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–Trump, Trade Policy, NME, TPP, Trade, Customs, False Claims, Products Liability, Antitrust and Securities

Jefferson Memorial and Tidal Basin Evening at Cherry Blossom TimTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MARCH 11, 2016

MOVING TO NEW LAW FIRM, HARRIS MOURE

Dear Friends,

Have not been able to send out a new newsletter in April because we are in the process of moving to a new law firm.  As of May 1, 2016, I will no longer be at the Dorsey law firm. Dorsey will continue to represent clients in international trade and customs matters but will no longer be handling antidumping, countervailing duty, section 201, escape clause and other similar trade regulation cases.

My new law firm is Harris Moure, here in Seattle and my new e-mail address is bill@harrismoure.com.  The US China Trade War blog and newsletter will be coming with me, but coming from my new firm.

Although will miss my Dorsey friends, I am looking forward to Harris Moure, which can be found at http://www.harrismoure.com/.  With a Beijing office and lawyers that can speak fluent Chinese, the Harris firm is well known for helping US and other foreign companies move to China to set up manufacturing operations.  Dan Harris has a very famous blog, http://www.chinalawblog.com/, which is followed by many companies that are interested in doing business in and with China.

In addition, set forth are two major developments involving trade litigation against Chinese companies.

If anyone has any questions or wants additional information, please feel free to contact me at this Dorsey e-mail address until April 30th and then after that at bill@harrismoure.com.

Bill Perry

TRADE UPDATES

NEW SECTION 337 UNFAIR TRADE CASE AGAINST ALL CHINESE CARBON ALLOY STEEL COMPANIES AND ALL STEEL PRODUCTS FROM CHINA

On April 26, 2016, US Steel Corp filed a major 337 unfair trade case against all the Chinese steel companies seeking an exclusion order to bar all imports of carbon and alloy steel from China.  See the ITC notice below. U.S. Steel Corp. is accusing Chinese steel producers and their distributors of conspiring to fix prices, stealing trade secrets and false labeling to avoid trade duties.  It is asking the U.S. International Trade Commission (“ITC”) to issue an exclusion order baring all the Chinese steel from the US market and also cease and desist orders prohibiting importers from selling any imported Chinese steel that has already been imported into the United States.

The petition alleges that the Chinese companies:

work together to injure U.S. competitors, including U.S. Steel. Through their cartel, the China Iron and Steel Association (“CISA”), Proposed Manufacturer Respondents conspire to control raw material input prices, share cost and capacity information, and regulate production and prices for steel products exported to the United States. Proposed Manufacturer Respondents also share production schedules and time the release of products across multiple companies. This enables them to coordinate exports of new products to flood the U.S. market and destroy competitors.

4. Some of the Proposed Manufacturer Respondents have used valuable trade secrets stolen from U.S. Steel to produce advanced high-strength steel that no Chinese manufacturer had been able to commercialize before the theft. In January 2011, the Chinese government hacked U.S. Steel’s research computers and equipment, stealing proprietary methods for manufacturing these products. Soon thereafter, the Baosteel Respondents began producing and exporting the very highest grades of advanced high-strength steel, even though they had previously been unable to do so. Chinese imports created with U.S. Steel’s stolen trade secrets compete against and undercut U.S. Steel’s own products.

5.        Proposed Respondents create documentation showing false countries of origin and false manufacturers for Chinese steel products. They also transship them through third countries to disguise their country of origin, circumvent anti-dumping and countervailing duty orders, and deceive steel consumers about the origin of Chinese steel.

Having worked at the ITC on 337 cases and later in private practice, section 337 is generally aimed at imports that infringe intellectual property rights, such as patents, trademarks or copyrights.  Moreover, one provision of section 337(b)(3) provides that when any aspect of a section 337 case relates to questions of dumping or subsidization, the Commission is to terminate the case immediately and refer the question to Commerce.

Also in the past when section 337 was used to bring antitrust cases, there was intense push back by the Justice Department.  Customs and Border Protection also may not be happy with the use of section 337 to enforce US Custom law.

But section 337 cases are not antidumping and countervailing duty cases.  There are no mandatory companies and lesser targets.  All the Chinese steel companies are targets, and this will be intense litigation with very tight deadlines.  If the individual Chinese steel companies do not respond to the complaint, their steel exports could be excluded in 70 days to six months.  Section 337 cases are hard- nosed litigation on a very fast track.

If you are interested in a copy of the complaint, please feel free to contact me.

The ITC notice is as follows:

Tuesday, April 26, 2016

Commodity: Carbon and Alloy Steel Products

Pending Institution

Filed By: Paul F. Brinkman

Firm/Organization: Quinn Emanuel Urrquhart & Sullivan LLP

Behalf Of: United States Steel Corporation

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 Carbon and Alloy Steel Products. The proposed respondents are: Hebei Iron and Steel Co., Ltd., China; Hebei Iron & Steel Group Hengshui Strip Rolling Co., Ltd., China; Hebei Iron & Steel (Hong Kong) International Trade Co., Ltd., China; Shanghai Baosteel Group Corporation,China; Baoshan Iron & Steel Co., Ltd., China; Baosteel America Inc., Montvale, New Jersey; Jiangsu Shagang Group, China; Jiangsu Shagang International Trade Co, Ltd., China; Anshan Iron and Steel Group, China; Angang Group International Trade Corporation, China; Angang Group Hong Kong Co., Ltd., China; Wuhan Iron and Steel Group Corp., China; Wuhan Iron and Steel Co., Ltd., China; WISCO America Co., Ltd., Newport Beach, California; Shougang Group, China; China Shougang International Trade & Engineering Corporation, China; Shandong Iron and Steel Group Co., Ltd, China; Shandong Iron and Steel Co., Ltd., China; Jigang Hong Kong Holdings Co., Ltd., China; Jinan Steel International Trade Co., Ltd., China; Magang Group Holding Co. Ltd, China; Maanshan Iron and Steel Co., Ltd., China; Bohai Iron and Steel Group, China; Tianjin Pipe (Group) Corporation, China; Tianjin Pipe International Economic & Trading Corporation, China; TPCO Enterprise Inc., Houston, Texas; TPCO America Corporation, Gregory, Texas; Benxi Steel (Group) Co., Ltd., China; Benxi Iron and Steel (Group) International Economic and Trading Co., Ltd., China; Hunan Valin Steel Co., Ltd., China; Hunan Valin Xiangtan Iron and Steel Co., Ltd., China; Tianjin Tiangang Guanye Co., Ltd., China; Wuxi Sunny Xin Rui Science and Technology Co., Ltd., China; Taian JNC Industrial Co., Ltd., China; EQ Metal (Shanghai) Co., Ltd., China; Kunshan Xinbei International Trade Co., Ltd, China; Tianjin Xinhai Trade Co., Ltd., China; Tianjin Xinlianxin Steel Pipe Co. Ltd, China; Tianjin Xinyue Industrial and Trade Co., Ltd., China; and Xian Linkun Materials (Steel Pipe Supplies) Co., Ltd., China.

UNION FILES SECTION 201 CASE ON ALUMINUM, BUT THEN WITHDRAWS IT

On April 18, 2016 the United Steelworkers Union filed a section 201 safeguard case against imports of aluminum from all countries at the US International Trade Commission (“ITC”). Although the target appeared to be China because its overcapacity has affected the World aluminum market, in fact, not so much.   China has an export tax in place to prevent exports of primary aluminum.  The real targets were Canada and Russia.  Canada exports about $4 billion in aluminum to the US, and Russia exports about $1 billion.

But after intense pressure from the US Aluminum producers, on April 22th the Union withdrew the petition.  Apparently, the US Aluminum producers have production facilities in Canada and also part of the Union was in Canada and not happy with the case.

Moreover, at the request of Congress, the ITC is conducting a fact-finding investigation on the US aluminum industry. The report is due out June 24, 2017.  The Union may have decided to wait until the ITC issues the fact-finding report in June and then it will refile the 201 case.

But there are reports that as a result of the case the Canadian and US governments are discussing the aluminum trade problem, which may result in a settlement down the road.

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

Best regards,

Bill Perry

Dear Friends,

On March 21, 2016 and March 17, 2016, after this post was sent out, I was interviewed on Donald Trump and the US China Trade War by the World Finance, a bi-monthly print and web outlet on the financial industry.

To see the video on the impact of Donald Trump on International Trade policy, please see  Could Trump Take the US Back to the Great Depression, http://www.worldfinance.com/inward-investment/asia-and-australasia/could-trump-take-the-us-back-to-the-great-depression

To see the video on the US China Trade War, click on the following link

http://www.worldfinance.com/inward-investment/asia-and-australasia/the-us-china-trade-war-explained

For more information on the specific points made in the two videos on the US China Trade War and Donald Trump, please see the lead article below on the Trump Impact on International Trade policy.

March 11 Blog Post

After returning from a two week trip to China to work on the Solar Cells case, this March blog post will cover trade policy, including Trump’s impact on Trade Policy, trade, Customs, False Claims Act, the recent ZTE Export Control debacle, 337, patents/IP, criminal IP cases, products liability, antitrust and securities. There are significant developments in the US antitrust area.

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

Best regards,

Bill Perry

THE TRUMP IMPACT ON US TRADE POLICY

As stated in numerous past blog posts, one of the major reasons the Trans Pacific Partnership is running into problems in Congress along with a number of other trade issues, such as market economy for China, is the impact of the Presidential elections, especially the rise of Donald Trump. After Super Tuesday on March 1, 2016 and the Trump victories in seven different states many Republican pundits believe the game is over and Trump has won the Republican primary and will be the party’s nominee.

Thus Ed Rollins, who worked in the Reagan Administration and is a highly respected expert on the Republican party, published an article on March 2, 2016 on the Fox News website stating, “Trump is now unstoppable. It’s game over for Cruz, Rubio, Kasich and Carson.” Rollins goes on to state:

Game over! This was a rout, America. Winning seven states and the vast majority of delegates is a landslide. Donald Trump and the millions of his supporters have changed American politics and the Republican Party for the foreseeable future. . . .

Trump, who is an unconventional candidate, to say the least, has tapped into the anger and frustration across America and has mobilized voters to turn out in record numbers.

Love him or hate him, be inspired by him or be appalled by him, Trump has totally dominated a political cycle like no other politician I’ve seen in decades.

I admit I was a total skeptic, like many others. At first, I didn’t think he would run. Then I thought there was no way he could beat the all-star cast of elected officials running against him.

Then I underestimated his lack of substance and trite answers in the debates. Then I underestimated his lack of a real campaign.

Then I was convinced the political establishment was going to spend millions and take him out. And like the Energizer bunny he just keeps going and winning!

Trump is getting stronger by the day and his supporters are locked in and not going away. And no one has mastered the media like this since Teddy Roosevelt and his rough riders.

What’s ahead is a Republican Party that either becomes part of his movement or splinters into many pieces. No matter what Trump does or says, the nomination is his for the taking.

For the full article, see http://www.foxnews.com/opinion/2016/03/02/trump-is-now-unstoppable-its-game-over-for-cruz-rubio-kasich-and-carson.html?intcmp=hpbt2#

At most, there is only a 30% chance that some other Republican candidate can beat Trump, but with a 70% chance that Trump will be the Republican nominee, the question is can Trump beat Hilary Clinton? Many facts indicate that Trump could win and become the next President.

On February 29, 2016, the Boston Herald reported that my childhood state, Massachusetts, which is very liberal and very Democratic, is seeing a surge in Democratic voters switching parties to vote Republican for Trump. As the Boston Herald reported on February 29, 2016, “Amid Trump surge, nearly 20,000 Mass. voters quit Democratic party”. The Article goes on to state:

The primary reason? [Secretary of State Galvin said his “guess” is simple: “The Trump phenomenon” . . . . Galvin said the state could see as many as 700,000 voting in tomorrow’s Republican primary, a significant number given just 468,000 people are actually registered Republicans. In Massachusetts. unenrolled — otherwise known as independent — voters can cast a ballot in the primary of any party.

For full article see http://www.bostonherald.com/news/us_politics/2016/02/amid_tru… 3/1/2016

On February 29, 2016, Buck Fox in Investors Business Daily, one of the more well- known financial newspapers in the US, predicted that Trump would win the Presidency:

Let’s take a rare journalistic moment to answer definitively: Will Donald Trump win the presidency? Yes.

Good. Got that out of the way. No dialing a focus group. Tell it straight. … Answers. Trump rattles them off fearlessly. He doesn’t consult pollsters. He goes with his gut.

Which is one reason he’s wildly popular — dominating the Drudge debate poll with 57% — and on the way to delivering the inaugural address on Jan. 20, 2017, as the 45th president.

As Ann Coulter says, President Trump will be halfway through that speech as the Republican Party keeps debating his viability.

Don’t limit that hedge to GOP bureaucrats. Throw in 99% of TV pundits: Karl Rove, Brit Hume, George Will, Bill Kristol, Rich Lowry, Steve Hayes, Charles Krauthammer, S.E. Cupp, Mike Smerconish, Ben Ferguson, Jeff Toobin.

They share a maddening trait — smug, glib and handsomely paid while belittling Trump’s odds of winning. Even though that’s all he’s done while building a titanic real estate empire. . . .

The smart ones see a runaway Trump Train, with Los Angeles radio host Doug McIntyre —hardly a Don fan — conceding after Nevada’s rout, “Donald Trump will win the Republican nomination.”

No “maybe.” No “very well could.” Trump will claim the GOP trophy in July in Cleveland. And win it all in November. Why?

  1. Issues. Trump owns immigration, trade, Muslim terror, self-funding his campaign to ignore special interests. . . . .

For full article, see http://www.investors.com/politics/capital-hill/trump-towers-over-the-presidential-field/[2/29/2016 12:29:13 PM]

On March 1, 2016, Politico published an article “The media’s Trump reckoning: ‘Everyone was wrong’ From the New Yorker to FiveThirtyEight, outlets across the spectrum failed to grasp the Trump phenomenon.”

In a March 3, 2016 article, John Brinkley of Forbes asks “Why Is Trade Such A Big Deal In The Election Campaign?”, stating in part:

Did you ever think you’d see a day when international trade was a central issue in a U.S. presidential election?

That’s where we are in 2016. For one reason or another, all the presidential candidates have felt the need to stake out positions on trade.

Let’s look at the last half-century. Issues that animated presidential campaigns were the Cold War, civil rights, the Vietnam War, Watergate, nuclear weapons, inflation, budget deficits, health care costs, terrorism, national security, wars in Iraq and Afghanistan, a financial crisis, illegal immigration. But never trade.

Well, almost never. While running for president in 1992, Ross Perot warned that NAFTA would cause “a giant sucking sound” from Mexico, but he wasn’t able to elevate NAFTA to a prominent position in that year’s election debates.

This year the Republican front-runner Donald Trump, who says he knows a lot about trade, but has proven that he doesn’t, says he’ll repeal NAFTA and the Trans-Pacific Partnership if it takes effect before he becomes president.

He also says he wants to slap a 45 percent tariff on Chinese imports. It’s been pointed out that this would get us into a trade war. The Trump camp’s fatuous response is that we’re already in a trade war with China. That’s like saying your house is in fire, so let’s spray gasoline on it.

Sen. Bernie Sanders, who had a realistic shot at the Democratic nomination until Super Tuesday, has ranted and raved about free trade agreements throughout his campaign. He says they have cost millions of Americans their jobs, although there is no empirical evidence of that.

In her inimical please-all-the-people-all-the-time style, Democratic frontrunner Hilary Clinton says she doesn’t like the Trans-Pacific Partnership in its present form, but might change her mind if certain changes are made. She obviously thinks trade is important enough as a political issue that she has to bob and weave rather than take an unambiguous yes-or-no position. . . .

