system to challenge regulations that state legislatures, Congress or administrative agencies use to manage drug costs in public programs.

On September 8th, it was reported that pork producers in seven countries put pressure on negotiators meeting in Vietnam for a session of Trans-Pacific Partnership negotiations to resist a Japanese government proposal that would exempt certain sensitive food products from tariff cuts in the deal. Organizations representing hog farmers in the U.S., Canada, Australia, Mexico and Chile circulated an open letter to negotiators reiterating that full tariff elimination is a core principle of the TPP and that Japan’s “unacceptable” proposal to carve out pork and other food products from tariff cuts would undermine the credibility of the deal now and in the future stating:

“A broad exemption for Japan will encourage other TPP countries to withhold market access concessions, backtrack on current offers, lower the ambition on rules language and possibly unravel the entire agreement. Additionally, it would set a dangerous precedent for the expansion of the TPP when other nations are likely to demand a Japan-type deal.

“We call on each of our governments to redouble their efforts to move Japan away from this untenable position. If Japan is unwilling to open its markets fully to our products, it should exit the negotiations so that the other nations can expeditiously conclude the negotiations.”

On September 10th, it was reported that the latest session of the TPP talks in Hanoi had wrapped up with officials reporting progress on the agreement’s chapters covering intellectual property, state-owned enterprises and labor as the TPP negotiators work to deliver a substantial outcome in time for a closely watched November 10-11 APEC summit in Beijing. Assistant USTR Barbara Weisel stated:

“We have committed to a focused work plan, which will allow us to boost momentum and make continued progress. All countries involved want to reach a conclusion to unlock the enormous opportunity TPP represents.”

Canadian and Vietnamese government officials issued similar statements.

Scheduling is significant as the 12 TPP nations are quickly approaching the November 10-11 summit of the Asia-Pacific Economic Cooperation in Beijing, which President Barack Obama and others have indicated as a deadline for the partners to conclude the talks or at the very least announce a significant breakthrough on the major differences.

On September 29th, House Democratic Whip Steny Hoyer (Md.) stated that he did not expect Congress to hold debate in the upcoming post-election lame-duck session on whether to give the White House the authority to expedite international trade pacts. At an appearance at the National Press Club, Hoyer stated that he did not see enough support to bring trade promotion authority, or TPA, to the House floor.

Although some House Republicans had expressed interest in trying to move TPA during the lame duck session, when the political fallout from opponents would be less, Hoyer stated:

“I don’t think right now there is the consensus, in either party, to bring that forward. I doubt seriously, as I said, that we’re going consider trade legislation.”

On September 25, 2014, it was reported that top Japanese and US trade officials had closed a two day meeting in Washington DC without resolving any key differences regarding agriculture or automobiles in the TPP Talks. A meeting between U.S. Trade Representative Michael Froman and Japanese TPP czar Akira Amari resulted only in a brief statement from the U.S. side saying that the nations’ key differences still remain.

The USTR stated, that “While there were constructive working level discussions over the weekend, we were unable to make further progress on the key outstanding issues.” The failure of Froman and Amari to bridge the considerable gaps on food and automotive trade remains a significant barrier to the likelihood of a significant outcome in the broader 12-nation TPP talks in time for an Asia-Pacific summit in November 10-11 in Beijing, China.

On October 1, 2104, the House of Representatives Ways and Means Committee circulated the attached e-mail, WAYS AND MEANS WASH POST, with an editorial from the Washington Post on the Trans Pacific Partnership and the need to reinvigorate the process. The House Ways and Means e-mail states:

“Momentum for the Trans-Pacific Partnership Needs to be Revived

By The Editorial Board

The Trans-Pacific Partnership is a proposed free-trade agreement that will knit the United States and 11 nations of South America, North America and Asia more closely together, while providing a geopolitical counterweight to a rising China. The pact would be especially valuable because Japan is willing to join, which would require a long-overdue opening and restructuring of its protected but lackluster economy. Indeed, without Japan, the world’s third-largest economy, the TPP loses much of its strategic significance.

So it was disappointing to learn that a Sept. 24 meeting between American and Japanese trade negotiators in Washington broke up after only an hour over the same old issue, Japanese resistance to U.S. farm exports that has plagued the two nations’ dealings for decades. The Japanese departed without touching a sandwich buffet that had been laid out in anticipation of an extended working session, according to the Wall Street Journal.

This is only the latest troubling development for the centerpiece of what was once meant to be President Obama’s foreign policy “pivot” to Asia.  As 2014 began, Japanese Prime Minister Shinzo Abe was promising to join the U.S.-led free-trade agreement as a spur to his own structural economic reforms. A bipartisan, bicameral group of senior U.S. lawmakers had agreed on a plan for “fast track” legislative authority to expedite a congressional vote on the TPP, once the 12 would-be members hammered out a final deal. Bucking resistance from trade skeptics in his own party, Mr. Obama had offered a friendly reference to that proposal in his State of the Union address on Jan. 28.

But Mr. Obama’s call was received coolly by Senate Majority Leader Harry Reid (D-Nev.) and by key Democratic constituencies such as organized labor. Foreign crises in the Middle East and Ukraine occupied the White House and Congress. Two champions of the bipartisan trade promotion measure, Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.), retired or planned to retire from Congress.

For all of Mr. Abe’s talk of bold steps and confronting special interests in Japan, his negotiators have not yet backed up the prime minister’s talk with concrete proposals, even though the prime minister has said repeatedly that opening agricultural markets is in Japan’s interest. The upshot is that momentum behind the TPP seems to be flagging and the administration’s goal of a tentative agreement by the end of 2014 is looking less feasible.

Vice President Biden tried to patch things up with Mr. Abe in a meeting on Friday, which produced a boilerplate pledge to seek an agreement. It will take more than that to revive the momentum for the TPP and close a deal. Back home, Mr. Abe needs to keep the pressure on special interests. Congress could reciprocate by moving ahead promptly with fast-track authority during the post-election lame-duck period — which will take political courage on its part, too.”

On October 2, 2014, it was reported that the Australian Government has agreed to host a meeting of the TPP trade ministers at the end of October to deal with the outstanding issues regarding intellectual property, agricultural market access, state-owned enterprises and other areas as negotiators race to close major parts of the pact by year’s end. The three day meeting will start in Sydney being Oct. 25, with the hope that the 12 TPP partners can seal the “basic elements of the agreement” before the end of the year.

But the differences with Japan and the lack of Trade Promotion Authority are two big issues that need to be addressed by the US Government. Without these two issues being resolved the chance of any big breakthroughs is small. These two problems would appear to prevent a final deal at the November APEC meeting, which has been an objective of the Obama Administration.

TTIP—FREE TRADE AGREEEMENT WITH EU

Meanwhile, trade negotiators for the US and the European Union announced on Friday, October 3rd that the seventh round of Transatlantic Trade and Investment Partnership had wrapped up with reports of steady progress on chapters covering trade in services as well as regulations covering automobiles, chemicals and food safety. Assistant U.S. Trade Representative Dan Mullaney, the lead U.S. TTIP negotiator, stated:

“As this painstaking work of building a foundation for an agreement is completed, we will need to make a high-level push to achieve the comprehensive and ambitious results that we are now working to support. That will require a shared commitment at the highest levels on both sides of the Atlantic to move forward quickly.”

INDIA STILL KILLS WTO TRADE FACILITATION AGREEMENT NEGOTIATED IN BALI

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 22, 2014, Director General Roberto Azevedo of the WTO warned that a deadlock on the multilateral body’s implementation of a modest trade-facilitation agreement could impose a “freezing effect” on the WTO’s work in other areas. The Director General stated:

“Many areas of our work may suffer a freezing effect, including the areas of greatest interest to developing countries, such as agriculture. All negotiations mandated in Bali, such as the one to find a permanent solution for the issue of public stockholding for food security purposes, may never even happen if members fail to implement each and every part of the Bali Package, including the trade facilitation agreement.”

Azevedo restated what he has said in the past that India and the developing countries’ concerns on food security have been addressed in the Bali package, which extended a “safe harbor” period prohibiting challenges against the controversial programs while committing to hold talks to find a permanent fix.

Azevedo stated:

“Failing to agree on new rules for twenty years is a very disturbing record. Considerably graver than that is not being able to implement what has been finally agreed only a few months earlier. The question that WTO members are trying to answer is not whether members can ensure their food security but rather under which commonly agreed disciplines they can implement policies to achieve this goal without further distorting trade or aggravating the food insecurity of third countries.”

On September 30th, however, in his first meeting with President Obama, Indian Prime Minister Narendra Modi on Tuesday reaffirmed his government’s position in the ongoing fight to implement a World Trade Organization trade facilitation pact, linking his support for the deal to action on food security issues. Modi made clear that India is not backing down from the push to shield its food security programs from legal challenges, which led the WTO to miss the July 31 deadline to implement the Trade Facilitation Agreement.

After the meeting with President Obama, Modi tweeted that “We had an open discussion on WTO issue. We support trade facilitation, but a solution that takes care of our food security must be found.” Speaking to reporters through a translator alongside Obama, Modi also said he believed it would be possible to resolve the impasse “soon.”

On September 29th, the WTO cited little progress following a Sept (PCTF) meeting, nearly two months after the advance the trade facilitation plan over concerns related to India’s food safety demands.

On October 1st, at the WTO’s 2014 public forum, United Nations Secretary General Ban Ki-moon urged the World Trade Organization to overcome its internal fights and reach a deal on new global trade rules, including the Trade Facilitation Agreement, warning that the rise of regional trade pacts could undermine the WTO and leave developing nations way behind. Secretary General Ban said that the WTO’s mission to eliminate trade barriers is a key driver of the UN’s own initiatives to promote global development. He called for a renewed commitment to the long-stalled Doha round of trade negotiations. Ban said:

“Trade can — and should — benefit everyone. That is why the international community needs to avoid protectionism. We need an open, fair, rules-based and development-oriented international trading regime in the spirit of the Doha Development Round.”

WTO Director-General Roberto Azevedo also spoke at the forum:

“Trade has become a matter of headlines and high politics once again.  Now, more than ever, our work here has the potential to touch the lives of almost everyone on this planet.”

TIRES FROM CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE

Led by Senator Kay Hagan of North Carolina, 31 Democratic US Senators wrote the attached letter, 31 DEMOCRATIC SENATORS BACK TIRES CASE, to Secretary Penny Pritzker of the Commerce Department in support of the Tires case from China. The 31 Senators stated:

“We are writing in strong support of the Department’s decision to initiate antidumping and countervailing duty investigations of passenger vehicle and light truck tires from China.

As you well know, China has targeted the passenger vehicle and light truck tire sector for development and there are several hundred tire manufacturing facilities now operating in that country. In 2009, the United Steelworkers (USW) filed a Section 421 petition seeking relief from a flood of similar tires from China that were injuring our producers and their workers. That petition was successful and the relief that was provided helped to restore market conditions. Employment stabilized and companies producing here invested billions of dollars in new plant and equipment.

Unfortunately, shortly after relief expired, imports of these tires from China once again skyrocketed. Since the Section 421 relief ended in 2012, imports from China have roughly doubled. In response, on June 3, 2014, the United Steelworkers (USW) filed petitions with the Department alleging dumping and subsidies. The Steelworkers’ petitions identified dumping margins as high as 87.99 percent and provided sufficient information for the Department to initiate an investigation on 39 separate subsidies available to tire producers in China.

Our laws need to be fairly and faithfully enforced to ensure that workers – our constituents – can be confident that, when they work hard and play by the rules, their government will stand by their side to fight foreign predatory trade practices. Thousands of workers across the country are employed in this sector, making the best tires available.

America’s laws against unfair trade are a critical underpinning of our economic policies and economic prosperity. Given the chance, American workers can out-compete anyone. But, in the face of China’s continual targeting of our manufacturing base, we need to make sure that we act quickly and enforce our laws. That is what we are asking and urge you and your Department carefully analyze the facts and act to restore fair conditions for trade.”

Senator Kay Hagan of North Carolina is in a tough reelection fight, which led to her effort to support her constituent, the Union and the Goodyear plant in Fayetteville, North Carolina.

TOUGHER TRADE LAWS??

On Wednesday October 1, 2014, in the attached press release, BROWN, Democratic U.S. Senator Sherrod Brown of Ohio announced at Byer Steel Group, a US rebar producer, in Cincinnati new legislation that would help level the playing field for American manufacturers by strengthening the ability of the U.S. to crack down on unfair foreign competition resulting from violations of trade law. Senator Brown stated:

“As American manufacturing continues its steady comeback, it is critical that we fully enforce our trade laws to ensure that American companies – like Byer Steel – can compete on a level playing field. That’s why the Leveling the Playing Field Act is so important. We must fight back against foreign companies’ efforts to weaken our trade laws and exploit loopholes. And that’s exactly what the Leveling the Playing Field Act does. I look forward to working with my colleagues in a bipartisan fashion to get this bill passed.”