Why is trade such a volatile issue this year?

An obvious reason is that the Obama administration has negotiated and signed the most mammoth trade agreement in the history of the universe.

The TPP encompasses 12 countries and 40 percent of the world’s economy. . . .

And a third we can call The Trump Factor: the other GOP candidates are so scared of Trump that they feel they have to respond to everything he says, just to show that they’re not like him (which hardly seems necessary). . . .

Keeler said the prominence of trade in the 2016 presidential campaign “is surprising in the same way that everything about Donald Trump is surprising.”

For the full article, see

http://www.forbes.com/sites/johnbrinkley/2016/03/03/why-is-trade-such-a-big-deal-in-the-election-campaign/print/.

Why is trade policy so important in this election? It is not because Trump says it is so.  Instead, it is the reason Trump is doing so well in the Republican primary—his appeal to a large constituency that is being hammered by illegal immigration, hurt by trade and afraid of losing their jobs.  Several pundits have tried to explain what this election is really about and the reason for Trump’s rise:

Hundreds of workers in Indiana, who just saw their jobs heading to Mexico;

Disney employees being fired and forced to retrain foreign replacements;

and finally the systematic invasion of the country by illegal immigrants, who take American jobs away.

Middle class and lower middle class people are afraid of losing their jobs and their livelihood and are flocking to Trump.

In two word, this is economic nationalism.

One central core of Donald Trump’s strategy is the argument that the United States has been soft on trade and “does not win any more.” Trump specifically points to China as one of the biggest winners saying that China, Mexico and Japan all beat the US in trade.

Moreover, the Core Constituency of Trump, his followers, are blue collar workers, many without a college education, so-called Reagan Democrats, that work in companies, factories, service industries and often are in labor unions. These workers are in regular 9 to 5 jobs on a set salary, in the lower middle and middle class, who are not privileged and not protected, feel their livelihoods threatened by illegal immigration and trade deals that give other countries access to US markets.  These blue collar workers are white, black, and Hispanic, such as in the Nevada primary where many Hispanics voted for Trump.  These workers would normally vote Democratic, but they firmly believe that no party be it Democratic or Republican truly represents their interests and are willing to protect their jobs and way of life.  Along comes Donald Trump stating that he will stop illegal immigrants at the border, do away with trade agreements and stop imports from China saving their jobs.  He will make America great again.  For many, many workers this argument makes them solid Trump supporters.

In a March 2 article entitled Eight Reasons we need to start preparing for President Trump, Geoff Earle writing for the NY Post states

Reason 5:

Trump’s main demographic strength — working-class men and white voters — matches up well against one of Hillary Clinton’s chief weaknesses. He could go after Clinton in must-win Ohio, where “Trump’s rhetoric appeals to those blue-collar Democrats,” said GOP strategist Brian Walsh.

For full article, see http://nypost.com/2016/03/02/8-reasons-we-need-to-start-preparing-for-president-trump.

In listening to Donald Trump’s victory speech on Super Tuesday, he stated that he wants to be a unifier and that he will reduce corporate taxes and make it easier for US companies to repatriate profits and set up manufacturing in the US. No one has problems with Trump’s idea of using carrots to bring back US manufacturing.  The problem is with Trump’s idea of using trade sticks to force manufacturing back to the US by setting up high protectionist walls.

On February 29, 2016, The Wall Street Journal in an editorial entitled, “Making Depressions Great Again — The U.S. may renounce its trade leadership at a dangerous economic moment,” expressed its real concern that by using the Trade/Tariff sticks Trump could take the United States back to the 1930s and the Smoot Hawley Tariff that created the Great Depression:

Reviving trade is crucial to driving faster growth, yet the paradox of trade politics is that it is least popular when economic anxiety is high and thus trade is most crucial.

And so it is now: Four of the remaining U.S. candidates claim to oppose the Trans-Pacific Partnership, and Congress now lacks the votes to pass it.

The loudest voice of America’s new antitrade populism is Mr. Trump, who has endorsed 45% tariffs on Chinese and Japanese imports and promises to punish U.S. companies that make cookies and cars in Mexico. When Mr. Trump visited the Journal in November, he couldn’t name a single trade deal he supported, including the North American Free Trade Agreement (Nafta).

He says he’s a free trader but that recent Administrations have been staffed by pathetic losers, so as President he would make deals more favorable to the U.S., and foreigners would bow before his threats. “I don’t mind trade wars,” he said at Thursday’s debate.

He should be careful what he wishes. Trade brinksmanship is always hazardous, especially when the world economy is so weak. A trade crash could trigger a new recession that would take years to repair, and these conflicts are unpredictable and can escalate into far greater damage.

The tragic historic precedent is the Smoot-Hawley tariff of 1930, signed reluctantly by Herbert Hoover. In that era the GOP was the party of tariffs, which economist Joseph Schumpeter called the Republican “household remedy.” Smoot-Hawley was intended to protect U.S. jobs and farmers from foreign competition, but it enraged U.S. trading partners like Canada, Britain and France.

As economic historian Charles Kindleberger shows in his classic, “The World in Depression, 1929-1939,” the U.S. tariff cascaded into a global war of beggar-thy-neighbor tariff reprisals and currency devaluation to gain a trading advantage. Each country’s search for a protectionist advantage became a disaster for all as trade volumes shrank and deepened the Great Depression.

Kindleberger blames the Depression in large part on a failure of leadership, especially by a U.S. that was unwilling to defend open markets in a period of distress. “For the world economy to be stabilized, there has to be a stabilizer—one stabilizer,” he wrote. Britain had played that role for two centuries but was then too weak. The U.S. failed to pick up the mantle. . . .

Once the President recovered his trade bearings, Mitt Romney promised in 2012 to sanction China for currency manipulation and even ran TV ads claiming that “for the first time, China is beating us.”

Mr. Trump is now escalating this line into the centerpiece of his economic agenda—protectionism you can believe in. And what markets and the public should understand is that as President he would have enormous unilateral power to follow through. Congress has handed the President more power over the years to impose punitive tariffs, in large part so Members can blame someone else when antitrade populism runs hot. . . .

In an exchange with Bill O’Reilly on Feb. 10, Mr. Trump said that’s exactly what he plans to do. The Fox News host suggested a trade war is “going to be bloody.” Mr. Trump replied that Americans needn’t worry because the Chinese “will crash their economy,” adding that “they will have a depression, the likes of which you have never seen” in a trade war. He might be right about China, but the U.S. wouldn’t be spared.

The Trump candidacy thus introduces a new and dangerous element of economic risk to a world still struggling to emerge from the 2008 panic and the failed progressive policy response. A trade war would compound the potential to make depressions great again.

For the full editorial see http://www.wsj.com/articles/making-depressions-great-again-1456790200 3/1/2016.

President Ronald Reagan, who lived through the Great Depression and knew about the impact of the Smoot Hawley tariff on his generation, was a solid free trader stating on June 28, 1986 in the attached speech on international trade, BETTER COPY REAGAN IT SPEECH:

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.

Ronald Reagan was a true free trader; Donald Trump is not.

But Trump’s rhetoric along with the strong positions of Bernie Sanders, have already had an impact on US trade policy.

Trans Pacific Partnership (“TPP”)

On February 22, 2016, despite strong opposition from Republican lawmakers and many Democratic Senators and Congressmen, in a speech before the National Governors Association, President Obama stated that he was cautiously optimistic that Congress would pass the TPP before he leaves office. President Obama specifically stated:

“I am cautiously optimistic that we can still get it done. Leader McConnell and Speaker Ryan both have been supportive of this trade deal.  We’re going to … enter this agreement, present it formally with some sort of implementation documents to Congress at some point this year and my hope is that we can get votes.”

But President Obama admitted that selling the TPP is not easy with the opposition of four of the top five candidates for the presidency — Donald Trump, Hillary Clinton and Sens. Bernie Sanders, I-Vt., and Ted Cruz, R-Texas. He further stated:

“The presidential campaigns have created some noise within and roiled things a little bit within the Republican Party, as well as the Democratic Party around this issue. I think we should just have a good, solid, healthy debate about it.  What all of you can do to help is to talk to your Congressional delegations and let them know this is really important.  All of you, though, can really lift up the benefits for your states, and talk to your congressional delegations directly.”

Obama can only submit legislation to implement the TPP to Congress after the U.S. International Trade Commission releases an extensive report on the agreement’s economic impact in mid-May.

As reported in my last newsletter, on February 5, 2016, in the Democratic debate, Hillary Clinton stated that she could support the TPP if the deal is changed, but also stated afterwards that she opposes the deal as currently written.  Meanwhile there is intense pressure on Clinton to stay opposed to the TPP as the labor unions have increased pressure on those Democratic Congressmen and Senators that voted in favor of the Trade Promotion Authority and were put on labor’s hit list.  On February 29, 2016, it was reported that labor unions were now targeting 28 moderate Democrats who supported “fast-track” trade promotion legislation.

California Rep. Scott Peters estimates his reelection campaign is likely to see a $200,000 to $300,000 drop in labor donations — about a seventh of his total contributions so far — and fewer ground volunteers knocking on doors unless he changes his trade stance. The two-term lawmaker, who won reelection by 3 percent of the vote, is likely to face ad buys, call-in campaigns and protests outside his office. As Peters further stated:

“We’ve lost some pretty important labor support as a result on the vote on TPA, and that’s painful … There’s no doubt there has been a political price.”

Labor’s attacks on the free traders could also be decisive in the reelection bids of California Rep. Ami Bera and New York Rep. Kathleen Rice. The White House has sought to counter the labor attacks by early endorsements, raised campaign funds and deployed Cabinet officials to praise members in their districts.

This makes passage of the TPP very doubtful in Congress. As Texas Rep Eddie Bernice Johnson said of the loss of the AFL-CIO backing:

“It gets your attention,” adding that trade is an “economic engine” for her Dallas district. “But I cannot neglect the stance and conditions of my district that I pledged heartily to represent.”

There’s a chance a TPP vote could get delayed until the Lame Duck session or the next administration and the next Congress, but AFL-CIO President Richard Trumka has stated:

“So they want to put it after the election because they think we’ll forget. Well, we’re not going to forget, and we’re not going to let the American worker forget, and we think they’ll have a tough time explaining their vote to workers who have lost jobs”

During a meeting with labor and trade protectionists, Oregon Congressman Earl Blumenauer reportedly slammed a notepad down on a table at the height of the debate, telling the group he was frustrated with the constant calls and picketing outside his home and district office. Blumenauer went on to state:

“I have a community that is very trade-dependent, but we also have people who are trade skeptics. So I’m just going to let the chips fall where they may.”

On March 7, 2016, former Congressman Don Bonker wrote the following article for the Seattle Times about the developments in the Trade area:

Trump’s trade rhetoric threatens U.S. economy, global standing, Trump’s fear tactics combined with viral protectionism spreading across the country is a monkey wrench for passage of Trans-Pacific Partnership.

Donald Trump’s political rhetoric, however absurd, is boastfully driving the debate among Republicans on issues such as immigration, but it’s his relentless jabs at U.S. trade policy that is more alarming.

Threatening to slap a 35 percent tariff on all imports from China definitely resonates with his support base, but it could undermine America’s leadership globally and also prove harmful in the Puget Sound area, given that such arbitrary tariffs are imposed on American importers, not Chinese suppliers, then passed on to distributors and ultimately result in higher consumer prices.

Trump, ever boastful of his business savvy, should also expect the Chinese to retaliate, as they predictably will, to restrict U.S. exports from Washington state and beyond.

Not surprisingly, Trump wants it both ways, asserting that free trade is terrible because we have “stupid” officials doing the negotiating, yet it could be wonderful if he calls the shots and has the final word (someone should inform him about the Constitution, which clearly states that “Congress shall regulate interstate and foreign commerce.”)

This may be how he cuts backroom business deals, but Trump’s approach would be unacceptable as leader of the world’s No. 1 economy.

Such fear tactics combined with viral protectionism spreading across the country, tapped into by Bernie Sanders and now Hillary Clinton switching her position on Trans-Pacific Partnership (TPP), is alarming to other nations who depend on America leadership in today’s global economy.

Using Trump’s words, “to make America great again,” our president must be a strong leader in today’s global economy, which Barack Obama has attempted to do with initiatives such as TPP. The partnership would give the U.S. a stronger presence in the Pacific Rim and provide a protective shield for Asian countries threatened by China’s enormous growth and influence in the region.

The TPP is destined for burial thanks to Trump’ rhetoric and growing protectionism among Democrats in Congress. It will be to China’s advantage given their own trade negotiations with the same countries.

If Trump is elected, will it put us in a trade war with China? In the 1928 presidential election, Herbert Hoover was less pompous than Trump but nonetheless called for higher tariffs that set the stage for a Republican Congress poised to run amok on limiting imports.

Shortly after the elections, hundreds of trade associations were formed that triggered an unbridled frenzy of logrolling, jockeying for maximum protection for commodity and industry producers leading to enactment of the Smoot-Hawley Tariff Act that hiked import fees up to 100 percent on over 20,000 imported products.

On the Senate side, another 1,200 amendments were added that proved so egregious, prompting Democrat Senator Thaedeus H. Caraway of Arkansas to declare that, “I might suggest that we have taxed everything in this bill except gall,” to which Senator Carter Glass of Virginia responded, “Yes, and a tax on that would bring considerable revenue.”

What Congress sent to the president proved so alarming it prompted 1,000 of nation’s leading economists to sign a petition urging President Hoover to veto the Smoot-Hawley Act, while The New York Times printed an ad that listed 46 states and 179 universities warning that signing the bill may prompt a fierce reaction.

Indeed within a few months, America’s leading trade partners — Canada, France, Mexico, Italy, 26 countries in all — retaliated, causing the world trade to plummet by more than half of the pre-1929 totals, one of several factors that precipitated the Great Depression.

Based on his campaign rhetoric, a Trump presidency would have plenty of gall, to be sure but it is certainly not what is needed to make America great again.

On March 9, I attended a reception here in Seattle with Congressman Dave Reichert, Chairman Subcommittee on Trade, House Ways and Means. Congressman Reichert stated that he is the first Washington State Congressman to become Chairman of the Trade Subcommittee.  He also stated that he is dedicated and personally committed to passing the TPP through Congress no matter how long it takes because of its importance for the economies of Washington State and the entire United States.

On March 10, 2016, however, the Wall Street Journal had a front page headline entitled, “Free Trade Loses Political Favor, Republican backing fades as voters voice surprising skepticism; Pacific pact seen at risk”. The Article states in part:

After decades in which successive Republican and Democratic presidents have pushed to open U.S. and global markets, resentment toward free trade now appears to have the upper hand in both parties, making passage this year of a sweeping Pacific trade deal far less likely and clouding the longer-term outlook for international economic exchange.

Many Democrats have long blamed free-trade deals for big job losses and depressed wages, especially in the industrialized Midwest, which has been battered over the years by competition from lower-cost manufacturing centers in countries like Japan, Mexico and China. . . .

But one big surprise Tuesday was how loudly trade fears reverberated among Republican voters in the primary contests in Michigan and Mississippi—evidence, many observers say, of a widening undercurrent of skepticism on the right about who reaps the benefits from loosened trade restrictions.

CHINA

Despite arguments by the Federalist Society in the attached article, Everything Trump Says About Trade With China Is Wrong, that Donald Trump’s arguments against China are simply wrong, Trump’s strong position and Hilary Clinton’s desire to keep Union support has forced her to take a much tougher stand on trade with China and the TPP. On February 23rd, 2016 in the attached commentary to the  Maine Press Herald, CLINTON ARTICLE CHINA, entitled “If elected president, I’ll level the playing field on global trade,” Hilary Clinton stated:

At the same time, China and other countries are using underhanded and unfair trade practices to tilt the playing field against American workers and businesses.