ALUMINUM EXTRUSIONS

CIRCUMVENTION OF ALUMINUM EXTRUSIONS ORDER??

As a follow up to the May 8th letter by Senator Mitch McConnell reported in my last newsletter, on August 14th, Senator Orrin Hatch sent the attached letter, HATCH LETTER ALUMINUM, to Paul Piquado, Assistant Secretary for Enforcement & Compliance, at the Commerce Department, expressing his concerns of circumvention of the antidumping and countervailing duty orders on Aluminum Extrusions. In the letter, Senator Hatch stated:

“Futura Industries and its 327 employees based in Clearfield, Utah is among the U.S. companies affected by the Chinese products found to be dumped and subsidized. I understand that the Department is currently conducting two scope inquiries related to imports of 5000-series alloy aluminum extrusions in place of the 6000-series alloy aluminum extrusions to which the orders apply. I urge you to apply all applicable laws and regulations in making the Department’s scope rulings.”

On August 19th, Congressman Sessions sent a similar attached letter, SESSIONS LTR, to Assistant Secretary Paul Piquado on behalf of his constituent Texas Western Extrusions Corporation and its 700 employees expressing deep concern by recent reports of unfair trade practices from China in exporting the 5000-series alloy aluminum extrusions that once again are “threatening Texas jobs.

On September 8, 2014, it was reported that numerous members of Congress have urged the U.S. Department of Commerce to rule that the so-called “5000 series” of extrusions currently being shipped into the U.S. should be covered by the aluminum extrusions antidumping and countervailing orders.

On September 4, 2014, Assistant Secretary for Enforcement and Compliance Paul Piquado in the attached letter, ALUMINUN COMMERCE RESPONSE, to the lawmakers assured them that the agency is “committed to the robust enforcement of the trade remedy laws” to help provide U.S. firms and workers the opportunity to “compete on a level playing field.” The Assistant Secretary also stated that his office is aiming to reach a decision in its probes by Oct. 8.

STEEL WIRE ROD FROM CHINA PRELIMINARY ANTIDUMPING DETERMINATION

On September 2, 2014, in the attached factual statement,  factsheet-prc-carbon-alloy-steel-wire-rod-ad-prelim-090214, the Department of Commerce (Commerce) announced its affirmative preliminary determination in the antidumping duty (AD) investigation of imports of carbon and certain alloy steel wire rod from the People’s Republic of China (China).  Since the Chinese companies failed to respond to the Commerce Department’s questionnaire, they received a preliminary dumping margin of 110.25 percent with the separate rate steel companies receiving a preliminary dumping rate of 106.19 percent.

CAFC AFFIRMS THE IMPORTANCE OF SEPARATE RATES FOR CHINESE EXPORTERS AS OPPOSED TO PRODUCERS

On September 10, 2014, in the attached Michaels Stores, Inc. v. United States case, CAFC MICHAELS CHINESE EXPORTERS NEED TO GET THEIR OWN RATE, the Court of Appeals for the Federal Circuit (“CAFC”) restated the importance of Chinese exporters, including trading companies, getting their own antidumping rates and that the importer, in fact, confirm that the Chinese exporter has a separate rate. In the case, Michaels, a US importer, assumed that the since the Chinese producer had an antidumping rate, that rate applied to the Chinese exporter. Not true. As the CAFC stated:

“Indeed, it has been Commerce’s policy since 1991 to apply a country-wide rate to all exporters doing business in the PRC unless the exporter (not the manufacturer) establishes de jure and de facto independence from state control in an administrative review proceeding. . . . This court has endorsed this presumption on multiple occasions. . . .

Michaels has not demonstrated that Commerce’s interpretations of the regulation in practice are plainly erroneous or inconsistent with the regulation. Because a noncombination rate for the exporter was established as the PRC-wide rate of 114.90%, Michaels could not rely on its producer rates as a substitute. Were we to conclude otherwise, Michaels could circumvent its antidumping obligations by buying pencils from a state-controlled exporter at a discounted price and then use the antidumping rate associated with its non-state controlled manufacturer.”

OCTOBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On October 1, 2014, Commerce published in the Federal Register the attached notice, OCT REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of October. The specific antidumping cases against China are: Barium Carbonate, Barium Chloride, Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers. No countervailing duty cases were listed

For those US import companies that imported Electrolytic Manganese Dioxide, Helical Spring Lock Washers, Polyvinyl Alcohol, and Steel Wire Garment Hangers and the other products listed above from China during the antidumping period October 1, 2013-September 30, 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.

DUELING US AND CHINA WTO APPEALS

As mentioned in the prior post, on July 14, 2014, in a decision and summary, which is posted on my blog, the WTO upheld China’s claims that certain US countervailing duty cases against China were inconsistent with the WTO Agreement. On August 22nd, China filed a notice of appeal at the WTO with regards to the remaining cases, followed by the US notice of appeal on August 27th.

Both appeals are taking issue with the initial WTO panel’s finding on the uses of all facts available (“AFA”) in countervailing duty cases against China. Commerce based its AFA determinations on the failure of the Chinese government to provide adequate information to Commerce to make a determination on certain programs of the Chinese government.

In the initial panel ruling, while the US won on China’s challenge to AFA findings, the US lost on several other issues, including the Commerce Department’s use of out of China benchmarks to measure the subsidies and the Commerce Department determination that every state-owned company, in fact, is part of the Chinese government, even if it does not function as a governmental entity. In the initial panel decision, the WTO panel determined that Commerce’s decision to automatically find that state owned enterprises (SOEs) to be part of the government and “public” bodies, which therefore constituted “government involvement” in the market, was a violation of the Countervailing Duty Agreement. The US did not appeal this decision by the WTO initial panel and, therefore, is final and a loss for the US government.

The US alleges that Chinese government made procedural errors in appealing the cases to the WTO, including the failure to specify which AFA determinations were being appealed. The initial panel ruling rejected the US argument stating, “While we have some sympathy for the United States’ position, namely that more detail could have been provided in the panel request regarding what in particular about the manner in which the United States resorted to and used facts available is allegedly inconsistent with Article 12.7 of the SCM Agreement, we are not convinced that Article 6.2 of the DSU requires this,”

During the panel proceedings, China had argued that because Commerce cannot automatically assume that State Owned Enterprises/Companies are public bodies for the purposes of Article 1.1(a)(1), it should also not automatically assume that market conditions are distorted just because a State-Owned Company is involved in the marketplace. The initial panel decision, however, did not directly address this issue raised by the Chinese government and is now being appealed by China. The initial panel stated:

“In our view, some determinations are based on the market share of government-owned/controlled firms in domestic production alone, others on adverse facts available, others on the market share of the government plus the existence of low level of imports and/or export restraints.”

China is also asking on appeal that the WTO overturn the panel’s finding affirming the Commerce Department’s methodology for determining whether a subsidy is specific to an enterprise or group of enterprises within a certain region.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST BOLTLESS STEEL SHELVING FROM CHINA

On August 26, 2014, Edsall Manufacturing filed a new AD and CVD case against Boltless Steel Shelving from China. The alleged Antidumping rates are 33 to 267%.

The ITC notice and the relevant pages of the petition are attached.  STEEL SHELVING SHORT PETITION ITC PRELIMINARY NOTICE

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 for the speech and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters.  US SANCTIONS RUSSIA RUSSIAN TRADE PRACTICE

There is a great deal of confusion and uncertainty surrounding business with Russian companies. As sanctions continue to expand against Russia, any company interested in doing business with Russia must constantly check the regulations and hire legal counsel. Every single transaction with Russian entities is a potential target of the sanctions, and, therefore, any US company interested in doing business with Russia must be extremely vigilant. The US regulations mirror regulations in Canada and the EU, but there are differences.

There are two groups of US regulations. The most powerful regulations are administered by Treasury—Office of Foreign Assets Control (“OFAC”). A second group of regulations have been issued by the Commerce Department’s Bureau of Industry and Security (BIS) blocking exports of certain energy-sector technologies.

With regards to the sanctions administered by OFAC, US Presidential Executive Orders 13660, 13661, and 13662 define how U.S. Government will identify targets of sanctions (e.g., financial services, energy, metals and mining, engineering, and defense sectors and government agencies and officials).

The specific OFAC regulations regarding Ukraine are set forth in 31 CFR 589 –”Blocking”/“Asset Freezing” sanctions prohibiting transactions with specific persons and entities. Attached are the Ukraine regulations, UKRAINE RELATED SANCTIONS REGULATIONS, but they do change as the sanctions evolve.

Pursuant to the OFAC regulations, U.S. persons are prohibited from conducting transactions, dealings, or business with Specially Designated Nationals and Blocked Persons (SDNs). A US person must also block the property or interest in property of SDNs that they hold or that is located in the United States. The blocked persons list can be found at http://sdnsearch.ofac.treas.gov/. See also:   www.treasury.gov/resource-center/sanctions/programs/pages/ukraine.aspx . The list includes the Russian company, United Shipbuilding, and a number of Russian Banks, including Bank Rossiya, SMP Bank, Bank of Moscow, Gazprombank OAO, Russian Agricultural Bank, VEB, and VTB Bank.

When such SDN property is blocked, it must be reported to OFAC within 10 days, and cannot be dealt in by U.S. persons without prior authorization from OFAC.  Civil penalties are up to $250,000 or 2x transaction value, per violation (strict liability regime); criminal fine up to $1 million, and/or up to 20 years in prison.

On July 29, 2014, OFAC issued a new “Sectoral Sanctions Identification List” (the “SSI List”) that identifies specific Russian persons and entities covered by these sectoral sanctions. See www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx. U.S. persons are prohibited from engaging in certain transactions with persons and entities on the SSI List, but are not required to “freeze” or “block” property or interests in property of such persons and entities as if they were SDNs.

Specifically U.S. persons are prohibited from:

“transacting in, providing financing for, or otherwise dealing in new debt of longer than 90 days maturity or new equity for these persons … their property, or their interests in property. All other transactions with these persons or involving any property in which one or more of these persons has an interest are permitted, provided such transactions do not otherwise involve property or interests in property of a person blocked pursuant to Executive Orders 13660, 13661, or 13662, or any other sanctions programs implemented by the Office of Foreign Assets Control [i.e., an SDN]”

General OFAC policy restrictive measures apply automatically to any entity owned 50% or more by SDN, even if the entity is not specifically named as SDN.

Even if company is not on SDN/SSI list, a US company wishing to do a transaction with a Russian company needs to determine in writing whether the company is 50% or more owned by any SDN or controlled by an SDN. As OFAC has stated in its announcement:

“U.S. persons are advised to act with caution when considering a transaction with a non-blocked entity in which one or more blocked persons has a significant ownership interest that is less than 50 percent or which one or more blocked persons may control by means other than a majority ownership interest”

Thus companies or persons on the SSI list may become named SDNs in the future. SSI and SDN Lists are not static but evolving. Lists will likely expand and have expanded based on Russian behavior in Ukraine. Everything could change overnight. Do not rely on a dated list. Keep checking.

www.treasury.gov/resource-center/sanctions/SDN-List/pages/ssi_list.aspx

The regulations are extremely complicated and nothing is straight forward. Thus, each transaction with a Russian company must be examined closely in detail and will be very fact specific. The devil in these regs is definitely in the details.

The US and EU sanctions also are affecting the Russian economy as indicated by the fact that VTB, Russia’s second-largest bank, sold 214 billion rubles ($5.4 billion) worth of preferred shares to Russia’s finance ministry because the sanctions have made it more difficult for the Bank to borrow overseas.

Meanwhile on August 6, 2014, the Commerce Department’s Bureau of Industry and Security (BIS) issued new sanctions blocking exports of certain energy-sector technologies. Commerce will now require an export license for items used in deepwater, Arctic offshore, or shale projects to produce oil or gas in Russia. Items subject to a license denial under the rule include drilling rigs, horizontal drilling parts, drilling and completion equipment, and subsea processing equipment. Commerce issued no savings clause, which means if the items are on a freighter on the way to Russia, they have to be called back.

On September 11, 2014, the US and the European Union announced new restrictions on Russian access to capital market. The new sanctions target Russian financial, energy and defense companies and make it more difficult to make loans to the five Russian state-owned banks, by tightening debt financing restrictions by reducing the maturity period of the new debt issued by those institutions from 90 days to 30 days. The companies targeted in the new round of OFAC sanctions include OAO Gazprom, Roseneft, Lukoil OAO, pipeline operator, Transneft, and Rostec, a Russian institution dealing in industrial technology products, along with the nation’s largest financial institution, Sberbank of Russia.

OFAC also added another set of Commerce export restrictions on certain oil development technologies by broadening the scope of the items that are banned and adding Gazprom, Lukoil and three other energy firms to the list of specifically banned export destinations.

Treasury stated:

“Today’s step … will impede Russia’s ability to develop so-called frontier or unconventional oil resources, areas in which Russian firms are heavily dependent on U.S. and western technology. While these sanctions do not target or interfere with the current supply of energy from Russia or prevent Russian companies from selling oil and gas to any country, they make it difficult for Russia to develop long-term, technically challenging future projects.”

These new sanctions come close to cutting off entire sectors of the Russian economy.  In practice, U.S. financial institutions will likely treat any transaction with a listed bank as a rejection. The new measures materially restrict access to American and European debt markets for the targeted financial institutions and defense firms.  The U.S. actions now bar affected Russian institutions from the American debt markets for loans over 30 days, meaning that while they will still be able to conduct day-in, day-out business with overnight loans, it will be significantly harder to finance medium- and long-term activity.

The sanctions have already had an impact on oil projects. On September 19, 2014 ExxonMobil announced that it is stopping work on an offshore oil well in the Arctic Ocean it is jointly developing with Russian oil giant OAO Rosneft in order to comply with the escalating sanctions.

In addition to the OFAC and Commerce sanctions against Russia, on July 18, 2014 a massive arbitration award was issued by arbitral tribunal in The Hague under Permanent Court of Arbitration. The Court unanimously held that the Russian Federation breached its international obligations under the Energy Charter Treaty by destroying Yukos Oil Company and Yukos shareholders and awarded the shareholders $50 billion.

There is now a legal search for Russian Federation assets to pay off the award. Yukos lawyers will be able to enforce the arbitration award in any of the 150 countries bound by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

CUSTOMS

TREK LEATHER—WHEN ARE OWNERS LIABLE FOR DUTIES OWED BY COMPANIES AS IMPORTERS OF RECORD

On September 16, 2014, in the attached United States v. Trek Leather, Inc. case, CAFC TREK LEATHER DECISION, the Court of Appeals for the Federal Circuit (“CAFC”) in an “en banc” decision made by all the judges in the CAFC held that the President of an importing company may be held personally liable for submitting false information to U.S. Customs and Border Protection.

In the decision, the entire CAFC reversed the earlier panel’s determination that only the importer of record could be liable for penalties, not the owner of the company.  Prior to the decision, importers assumed that the owner could be personally liable only if Customs and Border Protection (“CBP”) pierced the corporate veil of the import company.  In this case, however, the CAFC found the owner, Shadadpuri, himself liable for gross negligence for submitting documentation to CBP that understated the value of more than 70 imports of men’s suits in 2004, even though only the company, and not its president, was listed as the importer of record.

As the CAFC stated:

“Recognizing that a defendant is a “person,” of course, is only the first step in determining liability for a violation of either of the subparagraphs. What is critical is the defendant’s conduct. The two subparagraphs of section 1592(a)(1) proscribe certain acts and omissions. . . .

What Mr. Shadadpuri did comes within the commonsense, flexible understanding of the “introduce” language of section 1592(a)(1)(A). He “imported men’s suits through one or more of his companies.” . . . .While suits invoiced to one company were in transit, he “caused the shipments of the imported merchandise to be transferred” to Trek by “direct[ing]” the customs broker to make the transfer. . . . Himself and through his aides, he sent manufacturers’ invoices to the customs broker for the broker’s use in completing the entry filings to secure release of the merchandise from CBP custody into United States commerce. . . . By this activity, he did everything short of the final step of preparing the CBP Form 7501s and submitting them and other required papers to make formal entry. He thereby “introduced” the suits into United States commerce.

Applying the statute to Mr. Shadadpuri does not require any piercing of the corporate veil.  Rather, we hold that Mr. Shadadpuri’s own acts come within the language of subparagraph (A).  It is longstanding agency law that an agent who actually commits a tort is generally liable for the tort along with the principal, even though the agent was acting for the principal. . . . That rule applies, in particular, when a corporate officer is acting for the corporation. . . .

We see no basis for reading section 1592(a)(1)(A) to depart from the core principle, reflected in that background law, that a person who personally commits a wrongful act is not relieved of liability because the person was acting for another. . . . That is as far as we go or need to go in this case. We do not hold Mr. Shadadpuri liable because of his prominent officer or owner status in a corporation that committed a subparagraph (A) violation.  We hold him liable because he personally committed a violation of subparagraph (A).”

ACTIVATED CARBON—THE IMPORTANCE OF DEADLINES WHEN APPEALING FROM CUSTOMS LIQUIDATIONS

On September 8, 2014, the Court of International Trade in the attached Carbon Activated Corp. v. United States case, CARBON ACTIVATED CORP PROTEST FAILS, dismissed the appeal finding that the Court did not have jurisdiction because of missed deadlines. As the Court stated:

“Here, subsection (a) would have been available to Plaintiff because the correct avenue for challenges to liquidations is first to lodge a protest with Customs within 180 days of the liquidation and then to challenge any denial of that protest in this court. . . . Plaintiff filed a protest but it did so three years after the alleged erroneous liquidation. It is established that “a remedy is not inadequate simply because [a party] failed to invoke it within the time frame it prescribes.” . . .Accordingly, Plaintiff had an adequate remedy for its alleged erroneous liquidation, but it lost that remedy because its protest was untimely, not because the remedy was inadequate.

It is a tenet of customs law that the importer has a duty to monitor liquidation of entries. . . . Plaintiff concedes this point. . . Therefore Plaintiff’s claim that it “was first made aware [in June 2012] that these three entries had been erroneously liquidated as entered in April and May of 2008” is insufficient to extend the statute of limitations. . . . Plaintiff has the duty to monitor the liquidation of its entries, and a statutory remedy is in place to challenge any erroneous liquidations for a diligent importer who complies with this duty. Plaintiff’s failure to pursue that remedy in a timely manner does not fall under the rubric of “manifestly inadequate” and therefore Plaintiff cannot invoke subsection (i) jurisdiction in this case.”

FALSE CLAIMS ACT

In the attached false claims act case, PIPES FCA CASE, on September 4, 2014, in United States of America: Civil Action ex rel. Customs Fraud Investigations v. Vitaulic Company, a Federal District Court dismissed a false claims act case ruling there wasn’t enough evidence supporting allegations the pipe fittings manufacturer knowingly filed false documents to evade U.S. customs duties.

IP/PATENT AND 337 CASES

337 CASES

There have been developments at the US International Trade Commission (“ITC”) in 337 cases and patent area.

SANCTIONS AGAINST UPI SEMICONDUCTOR

On September 25, 2014, the CAFC in the attached UPI Semiconductor Corp. v. United States, UPI SEMICONDUCTORS CAFC DECISION, affirmed a decision of the US International Trade Commission to impose penalties on UPI for violation of a consent order in a 337 patent case. The CAFC stated:

“Before the court are the appeal of respondent intervenor UPI Semiconductor Corp. (“UPI”) and the companion appeal of complainant-intervenors Richtek Technology Corp. and Richtek USA, Inc. (together “Richtek”) from rulings of the International Trade Commission in an action to enforce a Consent Order, Certain DC-DC Controllers and Products Containing Same, Inv. No. 337-TA-698 (75 Fed. Reg. 446). We affirm the Commission’s ruling that UPI violated the Consent Order as to the imports known as “formerly accused products,” and affirm the modified penalty for that violation. We reverse the ruling of no violation as to the “post-Consent Order” products. The case is remanded for further proceedings in accordance with our rulings herein.”

MADE IN THE USA—FTC AND FALSE ADVERTISING PROBLEM

On October 1, 2014, the Wall Street Journal reported that the Made in US requirement has escalated because of stricter requirements by the State of California. FTC guidelines state that an unqualified “Made in USA” label can go on any goods that are “all or virtually all” made domestically in the United States, but the words “virtually all” are open to interpretation based on the specific facts of the case.

But California has stricter guidelines than the FTC requiring the entire product to be made in the US. If even one small part of a product is foreign, California state law says calling the product “Made in the USA” amounts to false advertising. This law has provoked a number of consumer/class action lawsuits filed in California against US manufacturers.

As one example, a maker of helium tanks designed to be used at children’s parties was sued because it started packing imported balloons with the equipment. In another case, a California company was sued because it produces Maglite flashlights that use imported small rubber rings and light bulbs from abroad.

The California law was passed in 1961 to shield domestic producers from competitors who might get a pricing edge by using large amounts of cheap imported parts to manufacture goods labeled “Made in USA.” The problem is that it has become increasingly difficult to avoid using at least some imported content in a US product.

SECTION 337 COMPLAINTS

NEW 337 COMPLAINT AGAINST FOOTWARE PRODUCTS FROM CHINA

Today, October 14th, Converse Inc. filed a new 337 IP case against footware products/sneakers from China for infringement of Converse’s registered and common law trademarks.  Relevant parts of the petition are attached.  LONG 337 FOOTWEAR PETITION The ITC notice of the petition is set forth below.

Docket No: 3034

Document Type: 337 Complaint

Filed By: V. James Adduci, II

Firm/Org: Adduci, Mastriani and Schaumberg

Behalf Of: Converse Inc.

Date Received: October 14, 2014

Commodity: Footwear Products

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Footwear Products . The proposed respondents are: Skechers U.S.A., Inc., Manhattan Beach, CA; Wal-Mart Stores, Inc., Bentonville, AR; A-List, Inc., d/b/a Kitson, Los Angeles, CA; Aldo Group, Canada; Brian Lichtenberg, LLC, Los Angeles, CA; Cmerit USA, Inc., d/b/a Gotta Flurt, Chino, CA; Dioniso SRL, Italy; Edamame Kids, Inc., Canada; Esquire Footwear, LLC, New York, NY; FILA U.S.A., Inc., Sparks, MD; Fortune Dynamic, Inc., City of Industry, CA; Gina Group, LLC, New York, NY; H & M Hennes & Mauritz LP, New York, NY; Highline United LLC d/b/a Ash Footwear USA, New York, NY; Hitch Enterprises Pty Ltd d/b/a Skeanie Unit 3, Australia; Iconix Brand Group, Inc., d/b/a Ed Hardy, New York, NY; Kmart Corporation, Hoffman Estates, IL; Mamiye Imports LLC d/b/a Lilly of New York, Brooklyn, NY; Nowhere Co., Ltd. d/b/a Bape, Japan; OPPO Original Corp., City of Industry, CA; Orange Clubwear, Inc., d/b/a Demonia Deviant, Westminster, CA; Ositos Shoes, Inc., d/b/a Collection’O, South El Monte,CA; PW Shoes Inc., Maspeth, NY; Ralph Lauren Corporation, New York, NY; Shenzhen Foreversun Industrial Co., Ltd (a/k/a Shenzhen Foreversun Shoes Co., Ltd), China; Shoe Shox., Seattle, Washington; Tory Burch LLC, New York, NY; Zulily, Inc., Seattle, Washington; Fujian Xinya I & E Trading Co., Ltd., China; Zhejiang Ouhai International Trade Co., Ltd., China; and Wenzhou Cereals Oils & Foodstuffs Foreign Trade Co., Ltd., China.

Status: Pending Institution

On the same day that Converse filed the section 337 case, it also filed the attached trademark complaint for damages in the Federal District Court in Brooklyn.  CONVERSE FOOTWEAR FED CT COMPLAINT

PERSONAL TRANSPORTERS FROM CHINA

On September 9, 2014, Segway filed a major 337 patent case against imports of personal transporters from a number of Chinese companies in Beijing and Shenzhen. The ITC notice is below and the relevant parts of the Petition are attached, SHORT PERSONAL TRANSPORTERS 337 Complaint. Segway is requesting a general exclusion order to exclude all personal transporters from China and other countries and also cease and desist orders to stop importers from selling infringing personal transporters in their inventory.

The proposed respondents are: PowerUnion (Beijing) Tech Co. Ltd., Beijing; UPTECH Robotics Technology Co., Ltd., Beijing; Beijing Universal Pioneering Robotics Co., Ltd., Beijing; Beijing Universal Pioneering Technology Co., Ltd., Beijing; Ninebot Inc.,(in China) Beijing; Ninebot Inc., Newark, DE; Shenzhen INMOTION Technologies Co., Ltd., Guangdong; Robstep Robot Co., Ltd., Guangdong; FreeGo High-Tech Corporation Limited, Shenzhen; Freego USA, LLC, Sibley, IA; Tech in the City, Honolulu, HI; and Roboscooters.com, Laurel Hill, NC.

Chinese companies must respond to the complaint in about 60 days, 30 days for Institution and 30 days from service of complaint. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

If anyone has questions about this compliant, please feel free to contact me.

Dorsey & Whitney has substantial expertise in the patent and 337 areas. Recently, we were able to win a major 337 case for a Japanese company in the Point-to Point Network Communication Devices 337 case.