When they dump cheap products in our markets, subsidize state-owned enterprises, manipulate currencies and discriminate against American companies, our middle class pays the price. That has to stop.

Ninety-five percent of America’s potential customers live overseas, so closing ourselves off to trade is not a solution. . . .

As President, my goal will be to win the global competition for the good-paying manufacturing jobs of the future.

  • First, we have to strongly enforce trade rules to ensure American workers aren’t being cheated. Too often, the federal government has put the burden of initiating trade cases on workers and unions, and failed to take action until after the damage is done and workers have been laid off.

That’s backward: The government should be enforcing the law from the beginning, and workers should be able to focus on doing their jobs. To make sure it gets done, we should establish and empower a new chief trade prosecutor reporting directly to the president, triple the number of trade enforcement officers and build new early-warning systems so we can intervene before trade violations cost American jobs.

We should also hold other countries accountable for meeting internationally sanctioned labor standards – fighting against child and slave labor and for the basic rights of workers to organize around the world.

Second, we have to stand up to Chinese abuses. Right now, Washington is considering Beijing’s request for “market economy” status. That sounds pretty obscure. But here’s the rub – if they get market economy status, it would defang our anti-dumping laws and let cheap products flood into our markets. So we should reply with only one word: No.;

With thousands of state-owned enterprises; massive subsidies for domestic industry; systematic, state-sponsored efforts to steal business secrets; and blatant refusal to play by the rules, China is far from a market economy. If China wants to be treated like a market economy, it needs to act like one.

Third, we need to crack down on currency manipulation – which can be destructive for American workers. China, Japan and other Asian economies kept their goods artificially cheap for years by holding down the value of their currencies.;

I’ve fought against these unfair practices before, and I will do it again. Tough new surveillance, transparency and monitoring regimes are part of the answer – but only part. We need to expand our toolbox to include effective new remedies, such as duties or tariffs and other measures.

Fourth, we need to stop rewarding U.S. companies for shipping jobs overseas by closing loopholes and ending tax write-offs – and encouraging “in-sourcing” here in America instead. Two HVAC plants in Indiana recently decided to move abroad, costing 2,100 jobs – and likely pocketing a tax deduction.

They’re not just turning their back on the workers and community that supported them for years, they’re turning their back on America. As President, I’ll also end so-called “inversions” that allow multinational businesses to avoid paying U.S. taxes by moving overseas in name only.

Fifth, we have to set a high bar for any new trade agreements, and only support them if they will create good jobs, raise wages and advance our national security. I opposed the Trans-Pacific Partnership when it failed to meet those tests, and would oppose future agreements if they failed to meet that bar.;

America spent generations working with partners to develop strong and fair rules of the road for the global economy – but those rules only work if we enforce them. Tough enforcement and other smart policies to support a manufacturing renaissance are the only way we can ensure that trade helps American workers. If I’m elected President, that’s what I’ll do.

THE REASON TRADE IS AT THE CENTER OF THE DEBATE AND THE REAL TRADE ANSWER—TAA FOR COMPANIES

THE REASON

What is the reason that trade is the center of the Presidential debate? I believe at its core there are two fundamental reasons—failure to educate the general populace on the benefits of trade so that they understand how manufacturing in the US is connected in global supply chain with raw material inputs from abroad.

The second reason is the toxic domestic raw material heavy industry/Labor Union attack based on false arguments that all trade competition is caused by unfair trade and that companies can be saved by bringing trade remedy cases. This rhetoric has generated a Globalization victimhood way of thinking that all imports are unfairly traded, especially from China. This is despite the fact that 80 of the outstanding 120 antidumping orders against China are directed at raw materials, chemicals, metal and steel, which goes directly into downstream US production. Restrictions on raw material inputs hurts downstream US industries, which have no standing under US antidumping and countervailing duty laws to argue against the restrictions and have their arguments have any weight in the determination.

Years ago a United States Trade Representative (“USTR”) in the W Bush Administration spoke in Seattle and said that in the Trade area the major failure has been to educate the American public on the benefits of trade. Washington State, which is dependent on imports and exports, certainly knows the benefits of trade. The Ports in Washington State are incredibly important for the economic health of the State. Our largest trading partner is China to which Washington exports $20 billion every year. Thus the Washington Council for International Trade is pushing hard for the Trans Pacific Partnership. See http://wcit.freeenterpriseaction.com/v9xpssZ

But that is not true in many other states, especially in the Midwest and on the East Coast, which have adopted the trade victimization ideology. In addition, the Steel Industry and Labor Unions make three attacks against China—currency manipulation, cyber hacking and antidumping. When one looks deeper at these arguments, however, they fall apart.

CURRENCY MANIPULATION

Donald Trump and Hilary Clinton have been screaming about currency manipulation. But on May 22, 2015, on the Senate floor during the debate on Trade Promotion Authority (“TPA”) Senator Hatch made a very strong argument against the Stabenow and Portman Currency Amendment, which would have included tough provisions and sanctions, against currency manipulation. Senator Hatch clearly stated that the reason he opposed the Amendment was because President Obama under pressure from Treasury Secretary Lew stated that if the currency amendment was included, he would veto the TPA bill.

Why were President Obama and Treasury Secretary Lew opposed to tough sanctions against currency manipulation? Because those sanctions could be used against the United States. See Testimony of Senators Wyden and Hatch at http://www.c-span.org/video/?326202-1/us-senate-debate-trade-promotion-authority&live. As Senator Hatch stated:

I think I can boil this very complicated issue down to a single point: The Portman-Stabenow Amendment will kill TPA.

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

Yesterday, I received a letter from Treasury Secretary Lew outlining the Obama Administration’s opposition to this amendment. . . . most importantly, at the end of the letter, Secretary Lew stated very plainly that he would recommend that the President veto a TPA bill that included this amendment.

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

We know this is the case, Mr. President. Virtually all of our major negotiating partners, most notably Japan, have already made clear that they will not agree to an enforceable provisions like the one required by the Portman-Stabenow Amendment. No country that I am aware of, including the United States, has ever shown the willingness to have their monetary policies subject to potential trade sanctions. . . .

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

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

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

CYBER HACKING

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

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

Thus, the United States itself does not want to clearly define Cyber Hacking as unacceptable because it is state espionage and we the United States do it too and are pretty good at it.

DUMPING

As indicated in numerous past blog posts, more dumping and countervailing duty cases, some against China based on faked numbers, does not solve the trade problem. For over 40 years the Commerce Department has refused to use actual prices and costs in China to determine dumping resulting in antidumping and countervailing duty orders blocking about $30 billion in Chinese imports.  In doing so, however, China is treated worse the Iran, Russia, Syria and many other countries under the US antidumping law.

As indicated below, that issue comes to a boil on December 11, 2016 when pursuant to the China WTO Agreement, China is supposed to be treated as a market economy country. But Hilary Clinton states that if market economy treatment were given to China so they could be treated like Iran, we would “defang our antidumping laws.”  Nothing could be further from the truth.  Having worked at the Commerce Department, I am convinced that if China were to become a market economy, Commerce would still find very large dumping rates against China.

More importantly, the antidumping, countervailing duty and other trade laws do not work. They do not save US companies and industries.  We have a poster child to prove this point—The US Steel Industry.  After forty years of trade cases and protection from steel imports, where is the US steel industry today?

Many of the major steel companies, such as Bethlehem Steel, Lone Star Steel and Jones & Laughlin, have become green fields. The total employment of the US Steel industry now is less than one high tech company. A failure caused not because of the lack of  antidumping and countervailing duty protection covering billions of dollars in imports, but because as President Reagan stated back in 1986, protectionism does not work.  It does not save the companies, because these cases do not get at the root causes of the company’s and industry’s decline.

Donald Trump and Hilary Clinton have pointed to the closure of manufacturing plants in the US and their move to Mexico. But why did the factories close?

On March 4, 2016, the Wall Street Journal in an editorial entitled Trump on Ford and Nabisco The real reasons the companies left the U.S. for Mexico” clearly set out the reasons some of these companies left the United State to move to Mexico—Wages demands as high as $60 an hour from the Labor Unions coupled with sky high taxes to support public workers in Illinois.  As the Journal stated:

“Last summer, Deerfield, Illinois-based Mondelez, which owns Nabisco, announced that it would close nine production lines at its plant in Chicago—the largest bakery in the world—while investing in new technology at a facility in Salinas, Mexico. Mondelez made the decision after asking its unions for $46 million in concessions to match the annual savings it would achieve from shifting production to Mexico. . . .

Operating in Chicago is particularly expensive since Illinois has among the nation’s highest corporate and property taxes—which are soaring to pay for city employee pensions—and workers’ compensation premiums. Last year Illinois lost 56 manufacturing jobs per work day while employment increased in most other Midwest states including Wisconsin (18 a day), Indiana (20), Ohio (58) and Michigan (74).

As for Ford, Mr. Trump flogged the auto maker’s $2.5 billion investment in two new engine and transmission plants in Mexico. . . . One impetus behind Detroit’s Mexico expansion is the United Auto Workers new collective-bargaining agreement, which raises hourly labor and benefit costs to $60 in 2019—about $10 more than foreign auto makers with plants in the U.S.—from the current $57 for Ford and $55 for GM. The increasing wages make it less economical to produce low-margin cars.

Foreign car manufacturers including BMW, Honda, Volkswagen, Kia, Nissan and Mazda have also recently announced new investments in Mexico. Besides lower labor costs, one reason they give is Mexico’s free-trade agreements, which allow access to 60% of world markets. Mexico has 10 free-trade agreements with 45 countries including Japan and the European Union whereas the U.S. has only 14 deals with 20 countries.”

Companies have to be competitive with foreign competition, and labor unions must work with management to stay competitive with the rest of the World. The “More” statement of the famous US labor leader John L. Lewis no longer works if the labor union’s more leads to the closure of the US manufacturing company, which employs the workers in question.

THE ANSWER

Not only must US Companies be competitive, but countries, including the United States, must also be competitive and be willing to meet the competition from other countries. A major reason for the rise of Donald Trump is the failure of the US Congress to formulate a trade policy that works and promote the only US trade program that truly saves import injured manufacturing companies by helping them adjust to import competition—the Trade Adjustment Assistance (TAA) for Firms/Companies program.  As stated in prior blog posts, because of ideological purity among many Republican conservatives in Congress and the Senate, the TAA for Companies program has been cut to the bone to $12.5 million nationwide.  This cut is despite the fact that since 1984 here in the Northwest, the Northwest Trade Adjustment Assistance Center (“NWTAAC”) has been able to save 80% of the companies that entered the program.

To understand the transformative power of TAA for Companies, see the TAA video from Mid-Atlantic TAAC at http://mataac.org/howitworks/ , which describes in detail how four import injured companies used the program to change and turn their company around and make it profitable.  One of the companies was using steel as an input, and was getting smashed by Chinese imports.  After getting into the program, not only did the company become prosperous and profitable, it is now exporting products to China.

This cut back to $12. 5 million nationwide from $50 million makes it impossible for the TAA for Companies program to work with medium or larger US companies, which have been injured by imports. TAA for Companies is hamstrung by neglect with a maximum technical assistance per firm level that has not changed in at least 30 years.

In case you don’t know about TAAF, this is a program that offers a one-time, highly targeted benefit to domestic companies hurt by trade. The benefit is not paid to the companies, but to consultants, who help the company adjust to import competition.   To put that in context, the very much larger TAA for Worker Program’s appropriation for FY 2015 was $711 million to retrain workers for jobs that may not exist after the company has closed.

Congress needs to find a cure to the trade problem, and it is not more trade cases, which do not save US companies and the jobs that go with them. TAA for Companies works, but because of politics, ideology and the resulting Congressional cuts, TAA has been so reduced it is now marginalized and cannot do the job it was set up to do.

Both Republicans and Democrats have failed to formulate a trade policy that will help US companies injured by imports truly adjust to import competition and become competitive in the World again. This failure has created Donald Trump and possibly a new dangerous protectionist era in US politics, which could have a disastrous impact on the US economy.

TPP TEXT AND TRADE ADVISORY REPORTS

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

The attached text of the Agreement is over 6,000 pages.Chapters 3 – 30 – Bates 4116 – 5135 Chapters 1 – 2 – Bates 1 – 4115 Annex 1 – 4 – Bates A-1-1074

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

On December 2nd and 3rd, 2015 various trade advisory groups operating under the umbrella of the United States Trade Representative (“USTR”) Group issued reports on the impact of the TPP on various industries and legal areas. All the reports can be found at https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/advisory-group-reports-TPP and attached are many of the reports, ITAC-2-Automobile-Equipment-and-Capital-Goods, ITAC-12-Steel ITAC-11-Small-and-Minority-Business, ITAC-9-Building-Materials-Construction-and-Non-Ferrous-Metals ITAC-10-Services-and-Finance-Industries ITAC-6-Energy-and-Energy-Services ITAC-2-Automobile-Equipment-and-Capital-Goods ITAC-3-Chemicals-Pharmaceuticals-Health-Science-Products-and-Services ITAC-5-Distribution-Services ITAC-8-Information-and-Communication-Technologies-Services-and-Electronic-Commerce.  Almost all of the reports are favorable, except for the Steel Report, which takes no position, and the Labor Advisory Report, which is opposed because it is the position of the Unions.

NEW TRADE AND CUSTOMS ENFORCEMENT BILL

President Obama signed the bipartisan Trade Facilitation and Trade Enforcement Act of 2015 (TFTE) on February 24. A copy of the bill, the conference report and summary of the bill are attached,  JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015 Trade-and-Environment-Policy-Advisory-Committee.pdf.

The bill makes many changes to the Customs and Trade laws with a specific focus on enforcement, particularly of the Trade laws. One of the provisions focuses on concerns surrounding non-resident, small “fly-by-night” importers of record.  The TFTE authorizes the Customs and Border Protection (“CBP”) to set up an importer-of-record program.  Through the program, CBP must establish criteria that importers must meet to obtain an importer-of-record number.

In addition, CBP is to establish an importer risk assessment program to review the risk associated with certain importers, particularly new importers and nonresident importers, to determine whether to adjust an importer’s bond or increase screening for an importer’s entries.   Specifically, Section 115(a) of the law provides:

Not later than the date that is 180 days after the date of the enactment of this Act, the Commissioner shall establish a program that directs U.S. Customs and Border Protection to adjust bond amounts for importers, including new importers and nonresident importers, based on risk assessments of such importers conducted by U.S. Customs and Border Protection, in order to protect the revenue of the Federal Government.

Title IV of the Act, Prevention of Evasion of Antidumping and Countervailing Duty Orders, sets up a new remedy for companies that believe that antidumping and countervailing duty orders are being evaded by shipping through a third country or misclassification or some other means.  The Act creates the Trade Remedy Enforcement Division within Department of Homeland Security, which is charged with developing and administering policies to prevent evasion of US antidumping and countervailing duty orders. The Secretary of Treasury is also authorized to enter into agreements with foreign nations to enforce the trade remedy laws.

On Aug. 23, 2016, CBP must begin investigating allegations of trade remedy evasion according to established procedures.   Those procedures include that CBP must initiate an investigation within 15 business days of receiving an allegation from an interested party and then has 300 days to determine whether the merchandise was entered through evasion. If CBP finds that there is a reasonable suspicion that merchandise entered the U.S. through evasion, CBP is directed to suspend the liquidation of each unliquidated entry of such covered merchandise.

Any CBP evasion decision is subject to judicial review by the Court of International Trade. The act also provides an expanded range of penalties where evasion is found to have occurred, including the imposition of additional duties and referrals to other agencies for other civil or criminal investigations.