PATENT AND IP CASES IN GENERAL

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE AND TAIWAN COMPANIES

On September 23, 2014, BASF Corp. filed a patent infringement case against SNF Holding Company, Flopam Inc., Chemtall Inc., SNF SAS, SNF (China) Flocculant Co., Ltd. BASF

On October 6, 2014, Hewlett-Packard Co. filed a patent case against Ninestar Image Tech Ltd., Ninestar Technology, Co., Ltd. and Apex Microelectronics Co., Ltd. for infringement of HP’s patents on printer cartridges. Ninestar is located in Shenzhen and has been the target of a section 337 patent case involving similar technology. NINESTAR NEW PATENT CASE

On September 2, 2014, Cephalon, Inc. filed a patent infringement case for drugs against Nang Kuang Pharmaceutical Co., Ltd. in Taiwan and Canda NK-1, LLC. TAIWAN GENERIC DRUGS

Complaints are attached above.

CHINESE PATENT CASES

In the attached report in English and Chinese, ACTUAL ABA COMMENTS CHINESE AND ENGLISH, the American Bar Association (“ABA”) ABA antitrust, intellectual property and international law sections raised concerns on judicial interpretations from China’s highest court regarding certain patent infringement trial issues, concerns about some proposed claims rules and also other patent issues.

One concern is that under the drafted requirement, when there are two or more claims in a patent, a patent holder would be required to specify the infringed claim in the complaint, according to the comments. But if the owner doesn’t point out which claim is infringed, the court would presume all of the independent claims were alleged to be infringed. The ABA sections, however, said that such a requirement might “deter meritorious claims” particularly because the infringement details might be controlled by the alleged infringer.

Finally, the ABA sections are also concerned about the Chinese draft that appeared to impose compulsory licensing obligations when having an accused infringer stop practicing the relevant patents would either harm the public interest or cause a “serious interest imbalance between the parties.”

Recently US companies have argued that China has made it more difficult for US owners of pharmaceutical patents to provide supplemental information to fend of certain legal challenges. U.S. companies are now reporting an increasing number of cases where they are being barred from providing such additional information if their drug patents are challenged for a different reason.

During the December 2013 JCCT meeting, the U.S. government complained to the Chinese government it was holding up or invalidating pharmaceutical patents by charging that the application contained insufficient information to meet the requirements of Article 26.3 of Chinese patent law, without allowing brand-name companies to supplement information after the initial filing.  According to Commerce, at the JCCT, the Chinese government pledged that patent applicants could supplement their initial data submissions, and it has made progress toward implementing that commitment.  Recently, however, it appears that the Chinese government may be back sliding on that commitment.

PRODUCTS LIABILITY/FDA

CHINA RESTRICTIONS ON US FOOD PRODUCTS

On Aug. 22, 2014 – Agriculture Secretary Tom Vilsack announced that California citrus farmers will be able to resume exports to China this season. A series of scientific exchanges between the USDA’s Animal and Plant Health Inspection Service (APHIS) and China’s General Administration of Quality Supervision, Inspection, and Quarantine (AQSIQ) resulted in an agreement for California citrus to again be exported to China. APHIS and USDA’s Foreign Agricultural Service worked closely with the U.S. citrus industry to ensure the successful outcome.

In April 2013, California-origin citrus was suspended from entering the Chinese market due to interceptions of brown rot (Phytophthora syringae), a soil fungus that affects stored fruit. Over the next year, USDA worked with China to address China’s plant health concerns and reopen the market for California citrus exports.

In a statement following the USDA announcement, Western Growers Association Executive Vice President Matt McInerney said China was the third-largest market for California citrus exports before the ban. The USDA release said California citrus exports have a total annual value of $30 million.

On September 15th, it was announced that USDA and USTR officials were in Beijing to discuss the implementation of the Trade Facilitation Agreement (TFA) and in particular a meeting of the sanitary and phytosanitary (SPS) working group of the U.S.-China Joint Commission on Commerce Trade (JCCT), where the agenda will likely touch upon issues like China’s ban on U.S. beef and its regulatory process for approving biotechnology traits. China closed its beef market to U.S. exports due to a 2003 outbreak of bovine spongiform encelopathy (BSE) – or “mad cow” disease — and has since set a number of preconditions for opening it, including a U.S. livestock traceability system.

Early in September, nineteen 19 Senators urged USTR Michael Froman to act on the Chinese government’s rejection of U.S. shipments of dried distillers grains that contained traces of an unapproved biotech trait. In the attached letter, SENATE LETTER DISTILLER GRAINS, the 19 Senators stated:

“We write you to convey our strong concerns over recent action taken by the Chinese government to reject U.S. export shipments of dried distillers grains (DDGs) that contain traces of a U.S. approved trait, which has been under regulatory consideration by the Chinese government. We urge you to work with China to restore the flow of trade as quickly as possible and to develop a more consistent set of rules governing the trade of new crop technologies between the two countries.

As you know, China is the top destination for U.S. exports of DDGs, totaling four million tons valued at $1.6 billion in 2013. Every link in the DDGs supply chain-including ethanol producers, corn farmers, and shippers-have already incurred significant economic damages due to these actions by the Chinese government.

The trade disruption in DDGs is yet another example of the regulatory challenges industry has faced with China since it began blocking U.S. corn shipments in November 2013. We encourage you to work closely with China to promote a science-driven review process for agricultural biotechnology that issues determinations without undue delay, consistent with WTO member country obligations.

As biotech products are a key component of U.S. agricultural trade with China, including exports of DOGs, achieving greater cooperation between the two countries on trade issues involving new crop technologies is essential to maintaining our position as the leading agricultural exporter worldwide.

We look forward to continuing to work with you to strengthen our trade relationship with China in agriculture.”

CHINESE INVESTMENT OPPORTUNITIES

US INVESTMENT IN CHINA

Dorsey recently published the attached short brochure,  DORSEY CHINA INVESTMENT BROCHURE, on issues that foreign companies and individuals face when investing in China.

As stated in the brochure,

“Despite the global financial crisis, foreign direct investment into China continues to grow. With China recently overtaking Japan as the world’s 2nd largest economy, foreign investment into China looks set to continue its rise. Nonetheless, foreign investors need to be aware of a number of crucial factors.”

The brochure then goes into details about the following area: Restrictions on Foreign Ownership, Business Vehicles, Approval & Registration, Capital Requirements, Shareholder & Director Nationality, Management Structure, Directors’ Liability, Parent Company Liability, Work/Residency Permits, Thin Capitalization Rules, Competition, Restrictions in the Financial Services Sector, Governing Law of Documents.

ANTITRUST– VITAMIN C, MAGNESITE AND AU OPTRONICS

There have been major developments in the antitrust area both in the United States and more importantly in China.

TAIWAN LCDS CASE

On September 5, 2014, the US Department of Justice and the Federal Trade Commission filed the attached brief, AU OPTRONICS BRIEF, in the 7th Circuit Court of Appeals in the Motorola Mobility LLC v. AU Optronics case, the Taiwan LCDs case. In that case, the Seventh Circuit vacated its March 2014 decision that Motorola’s case did not show direct effect on US Commerce sufficient to satisfy the Foreign Trade Improvements Act (“FTAIA”).

In the case Motorola sought damages for antitrust overcharges based on allegedly price fixed LCD panels that were manufactured and purchased overseas, but later incorporated into goods sold in the United States. In their brief, the DOJ and the FTC argued that the 7th Circuit should hold that an overseas conspiracy to fix prices on the component of a finished product that is sold in the US can yield liability under the FTAIA. The DOJ and the FTC argue in their brief:

“The FTAIA makes clear that the Sherman Act does not apply to conduct that adversely affects only foreign markets, but it also ensures that purchasers in the United States remain fully protected by the federal antitrust laws. This Court should not erode this protection.

Conduct involving import commerce is excluded from FTAIA’s coverage, and the Sherman Act thus applies fully to such conduct. This import-commerce exclusion is not limited to circumstances in which the defendants are importers or specifically “target” U.S. import commerce. A price-fixing conspiracy can involve import commerce even if the price-fixed product is physically imported by a third party or if the defendants did not focus on U.S. imports. A narrower interpretation of the exclusion would undermine the FTAIA’s purpose to protect purchasers in the United States.

The LCD price-fixing conspiracy involved import commerce because defendants fixed the price of LCD panels sold for delivery to the United States. Yet, this does not, by itself, entitle Motorola to recover damages for overcharges on all its panel purchases. But it does allow the government to bring criminal and civil enforcement actions. Unlike civil damage claims, in which courts should differentiate among claims based on the underlying transactions, government enforcement actions seek to prosecute or enjoin violations of law, not to obtain damages compensating for particular injuries.

The price-fixing conspiracy also affected import and domestic commerce in cellphones by raising their price. This effect is not only substantial and reasonably foreseeable, but also direct. The natural and probable consequence of increasing the price of a significant component like LCD panels is to increase the price of cellphones that incorporate those panels. A contrary holding risks constraining the government’s ability to prosecute offshore component price fixing that threatens massive harm to U.S. commerce and consumers.

While the government may prosecute conduct that has the requisite effect under Section 6a(1), Section 6a(2) requires that the effect “give rise to [plaintiff’s] claim,” and thus limits what injuries are redressable by damages claims. The injury to Motorola’s foreign affiliates is not caused by the inflated prices of cellphones sold in import or domestic commerce, and therefore the affiliates’ claims do not arise from that effect on U.S. commerce. The first purchasers of cellphones in affected U.S. commerce, however, did suffer an injury arising out of the price fixing’s U.S. effect.

The Illinois Brick doctrine would ordinarily bar these purchasers from recovering damages under federal law because they did not purchase directly from the conspirators, but that doctrine should be construed to permit damages claims by the first purchaser in affected U.S. commerce when Section 6a(2) bars the direct purchasers’ claims. That construction would permit vigorous private enforcement of the antitrust laws—the reason full recovery is ordinarily concentrated in direct purchasers—without implicating the doctrine’s concerns about multiple recovery and apportionment. Absent that construction, it is possible that no private plaintiff could recover damages under the federal antitrust laws.

In any case, government enforcement is critical to combating foreign price-fixing cartels that threaten significant harm in the United States. Therefore, this Court should hold that a conspiracy to fix the price of a component can directly affect import commerce in finished products incorporating that component and that the conspiracy in this case did directly affect that commerce. That holding would ensure the government is able to enforce the federal antitrust laws regardless of any limitations on private damages claims resulting from Section 6a(2).”

Emphasis added, footnotes omitted.

BILL BAER DOJ SPEECHES

On September 10, 2014, Bill Baer, the Assistant Attorney General Antitrust Division U.S. Department of Justice, gave the attached speech, BAER SPEECH ON ANTITRUST PROSECUTION, at the Georgetown Antitrust Enforcement Symposium entitled “Prosecuting Antitrust Crimes” in which he addressed the importance of enforcement of the antitrust laws against cartels and the importance of the leniency system. With regards to the prosecution of antitrust cases, Assistant Attorney General Bill Baer stated:

“Those who conspire to subvert the free market system and injure U.S. consumers are prosecuted vigorously and penalized appropriately. Our record demonstrates that corporations that commit these crimes face serious consequences, including significant criminal fines and, in appropriate cases, tough probation terms. Individual wrongdoers risk lengthy sentences. Courts have imposed criminal fines on corporations totaling as much as $1.4 billion in a single year; the average jail term for individuals now stands at 25 months, double what it was in 2004. Those penalties tell only part of the story. Perpetrators also must confront private and state civil suits seeking treble damages and risk other collateral consequences for their crimes.

Often our prosecutions end with plea agreements. So long as price fixers are held accountable for their crimes, this is an efficient and appropriate way to resolve criminal price-fixing allegations. When the defendant exercises its right to put us to our proof, however, we have the obligation to proceed to trial to ensure justice is done. Our recent record demonstrates the division’s willingness and ability to prosecute successfully antitrust criminal violations. . . . And just this summer, the Ninth Circuit affirmed the corporate convictions of AU Optronics and its American subsidiary, and the individual convictions of two of its executives for fixing prices in the LCD industry. . . .

We also increasingly benefit from working closely with competition enforcers from many agencies around the world.

Our successful efforts to detect and prosecute cartels also reflect the broad consensus in the United States that schemes to deny consumers the benefits of competition have no place in the free market and merit significant punishment. This is not a partisan issue. This Administration and its predecessors have made cartel enforcement a top priority.”

On September 12, 2014 Assistant Attorney General Bill Baer spoke at Fordam Law School on “International Antitrust Enforcement: Progress Made; Work To Be Done”. In the attached speech, BAER SPEECH INTERNATIONAL CARTEL. the Assistant Secretary spoke of the importance of not letting industrial policy and protectionism trump competition concerns in the enforcement of antitrust laws and indirectly criticized China’s enforcement of its Anti-Monopoly Law:

“The U.S. and EU share the core belief that antitrust enforcement must protect and promote competition and consumer welfare. We base our respective enforcement decisions on the competitive effects and consumer benefits of the transaction or conduct being reviewed. We agree that non-competition factors, such as the pursuit of industrial or domestic policy goals, play no role in sound competition enforcement.

The U.S. and EU also agree that antitrust agencies are most effective when they follow decision-making processes that are fair, independent and transparent. Our shared commitment to process pays off. It increases the likelihood that our agencies will be positioned to obtain and consider all relevant facts and issues prior to making a decision. This, in turn, enhances the legitimacy and credibility of our enforcement decisions, and increases the parties’ and public’s confidence in the agency’s ultimate determination. . . .

Worldwide, the total criminal and regulatory fines, penalties and disgorgement obtained to date by law enforcement authorities is over $4 billion.

The international competition community increasingly embraces that view. Progress is being made towards convergence on due process and transparency. However, more work needs to be done. We must continue to seek broad international consensus on the principle that enforcement decisions be based solely on the competitive effects and consumer benefits of the transaction or conduct being reviewed. We must ensure that enforcement decisions are not used to promote domestic or industrial policy goals, protect state-owned or domestic companies from foreign competitors, or create leverage in international trade negotiations.

That is a straightforward and sensible proposition. We are living in a globalized economy where the number of companies operating in multiple jurisdictions continues to rise and there is a greater likelihood that anticompetitive transactions or conduct in one jurisdiction will harm competition and consumers in other parts of the world.

This is an easy proposition to state as a shared value. But it is challenging to implement, especially for enforcers in jurisdictions that are early in the process of moving from a planned economy to a free market system; are shifting their focus from promoting producer welfare to consumer welfare; or have state-owned and domestic corporations with considerable influence over enforcement authorities. Nonetheless, antitrust enforcers in such jurisdictions need to overcome these challenges and commit to making enforcement decisions based solely on competitive effects and consumer benefits. Otherwise, they risk losing the trust and confidence of businesses that are looking to enter or expand in their markets, but may be reluctant to do so out of fear that the playing field is not level. . . . .

Fourth, antitrust enforcement involving intellectual property rights should not be used to implement domestic or industrial policies. Such an approach undermines the integrity and credibility of an agency’s decisions. Enforcers need to be particularly careful about imposing price controls or prohibiting so-called excessive pricing. Pricing freedom in bilateral licensing negotiations is critical for intellectual property owners. I share the concern FTC Chairwoman Ramirez expressed earlier this week with antitrust regimes that appear to be advancing industrial policy goals by “imposing liability solely based on the royalty terms that a patent owner demands for a license . . . .” U.S. antitrust law does not bar “excessive pricing” in and of itself; generally speaking, lawful monopolists may set any price they choose.

This rule applies to holders of intellectual property rights as well. In addition, regardless of the underlying theory of antitrust liability, I am concerned about antitrust regimes that appear to force adoption of a specific royalty that is not necessary to remedy the actual harm to competition. Using antitrust enforcement to reduce the price firms pay to license technology owned and developed by others is short-sighted. Any short-term gains derived from imposing what are effectively price controls will diminish incentives of existing and potential licensors to compete and innovate over the long term, depriving jurisdictions of the benefits of an innovation-based economy.

Now, you may be asking why U.S. antitrust enforcers should care about what other enforcers do within their jurisdictions. There are many reasons. Here are a few.

First, U.S. enforcers can best cooperate with their foreign counterparts on investigations when there is agreement on core analytics and procedural principles. This, in turn, allows U.S. enforcers to more effectively and efficiently address anticompetitive transactions and conduct.

Second, we are continuing to move toward an interconnected global economy. This means that U.S. companies and consumers will increasingly be subject to or affected by the enforcement approach taken by antitrust agencies in other jurisdictions.

Third, convergence on substantive and procedural principles will help U.S. and non-U.S. companies comply with competition laws in a more cost-effective manner, as well as provide them the predictability that they need when trying to run their businesses in multiple jurisdictions.”

Emphasis added.

NEW ANTITRUST COMPLAINTS

On September 11, 2014, elQ Energy Inc., filed an antitrust case against a number of Japanese, and US for price fixing of antalum capacitors, aluminum electrolytic capacitors and film capacitors. JAPAN PRICE FIXING ALUMINUM CAPACITERS

On August 29, 30204, National Trucking Financial Reclamation filed a class action antitrust case against US and Taiwan companied, including Jui Li Enterprise Company, Ltd., TYG Products, L.P., Gordon Auto Body Parts Co., Ltd., Auto Parts Industrial, Ltd., and Cornerstone Auto Parts, LLC., for price fixing of aftermarket automotive sheet metal parts. TAIWAN SHEET METAL ANTITRUST COMPLAINT

CHINA ANTI-MONOPOLY CASES

The rise in Chinese anti-monopoly case has created intense concern from the US government and US and foreign companies. In September 2014, the US China Business Council published the major report/survey from US Companies, US CHINA BUSINESS COUNCIL REPORT CHINA AML, about the impact of the Chinese anti-monopoly law on US business in China. The Executive Summary of the report states as follows:

“Executive Summary

  • China’s increased level of competition enforcement activity and the high-profile reporting of its competition investigations have prompted growing attention and concern from US companies. Eighty-six percent of companies responding to the US-China Business Council’s (USCBC’s) 2014 member company survey indicated they are at least somewhat concerned about China’s evolving competition regime—although more so about the potential impact than actual experience so far.
  • China’s competition regime framework is relatively new. The Antimonopoly Law (AML) came into force in 2008 after Chinese authorities spent more than a decade drafting the law and consulting with foreign competition authorities from the United States, the European Union, and other jurisdictions. The AML draws from elements of both the US and EU competition laws, though it is more closely tied to the EU model and contains some elements unique to China.
  • The rise in competition-related investigations has corresponded to the buildup in personnel at regulatory agencies following the AML’s implementation.
  • USCBC monitoring of publicly announced cases indicates that both foreign and domestic companies have been targets of AML-related investigations, but that foreign companies appear to have faced increasing scrutiny in recent months.
  • The perception that foreign companies are being disproportionately targeted is also fueled by China’s domestic media reporting, which has played up foreign-related investigations versus those of domestic companies.
  • Targeted or not, foreign companies have well-founded concerns about how investigations are conducted and decided. Company concerns include:

 o Fair treatment and nondiscrimination

o Lack of due process and regulatory transparency

o Lengthy time periods for merger reviews

o Role of non-competitive factors in competition enforcement

o Determination of remedies and fines

o Broad definition of monopoly agreements

Bigger questions remain unanswered about the objectives of China’s competition regime, such as: Will China use the AML to protect domestic industry rather than promote fair competition? Is the government using the AML to force lower prices, rather than let the “market play the decisive role” as enshrined in the new economic reform program? The answers are not fully determined yet, but in at least some cases so far there are reasons for concern.”

In early September 2014 the US Chamber of Commerce released the attached report, AM CHAM ACTUAL REPORT ON AML, which is highly critical of the Chinese government’s enforcement of its Anti-Monopoly Law. The report states:

Antitrust enforcement

This year, the area that has garnered the most attention from foreign companies is enforcement of China’s antitrust law, known as the Antimonopoly Law (AML). In recent months, the press and the public have paid considerable attention to this issue. While both foreign and domestic companies have been targets of investigations, foreign companies appear to have faced increasing scrutiny in recent months. Eighty-six percent of companies are at least somewhat concerned about these issues, with over half specifically citing enforcement as the issue, rather than the legal framework for the law (Fig. 34, 35).

Even though most American companies report that they have not been targeted with antitrust investigations, almost 30 percent of USCBC member companies are concerned they will be subjected to one. Among the most significant concerns for foreign companies are challenges with due process, lack of transparency, and fair treatment in investigations (Fig. 36, 37).

As US antitrust cases have been on the rise in the United States, they are sharply rising against Chinese and foreign companies, including US companies, in China. The recent surge in antitrust cases reaches US and foreign companies like Qualcomm, Interdigital, Microsoft, Chrysler and Mercedes-Benz.

On July 24, 2014, it was reported that the National Development and Reform Commission (“NDRC”), one of China’s three National Antitrust Agencies, announced that it had determined that US chipmaker Qualcomm is a monopoly and was suspected of overcharging and abusing its market position in wireless communication standards. The allegations could lead to record fines of more than $1 billion.

As the Chinese consumer market surges upward, Western companies are seeing their profits fall downward after this wave of antitrust cases. The China media has reported that the prices of many foreign items, including a Starbucks latte to a Jaguar sedan, are higher in China than in many other places in the world.

Chinese consumers, who now travel the World, are complaining. According to the media, although some of the prices differences are explainable by factors, such transportation, real-estate costs, higher Chinese import taxes and fragmented supply chains in which multiple distributors each add a markup, at least some multinationals allegedly have adopted sales practices in China that would not be tolerated by antitrust regulators in Europe or the US. Automobile companies do not always give their Chinese customers a choice in their purchase of spare parts, causing high prices.

What concerns the US government, however, is procedures, the heavy-handed way that investigations are being pursued, and the highly charged media coverage that makes for a very bad atmosphere for Western companies.

Foreign companies have learned two early lessons from the antitrust probes. First, the law provides little protection. The message that the National Development and Reform Commission, Chinese agency that sets pricing rules, delivers in private to multinationals at the outset of a price-fixing investigation is not to bring in their foreign lawyers. The second lesson, apparently, is resistance is futile.

In almost every antitrust case launched so far, foreign companies have settled without a fight. Voluntary price cuts of up to 20% are the norm, accompanied by board-level expressions of remorse and promises to do better. Chrysler described its abrupt decision to slash car-part prices as a “proactive response” to the price fixing probe as it got under way.

These price-fixing investigations have been accompanied by heated nationalistic rhetoric in the state media with anti-foreign overtones. Pushing down multinationals goes over well with large sections of the Chinese public that view the foreign companies as arrogant. The China Youth Daily recently stated that multinationals “pollute the environment, lie to consumers, act arrogantly when facing their wrongdoings, and ignore China’s law and protests from Chinese consumers.”

For many years that China’s Anti-Monopoly Law has been in place, enforcement has been lax, but the National Development and Reform Commission (“NDRC”) and the State Administration for Industry and Commerce (“SAIC”), the two agencies charged with enforcing the AML’s antitrust provisions, have rapidly increased enforcement over the last year, with probes into Qualcomm Inc., Microsoft, and now international automakers. The action has come at the same time as the government has voiced a broader intention to promote the creation of Chinese players in many key industries, contributing to the impression that the latest antitrust probes may have a protectionist bent.

While technically, agency decisions can be appealed to China’s administrative courts, the courts tend to defer to the agencies in all but the most blatant violations of the law. That means that as a practical matter companies don’t have the same ability to force the agencies to defend themselves in court the way firms do in the U.S. and Europe.

In response to these reports on September 21, 2014, Treasury Secretary Jack Lew sent a letter to Chinese Vice Premier Wang Yang raising serious concerns about China’s enforcement of its anti-monopoly law (AML). Sources reported that this is a sign that mounting U.S. business complaints regarding the law have reached a high political level. In commenting on the letter, Secretary Lew stated:

“But let me say that this issue of the anti-monopoly law is one that we’ve raised at the [Strategic & Economic Dialogue (S&ED)], and we made very clear that if the anti-monopoly law is used to essentially work disproportionately against U.S. and other foreign firms and it [is] used as a barrier to doing business, or an extra cost to doing business, that that was something that was very much inconsistent with the close economic relationship we’re together working to build.”

“We’ve been very clear in many forms that the anti-monopoly law is something that we see as part of this set of issues, and I certainly hope that they understand how important that issue is to us.”

Subsequently Bill Baer’s speech quoted above appeared to reinforce the statement by Secretary Lew, especially his quote that antitrust enforcement decisions must not be used to “promote domestic or industrial policy goals, protect state-owned or domestic companies from foreign competitors, or create leverage in international trade negotiations.”

The problem with the statement is that it is easy for the US Government to say. When US antidumping laws based on Alice in Wonderland surrogate values that have no relationship to actual prices and costs in China are used to block billions of dollars in Chinese imports, the Chinese government, as any government would do, is looking for leverage to force the US government to negotiate on this issue.

Chinese government officials have told me that the US government and the Commerce Department simply refuse to discuss whether China will be given market economy status in US antidumping cases as provided in the US China WTO Accession Agreement.

The US throws rocks and the Chinese government will throw rocks back.

On September 2, 2014, Foreign Ministry Spokesman Qin Gang commented on the concerns regarding China’s Anti-Monopoly Law:

The US Chamber of Commerce said that China is targeting foreign companies in its anti-monopoly investigations with opaque laws and regulations, contributing to deteriorating investment environment for foreign companies. What is China’s comment on this?

I have learned that the US Chamber of Commerce published such a report. I want to stress that China is not the only country carrying out anti-monopoly. Other countries also do it. Monopoly is opposed so as to protect consumers’ interests and create a more transparent, equal and just playing field. While carrying out anti-monopoly investigations and implementing relevant measures, relevant departments of China are strictly following the law in a transparent and impartial way.

China will, as always, encourage foreign companies and enterprises to take part in the competition in China’s market and carry out various forms of cooperation. We are willing to create a sound investment environment for them. Meanwhile, they are also required to abide by Chinese laws and regulations.