Section 433 of the Act also eliminates the ability of an importer of a new shipper’s merchandise to post a bond or security instead of a cash deposit. This provision will prevent a company from importing substantial quantities of merchandise covered by an antidumping and/or countervailing duty order and then fail to pay the appropriate duty.

Finally, section 701 of the act, Enhancement of Engagement on Currency Exchange Rate and Economic Policies with Certain Major Trading Partners of the United States, establishes a procedure for identifying trade partners that are suspected of currency manipulation and conducting a macroeconomic analysis of those partners. The key finding is under section 701(2)(B), where the Treasury Secretary is to publicly describe the factors used to assess under paragraph (2)(A)(ii) whether a country has a significant bilateral trade surplus with the United States, has a material current account surplus, and has engaged in persistent one-sided intervention in the foreign exchange market.

If the Treasury Secretary is unable to address currency manipulation issues with a trading partner, the act authorizes the President to take additional steps to prevent and remedy further manipulation. For instance, the president may prohibit the approval of new financing products, which can be waived only upon a finding of adverse impact on the U.S. economy or serious harm to national security.

ZTE EXPORT LAW VIOLATIONS—MORE FUEL ON THE FIRE OF THE US CHINA TRADE WAR

On March 8, 2015, the Commerce Department’s Bureau of Industry and Security (“BIS”) published the attached Federal Register notice, ZTE FED REG NOTICE, announcing that China based mega corporation ZTE and three of its affiliated companies have been added to the Entity List, which requires an export license before US made products can be exported to those companies. As China’s second largest telecommunications company, ZTE is also the world’s seventh largest producer of smartphones and has operations in the US and more than 160 other countries.

The Federal Register notice states:

The End-User Review Committee (“ERC”) composed of representatives of the Departments of Commerce (Chair), State, Defense, Energy, and, where appropriate, the Treasury has determined:

to add four entities—three in China and one in Iran—to the Entity List under the authority of § 744.11 (License requirements that apply to entities acting contrary to the national security or foreign policy interests of the United States) of the EAR. . . .

The ERC reviewed § 744.11(b) (Criteria for revising the Entity List) in making the determination to list these four entities. Under that paragraph, entities and other persons for which there is reasonable cause to believe, based on specific and articulable facts, have been involved, are involved, or pose a significant risk of being or becoming involved in, activities that are contrary to the national security or foreign policy interests of the United States . . . .

Pursuant to § 744.11 of the EAR, the ERC determined that Zhongxing Telecommunications Equipment Corporation (‘‘ZTE Corporation’’) . . . be added to the Entity List under the destination of China for actions contrary to the national security and foreign policy interests of the United States. Specifically, the ZTE Corporation document ‘‘Report Regarding Comprehensive Reorganization and Standardization of the Company Export Control Related Matters’’ (available at http://www.bis.doc.gov) indicates that ZTE Corporation has reexported controlled items to sanctioned countries contrary to United States law. The ZTE Corporation document ‘‘Proposal for Import and Export Control Risk Avoidance’’ (available at http://www.bis.doc.gov) describes how ZTE Corporation also planned and organized a scheme to establish, control, and use a series of ‘‘detached’’ (i.e., shell) companies to illicitly re-export controlled items to Iran in violation of U.S. export control laws.

Having looked at the internal confidential ZTE report, which Commerce in a very unusual situation has published as a public document on its website, ZTE truly has been caught red handed. The ZTE Report lays out a detailed scheme to evade US Export Control laws.  No country, including the United States or China, would tolerate such a scheme to systematically evade a country’s laws.

For more on the ZTE Action along with a link to the confidential ZTE document now posted on the Commerce Department website, see http://ftalphaville.ft.com/2016/03/08/2155724/has-the-cold-us-sino-trade-war-just-got-piping-hot/.

From the Chinese point of view, however, the Commerce Department has no credibility because its antidumping laws presently block about $30 billion in imports based on fake numbers. Because the US Government’s Import and Export Control Administration are both located in the Commerce Department, the Chinese government looks at all the Department’s decisions as US based protectionism.

The problem is that through its nonmarket economy methodology, which does not use actual costs and prices to determine dumping, Commerce has created a game, and the Chinese will play it. Sometimes Chinese companies talk to me about using the “houmen” back door and shipping products through different countries to evade US antidumping laws.  I always tell the Chinese companies that this is Customs fraud and they risk civil and criminal prosecution under US Customs and trade laws.

In fact, in the past Chinese honey suppliers that used transshipment to get around the US antidumping law were caught in the United States and hauled in front of Federal Court on criminal charges for evasion of US antidumping laws. I have heard of one Chinese company seafood executive arrested in Belgium and sent to Belgian jail on an extradition warrant for evasion of US antidumping laws.

With the enactment of the New Trade and Customs Enforcement Act, described above, the US government now has more ways of catching Chinese companies and US importers that try to evade US trade laws. As one Chinese friend told me, such actions are “too damned dangerous”.

Although US judgments are not enforceable in China, Chinese companies have to also realize, that like ZTE, they have grown up and have subsidiaries all around the World. US judgments may not be enforceable in China, but they are enforceable in Hong Kong and other countries, and every Chinese company I have ever dealt with has a Hong Kong bank account.  Through its scheme to evade US export control laws, ZTE now has major problems and those problems may now multiply worldwide.

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

As stated in prior newsletters, interest groups on both sides of the issue have increased their political attacks in the debate over China’s market economy status. On February 23, 2016, under intense pressure from the labor unions, Hilary Clinton stated that to give market economy status to China:

“would defang our anti-dumping laws and let cheap products flood into our markets. So we should reply with only one word: No.”

To summarize the issue, on December 11, 2016, pursuant to the WTO Agreement, the 15 year provision, expires. More specifically, the United States faces a looming deadline under the WTO Agreement with regard to the application of this nonmarket economy methodology to China.

Under Nonmarket economy methodology, Commerce does not use actual prices and costs in China to determine dumping, but constructs a cost from consumption factors in China multiplied by surrogate values from import statistics in 5 to 10 different countries and those values can change from preliminary to final determination and review to review. Because of this methodology no Chinese company and certainly no US importer that is liable for the duties, knows whether the Chinese company is truly dumping.  Fake numbers lead to fake results.

Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, provides:

  • Price Comparability in Determining Subsidies and Dumping . . .

(a) In determining price comparability under Article VI of the GATT 1994 and the Anti-Dumping Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules: . . .

(ii) The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product. . . .

(d) Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member’s national law contains market economy criteria as of the date of accession. In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession. In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non-market economy provisions of subparagraph (a) shall no longer apply to that industry or sector.

In other words, pursuant to the China WTO Accession Agreement, Commerce’s right to use a nonmarket economy methodology “shall expire 15 years after the date of accession”. China acceded to the WTO on December 11, 2001 so Section 15(d) should kick in on December 11, 2016.

That provision specifies that an importing WTO member may use a methodology that is not based on a strict comparison with domestic prices and costs in China to determine normal value in an AD case, if producers of a given product under investigation cannot clearly show that market economy conditions prevail in their industry.

The question that is now being debated is whether Section 15(d) automatically ends the possibility of using a non-market economy methodology to China or if it can still be applied if petitioners can show that market conditions do not prevail for producers of the product under investigation.

As stated above, Hilary Clinton is under enormous pressure to be tough on China. On February 12th,The American Iron and Steel Industry made it clear that it wants China’s non-market economy status in antidumping cases to be at the forefront of the public debate.  Thus Thomas Gibson, AISI president and CEO, stated:

“We want to keep the issue in front of decision makers and in the public debate because there will be a new government a year from now. “

He further stated that the Obama administration has not shown any sign that it is considering treating China as a market economy in AD cases as a result of an expiring provision in the country’s accession protocol to the World Trade Organization. As Gibson further stated:

“We have not heard anyone in the administration say that they agree with China’s assertion that it is to be given market economy status automatically at the end of the year. I think the administration has heard our concerns.”

Deputy U.S. Trade Representative Michael Punke also reportedly stated in early February in Geneva that there was little administration interest in treating China as a market economy:

“The issue of China’s status is not automatic. The mere change of date at the end of the year does not automatically result in a change of status for China.”

Other US government officials have informally conceded that the administration has arrived at the conclusion that no automatic change of U.S. AD methodology is needed, a position clearly articulated by the Commerce Department.

In the attached February 24, 2016 statement to the US China Economic and Security Review Commission, HUFBAUER STATE, however, Gary Clyde Hufbauer, a well-known international trade expert at the Peterson Institute for International Economics, made the opposite argument noting first that the following countries have granted China market economy status in antidumping cases: New Zealand, Singapore, Malaysia and Australia. Hufbauer went on to state:

Some lawyers read the text differently. While they agree that Article 15(a)(ii) effectively disappears on December 11, 2016, they do not agree that the Protocol confines WTO members to a binary choice between MES (strict comparison of export prices with Chinese prices or costs) and NME (comparison with surrogate prices or costs). They point to the opening language in Article 15(a), which states:

…the importing WTO member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China….

To be sure, under Article 15(d), the whole of Article 15(a) disappears:

Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated….

The United States might well argue, come December 11, 2016, that China has not established that it has become, in all important respects, a market economy. The Commerce Department could modify its current surrogate practices and instead use a “mix-and-match” approach—claiming on a case-by-case basis that some Chinese prices or costs reflect market conditions and others do not. For the prices or costs that do not reflect market conditions, the Commerce Department could use surrogate prices or costs. This seems most likely in industries, such as steel, dominated by state-owned enterprises, with large losses financed by state-controlled banks.

Whether the United States takes a “mix-and-match” approach, rather than granting China blanket market economy status, will turn primarily on policy considerations, not legal parsing. The policy decision may reflect the general atmosphere of commercial relations with China late in 2016, including the evolution of the renminbi exchange rate (manipulated devaluation would inspire a harder line) and the outcome of US-China bilateral investment treaty (BIT) negotiations (success would have the opposite effect).

Assuming the United States adopts a “mix-and-match” approach, the stage will be set for China to initiate WTO litigation. In this scenario, the year 2018 seems the earliest date for a final decision by the WTO Appellate Body. My guess is that the Appellate Body would rule against the “mix-and-match” approach. Even so, China would not receive retroactive refunds for antidumping duties collected prior to the ruling.

Moreover, within China, the US denial of full-fledged MES would resonate strongly, in a negative way. Antagonism would be particularly strong if, as I expect, the European Union and other major countries accord MES in December 2016. Consequently, China would likely retaliate in opaque ways against US exporters and investors.

On balance, the United States would lose more than it gains from withholding full-fledged MES. A very large irritant would be thrown into US-China commercial relations, with a modest benefit to US industries that initiate AD proceedings. Even without the use of surrogate costs and prices, AD margins are typically high. Adding an extra 20 percent penalty, through the use of surrogate cost and price methodologies, will not do a great deal more to restrain injurious imports.

On February 25, 2016, Cecilia Malmström, the EU Commissioner for Trade, stated at a China Association Event in London that China is:

a major investment partner too. The EU has stocks of 117 billion pound sterling in the Chinese economy. And China is a growing source of foreign investment for the EU. Chinese investment in EU in 2014 is four times what it was in 2008.

And, if we just look at our exports alone, over 3 million jobs here in Europe depend on our sales in China. . . .

The second issue I want to raise is the question of changing the methodology in anti-dumping investigations concerning Chinese products, the so-called market economy status.

This is a sensitive issue. And it’s become even more so with the steel situation. That’s why the EU is conducting a thorough impact assessment and public consultation before we make up our minds on where to go.

But what is clear is that certain provisions of China’s protocol of accession to the WTO related to this issue will expire in December.

We need to be very careful how we approach this and we need to work cooperatively. We will need the constructive engagement of all Member States, including the UK.

On March 3, 2016, the executive council of the AFL-CIO labor union called on the US government to end the trade agreement TTIP negotiations if the EU makes China a market economy country.

TRADE

RAW ALUMINUM PROBLEMS

In light of the impact of the aluminum extrusions case on the US market, the import problem has now moved upstream. The next round of antidumping and countervailing duty cases against China looks like it will be on raw aluminum products.

On February 24, 2016, in a letter to the US International Trade Commission (“ITC”), WAYS MEANS LETTER ALUMINUM, House Ways and Means Committee Chairman Kevin Brady requested that the Commission conduct a section 332 fact finding investigation of the US aluminum industry. The letter specifically states:

The Committee on Ways and Means is interested in obtaining current information on relevant factors affecting the global competitiveness of the U.S. aluminum industry. The U.S. aluminum industry remains a globally successful producer of aluminum products. A healthy and growing aluminum industry is not only important to our economy, but is also vital for our national defense. ·

In order to better assess the current market conditions confronting the U.S. industry, we request that the U.S. International Trade Commission conduct an investigation under section 332(g) of the Tariff Act of 1930 ( 19 U.S.C. !332(g)), and provide a report setting forth the results of the investigation. The investigation should cover unwrought (e.g., primary and secondary) and wrought (e.g., semi-finished) aluminum products

To the extent that information is available, the report should contain:

  • an overview of the aluminum industry in the United States and other major global producing and exporting countries, including production, production capacity, capacity utilization, employment, wages, inventories, supply chains, domestic demand, and exports;

information on recent trade trends and developments in the global market for aluminum, including U.S. and other major foreign producer imports and exports, and trade flows through third countries for further processing and subsequent exports;

  • a comparison of the competitive strengths and weaknesses of aluminum production and exports in the United States and other major producing and exporting countries, including such factors as producer revenue and production costs, industry structure, input prices and availability, energy costs and sources, production technology, product in novation, exchange rates, and pricing, as well as government policies and programs that directly or indirectly affect aluminum production and exporting in these countries;
  • in countries where unwrought aluminum capacity has significantly increased, identify factors driving those capacity and related production changes; and
  • a qualitative and, to the extent possible, quantitative assessment of the impact of government policies and programs in major foreign aluminum producing and exporting countries on their aluminum production, exports, consumption, and domestic prices, as well as on the U.S. aluminum industry and on aluminum markets worldwide.

The report should focus primarily on the 2011-2015 time period, but examine longer term trends since 2011. To develop detailed information on the domestic aluminum market and industry, it is anticipated that the Commission will need to collect primary data from market participants through questionnaires. The Committee requests that the Commission transmit its report to Congress no later than 16 months following the receipt of this request. . . .

One major purpose of the investigation is to assess how China policies have affected the US aluminum industry.

President Heidi Brock of the US Aluminum Association, which represents the US aluminum industry, applauded the Ways and Means request for an ITC investigation:

“An investigation by the [ITC] will help us address ongoing issues in the global aluminum industry that are hurting the domestic market and leading to curtailments, closures and job losses. I am pleased that the Congress recognizes the continued economic importance of this vital industry and I applaud Chairman Brady’s leadership to move this issue forward.”

Recently, the U.S. industry has curtailed or closed 65 percent of U.S. aluminum capacity with many job losses for U.S. workers

The information collected by the ITC could be used as the basis for trade cases against China and other countries.

THE ONGOING STEEL CASES

Many companies have been asking me about the ongoing Steel antidumping and countervailing duty cases so this section will address the Steel cases in more detail.

As happened in the OCTG cases, where Chinese OCTG was simply replaced by imports from Korea, India, Taiwan, Philippines, Saudi Arabia, Ukraine, Thailand and Turkey, the same scenario is happening in other steel cases, such as the recent cold-rolled and corrosion-resistant/galvanized steel cases.

Based on the nonmarket economy antidumping methodology, which does not use actual prices and costs in China, in the recent cases Chinese steel companies were smashed with high antidumping rates of 200 to 300 percent. In the Cold Rolled Steel countervailing duty case, the Chinese companies and Chinese government simply gave up and received a rate over 200% and now under the Antidumping Law rates of over 200%.

COLD ROLLED STEEL FROM CHINA, BRAZIL, KOREA, INDIA AND RUSSIA—PRELIMINARY COUNTERVAILING DUTY AND ANTIDUMPING DETERMINATIONS

On December 16, 2015, Commerce issued its attached preliminary countervailing duty determination, factsheet-multiple-cold-rolled-steel-flat-products-cvd-prelim-121615, in Certain Cold-Rolled Steel Flat Products from Brazil, China, India, and Russia and No Countervailable Subsidization of Imports of Certain Cold-Rolled Steel Flat Products from Korea. The effect of the case is to wipe all Chinese cold rolled steel out of the United States with a countervailing duty (CVD) rate of 227.29%.

As also predicted, the countervailing duty rates for all the other countries were very low, if not nonexistent: Brazil 7.42% for all companies, India 4.45% for all companies, Korea 0 for all companies and Russia 0 to 6.33% for all companies.

The 227.29% CVD rate for all the Chinese companies was based on all facts available as the Chinese government and the Chinese steel companies simply refused to cooperate realizing that it was a futile exercise to fight the case at Commerce because of the surrogate value methodology and refusal to use actual prices and costs in China.

On March 1, 2016 Commerce issued its attached preliminary antidumping determination mirroring the rates in the preliminary CVD determination. Specifically, in a factsheet, factsheet-multiple-cold-rolled-steel-flat-products-ad-prelim-030116, Commerce announced its affirmative preliminary determinations in the antidumping duty  investigations of imports of certain cold rolled steel flat products from Brazil, China, India, Japan, Korea, Russia, and the United Kingdom.

As predicted, China’s antidumping rate was 265.79% as the Chinese companies simply gave up and did not participate because they believed that it would be impossible to get a good antidumping rate using nonmarket economy methodology.

For the other market economy countries, the results were mixed. Brazil received antidumping rates of 38.93% and Japan was 71.35%.

But India’s rate was only 6.78% and Korea had rates ranging from 2.17 to 6.85%. For Russia, the rates ranged from 12.62 to 16.89% and the United Kingdom rates were between 5.79 to 31.39%.

What does this mean? China is wiped out along with Japan and probably Brazil, but Korea, India, Russia and UK will continue to export steel to the US and simply take the Chinese market share.

Antidumping and countervailing duty cases do not save US industries.

CUSTOMS NEW “LIVE ENTRY” PROCEDURES FOR STEEL IMPORTS

On March 3, 2016, Customs announced a new effort to enforce trade rules against steel shipments at risk for evasion of antidumping and countervailing duty orders. It requires importers of record to provide the paperwork and pay the necessary duties before a given shipment is released into the U.S. market.

This live-entry requirement is already being applied to cut-to-length steel plate from China. Customs is considering requiring live-entry procedures for other high-risk steel imports subject to the 100 plus AD/CVD cases, but sidestepped a question on whether these procedures would apply to products other than steel.

This new live entry requirement slows up imports from entering the US commerce to that Customs can make sure everything in the shipment is correct before releasing it into the Commerce of the United States.

SOLAR CELLS REVIEW DETERMINATION

On December 18, 2015, in an attached decision, SOLAR CELLS AD PRELIM, the Commerce Department issued its preliminary determination in the 2013-2014 Solar Cells antidumping review investigation.  The antidumping rates range from 4.53% for Trina to 11.47% for Yingli.  The average dumping rate for the Chinese separate rate companies is 7.27%.

On December 31, 2015, Commerce issued its attached preliminary determination in the 2013 Countervailing duty case, DOC SOLAR CVD 2013, and the rates went up to 19.62% for three Chinese companies–JA Solar Technology Yangzhou Co., Ltd., Changzhou Trina Solar Energy Co., Ltd. and Wuxi Suntech Power Co., Ltd.

Meanwhile, requests for antidumping and countervailing duty review investigations in the Solar Cells case were due in December 2015 and in February 2016 for the Solar Products. While in China in February, I ran into many Chinese solar companies that were in serious trouble because they failed to request a review investigation.

MARCH ANTIDUMPING ADMINISTRATIVE REVIEWS

On March 1, 2015, Commerce published the attached Federal Register notice, MARCH REVIEWS, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of March. The specific antidumping cases against China are: Chloropicrin, Circular Welded Austenitic Stainless Pressure Pipe, Glycine, Sodium Hexametaphosphate, and Tissue Paper Products.

The specific countervailing duty case is: Circular Welded Austenitic Stainless Pressure Pipe

For those US import companies that imported : Chloropicrin, Circular Welded Austenitic Stainless Pressure Pipe, Glycine, Sodium Hexametaphosphate, or Tissue Paper Products during the antidumping period March 1, 2015-February28, 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 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.

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

CUSTOMS

RICO ACTION AGAINST CHINESE GARLIC EXPORTERS

In the attached complaint, GARLIC COMPLAINT, on January 28, 2016, Chinese garlic exporter Zhengzhou Harmoni Spice Co. Ltd. and its parent company sued a group of Chinese competitors in California federal court accusing them of deliberately defrauding the U.S. government in order to acquire preferential duty rates.

Zhengzhou Harmoni claimed the exporters, which the company says are affiliated to Chinese businessman Wenxuan Bai, are defrauding the system by lying and submitting falsified documents to Customs and Commerce in violation of the Racketeer Influenced and Corrupt Organizations Act. The company said their competitors’ allegedly unlawful conduct is unfairly eroding Harmoni’s market share because Harmoni rightly earned favorable rates from the federal government through the antidumping review process,

Zhengzhou Harmoni told the court that its parent company and exclusive importer enjoys a similar advantage in the U.S. marketplace, but accused the Bai-affiliated garlic exporters of unlawfully forming new corporate entities and revitalizing old ones in order to obtain coveted “new shipper” designations to garner preferential treatment.

Meanwhile, in a decision, CIT PREMIER GARLIC, in late January Premier Trading, Inc. v. United States, Premier, a U.S. garlic  importer of garlic from Qingdao Tiantaixing Foods Co. Ltd., one of the companies named in Harmoni’s RICO suit, sued Customs and Commerce in the U.S. Court of International Trade (“CIT”). Premier Trading Inc. alleged CBP’s enhanced bond requirements for shipments from QTF are resulting in delays and leaving fresh garlic to spoil.

On February 11, 2016, Judge Gordon of the CIT denied Premier’s motion for a preliminary injunction, stating at the outset that there was no likelihood of success on the merits:

It is apparent that QTF may potentially be subject to the higher PRC-wide rate as a consequence of Commerce’s preliminary determination in the 20th administrative review. Furthermore, there has been a long and documented pattern of non-payment and underpayment of antidumping duties subject to the Garlic Order (amounting to several hundred million dollars). . . . Customs, here, has also provided confidential documents regarding Plaintiff’s connection to other importers that mirror a pattern of non-payment and underpayment, which suggests, as Customs claims, that Plaintiff poses a similar risk to the revenue. . . . In light of these facts, it is hard to see merit in Plaintiff’s claim that Customs failed to provide an adequate explanation for the enhanced bonding requirement for Plaintiff’s entries. Accordingly, Customs’ imposition of a heightened bonding requirement on imports from QTF does not appear arbitrary or capricious. . . . Plaintiff has therefore failed to establish a likelihood of success on the merits.

Judge Gordon then found that there was no irreparable injury and that the balance of equities favored the Government. Judge Gordon then stated that Public Interest lies in favor of the Government:

Here, the public has an interest in protecting the revenue of the United States and in assuring compliance with the trade laws. See 19 U.S.C. § 1623. Enhanced bonding pending litigation serves both these interests. Additional security covers potential liabilities and protects against default, ensuring the correct antidumping duty is paid.

CUSTOMS PROTEST RULE APPEALED TO SUPREME COURT

Meanwhile, International Custom Products Inc. has filed an attached writ of certiorari on January 19, SUPREME COURT CERT PROTEST ISSUE, and asked the U.S. Supreme Court to review the constitutionality of a Customs rule requiring the full payment of duties by an importer before a court case can proceed, challenging the Federal Circuit’s conclusion that the policy meets due process requirements. The importer argues that the CPB rule requiring importers to fully pay imposed duties before bringing a court case is unconstitutional because it deprives the company of due process. The company has been disputing $28 million in tariffs it claims have been erroneously applied to its imports of white sauce due to the agency’s reclassification of the product.

FALSE CLAIMS ACT

GRAPHITE ELECTRODES

On February 22, 2016 in a settlement agreement, SETTLEMENT FCA GRAPHITE, Ameri-Source International Inc., a graphite electrodes company, paid $3 million to settle a false claims act case that it schemed to avoid antidumping duties on imports of graphite electrodes from China in violation of the False Claims Act. The complaint alleges that the importer misclassified the merchandise and lied about the country of origin to avoid paying anti-dumping duties on shipments of small-diameter graphite electrodes use for manufacturing.

Ameri-Source reportedly established a shell company in India to accept the imports of graphite rods from China for “jobwork,” and to re-export the materials to the U.S. to circumvent stateside customs regulations. The settlement resolves claims that Ameri-Source evaded anti-dumping duties on 15 shipments.

IP/PATENT AND 337 CASES

NEW 337 CASES

On January 21, 2016, Edgewell Personal Care Brands, LLC and International Refills Company Ltd. filed a new 337 patent case on Certain Diaper Disposal Systems and Components Thereof, Including Diaper Refill Cassettes against Munchkin, Inc., Van Nuys, CA; Munchkin Baby Canada Ltd., Canada; and Lianyungang Brilliant Daily Products Co. Ltd., in China.

On February 5, 2016, Simple Wishes, LLC filed a new section 337 on Pumping Bras against Tanzky, China; Baby Preg, China; Deal Perfect, China; and Buywish, China.

CRIMINAL PATENT CASES

On January 26, 2016, the US Justice Department announced that Chinese National Mo Hailong, Robert Mo, pled guilty to conspiring to steal trade secrets from Dupont, Pioneer and Monsanto. In a notice, Chinese National Pleads Guilty to Conspiring to Steal Trade Secrets _ OPA _, the Justice Department stated:

Specifically, Hailong admitted to participating in the theft of inbred – or parent – corn seeds from fields in the Southern District of Iowa for the purpose of transporting those seeds to China. The stolen inbred seeds constitute the valuable intellectual property of DuPont Pioneer and Monsanto.

During the conspiracy, Hailong was employed as director of international business of the Beijing Dabeinong Technology Group Company, a Chinese conglomerate with a corn seed subsidiary company, Kings Nower Seed. Hailong is a Chinese national who became a lawful permanent resident of the United States pursuant to an H-1B visa.

Hailong is scheduled to be sentenced at a date to be determined later in Des Moines, Iowa. Conspiracy to steal trade secrets is a felony that carries a maximum sentence of 10 years in prison and a maximum fine of $250,000. As part of Hailong’s plea agreement, the government has agreed not to seek a prison sentence exceeding five years.

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

On January 13, 2016, in the attached complaint, SHENZHEN PATENT CASE, PS Products Inc and Bill Pennington filed a patent case against Global Sources, Ltd. and affiliated parties, and Jiangsu Rayi Security Products, Co., Ltd. and Shenzhen Rose Industrial Co., Ltd.

On January 21, 2016, in the attached complaint, STAHLS PATENT CASEStahls’ Inc. filed a patent case against Vevor Corp., Shanghai Sishun Machinery Equipment Co., Ltd. and Saven Corp.

On January 25, 2016, in the attached complaint, UNICOLORS COPYRIGHT, Unicolors, Inc. filed a copyright infringement case against Jiangsu Global Development, Inc., T. Milano Ross Stores Inc., DD’s Discounts, Phool Fashion Ltd., the Vermont Country Store, Inc. and Trends Inc.

On January 26, 2016, in the attached complaint, BLUE RHINO PATENT CASE, Blue Rhino Global Sourcing filed a patent case against Guangdong Chant Group Co., Ltd.

On February 1, 2016, in the attached complaint, ZHEJIANG PATENT CASE, Otsuka Pharmaceutical Co., Ltd. filed a patent case against Stason Industrial Corp., Stason Pharmaceuticals Inc., Zhejiang Jinhua Conba Bio-Pharm Co., Ltd., Tai Heng Industry Co., Ltd, and Breckenridge Pharmaceutical Inc.

On February 5, 2016, in the attached complaint, VACCUUM TRADE SECRET CASE, IMIG, Inc., Nationwide Sales and Services Inc, Gumwand Inc. and Perfect Products Services and Supply Inc. filed a trade secrets and unfair competition case against Omi Electric Appliance Company Co., Ltd., Beijing China Base Startrade Co., Ltd. and Xi Shihui, a Chinese citizen.

On February 10, 2016, in the attached complaint, HUAWEI PATENT CASE, Blue Spike LLC filed a patent case against Huawei Technologies.

PRODUCTS LIABILITY CASES AND LACY ACT VIOLATIONS

THE RISE OF CHINESE PRODUCTS LIABILITY INSURANCE

While in China last month working on various cases, I learned that the People’s Insurance Company (“PICC”) is offering Chinese companies products liability insurance. Every US importer should demand that his Chinese supplier obtain product’s liability insurance.  Otherwise when something goes wrong, the US importer is on the hook for damages, not the Chinese company that created the problem.

PRODUCT LIABILITY COMPLAINTS

On January 26, 2016, in the attached complaint, CHINA FIREWORKS CASE, the Reynolds Family filed a products liability/wrongful death case on behalf of Russell Reynolds, who was killed when Chinese fireworks went off by mistake. The respondent companies are Pyro Shows of Texas, Inc., Pyro Shows, Inc., Czech International Trading, Jiangxi Lidu Fireworks Group Co., Ltd., Jiangxi Province Lidu Fireworks Corp., Ltd., Fireworks Corp., Ltd., Icon Pyrotechnic International Co., Ltd., Oriental Fireworks Co., Ltd. and Glorious Company.

On January 26, 2016, in the attached complaint, CHINA REFRIGERATOR, Allstate Insurance Company on behalf of Miguel Bejarno filed a products liability case against Electrolux Home Products Inc., Midea Group Co., Ltd. and Guangzhou Refrigeration Co., Ltd. because a Chinese produced refrigerator blew up and burned down a house causing extensive damage.

LARGEST LACEY ACT FINE IN HISTORY AGAINST LUMBER LIQUIDATORS FOR CHINESE HARDWOOD IMPORTS

On February 1, 2016, the Justice Department in the attached statement, Lumber Liquidators Inc. Sentenced for Illegal Importation of Hardwood and Re, announced that Lumber Liquidators Inc. was sentenced for illegal Importation of hardwood from China and related environmental crimes and agreed to pay 13 million, one of the largest penalties ever issued under the Lacey Act. The announcement states:

Virginia-based hardwood flooring retailer Lumber Liquidators Inc. was sentenced today in federal court in Norfolk, Virginia, and will pay more than $13 million in criminal fines, community service and forfeited assets related to its illegal importation of hardwood flooring, much of which was manufactured in China from timber that had been illegally logged in far eastern Russia, in the habitat of the last remaining Siberian tigers and Amur leopards in the world . . . .

In total, the company will pay $13.15 million, including $7.8 million in criminal fines, $969,175 in criminal forfeiture and more than $1.23 million in community service payments. Lumber Liquidators has also agreed to a five-year term of organizational probation and mandatory implementation of a government-approved environmental compliance plan and independent audits. In addition, the company will pay more than $3.15 million in cash through a related civil forfeiture. The more than $13.15 million dollar penalty is the largest financial penalty for timber trafficking under the Lacey Act and one of the largest Lacey Act penalties ever.

Lumber Liquidators pleaded guilty and was charged in October 2015 in the Eastern District of Virginia with one felony count of importing goods through false statements and four misdemeanor violations of the Lacey Act, which makes it a crime to import timber that was taken in violation of the laws of a foreign country and to transport falsely-labeled timber across international borders into the United States. . . . This is the first felony conviction related to the import or use of illegal timber and the largest criminal fine ever under the Lacey Act.