On September 8, 2014, it was reported that the US Chamber of Commerce was arguing that China’s discriminatory uses of its Anti-Monopoly was a violation of its WTO commitments. But WTO experts, including US experts, responded that the WTO’s texts and existing jurisprudence create enough uncertainty that U.S. trade authorities will likely hold off on bringing a case. Antitrust is not under the WTO and is not directly addressed in any WTO agreements.

There have been efforts to put competition rules under the WTO, but there is currently no WTO agreement in place setting obligations on WTO members with regards to the objective of their antitrust statutes. This would force the USTR to try to cherry-pick from other WTO texts. The WTO, however, has been very reluctant to expand WTO law beyond a specific agreement.

In reality, the US Chamber of Commerce argument may be an attempt to elevate the issue in the Strategic & Economic Dialogue meetings between the US and China.

AUTOMOBILES — CHRYSLER AND MICROSOFT

On September 11, 2014, the NDRC, one of the three Chinese enforcement agencies of its Anti-Monopoly law announced penalties of a combined $46 million for foreign carmakers for price-fixing. The foreign carmakers include Volkswagen AG and the China sales unit of Fiat’s Chrysler. Chrysler’s China sales unit will be fined 32 million yuan/$5 million US for operating a price monopoly.

On September 28, 2014, in a meeting with China’s State Administration for Industry and Commerce (SAIC) Microsoft Corp chief executive Satya Nadella promised to cooperate fully with Chinese authorities in their antitrust investigation into his company.

It was also reported that Director General Xu Kunlin of the NDRC, nicknamed Mr. Confession, was one the officials behind the increased tough enforcement of China’s Anti-Monopoly Law.

SEMICONDUCTORS AND MEDICAL DEVICES??

In early September, there were reports that MOFCOM had conducted antitrust unit visits to medical device and semiconductor firms in Shanghai.

ARTICLES BY CHINESE ANTITRUST LAWYER MICHAEL GU

In mid-September Michael Gu and Shuitian Yu of the Anjie Law Firm issued the attached article, GU NDRC Publishes Full Decisions in Zhejiang Car Insurance Case_AnJie_Michael Gu_20140911, “Better Late Than Never: NDRC Publishes Full Decisions on Zhejiang Car Insurance Cartel Case – Analysis of NDRC’s Antitrust Law Enforcement Approach”

TD MICROSOFT ARTICLE

In the attached August 2014 report on Chinese antitrust law by the Chinese T&D Law Firm, TD Antitrust Report, Chinese antitrust lawyer John Ren had this to say about the Microsoft case:

“On August 4, 2014, the SAIC warned Microsoft not to interfere with an ongoing anti-monopoly probe as they began inquiries into the company’s corporate Vice President Mary Snapp.

Investigators from the SAIC warned that the company must firmly abide by Chinese law, and shall not interfere with the investigation “in any way”.

SAIC confirmed that it launched a probe into Microsoft China Co., Ltd, and three of its branches in Shanghai, Guangzhou and Chengdu as Microsoft is suspected of monopoly practices.

SAIC also said Microsoft had not been fully transparent with its sales data on the software it distributes in China, including information on sales of its media player and web browser software. . . .

SAIC Investigating Accenture in Microsoft Probe

August 6, 2014

According to the report, SAIC’s probe into Microsoft expanded to Accenture on August 6 as Microsoft is under investigation.

The SAIC said in a statement that it is investigating Accenture’s office in Dalian City, Liaoning Province, for being the financial service outsourcer of Microsoft China Co., which is suspected of monopoly practices. The SAIC did not reveal results of the investigation and the probe is still underway

Microsoft’s Browsers and Players are Involved in SAIC’s Anti-Monopoly Investigation

August 27, 2014

With regard to the progress of the anti-monopoly investigation on Microsoft, Mr. Zhang Mao, the Minister of the SAIC, revealed at a press conference held by the State Council Information Office that Microsoft is suspected of inadequate disclosure of information in relation to Windows and Office and suspected problems regarding the launch and sale of Players and Browsers. Currently, the investigation on Microsoft is progressing, and the SAIC will publicize the interim results at every stage in a timely manner. Compared to its previous statements, SAIC talked about Microsoft’s potential problems on the launch and sales of Players and Browsers for the first time.

It is said that in June, 2013, some entities complained to SAIC that Microsoft’s incomplete disclosure of information on its Windows and Office Suite has caused problems with compatibility, tying, and file validation, raising suspicions that the company violated the Chinese AML. SAIC therefore investigated Microsoft, accordingly. In June of this year, SAIC initiated the investigation against Microsoft and already publicized the progress of its investigation three times. Minister Zhang also mentioned that Microsoft’s senior management has expressed that they will respect Chinese law and cooperate with the Chinese anti-monopoly authority in the investigation.”

SECURITIES

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

In a fascinating six part series on the origins of the Foreign Corrupt Practice Act, Tom Gorman, a partner in our Washington DC office and a former member of the SEC Enforcement Division, describes the origins of the FCPA and why this law came into being, including the reasons for prohibiting the bribery of foreign officials. The first part and the conclusion are published in this e-mail. The entire article is attached, TOM GORMAN ENTIRE ARTICLE ORIGINS OF FCPA.  As Tom Gorman states:

PART ONE THE ORIGINS OF THE FCPA: LESSONS FOR EFFECTIVE COMPLIANCE AND ENFORCEMENT

“They trusted us” — Judge Stanley Sporkin explaining why 450 corporations self- reported in the 1970s Volunteer Program without a promise of immunity.

This is the first part of an occasional series. The entire paper will be published by Securities Regulation Law Journal early next year.

Introduction

Can one man make a difference? Stanley Sporkin is proof that the answer is “yes.” In the early 1970s he sat fixated by the Watergate Congressional hearings. As the testimony droned on about the burglary and cover-up, the Director of the Securities and Exchange Commission’s (“SEC” or “Commission”) Enforcement Division sat mystified. Witnesses spoke of corporate political contributions and payments. “How does a public company book an illegal contribution” the Director wondered. “Public companies are stewards of the shareholder’s money – they have an obligation to tell them how it is used” he thought. He decided to find out.

The question spawned a series of “illicit” or foreign payments cases by the Commission resulting in the Volunteer Program. Under the Program, crafted by Director Sporkin and Corporation Finance Director Alan Levinson, about 450 U.S. corporations self-reported illicit payments which had been concealed with false accounting entries. There was no promise of immunity but the Director had a reputation for doing the right thing, being fair. Ultimately the cases and Program culminated with the passage of the Foreign Corrupt Practices Act (“FCPA”), signed into law by President Jimmy Carter in 1977.

Today a statute born of scandal and years of debate continues to be debated. Business groups and others express concern about the expansive application of the FCPA by enforcement officials and the spiraling costs to resolve investigations. Enforcement officials continue to call for self-reporting, cooperation and more effective compliance. While the debate continues, both sides might do well to revisit the roots of the FCPA. The success of the early investigations and the Volunteer Program is not attributable to overlapping enforcement actions, endless investigations, draconian fines and monitors. Rather, it was a focus on effective corporate governance – ensuring that executives acted as the stewards of shareholder funds. Director Sporkin called this “doing the right thing.” A return to that focus may well end the debate and yield more effective compliance and enforcement.

The beginning

The Watergate Congressional hearings transfixed the country. A scandal was born from a burglary at the Watergate Hotel in Washington, D.C. by the Committee to Reelect the President, known as CREP. The hearings were punctuated by a series of articles in The Washington Post based on conversations with a source known only as “deep throat.” Later the two reporters would become famous. President Richard Nixon would resign in disgrace. His senior aides would be sentenced to prison. See generally, Carl Bernstein & Bob Woodward, All the President’s Men (1974).

 A little-noticed segment of the hearings involved corporate contributions to politicians and political campaigns. Most observers probably missed the slivers of testimony about illegal corporate conduct since they were all but drowned in the seemingly endless testimony about the burglary, cover-up and speculation regarding the involvement of the White House.

One man did not. Then SEC Enforcement Director and later Federal Judge Stanley Sporkin was fixated. He listened carefully to the comments about corporate political contributions. The Director wondered how the firms could make such payments without telling their shareholders: “You know, I sometimes use the expression, ‘only in America could something like this happen.’ There I was sitting at my desk . . . and at night while these Watergate hearings were going on I would go home and they’d be replayed and I would hear these heads of these companies testify. This fellow Dorsey from Gulf Oil . . . and it was interesting that somebody would call Gulf Oil and they would say we need $50,000 for the campaign.

Now everybody, I knew that corporations couldn’t give money to political campaigns . . . what occurred to me was, how do you book a bribe . . . ” A Fire Side Chat with the Father of the FCPA and the FCPA Professor, Dorsey & Whitney LLP Spring Anti-corruption conference, March 23, 2014, available at www.SECHistorical.org. at 3 (“Transcript”).

What, if any information did the outside auditors have was another key question, according to the Director. Stanley Sporkin, “The Worldwide Banning of Schmiergeld: A Look at the Foreign Corrupt Practices Act on its Twentieth Birthday,” 18 Nw. J. Int. L. & Bus. 269, 271 (1998) (“Sporkin”). Not only was he fascinated by the testimony but “something bothered him [Director Sporkin]. It was the thought of all that money moving around in businessmen’s briefcases. That money belonged to corporations. Corporations belong to investors. The SEC protects investors. So Sporkin investigated.” Mike Feensilber, He Terrorizes Wall Street, The Atlanta Constitution, Section C at 19, col. 1 (March 21, 1976) . . .

An informal inquiry was initiated. As Judge Sporkin recounts: “To satisfy my curiosity [about how the payments were recorded in the books and records] I asked one of my staff members to commence an informal inquiry to determine how the transactions were booked.” Sporkin at 571. This “was not one of these elaborate investigations where you have 5 people. I called in a guy named Bob Ryan and I said, Bob, go to Gulf Oil.” Transcript at 3. A day later the answer came back: “[W]hat happened was that Gulf Oil had set up two corporations; one called the ANEX, one called the ANEY, capitalized . . . with the $5 million each; took the money back to New York, put it into [Gulf Chairman] Dorsey’s safe at the head of Gulf Oil and there he [Dorsey] had a slush fund, a corporate fund of $10 million.” Id. at 4. The payments were not reflected in the books and records of the company – the shareholders were not told how their money was being used.

It was apparent that corporate officials “knew they were doing something that was wrong because the reason they set [it] up this was . . . is because they didn’t want to expense the money so they capitalized it. And why did they want to expense the money . . . [Director Sporkin explained is] Because they were afraid, not of the SEC, but of the IRS. So it . . . right from the beginning . . . it showed me that there was something afoul here,” Director Sporkin later recounted. Id. at 4. Indeed, it was clear that senior corporate officials had painstakingly designed a methodology to secrete what they knew were wrongful transactions. Sporkin at 271. . . .

See the attached article for parts 2-5.

PART 6

Conclusion: The FCPA Today

The FCPA was unique in the world at passage. It was born of controversy and scandal. The Watergate hearings which transfixed Director Sporkin and the rest of the country spawned unprecedented and far ranging issues and questions. The hearings ushered in a new era of moral questioning.

In the turmoil of that environment Director Sporkin focused on corporate governance, viewing corporate boards and officers as stewards of investor funds. That principled view propelled the SEC investigations, enforcement actions and the Volunteer Program, all of which culminated after two years of Congressional hearings and debate in the Foreign Corrupt Practices Act.

The statute was intended to implement the principles that gave rise to its birth. It was tailored and focused:

Bribery prohibited: The anti-bribery provisions prohibit issuers and other covered persons from corruptly attempting, or actually obtaining or retaining, business through payments made to foreign officials;

Accurate books and records: The books and records provisions were designed to ensure that issuers – those using money obtained from the public – keep records in reasonable detail such that they reflect the substance of the transactions;

Auditors get the truth: Making misstatements to auditors examining the books and records of issuers was barred; and

Effective internal controls: Companies were required to have internal control provisions as an assurance that transactions with shareholder funds are properly authorized and recorded.

The impetus for the passage of the FCPA was not a novel crusade but the basic premise of the federal securities laws: Corporate managers are the stewards of money entrusted to them by the public; the shareholders are entitled to know how their money is being used.

The settlements in the early enforcement actions and the Volunteer Program were designed to implement these principles. The FCPA was written to strengthen these core values.

Today the statute continues to be surrounded by controversy. While the FCPA is no longer unique in the world, U.S. enforcement officials are without a doubt the world leaders in enforcement of the anti-corruption legislation. A seemingly endless string of criminal and civil FCPA cases continues to be brought by the Department of Justice (“DOJ”) and the SEC. The sums paid to resolve those cases are ever spiraling. What was a record-setting settlement just a few years ago is, today, not large enough to even make the list of the ten largest amounts paid to settle an FCPA case. The reach of the once focused statute seems to continually expand such that virtually any contact or connection to the United States is deemed sufficient to justify applying the Act.