“The case against Lumber Liquidators shows the true cost of turning a blind eye to the environmental laws that protect endangered wildlife,” said Assistant Attorney General John C. Cruden for the Department of Justice’s Environment and Natural Resources Division. “This company left a trail of corrupt transactions and habitat destruction. Now they will pay a price for this callous and careless pursuit of profit.” . . .

“By knowingly and illegally sourcing timber from vulnerable forests in Asia and other parts of the world, Lumber Liquidators made American consumers unwittingly complicit in the ongoing destruction of some of the world’s last remaining intact forests,” said Director Dan Ashe of the U.S. Fish and Wildlife Service. “Along with hastening the extinction of the highly endangered Siberian tiger and many other native species, illegal logging driven by the company’s greed threatens the many people who depend on sustainable use of these forests for food, clean water, shelter and legitimate jobs. These unprecedented sanctions show how seriously we take illegal trade, and I am grateful to the Service special agents and wildlife inspectors, Homeland Security agents, and Justice Department attorneys who halted Lumber Liquidators’ criminal acts and held the company accountable under the law.”

According to a joint statement of facts filed with the court, from 2010 to 2013, Lumber Liquidators repeatedly failed to follow its own internal procedures and failed to take action on self-identified “red flags.” Those red flags included imports from high risk countries, imports of high risk species, imports from suppliers who were unable to provide documentation of legal harvest and imports from suppliers who provided false information about their products. Despite internal warnings of risk and noncompliance, very little changed at Lumber Liquidators.

ANTITRUST

There have been developments in the antitrust area.

CHINESE BAUXITE EXPORTERS WIN ANTITRUST CASE

On January 25, 2016, in the attached opinion in Resco Products, Inc. v. Bosai Minerals Group Co., Ltd. and CMP Tianjin Co., Ltd., BAUXITE OPINION, Chief District Judge Conti in the Western District of Pennsylvania granted summary judgment for the Chinese companies and dismissed the antitrust case. Resco brought the claim individually and as a class representative, against Bosai and CMP alleging a conspiracy in China to fix the price and limit the supply of refractory grade bauxite in violation of the Sherman Act, 15 U.S.C. § 1.

The Court concluded that any price floor or quota was set by the Chinese government’s Ministry of Commerce, not by the individual Chinese Bauxite companies. In its discussion of the facts, the Court stated:

In his declaration for the China Chamber of Commerce for Metals and Chemicals (“CCCMC”), Liu Jian (“Jian”), a CCCMC employee since 1995 and deputy director of the Bidding Office since 2006, . . . explained that “[a]t Bauxite Branch meetings, Bidding Office staff asked the Bauxite Branch members for their opinions about specific proposed quota amounts, quota bidding minimum prices, and other matters relating to quota bidding.” . . . but the authority and power to adopt quotas, and to establish the quota amount, minimum bidding price, and other terms, was always with MOFCOM, not the members or the CCCMC. MOFCOM could, and often did, set the quotas and minimum bidding prices at levels different than those favored by members. . . .

The Judge went on to state:

Here, plaintiff’s § 1 claim is based on its assertion that “[d]efendants and their co-conspirators colluded to fix export prices and quotas for bauxite from 2003 to 2009. . . .

In a per se case, “‘the plaintiff need only prove that the defendants conspired among each other and that this conspiracy was the proximate cause of the plaintiff’s injury.’”  . . .

In a vacuum, proposals to set bauxite quotas at specified levels being voted on at Bauxite Branch meetings appear to indicate explicit member participation in a conspiracy to limit output. However, the Bauxite Branch’s demonstrated lack of authority with respect to quotas invalidates such a finding. Since at least 2001, MOFCOM has been “responsible for deciding and announcing the types and the total quota quantity of commodities subject to bidding,” not the CCCMC or its Branches. . . . The quota announced by the Bidding Committee during each of the years of the alleged conspiracy never corresponded to a resolution of the Bauxite Branch. At its 2004 through 2006 meetings, the Bauxite Branch failed to pass any resolution related to quota amount, yet the Bidding Committee, an instrumentality of MOFCOM, still announced quotas in each of those years. . . . Any conspiracy to establish a limit equal to or higher than that imposed by the government could have no effect.

Consistent with the undisputed Declaration of the CCCMC, Bauxite Branch member votes for proposals concerning the yearly bauxite quota amount can only be construed as opinions offered to MOFCOM. .   . . These opinions were not that limits should be placed on bauxite output. The implementation of quotas was mandated by the Chinese government, not agreed to by private entities. . . .

Bauxite Branch members were asked for their opinions pertaining to the bauxite quota during meetings, “but the authority and power to adopt quotas, and to establish the quota amount, minimum bidding price, and other terms, was always with MOFCOM.” . . .

As discussed previously, the evidence adduced with respect to the quotas cannot support a § 1 claim, because the Chinese government – and not defendants – set the quotas.

Resco has appealed the District’s Court’s determination to the Court of Appeals.

CHINESE COMPANIES SETTLE SOLYNDRA SOLAR CASE

On February 26, 2016, in the attached settlement agreement, SOLYNDRA SETTLEMENT, Yingli Green Energy Holding Company Ltd. agreed to settle for $7.5 million a US antitrust case alleging that Chinese companies conspired to set prices with the objective of destroying Solyndra.

Solyndra previously settled the litigation against two other Chinese companies, Trina Solar Ltd. and Suntech Power Holdings Co. Ltd, for a total of $51 million, with Trina Solar paying $45 million and Suntech paying $6 million.

CHINA ANTI-MONOPOLY CASES

On February 3, 2016, T&D sent us their attached January report on Chinese competition law, T&D Monthly Antitrust Report of January 2016.  The main contents of the January report are:

(1) NDRC: Guideline on Leniency Policies in Horizontal Monopoly Agreement Cases has Begun to Seek for Opinions; (2) SAIC Held a Forum to Seek for Opinions and Comments on the Guideline on Prohibiting the Behavior of Abusing Intellectual Property Rights to Restrict or Eliminate Competition (the Sixth Draft); (3) MOFCOM Year-End Review: Positively Promoting Anti-monopoly Enforcement and Protecting Fair Competition of the Market; (4) SAIC: Anti-monopoly Law Enforcement Treats All Market Players the Same, etc. . . .

On February 5, 2016, T&D sent us the latest attached draft of Guideline on Undertakings’ Commitments in Anti-Monopoly Cases on February 3rd, 2015, Guideline on Undertakings’ Commitments in Anti-Monopoly Cases-EN-T&D.

SECURITIES

US LISTED CHINESE COMPANIES MOVING BACK TO CHINA TO RAISE MONEY

On February 29, 2016, it was reported that many U.S.-listed Chinese companies are leaving the United States and moving back to China as the easing of Chinese securities regulations has renewed the possibility of finding stronger valuations domestically.

Although there has been market volatility in China, US too has had volatility. Apparently, there is a perception that a stronger valuation can be found in Chinese domestic stock markets, where investors have a stronger understanding of the companies and the role they play.  In November, the China Securities Regulatory Commission began greenlighting IPO-bound companies and promised to take measures to help reform the country’s system for initial public offerings.

FOREIGN CORRUPT PRACTICES ACT

In February Dorsey& Whitney LLP issued its January February 2016 Anti-Corruption Digest, TIANJIN INVESTMENT COMPANY. The Digest states with regards to China:

China

Wang Qishan, the Secretary of the Central Commission for Discipline Inspection has given assurances that China’s anti-corruption efforts will continue in 2016. In a recent speech, Mr. Wang stressed that, “the strength of our anti-corruption efforts will not be lessened”.

This sentiment was echoed by the recent sentencing of two former officials:

According to state media, Li Dongsheng, China’s former deputy national police chief, has been sentenced to 15 years in prison for corruption. Reports state that Mr. Li stood accused of taking bribes totally ¥22 million ($3.3 million/£2.3 million) and abusing his power. It is said that Mr. Li will not appeal the verdict.

A former top official in the city of Guangzhou has reportedly admitted to taking ¥111 million ($17 million/£11.5 million) in bribes between 2000 and 2014. Wan Qingliang’s alleged corruption is said to have included taking bribes of more than ¥50 million ($7.6 million/£5.2 million) from a company that he had helped to win a government development project.

In a written statement the Nanning Intermediate People’s Court said that Mr. Wan raised no objection to the charge of corruption and that he showed remorse during the trial. It is said that Mr. Wan told the court that, “I have hurt the Party, the people and my family and I hope that the court can give me another chance.”  

Recently, Dorsey& Whitney LLP issued its attached February 2016 Anti-Corruption Digest, Anti_Corruption_Digest_Feb2016. The Digest states with regards to China:

China

China’s army has not been immune from President Xi Jinping’s anti-corruption drive and has seen a number of its officers investigated, including two former vice chairmen of the Central Military Commission.

To continue this drive, it has been reported that the military’s anti-corruption discipline inspection committee has established a hotline as a means for reports to be made regarding allegations of corruption in the People’s Liberation Army. It is said that the hotline will “fully utilize supervision by the masses” and complaints will be addressed in a “timely and earnest” fashion.

SECURITIES COMPLAINTS.

On March 8, 2016 Jacob Sheiner filed the attached class action securities complaint, TIANJIN INVESTMENT COMPANY, against a number of individuals and also Tianjin Tianhai Investment Co., Ltd. as well as GCL Acquisition, Inc.

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

Best regards,

Bill Perry

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 28, 2015

 

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

CHINA STOCK MARKET CRASH

CHINA STOCK MARKET CRASH—STAGE 2 WORLD MARKETS CRASH

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On the same day, the Washington Post reported:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As another Chinese analyst stated:

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

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

Counting the Cost of Gov’t Intervention in Stock Market

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The truly scary thing about Black Monday

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

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

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

Wait. What?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chanos told me the other day.

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

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

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

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

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

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

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

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

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

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

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

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

China Falters, and the Global Economy Is Forced to Adapt

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

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

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

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

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

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

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

 TRADE POLICY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

At the conclusion, trade ministers spoke optimistically:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

EXIM BANK PROBLEMS

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

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

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

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

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

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

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

EXIM Bank argues that it:

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

EXIM Bank further states:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CUSTOMS AND TRADE ENFORCEMENT BILL

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

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

TRADE

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

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

TIRES AD AND CVD ORDERS

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

BOLTLESS STEEL SHELVES

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

UNCOATED PAPER

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

MORE STEEL CASES AND STAINLESS STEEL CASES COMING

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

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

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

SOLAR CELLS

CIT AFFIRMS ITC

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

SOLAR CELLS—EUROPE

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

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

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

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

COMMERCE REVOKES ANTIDUMPING ORDER ON WOVEN ELECTRIC BLANKETS FROM CHINA

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

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

IMPORT ALLIANCE FOR AMERICA

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

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

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

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

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

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

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

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

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

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

Commerce stated:

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

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

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

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

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

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

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

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

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

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

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

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

The facilitation of any such transactions.

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

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

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

CUSTOMS

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

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

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

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

PRODUCTS LIABILITY

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

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

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

PRODUCTS LIABILITY COMPLAINTS AGAINST CHINESE PRODUCTS AND COMPANIES

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

IP/PATENT AND 337 CASES

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

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

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

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

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

As the CAFC majority stated:

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

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

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

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

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

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

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

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

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

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

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

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

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

CHINA IP AND PATENT LAW

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

ANTITRUST

There have been major developments in the antitrust area.

VITAMIN C CASE—COLLECTIONS PROBLEMS

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

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

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

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

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

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

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

CHINA ANTI-MONOPOLY CASES

T&D JANUARY REPORT

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

SECURITIES

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

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

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

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

FOREIGN CORRUPT PRACTICES ACT

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

With regards to China, the August Digest states:

Mead Johnson Nutrition Co. Settles FCPA Charges with SEC

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

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

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

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

Plaintiffs Request $62 million Avon Settlement

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

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

China

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

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

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

HIRING RELATIVES OF FOREIGN GOVERNMENT OFFICIALS BECOMES AN FCPA ISSUE

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

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

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

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

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

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

SECURITIES COMPLAINTS

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

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

Best regards,

Bill Perry

 

US CHINA TRADE WAR–DEVELOPMENTS IN TRADE, IP, ANTITRUST AND SECURITIES

Qianmen Zhengyang Gate Wide Tiananmen Square Beijing China Night“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—JULY 23, 2014

Dear Friends,

My monthly blog post on the US China Trade War will be issued later this month. There have been some recent developments of interest, however.

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 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

SOLAR CASES—POSSIBLE SETTLEMENT??

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%. The Antidumping Preliminary determinations against China and Taiwan are not due to come out until July 24th.

On July 25th, the Commerce Department announced its preliminary determination in Chinese solar products case levying, in effect, 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.  See AD Prelim Factsheet Below.

On August 8th, the Commerce Department gave the Chinese government until today August 15th to propose a settlement agreement.  As I understand it, today, August 15th, the Chinese government did file a letter at Commerce expressing interest in a suspension agreement, but no proposed formal agreement has been filed with the Department.

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

On August 1, 2014, Commerce published in the Federal Register the attached notice REVIEW REQUEST NOTICE AUGUST that will be posted on my blog regarding antidumping and countervailing duty cases for which reviews can be requested in the month of August. The specific antidumping cases against China are:

Floor-Standing, Metal-Top Ironing Tables and Parts Thereof, Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Petroleum Wax Candles, Polyethylene Retail Carrier Bags, Sodium Nitrite, Steel Nails, Sulfanilic Acid, Tetrahydrofurfuryl Alcohol, Tow-Behind Lawn Groomers and Parts Thereof, and Woven Electric Blankets.

The specific countervailing duty cases are:

Laminated Woven Sacks, Light-Walled Rectangular Pipe and Tube, Sodium Nitrite, and Tow-Behind Lawn Groomers and Parts Thereof.

For those US import companies that imported Ironing Tables, Laminated Woven Sacks, Retail Carrier Bags, Steel Nails, Sulfanilic Acid, Lawn Groomers, and Electric Blankets and the other products listed above from China during the antidumping period August 1, 2013-July 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.

CHINA TRADE WAR EXPANDS IN LAST FEW DAYS

The US China Trade War in the last several days expanded dramatically.

Today July 29 China time, the Chinese government conducted a dawn raid of Microsoft offices in China, apparently because of antitrust concerns.  Last week the Chinese government’s NDRC declared US company Qualcomm to be a monopoly. Rumors are that the Qualcomm antitrust investigation in China could end at the end of next month with a potential penalty of $1 billion.

On Friday, July 25th, the Commerce Department announced its preliminary determination in Chinese solar products case levying, in effect, 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.

See the attached articles about the antitrust investigations and the factsheet issued by the Commerce Department on Friday in the Solar Products case.  microsoft-china-antitrust-invest us-qualcomm-china-idU Solar Products AD Prelim Fact Sheet 072514 (1)

More information on these cases will be set out in my next blog post.

YES READER WE HAVE A TRADE WAR WITH CHINA

In talking with a number of US government officials, it has become clear that they do not realize that the United States has a trade war with China and guns are being fired on both sides.  These US government officials point to the $4 billion in “dumped” Solar Cells coming from China, but the same government officials do not realize that the Chinese Government through antidumping and countervailing duties have wiped out $2 billion in exports of US produced polysilicon going into those Chinese solar cells. This Chinese government action has resulted in REC Silicon deferring a $1 billion investment into Moses Lake, Washington.