For business organizations the potential of an FCPA investigation, let alone liability, is daunting. Compliance systems are being crafted and installed which often incorporate each of the latest offerings in the FCPA market place at significant expense. If there is an investigation, the potential cost of the settlement is only one component of the seemingly unknowable but surely costly morass facing the organization. Typically business organizations must deal with the demands of two regulators in this country and perhaps those of other jurisdictions. The internal investigations that are usually conducted to resolve questions about what happened are often far reaching, disruptive, continue for years and may well cost more than the settlements with the regulators. Since most companies cannot bear the strain of litigating an FCPA case, enforcement officials become the final arbitrator on the meaning and application of the statutes – arguing legal issues may well mean a loss of cooperation credit with a corresponding increase in penalties.Enforcement officials today continue to call for self-reporting as the SEC did at the outset of the Volunteer Program.

Today, however, while many companies do self-report since they may have little choice, there can be an understandable reluctance in view of the potential consequences. Indeed, self-reporting might be viewed as effectively writing a series of blank checks to law firms, accountants, other specialists and ultimately the government with little control over the amounts or when the cash drain will conclude.This is not to say that companies that have violated the FCPA should not be held accountable. They should.

At the same time it is important to recall the purpose of the statutes: To halt foreign bribery and to ensure for public companies that corporate officials are accountable as faithful stewards of shareholder money.While business organizations may express concern about enforcement, accountability begins with the company, not the government. That means installing effective compliance systems using appropriate methods, not just adopting something off the shelf or purchasing the latest offering in the FCPA compliance market place. It means programs that are effective and grounded in basic principles, not just ones that furnish good talking points with enforcement officials if there is a difficulty.

The key to effective programs is to base them on the principles of stewardship which should be the bedrock of the company culture. Accountability for the funds of the shareholders begins with effective internal controls, a key focus when the statute was passed which remains critical today. As Judge Sporkin recently commented: “The problem I see in compliance is that they are not really putting in the kinds of effort and resources that’s necessary here. And I really think that you’ve got to get your compliance department, your internal audit department working together; in too many instances you find that they’re working separately.” Transcript at 18.

The focus is also critical. These systems are not just a defense to show regulators if something goes wrong. Rather, the systems should reflect the culture of the organization. As SEC Commissioner John Evans stated as the events which led to the passage of the FCPA were unfolding:

“I am somewhat concerned that the issue of illegal and questionable corporate payments is being considered by some in a context that is too narrow, legalistic, and short-sighted. In view of the objectives of the securities laws, such as investor protection and fair and honest markets, compliance with the spirit of the law may be more meaningful and prudent than quibbling about meeting the bare minimum legal requirements. I would submit that many companies and their profession accounting and legal advisers would serve their own and the public interest by being less concerned with just avoiding possible enforcement action by the SEC or litigation with private parties and more concerned with providing disclosure consistent with the present social climate. Such a course of conduct should promote the company’s public image, its shareholder relations, its customer relations, and its business prospects . . ..” Evans at 14-15.

Accountability is also critical on the part of enforcement officials. Every case does not demand a draconian result with a large fine, huge disgorgement payments, multiple actions or a monitor. Every case need not be investigated for years at spiraling costs which may bring diminishing returns. The statutes need not be interpreted as an ever expanding rubber band with near infinite elasticity. Rather, enforcement officials would do well to revisit the remedies obtained in the early enforcement cases and those employed with great success in the Volunteer Program. And, they would do well to recall the reason 450 major corporations self-reported without a promise of immunity or an offer of cooperation credit: As Judge Sporkin said, “They trusted us.”

SECURITIES COMPLAINTS

In addition to the securities complaints filed against Chinese companies, the SEC and Chinese individuals are filing securities complaints against US companies, some of which are operated by Chinese individuals, to set up fraudulent EB5 immigration plans. EB5 allows foreign individuals to invest in certain properties in the United States that have been designated as underdeveloped and obtain a green card for a $500,000 investment in the project. The EB5 projects, however, are complicated and investors have to beware and make sure that the project they invest in is a legitimate EB5 project.

On September 3, 2014, the Securities and Exchange Commission filed the attached securities complaint, FAKE EB5 CENTER, against Justin Moongyu Lee and his partner Thomas Kent and the American Immigrant Investment Fund, Biofuel Venture, Nexland Investment Group and Nexsun Ethanol. In the complaint, the SEC states:

This case involves a scheme perpetrated by two immigration attorneys,

Defendant Justin Moongyu Lee (“J. Lee”) and his law partner Defendant Thomas Edward Kent (“Kent”), as well as J. Lee’s spouse, Defendant Rebecca Taewon Lee (“R. Lee”). J. Lee, Kent and R. Lee defrauded Chinese and Korean investors by claiming that their monies would be invested in a program that met the requirements of the United States Government EB-5 visa program, which is administered by the United States Citizenship and Immigration Service (“USCIS”), and provides immigrant investors conditional permanent residency status for a two-year period, followed by permanent residency if the required program conditions are met.

Specifically, the Defendants represented that the offered investment was EB-5 eligible, and money raised would be used to build and operate an ethanol production plant in Kansas.

On September 10, 2014, Liu Aifang and a number of Chinese individuals filed the attached class action securities complaint, ANOTHER SECURITIES COMPLAINT, against Velocity VIII Limited Partnership, Velocity 240.10b-5), Regional Center LLC, REO Group Properties, LLC, Yin Nan Wang, a.k.a Michael Wang, Yunyan Guan, a.k.a, Christine Guan, Ben Pang, REO Property 9roup’, LLC, Frank Zeng and other unnamed individuals for setting up a fraudulent EB5 project in the United States.

On September 12, 2014, Ranjit Singh filed the attached class action securities complaint against 21 Vianet Group., Inc., a company headquartered in China.  CAYMAN CORP

On September 17, 2014, Wayne Sun filed a class action securities case against 21 Vianet Group., Inc., a company headquartered in China, and several Chinese individuals. SECURITIES COMPLAINT

On September 22, 2014 the SEC filed a securities case against Zhunrize, Inc., a US company, and Jeff Pan for a fraudulent plan to raise money from investors China and Korea. PAN CHINESE INVESTORS

On September 26, 2014, David Helfenbein filed a class action securities case against Altair Nanotechnologies, a company with operations in China, Alexander Lee, Richard Lee, Guohua Sun, James Zhan, Stephen B. Huang, Paula Conroy and Karen Wagne. NANOTECHNOLOGIES

On September 29, 2014, the SEC filed a securities case against China Valves Technology, Siping Fang, Jianbo Wang, Renrui Tang for filing false and misleading documents with the SEC. SECCHINAVALVES

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, TAX, CUSTOMS, PATENTS/337, ANTITRUST AND SECURITIES

Benjamin Franklin Statue Old Post Office Building Washington DC“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR BLOG UPDATE—SEPTEMBER 11, 2014

SEPTEMBER UPDATE

Dear Friends,

There have been major developments in early September in the Trade and Chinese antitrust areas of interest.

SPEECH IN VANCOUVER CANADA ON US SANCTIONS AGAINST RUSSIA—RUSSIAN TRADE LESSON

On September 3, 2014, I spoke 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 for the speech US SANCTIONS RUSSIA and a description of our Russian/Ukrainian/Latvian Trade Practice for US importers and exporters. RUSSIAN TRADE PRACTICEThe sanctions will be described more in my September newsletter.

But my speech started with a quote from the last paragraph of the September 3, 2014 Wall Street Journal editorial about the Russian crisis, entitled “Deterring a European War”, which states:

“The temptation of democracies is to believe that autocrats treasure peace and stability as much as we do. Europeans in particular want to believe that their postwar institutions and economic integration have ended their violent history. But autocrats often prosper from disorder, and they need foreign enemies to feed domestic nationalism. This describes Russia under Mr. Putin, who is Europe’s new Bonaparte. His goal is to break NATO, and he’ll succeed unless the alliance’s leaders respond forcefully to the threat.”

This powerful paragraph reflects the very serious military situation between Russia and the EC and the US. But let’s probe a little more deeply.

What is the difference between Russia and China and our relationship with the two countries—Trade. When I was a young attorney at the ITC, a former Chairman Catherine Bedell, who was the first woman to be elected to the US Congress from Washington State, came to speak to the ITC staff. Former Chairman Bedell emphasized in her speech that our work at the ITC was not just simple trade work. It was the work of promoting peace.

President Reagan understood this. More trade means more peace and less chance of a shooting war.

The United States has 796,000 US jobs dependent upon exports to China, and China has millions of jobs dependent on exports to the US.

But what about Russia? The answer is much less trade coming from Russia. In 2013, the United States imported approximately $27 billion from Russia as compared to $464 billion from China. Of the Russian imports, $19 billion was for oil, and the rest for raw materials, including iron and steel products, chemicals, metals, fertilizer and fish. With China, electronics leads the way.

Much of what Russia exports is oil, raw materials and steel products. Many steel products and urea, fertilizer, are blocked by US Antidumping Orders or a Steel Agreement. There is less trade and with less trade it is much easier to have a shooting war.

In 1986 when I was working at the Commerce Department, one of Russia’s most important exports, Urea, fertilizer, was attacked with an antidumping case, which resulted in an antidumping order on July 14, 1987. The case was so long ago that it was not against Russia. It was against the entire Soviet Union.

When the Soviet Union broke up, the Commerce Department issued antidumping orders against Urea from all the member countries in the Soviet Union. Most of the orders against the other member states in the Soviet Union have been lifted, but not the orders against Russia or Ukraine. Urea from both countries are still covered by antidumping orders from the original 1986 case. In early November 2011, the US International Trade Commission (“ITC”) extended the antidumping orders for another five years. So we have had antidumping orders on Urea from Russia and Ukraine for almost 3o years.

One company, Eurochem, has been able to get through the antidumping order because in contrast to China Russia is considered a market economy country, but every other Russian company is blocked. Why is Russia considered a market economy country and not China? Because of 911, President Bush wanted Russian military bases to attack Afghanistan. President Putin of Russia, being a tough negotiator, said make Russia a market economy under the US antidumping and countervailing duty law. Secretary Evans of Commerce flew into Moscow and said it looks like a market economy to me. As CBS news stated about the announcement:

“The Russian leader has aggressively pursued closer ties with the West since the Sept. 11 terrorist attacks, and many analysts had predicted the United States would grant Russia market economy status and help in its WTO bid in exchange for Putin’s strong support for the U.S.-led campaign in Afghanistan.”

http://www.cbsnews.com/news/russia-joins-club-capitalism/

But even with the change in the US antidumping law, Russian imports remain relatively low, and the United States has less influence. Because of the importance of the present situation with Russia and the interest of US exporters and US importers, my blog and newsletter will include a new section on trade with Russia and the US sanctions in place against trade with Russia. More will come out in the next newsletter and blog post.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE AGAINST BOLTLESS STEEL SHELVING FROM CHINA

On August 26, 2014, Edsall Manufacturing filed a new AD and CVD case against Boltless Steel Shelving from China. The alleged Antidumping rates are 33 to 267%.

The ITC will hold its preliminary conference on September 16, 2014. Attached are the ITC notice and the relevant pages of the petition.  ITC PRELIMINARY NOTICE STEEL SHELVING SHORT PETITION

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

On September 2, 2014, Commerce published in the Federal Register the attached notice, SEPT REVIEWS ,regarding antidumping and countervailing duty cases for which reviews can be requested in the month of September. The specific antidumping cases against China are: Freshwater Crawfish Tailmeat, Foundry Coke, Kitchen Appliance Shelving and Racks, Lined Paper Products,   Magnesia Carbon Bricks, Narrow Woven Ribbons with Woven Selvedge, New Pneumatic Off-The-Road Tires, Raw Flexible Magnets, and Steel Concrete Reinforcing Bars.

The specific countervailing duty cases are:

Kitchen Appliance Shelving and Racks, Magnesia Carbon Bricks, Narrow Woven Ribbons with Woven Selvedge, New Pneumatic Off-The-Road Tires, and Raw Flexible Magnets.

For those US import companies that imported Freshwater Crawfish Tailmeat, Foundry Coke, Kitchen Appliance Shelving and Racks, Lined Paper Products,   Magnesia Carbon Bricks, Narrow Woven Ribbons with Woven Selvedge, New Pneumatic Off-The-Road Tires, Raw Flexible Magnets, and Steel Concrete Reinforcing Bars and the other products listed above from China during the antidumping period September 1, 2013-August 31, 2014 or during the countervailing duty review period of 2013 or if this is the First Review Investigation, for imports imported after the Commerce Department preliminary determinations in the initial investigation, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

In the recent final determination in the Wood Flooring Case, for example, although the rates were very low for many Chinese exporters, only 5%, 20 Chinese exporters had their rates go to 58% because they did not participate in the review investigation and did not file a no shipment certification, separate rate application or separate rate certification at the Commerce Department.