US Government officials have also stated that Chinese companies have to come to the US because the United States has the largest market in the World. What many US government officials do not understand is that with a population of 1.6 billion and a middle/upper class of at least 500 million, China’s market is now larger than the United States. The best-selling car in China is the Ford Fusion. It used to be the Buick. Many officials do not realize that the US Qualcomm company, an American semiconductor company, is making $24 billion a year and $12 billion is from China.  On July 24th, the Chinese government NDRC declared Qualcomm to be a monopoly and there are rumors that the  Chinese government NDRC will fine Qualcomm up to $1 billion for violations of China’s antimonopoly law.

Although the US government has taken China to the WTO for violations of the WTO antidumping and countervailing agreement with regards to imports of chicken from the US and crows about its victories against China, on July 8th in response to the WTO decision China lowered its antidumping duties on broiler chicken products from the U.S. to between 46.6 and 73.8 percent. The high 46.6 to 73.8% rates mean that $1 billion in US chicken exports will continue to be kept out of the Chinese market.

China, however, is just taking its lead from the US Commerce Department, which when facing Chinese victories in the WTO, grudgingly moves antidumping and countervailing duty rates by only small amounts and has had antidumping orders against China excluding certain products from the US market for as long as 30 years.

But as indicated below in the comments of the US Senators and the testimony of Leo Gerard, International President of the United Steel Workers, and Mario Longhi, President of the United States Steel Corporation, in the June 25th Senate Finance Committee hearing, many Washington DC politicians want to be tough on China under intense pressure from US manufacturing companies and unions.  In fact, the US Steel Industry has had a massive impact on the trade policy of the United States, when the employment of the US Steel Industry is lower than one US high tech company.

In a July 7th report, however, Commerce announced that 796,000 US jobs are tied to exports of goods and services to China. What does that give the Chinese government when dealing with the United States on trade issues? What does the Chinese government get when many US companies want to get into the Chinese market?  Leverage.

As one former WTO official stated at a recent Washington DC trade conference, all of WTO law is built on reciprocity. What one country can do under the trade laws can be done back to that same country. When the US government throws trade stones at China, the Chinese government can throw trade stones back and those stones will hurt.

The problem with this trade war, however, is that it is expanding, and when trade wars expand, all sides loose not only economically.  In extreme situations, trade wars can provide a tinder box that can explode into military conflict.  Hopefully, cooler heads will prevail in both the United States and China and call off this trade war and create trade peace before a lot of companies and people in both countries get burned.

SENATE FINANCE COMMITTEE HEARING—ENFORCEMENT OF US ANTIDUMPING AND COUNTERVAILING DUTY LAWS—TRADE WAR GOES ON

Set forth below is a link to the June 25, 2014 hearing of the Senate Finance Committee in Washington DC.  The Senate Finance Committee is the most powerful trade committee in the US Congress.

This hearing will give you an idea of the political situation in Washington DC with regard to China. Move the buffering slider to minute 41 when the hearing starts. There is a recess in the hearing so you need to move the buffering slider to 1 hour 47 minutes when the hearing resumes.

http://www.finance.senate.gov/hearings/hearing/?id=e2227102-5056-a032-5262-9d177c5f753f

During the Senate Finance Committee, Senators asked for aggressive trade enforcement in antidumping and countervailing duty cases, including Steel and in particular Oil Country Tubular Goods (“OCTG”), and against China. The Senators described the importance of the legislation they have introduced to stop transshipment and make sure that antidumping and countervailing duty laws are enforced.

The witnesses were US Steel, the Steel Union, the US Chicken and Soybean industries and Eli Lilly, a pharmaceutical producer. The two most prominent witnesses at the Senate Finance Committee, however, were Leo Gerard, International President of the United Steel Workers (“USW”), and Mario Longhi, President of the United States Steel Corporation.  The USW has brought the OCTG antidumping and countervailing duty cases, started the Solar Cells/Clean Energy Antidumping and Countervailing Duty Cases, and brought the recent $2 billion antidumping and countervailing duty cases against Tires from China.  Mr. Gerard would proudly claim that the USW has brought antidumping and countervailing duty cases blocking billions of dollars in imports from China.

The hearing was stacked with US producers and a union complaining about China and other countries.  No US importers were allowed to testify and present the other side of the argument.  When Congress decides to listen to only one side of the trade argument and when there is no fair and balanced portrayal of the US China Trade Problems, the trade war simply gets worse and everyone loses.

The Witness for the US Soybean industry testified that the major world buyer for US soybeans and corn is China. The US Chicken industry pointed to the problem of the Chinese antidumping and countervailing duty cases against US Chicken exports.  Although the US Government “won” the Chicken AD and CVD cases in the WTO, as indicated below, the victory has resulted in antidumping rates falling only to 40%, still blocking $1 billion in US Chicken exports to China.

Senator Wyden, Chairman of the Senate Finance Committee, opened the Senate Finance Committee hearing by stating in the attached statement 06132014 Wyden Statement on the Need for Strong Trade Enforcement:

“Much of the recent debate in Congress over international trade has focused on agreements currently in the works, including the Trans Pacific Partnership and the Transatlantic Trade and Investment Partnership. Not enough time is spent on the trade agreements already in place – have they created American jobs, have they boosted our economy, are they being effectively enforced?

While I intend for the Finance Committee to examine all aspects of U.S. trade policy, today it will focus on enforcement. Without strong enforcement, no trade deal – old or new – is able to live up to its potential for jobs and economic growth. And it becomes extraordinarily difficult to build support for new agreements. Foreign nations will continue locking American goods and services out of their markets.

And foreign companies that get unfair backing from their own governments will continue undercutting our manufacturers, farmers and ranchers, driving hard-working Americans out of businesses and out of their jobs. The latest tactics used by foreign nations and companies to skirt our trade rules seem like they’re ripped from the pages of crime and spy novels. They hide paper trails to make it harder to build cases in trade courts.

They intimidate witnesses, forcing American businesses to relocate factories or surrender intellectual property and threatening retaliation if they speak out against unlawful behavior. They even spy on our trade enforcers and companies to undermine efforts at holding them to the rules.  And after they’ve been caught breaking the rules, they engage in outright fraud to avoid punishment.  They play cat and mouse with customs authorities, using shell companies and fraudulent records to exploit weaknesses in our system.

The global economy is more interconnected than ever, which means there’s more at stake for American workers and businesses.  China, India, Brazil – the list of critical markets with serious enforcement challenges has grown.  As that process has played out, for example, currency manipulation has hit American workers and businesses harder than it did in previous decades – particularly when it comes to China.  Currency manipulation makes any product manufactured in the U.S. – any product – artificially expensive.  In effect, it’s a way for China to keep a finger planted on the scale, costing the U.S. jobs and making it harder to recover further from the Great Recession. . . .

The challenges of the modern, global economy simply do not always fit neatly within our aging enforcement system.  American trade enforcement needs to be brought into the 21st century.  For example, when the Chinese government gives its domestic solar companies massive subsidies, the U.S. needs to respond quickly and with all available resources.  In practice, the response took years, and was too little and too late to protect thousands of American jobs and home-grown technologies.  The Chinese solar companies had already crippled their American competitors.

That’s why a more effective enforcement authority is needed.  Better enforcement tools would identify and stop a problem more quickly before it costs American jobs.

The same goes for enforcement at our borders.  When fake tennis shoes or counterfeit computer chips arrive in the U.S., Customs often appears too focused on security rather than its trade mission.  This is especially damaging since foreign companies and governments are finding new ways to mask where products come from before they show up at our doorstep.  For example, Chinese companies avoid anti-dumping duties by routing merchandise through a place like Singapore before it heads to the U.S.  The schemes are becoming even more complex, sometimes involving shell companies that appear one day and disappear the next without leaving any paper trail.

The ENFORCE Act, bipartisan legislation I first introduced 2011, would mount a stronger defense against those practices.  It would set up a standardized process to move investigations forward, and it would establish better lines of communication between agencies to get information in the right hands.  It would also refocus Customs so that its trade mission doesn’t get short shrift.

Proper trade enforcement is an increasingly difficult job.  It takes time, and the fact is that it’s impossible to stand up a trade case in a single day.  But it’s essential for enforcement agencies to have the resources needed to do their jobs effectively.  Too often, when these cases lag, American workers are losing their jobs and businesses are closing their doors.  Succeeding in the global economy is already challenging enough; the U.S. cannot add to the difficulty by underfunding its enforcement efforts. . . .”

Republican Senator Hatch, the ranking member of the Senate Finance Committee, stated in the attached statement, 6.25.2014 Hatch State at Finance Committee Hearing on Trade Enforcement2:

“. . . .Some of the most important trade enforcement tools we have are U.S. safeguard, anti-dumping, and countervailing duty laws. For companies like U.S. Magnesium, which operates in Salt Lake City and Rowley, Utah, our trade laws are essential to their ability to compete against imports that unfairly benefit from foreign government interference in the market.

I want to ensure that these laws remain effective tools in our international trade arsenal.

That is one reason the Bipartisan Congressional Trade Priorities Act which I introduced with former Senator Baucus in January includes – as a principle negotiating objective – a directive to preserve the ability of the United States to rigorously enforce our trade laws.

I also want effective trade enforcement at the border. That’s why I worked with Chairman Wyden to craft a version of the ENFORCE Act that gained unanimous bipartisan support in the Finance Committee. This bill provides new tools to help stop circumvention of our trade remedy laws. . . .

Senator Portman, when he was the U.S. Trade Representative, brought the first WTO dispute against China in which China was found to have breached its WTO commitments. Before that case, China was imposing restrictions on imports of U.S. auto parts that were harming U.S. companies and workers. By effectively employing the WTO dispute settlement system, we were able to get China to reverse course and remove those restrictions. As you can see, we have a system that works. . . .”

Leo W. Gerard, International President, United Steelworkers (“USW”), stated in the attached statement, GERARD 14 06 25 Testimony – Trade Enforcement Challenges and Opportunities2:

“USW members and non-union workers alike know firsthand the pain inflicted by foreign predatory, protectionist and unfair trade practices. In industry after industry, they have seen other nations target the U.S. market to fuel their own economic policies, to create jobs for their people and capture the dollars of our consumers. These practices have increasingly resulted in the downsizing of manufacturing and the loss of good family supportive jobs, as companies have offshored and outsourced their production.

The USW has been as successful as it can be in its efforts to counter unfair trade, but it’s a losing game. Indeed, the only way we win is by losing. Lost profits, lost jobs, closed factories, hollowed out communities – that is the price the trade laws demand to show sufficient injury to provide relief.  In the year or more it takes to bring a trade case and obtain relief, foreign companies can continue to flood the market.  By the time that relief may be provided, the industry is often a shadow of its former self, too many workers have lost their jobs and their families and the communities in which they live have paid a heavy, and often irrevocable, price. . . .

Today, more and more, we find that the USW has to go it alone. Our government should be taking more of the lead. While we appreciate what they are doing, it is far from sufficient.  And, let’s recognize that some of the most successful efforts, like the Section 421 case on tires, were because the USW initially brought the case. We’d vastly prefer that government do its job so our members can do their jobs. . . . This Administration has done more to improve our nation’s trade enforcement efforts since any Administration since the Reagan years. . . .

First, as many of the Members of the Committee know, the USW is fighting to ensure that the Department of Commerce carefully review the facts in the Oil Country Tubular Goods (OCTG) case in which they issued a preliminary finding that imports from South Korea would not be subject to dumping margins. We believe this preliminary finding is flawed.  Indeed, Senators sent a letter to the Administration asking for a careful review and that effort was mirrored by more than one-third of the House joining in that call. . . .

The second issue, and a critical one, is the issue of currency manipulation.  China is the worst culprit, but other nations are following their lead.  China has been able to essentially subsidize its exports and tax imports into its market through currency cheating.  Everyone knows it. Every six months the Treasury Department issues a report saying that China isn’t doing the right thing, it’s not based on market principles but stops short of making the critical finding that would only require consultation.  This Administration and the last said that dialogue and engagement were the appropriate course to pursue. Some say that China is taking steps to bring its currency into equilibrium. They point to a widening of the trading bands.  Well, China’s currency is still dramatically undervalued and is a tool China uses to fuel its export-led growth strategy and limit imports into its market.

China makes small changes when political pressure rises here but then goes right back to business as usual. Some experts opine that asking China to do more will only destabilize its economy.  Well, I’m sick and tired of American workers and domestic industries having to pay the price for China’s trade and economic policies.  The time for talk is over.  If the Administration won’t act, Congress must prioritize passing legislation to give private parties the power to seek relief from China’s currency manipulation, or that of any other country.  Congress must not leave town for campaign season before passing this critical legislation.  If it can act earlier, great, but, at election time, this Congress will be judged by our members on whether they stood by their sides, or continued to allow China and others to cheat them out of their jobs and their futures. . . .

The USW is proud of its efforts in this area and has been public in commending the Administration for doing more than any previous Administration in making enforcement more important.  There have been real successes, like in the Section 421 case on Chinese tires.  But, much, much, much more needs to be done.  And, we can never let up.  Right after relief ended under the Section 421, China resumed flooding our market with tires – dumped and subsidized tires.  Just a few weeks ago, the USW filed an AD/CVD case against Chinese tires which have increased from about 24 million units to more than 50 million.  Their market share has doubled.  During that period, domestic production has gone down as China captured all of the market growth, and then some. . . .

Just eliminating the data or changing how it’s reported doesn’t change the facts, no matter how hard people try. Too much of our production is being offshored or outsourced and our trade laws aren’t doing enough to ensure that the rules are fair.

Another critical issue is simply using the words and actions of our trading partners to identify what they’re up to. Sometimes, of course, it’s difficult to discern or identify what they’re up to. But, in many cases, they are quite open about it. China is way ahead of others on this point.  It has published its 12th Five Year Plan which clearly indicates what its priorities are and what it intends to do. It announced that it will spend $1.5 trillion to achieve those goals.  It has developed lists of national champions and strategic sectors that it will support. It has many other open source documents identifying technological roadmaps, performance stands, export credits in violation of OECD standards and countless other programs.

Why don’t we take them at their word? Why aren’t we taking those lists and determining what our interests are.

A perfect example was identified by the New York Times just last week. In the past several years, the U.S. has indicated that it wants to phase-out the use of incandescent lighting in the U.S. and move towards more energy-efficient technologies like LEDs. China has taken this technology, developed by the U.S., and created a mammoth production base to try and fill their own needs, and those of others around the globe. They are building up extensive capacity and can soon be expected to flood the U.S. and world markets with these products that will probably be sold at dumped and subsidized prices.

Yet, no one acts. Isn’t it time we took trade seriously and did more to build public confidence that trade agreements are in their interest rather than just pathways for companies to outsource and offshore production?

ENFORCEMENT

There’s a reason that trade agreements and topics like fast track are viewed so negatively by the public. Trade isn’t working for them.

The Steelworkers have taken action where we can and are proud that we have been the single-leading force in seeking to have trade rules properly enforced and that the terms of trade are fair.  Since 2000, we have filed or supported dozens of cases. Among them are:

Section 201 safeguard action on steel.

Coated free sheet paper cases.

Section 301 action against Chinese currency manipulation.

Section 301 action on Chinese workers’ rights violations.

Section 301 case on Chinese protectionist and predatory actions on green technology.

Identification of Chinese predatory trade practices in the auto parts sector.

Section 421 case on Chinese tires.

Oil Country Tubular Goods antidumping case.

We do not look at filing trade cases as a sign of success: Far from it. Under our trade laws, there has to be injury, often significant injury or threat of injury, before any relief might be offered.  In essence, we win by losing.

A perfect example of this is the coated free sheet paper trade problem.  The USW filed a case and, while dumping was found, the injury was determined not to be significant enough for relief.  Several years later, we filed essentially the same case but, by that time, more than 7,000 workers had lost their jobs, capacity was shut down and companies were on the brink.