NEW MAJOR 337 PATENT CASE AGAINST PERSONAL TRANSPORTERS FROM CHINA

On September 9, 2014, Segway filed a major 337 patent case against imports of personal transporters from a number of Chinese companies in Beijing and Shenzhen. The ITC notice is below and the relevant parts of the Petition are attached. SHORT PERSONAL TRANSPORTERS 337 Complaint Segway is requesting a general exclusion order to exclude all personal transporters from China and other countries and also cease and desist orders to stop importers from selling infringing personal transporters in their inventory.

Chinese companies must respond to the complaint in about 60 days, 30 days for Institution and 30 days from service of complaint. If the Chinese companies fail to respond, they can be found in default and exclusion orders against their products can be issued.

If anyone has questions about this compliant, please feel free to contact me.

Dorsey & Whitney has substantial expertise in the patent and 337 areas. Recently, we were able to win a major 337 case for a Japanese company in the Point-to Point Network Communication Devices 337 case.

Docket No: 3032

Document Type: 337 Complaint

Filed By: David F. Nickel

Firm/Org: Foster & Murphy

Behalf Of: Segway Inc. and DEKA Products Limited Partnership

Date Received: September 9, 2014

Commodity: Personal Transporters

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Personal Transporters, Components Thereof, and Manuals Therefor . The proposed respondents are: PowerUnion (Beijing) Tech Co. Ltd., Beijing; UPTECH Robotics Technology Co., Ltd., Beijing; Beijing Universal Pioneering Robotics Co., Ltd., Beijing; Beijing Universal Pioneering Technology Co., Ltd., Beijing; Ninebot Inc.,(in China) Beijing; Ninebot Inc., Newark, DE; Shenzhen INMOTION Technologies Co., Ltd., Guangdong; Robstep Robot Co., Ltd., Guangdong; FreeGo High-Tech Corporation Limited, Shenzhen; Freego USA, LLC, Sibley, IA; Tech in the City, Honolulu, HI; and Roboscooters.com, Laurel Hill, NC.

Status: Pending Institution

RISE IN CHINESE ANTI-MONOPOLY CASES CREATES INTENSE CONCERN FROM US AND FOREIGN COMPANIES

In September 2014, the US China Business Council and the US Chamber of Commerce published the attached major reports/survey from US Companies about the impact of the Chinese anti-monopoly law on US business in China.  US CHINA BUSINESS COUNCIL REPORT CHINA AML The Executive Summary of the US China Business Council report states as follows:

Executive Summary

  • China’s increased level of competition enforcement activity and the high-profile reporting of its competition investigations have prompted growing attention and concern from US companies. Eighty-six percent of companies responding to the US-China Business Council’s (USCBC’s) 2014 member company survey indicated they are at least somewhat concerned about China’s evolving competition regime—although more so about the potential impact than actual experience so far.
  • China’s competition regime framework is relatively new. The Antimonopoly Law (AML) came into force in 2008 after Chinese authorities spent more than a decade drafting the law and consulting with foreign competition authorities from the United States, the European Union, and other jurisdictions. The AML draws from elements of both the US and EU competition laws, though it is more closely tied to the EU model and contains some elements unique to China.
  • The rise in competition-related investigations has corresponded to the buildup in personnel at regulatory agencies following the AML’s implementation.
  • USCBC monitoring of publicly announced cases indicates that both foreign and domestic companies have been targets of AML-related investigations, but that foreign companies appear to have faced increasing scrutiny in recent months.
  • The perception that foreign companies are being disproportionately targeted is also fueled by China’s domestic media reporting, which has played up foreign-related investigations versus those of domestic companies.
  • Targeted or not, foreign companies have well-founded concerns about how investigations are conducted and decided. Company concerns include:

o Fair treatment and nondiscrimination

o Lack of due process and regulatory transparency

o Lengthy time periods for merger reviews

o Role of non-competitive factors in competition enforcement

o Determination of remedies and fines

o Broad definition of monopoly agreements

  • Bigger questions remain unanswered about the objectives of China’s competition regime, such as: Will China use the AML to protect domestic industry rather than promote fair competition? Is the government using the AML to force lower prices, rather than let the “market play the decisive role” as enshrined in the new economic reform program? The answers are not fully determined yet, but in at least some cases so far there are reasons for concern.

The report by the US China Business Council was followed by the attached even stronger report by the US Chamber of Commerce in China entitled, Competing Interests in China’s Competition Law Enforcement: China’s Anti-Monopoly Law Application and the Role of Industrial Policy, AM CHAM ACTUAL REPORT ON AML. My September newsletter and blog post will have more about the rise of the Chinese anti-monopoly law. What goes around, does indeed come around.

AUGUST NEWSLETTER

Dear Friends,

There have been major developments in the trade, Solar Cells, Tax, Trade Agreements, 337/IP, US/Chinese antitrust, and securities areas in August 2014.

I have been late in sending out this blog post because the Trade War keeps expanding into many different areas, especially antitrust. The United States has brought a shotgun to the Trade War with its antidumping and countervailing duty laws against Chinese companies, and the Chinese government has brought a bazooka to the Trade War with the enforcement of its Antimonopoly Law/Antitrust laws against US and other foreign companies. What goes around, does indeed come around.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

BEIJING ORGANIZATIONAL MEETING

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.

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.

As indicated above, at the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required by the WTO Accession Agreement 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 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 along with the powerpoint FINAL WEB BEIJING IMPORT ALLIANCE POWERPOINT we used to describe the Import Alliance, the specific provision in the US China WTO Agreement and the Trade War in general.

TRADE

TAX IMPLICATIONS OF US ANTIDUMPING AND COUNTERVAILING DUTY CASES

Recently, it has come to my attention that a major problem for importers that import under antidumping and countervailing duty orders is the US tax laws. As indicated in past blog posts, the US Congress is screaming because US importers are not paying all the antidumping and countervailing duties that are retroactively assessed.

As mentioned previously, the United States is the only country in the World that has retroactive liability for US importers in antidumping and countervailing duty cases. When an antidumping or countervailing duty order is issued, the rates in the orders are not the actual dumping or countervailing duties owed by US importers to the US government. The published rates are merely the cash deposit rates to be posted by US importers, when they import under an antidumping or countervailing duty order. The actual duties are determined during annual review investigations that often start up one year after the antidumping or countervailing duty order are issued.

Review investigations start up in the anniversary month in which the specific order is issued and will take a year and a half. So at a minimum, after the importer imports the product into the United States under an antidumping or countervailing duty order, it will take two and a half years, one year for the review investigation to start up and then a year and a half for Commerce to conduct the review investigation for the importer to learn how much it actually owes the US government. If the Commerce Department’s final determination is appealed to the Courts, it can take 5 to 10 years before the US importer knows how much it actually owes the US government.

If the antidumping or countervailing duty rate goes up in the annual review investigation, the US importer is retroactively liable for the difference plus interest. In numerous cases, such as Ironing Tables, Wooden Bedroom Furniture, Mushrooms and other China cases, rates can go from 0% or 16% to 157, 216 and 300%, creating millions of dollars in retroactive liability for US importers and often bankruptcy.

Congress then screams that US importers do not pay the duties that are due, but according to David Musser, a tax accountant, at Nicholas Cauley that I have been talking to, if a US importer sets up an internal fund to pay off any potential antidumping or countervailing duties, that fund is taxable because it is not considered a deductible expense. So the US government has set up a system where it is impossible for the importer to protect itself from increased antidumping or countervailing duties.

As David Musser states:

“ANTIDUMPING TARIFFS – ACCOUNTING TREATMENT vs. TAX DEDUCTION

Antidumping duties that attach to certain imports create accounting issues that may be in conflict with income tax deduction rules. The rule for deducting an expense for income tax purposes is that it must pass the all events test and economic performance occurs. This means that the liability for the antidumping fees must be fixed and determinable and paid (economic performance) for it to be tax deductible. This can create a large timing difference for deductibility since the Commerce Department may not determine the fees owed until a minimum of two and half years after the import was made. So if you accrue an amount for estimated antidumping fees, the amount is not fixed and determinable at that point and is not deductible. If you pay a deposit for the fees, you have satisfied economic performance, but the amount is still not fixed and determinable.

This appears to be in conflict with matching rules where specific expenses are matched in the same year to related income items, especially if you are passing the cost of the antidumping fees to your customers. Depending on how you invoice, there may be a potential to reduce the effect of the tax timing difference. This would require the antidumping fees/deposits to be separately stated on the sales invoice and accounted for as deferred antidumping fees on your balance sheet. This does not completely eliminate the timing difference associated with the fees, but it may be better than waiting two and a half years or more to get the deduction.”

In a May, 5, 1995 letter ruling 538001, the Internal Revenue Service (“IRS”) stated:

“In the present case, the deposits were determined on the basis of transactions that occurred in a prior year. The deposits are specifically characterized as such by the relevant provisions of the applicable statutes and regulations. There is no necessary correlation between the circumstances in the year that provided the basis for the deposits and the circumstances that exist in the year the deposits are required. . . .

An importer’s ability to influence the ultimate disposition of a deposit required by an antidumping duty order is consistent with the characterization of the amount as a deposit. If an importer sells merchandise that is subject to the deposit requirement at fair value, the importer can ensure the recovery of the deposit. Generally, an asserted liability is not affected by the subsequent actions (other than administrative or judicial review) of the obligor. . . .

CONCLUSION

In the circumstances described, the Taxpayer’s deduction for antidumping duties is not allowable for the taxable year in which the antidumping duty order was issued. Antidumping duties are determined on the basis of the weighted-average dumping margins on all U.S. sales during the period covered by an administrative review of an antidumping duty order or, in the absence of a request for administrative review, on the basis of deposits required by an antidumping duty order. In either case, occurrence of all events necessary to allow a reasonable basis for determination of the amount of a liability for antidumping duties had not taken place before the end of the taxable year for which the Taxpayer claimed a deduction for antidumping duties.”

The 1995 tax ruling, however, is completely wrong as it applies to antidumping cases against China.  The writer of the ruling assumed “an importer can sell merchandise that is subject to the deposit requirement at fair value”. As readers of this blog know, since antidumping duties in Chinese cases are not based on actual market prices and costs in China, it is impossible for the Chinese exporter to know whether it is dumping, never mind the US importer.  With regards to China, Commerce constructs a cost using consumption factors from Chinese producers multiplied by surrogate values from import statistics from 10 potential surrogate countries, ranging from Thailand, Indonesia, Philippines, to Columbia or Bulgaria and those countries can change in subsequent review investigations.

Because of the fact that actual price and costs in China are not used to determine Chinese antidumping rates, it is impossible for the Chinese company or the US importer to know whether it is dumping. Thus, the US importer that is trying to protect itself from bankruptcy is in a damned if you do, damned if you don’t situation.

SEPARATE ANTIDUMPING RATES—NO LONGER A PRO FORMA EXERCISE– MUCH TOUGHER FOR STATE OWNED COMPANIES

With December 11, 2016 and the requirement in the US China WTO Agreement that China is a market economy country coming up, one would expect Commerce to relax the requirements regarding separate rates for state owned companies. Instead, Commerce is making it more difficult for Chinese state owned companies that are under the supervision of the PRC’s State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”) to get their own separate antidumping rate.

Based on recent attached decisions in the Court of International Trade in the Diamond Sawblades case, specifically two opinions in the Advanced Technology & Materials Co., Ltd. v. United States, ADVANCED TECHNOLOGY TWO CIT CIT ADVANCED TECHNOLOGY 11-12211-122, where the Court, in effect, forced Commerce to deny a separate rate to Advanced Technology because part of the ownership was by SASAC, Commerce has made it more difficult for Chinese companies under the control of or owned in part by the State-Owned Assets Commission to get separate dumping margins/separate rates.

Recently, in the preliminary determination in 1,1,1, 2 Tetrafluoroethane from China case, Commerce overturned decades of past decisions giving Sinochem a separate antidumping rate, and determined that many Chinese companies, including numerous Sinochem companies, were not entitled to a separate dumping rate. In the May 22, 2014 preliminary determination, in the Issues and Decision memo, AD Tetrafluoroethane Prelim Decision Memo-5-21-14, the Commerce Department stated:

The Department has not granted a separate rate to the following additional Separate Rate Applicants: SC Ningbo International Ltd (“SC Ningbo International”), Sinochem Environmental Protection Chemicals (Taichang) Co., Ltd. (“SC Taicang”), Sinochem Ningbo Ltd. (“SC Ningbo”), Zhejiang Quhua Fluor-Chemistry Co., Ltd. (“Quhua-Fluor”), Zhejiang Quzhou Lianzhou Refrigerants Co., Ltd. (“Lianzhou”) and Aerospace for the following reasons:

“The Department preliminary determines that SC Taicang, SC Ningbo Ltd. and SC Ningbo International have not demonstrated an absence of de facto government control.Specifically, each of these companies is under the control of Sinochem Group,