Relief was provided and many of the remaining workers have their jobs as a result.  But, a substantial portion of the industry will never come back.

These cases are difficult to bring and expensive to pursue.  There are countless issues that must be addressed and, these days, many companies refuse to participate.  Some refuse because they have offshored their production, abandoning the U.S. market and want to protect the subsidized and dumped products they now sell in the U.S. that they use to make here.

Other companies are worried about retaliation.  Several years ago, in a sector that will remain nameless, an antidumping/subsidy case was being prepared that the Chinese found out about. The Chinese government called in the managers of foreign-invested enterprises operating in China in the sector and indicated that, if a case went forward, those companies’ operating permits would be revoked.  None of those companies, of course, dared come forward.

Under our trade laws, if a company refuses to provide data, it may be tough to develop the information needed to pass the injury test.  So, as companies become more globalized, the workers, families and communities who are at risk from foreign predatory and protectionist trade practices may find that they have no recourse.

Those standards underlying how a trade enforcement case can be brought, who has standing, and other intricacies of the law need to be updated. For example, state and local governments should be given standing under our trade laws as participants. Often, the only entity that has standing under the trade law that actually cares about jobs in America are workers and their representatives. That’s why the USW is the lead on so many cases.

But, state and local governments also care whether their local plants are being victimized by unfair trade. They should have the ability to be petitioners in trade cases. And certainly, necessary information must be made available to injured parties and not kept secret behind corporate walls.

There are many other issues which the trade bar is working on deserving serious consideration by this Committee and the Congress. It’s time to update our laws as they haven’t been seriously reviewed in more than 25 years. And, it’s vital that Congress recognize the damage that unfairly priced and traded imports have had all across this country.

Importers don’t care whether America makes anything, they only care about the profits they can make from the products they sell. It’s important to view all of these changes by asking the question: “Whose side are you on?” . . .

Unfortunately, too many companies scour the globe looking for the cheapest place to produce, even it means despoiling the environment or trampling on workers’ rights. Proper enforcement of workers’ rights helps create opportunity, helps ensure a growing middle class, helps reduce the economic divide and, indeed, promotes greater trade.”

Mario Longhi President, United States Steel Corporation stated in the attached statement, US STEEL CORP Longhi Testimony – Senate Finance Committee – 06.23.141:

“The approach and manner in which foreign companies are dumping thousands of tons of products into the U.S. market leads business leaders such as me to conclude that American steel companies are being targeted for elimination. . . .

Mr. Chairman, your leadership in introducing the ENFORCElegislation is most welcomed. We concur that the Customs and Border Protection Agency should be empowered and strengthened to take swift action when dumping or countervailing duty orders are evaded through transshipment, misclassification, misreporting, or outright falsification of import documents. This should be one of many tools in our trade toolbox. . . .Unfortunately Mr. Chairman, this is not the world in which we operate.

According to the United States Trade Representative, there are currently 56 pending antidumping (AD) and countervailing (CVD) cases, of which 73% involve steel products. There are 117 existing AD and CVD cases, of which 40% involve steel related products. . . . At any given time, our industry is pursuing over 30 active anti-dumping and countervailing duty cases against an ever-growing list of foreign competitors who are supported – tacitly or openly – by their own governments. . . .

In 2013, almost 150,000 jobs were directly attributed to the steel industry. Within the value chain, it is estimated that more than 1 million jobs are steel-related jobs.  So when our industry is harmed, so too are the local vendors, markets, restaurants, dry cleaners, and other local service providers, schools and community organizations.

Let me illustrate for you how this harm occurs. . . . A year ago, U. S. Steel and other domestic Oil Country Tubular Goods (OCTG) producers filed a trade case against nine countries based on the enormous 113-percent increase of imported OCTG products into this market between 2010-2012. Primarily South Korean companies are the main violators, but companies from India, Vietnam, Turkey and several other countries also dump very significant volumes. . . .

China tried to do the same thing in 2008. We fought and won an OCTG dumping case in 2009, but not before many facilities were idled, thousands of steelworkers lost their jobs, and our communities and our families sustained significant and long-lasting injury.  After we won the case, Chinese producers essentially abandoned the U.S. OCTG market, a clear sign that they could not compete when the playing field was leveled.

As the American economy and our energy demands rebounded, American steel companies spent billions of dollars to improve OCTG facilities across the country. In the past 5 years, U. S. Steel spent more than $2.1 billion across our facilities, $200 million on new facilities at our Lorain Tubular Operations in the last two years alone. However, the respite for the OCTG industry from illegally dumped products was short-lived.  Foreign producers quickly seized this opportunity and began flooding our market.

The only difference between 2009 and today is that South Korean and other foreign OCTG producers are cleverer.  South Korean companies are effectively targeting our market since they do not sell this product in their own home market or (in substantial volumes) to other nation.  Over 98% of what is produced in South Korea is exported directly to the U.S.

Earlier this year, the Department of Commerce issued disappointing preliminary findings that failed to recognize and punish illegally dumped South Korean products. After decades of dumping practice, it appears that these companies have learned to circumvent our trade laws and illegally dump massive amounts of steel products in this market with ease and agility.

So it is not surprising that in advance of the impending final decision by the Department of Commerce, last month, the total OCTG imports hit a high of 431,866 net tons, a 77.4% percent change year/year. The South Koreans exported to the U.S. nearly 214,000 net tons of OCTG in May, an increase from the monthly average of 27,000 net tons in the prior 12 months. They are trying to dump as much product as they can before the final ruling.  The South Korean gamesmanship of our system of laws is disquieting. Their efforts are unchecked and repugnantly effective. . . .”

Kevin J. Brosch, the National Chicken Council in the attached statement, NCC Senate Finance Testimony 062514:

“. . . .The U.S. is the most efficient producer of poultry products in the world. U.S. production value in 2013 was $30.7 billion. We are the world’s second largest exporter, only narrowly behind Brazil, and in 2013 we exported nearly 20% of our total volume of production, with an export value of more than $4.7 billion. U.S. poultry is our 6th most important agricultural export, with product being exported to nearly 100 countries each year. It has also been an important growth sector for U.S. agriculture with exports increasing from 5.2% of production volume in 1990, to nearly 20% in 2013. . . .

In specifically addressing the issue of enforcement, I should begin by thanking the Obama Administration for a very significant and recent success. China is the best example we can point to of vigorous and timely trade enforcement.  In 2009, China imposed antidumping duties on U.S. chicken using the so-called “weight-based cost of production” theory. . . . Immediately after China announced its decision to impose antidumping duties, the Obama Administration requested dispute settlement, and aggressively litigated the case before the WTO. Last summer a WTO panel ruled in our favor. China elected not to appeal that decision and we are currently awaiting China’s announcement of how it will change its antidumping decision to come into compliance with WTO rules. Hopefully, China will act in good faith and honor its WTO commitments, but there are no assurances.  . . . .

(Even with USTR’s efforts, the China case cost U.S. industry millions of dollars in legal fees to pursue). China represented a 700,000 MT market for U.S. poultry at the time the antidumping duties were imposed, and is potentially an even larger market for our products in the future. We have been out of the market now for several years, and hope that China will lift its restrictions now that an international legal panel has ruled against it.  In our view, the prosecution of the China antidumping case before the WTO represents U.S. trade policy at its best; enforcing those trade rights we have already negotiated for. . . .”

Richard Wilkins, Treasurer of the American Soybean Association, stated in the attached statement, Statement on Trade Enforcement for Biotech Exports:

“I would like to return to my earlier comment on the importance of China as a market for U.S. biotech commodities and products. China is by far the largest buyer of U.S. soybeans, importing over one-fourth of our annual production. The Department of Agriculture forecasts that China will also become the world’s largest corn importer by 2020. U.S. agriculture is a long-term committed partner in working with China to meet its food security needs. . . .

It is critically important for the Administration to engage the Government of China at the highest level to reach a mutually beneficial understanding on trade in biotech commodities.”

TRADE DEFICIT DECLINES AS US EXPORTS INCREASE AND US JOBS SUPPORTED BY US EXPORTS TO CHINA RISE TO 796,000

As the Congress continues to bash China and listen to the Steel Union and US Steel, statistics show a much different story. On July 7, 2014, the Commerce Department announced the US trade deficit had dropped to $44 billion “bolstered by record high exports of a broad swath of consumer goods and services such as telecommunications, car parts and travel”. In effect, the trade deficit had dropped 5.6 percent drop from a $47 billion gap in April as US exports hit a record $195.5 billion.

U.S. Secretary of Commerce Penny Pritzker said that the numbers show the economy is growing healthier because “Today’s strong export numbers are yet another sign that more American businesses are seizing the opportunity to sell their world-class products and services to the 95 percent of consumers who live outside the United States.”

Where are those exports going? China.  According to the attached July 7th Report issued by the Commerce “ Jobs Supported by Export Destination 2013”, COMMERCE TRADE JOBS China is number 3 for US export destinations behind Canada and Mexico. The US jobs created by US exports of goods to China are 796, 000 (588,000 goods and 207,000 services) with Japan at 605,000 and United Kingdom at 587,000.

Although many Government officials apparently do not seem to understand this simple fact, the premise of this blog is that Trade is a two way street. Although many officials and political leaders at the Washington DC level want to continually criticize China, many local US government officials want the US companies to continue exporting to China and want Chinese investment in their towns, cities and states.

WTO RULES AGAINST THE US IN COUNTERVAILING DUTY CASES AGAINST CHINA

On July 14, 2014, in the attached decision and summary, PANEL REPORT SUMMARY the WTO upheld China’s claims that certain US countervailing duty cases against China were inconsistent with the WTO Agreement. The dispute involves 17 Commerce Department countervailing duty investigations against China on approximately $7.2 billion dollars of imported products, such as solar panels; wind towers; thermal paper; coated paper; tow-behind lawn groomers; kitchen shelving; steel sinks; citric acid; magnesia carbon bricks; pressure pipe; line pipe; seamless pipe; steel cylinders; drill pipe; oil country tubular goods; wire strand; and aluminum extrusions.

The WTO decision states that with regard to 12 countervailing duty investigations that the United States acted inconsistently because it found that certain state-owned enterprises were public bodies or government entities and thus the sales of certain raw material inputs by these companies, in effect, were subsidized by the Chinese government. The WTO recommended that the US bring its decisions in line with the WTO Agreement. The WTO ruled for China in certain cases and against China in certain cases so it is something of a mixed result.

Also the WTO determined that Commerce “improperly found that the alleged provision of goods for less than adequate remuneration conferred a benefit upon the recipient, and improperly calculated the amount of any benefit allegedly conferred, including. . . its erroneous findings that prevailing market conditions in China were “distorted” as the basis for rejecting actual transaction prices in China as benchmarks in certain investigations.”

Since China is considered a nonmarket economy country, Commerce in countervailing duty cases against China refuses to look at free market bench markets for interest rates or other prices in China. In one case, which was overturned in part by the WTO, to value dirty factory land in Shandong, China Commerce used the value of land for a shopping center in Thailand.

As a result, the WTO Panel recommended that the United States should bring its measures into conformity with its obligations under the WTO Agreement. What does the WTO decision mean and what impact will it have on future countervailing duty cases against China. The answer is not much.

Just like the response of the Chinese government to the WTO’s decision in the Chicken case, Commerce will make a few changes to its methodology and explain its decision more, but there will be no real change to past or future countervailing duty cases against China.

Also the impact of this WTO decision on US methodology in future Countervailing duty (“CVD”) cases against China is not clear yet because this panel decision will be reviewed by the WTO Appellate Body, which has frequently overturned panel decisions in trade remedy cases. Just like the Chinese chicken case, any change in methodology still means that the US government will issue CVD rates against China. Those rates will just decline a little.

On July 18, 2014, in the attached statement, MOFCOM STATE MOFCOM Minister Hucheng Gao stated in response to the WTO decision on US CVD cases:

“The United States abusive use of trade remedy measures severely impaired the legitimate rights and interests of Chinese enterprises. . . .I strongly urge the United States to confront its long-standing systematic violations of the WTO rules through its trade remedy related legislations and practices, to implement the rulings of the WTO Dispute Settlement Body in good faith, to correct its abusive use of the trade remedy rules in a timely and complete fashion, and to strive to become a role model who abides by the rules strictly, rather than a negative influence who breaches the rules . . . .

The economic and trade relations between China and the United States are the ballast stone and engine of overall China-U.S. ties.”

SOLAR CASES

On June 3, 2014, Commerce issued its preliminary countervailing duty determination against China in the Solar Products case. The fact sheet and preliminary Federal Register notice are attached to the last post 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%. The Antidumping Preliminary determinations against China and Taiwan are not due to come out until July 24th.

The Scope issue, what specific products are covered by this decision, is simply not clear yet. On May 30, 2014, two US senators sent the attached letter to Commerce, SENATOR LETTER, specifically requesting that Commerce come up with the correct “scope” determination and not to change past definitions. In other words, the two Senators request the Department to “preserve” the existing country of origin standard, which means that the country of origin of the solar cell would determine the country of origin of the module and panel. The Commerce Department’s July 3rd response, however, was noncommittal.

In the letter, however, the two Senators acknowledged, “While we hope that: a negotiated settlement can be reached between the affected parties, the Chinese government, and our government, that is not a likely outcome at this point.” Under the US Antidumping and Countervailing Duty Law, since there is no public interest test, the petitioner, SolarWorld, would ultimately have to agree to any settlement/suspension agreement reached between the U.S. and China.

Thus on June 24th in a letter to 23 Congressmen, Solar World pushed back on Congressional efforts to obtain a settlement agreement and responded to a May 28 letter by 23 House members to President Obama urging him to broker a unified position among elements of the solar industry that “remove existing trade restrictions.”

One route to settling a trade remedy case is a suspension agreement, but SolarWorld said that there is no active discussion of that option now.  On July 1st Solar World filed a letter at Commerce urging it to probe the trade implications of alleged cyber espionage by the Chinese military involving the company. So this case is not going to Agreement any time soon.

OCTG

As stated in prior newsletters and above, US Steel Corp along with the Steel Union have brought follow up cases against Steel Oil Country Tubular Goods (“OCTG”), Steel Pipes used in oil wells from a number of different countries. US Steel and the Steel Union first attacked China and were able to drive them out of the US market with 47% dumping rate, not based on actual prices and costs in China. Instead, Commerce used values from Indian import statistics to throw the Chinese out of the US market.

In the Chinese antidumping case on US Chicken, the US government complained that China used a “weight based cost of production” theory to calculate US antidumping rates.  But at least the Chinese government used actual prices and costs in the United States to calculate US antiduping rates, not like the US Commerce Department, which refuses to even use actual prices and costs in China to calculate antidumping rates for Chinese companies.

But as indicated above in the testimony of Mr. Gerrard of the USW Workers, China was replaced by imports from Korea, Taiwan, India and many other countries. So USW and US Steel filed antidumping and countervailing duty cases against those countries. But in the preliminary dumping determination against Korea and other countries, when Commerce had to use actual prices and costs in Korea and other countries to calculate antidumping and countervailing duty rates, what antidumping rates did Commerce come up with? 0s for Korea, 0 to 2.65 for Taiwan, 0 for one producer in India, 2.92% for Saudi Arabia and 8.9% for Philippines.

As indicated above, however, the USW and US Steel through the Congress put immense political pressure on Commerce to change its preliminary determination, especially with regards to Korea. With regards to OCTG, however, one should understand that the first OCTG cases were filed in the early 1980s against Korea and other countries followed by additional cases in the mid-1990s. Since Korea has been a target of OCTG cases in the past and since Commerce must use actual prices and costs in Korea to determine whether the companies are dumping, one can expect that Korean OCTG producers will monitor their prices and costs very closely to make sure that they are not dumping. When foreign companies are in market economy countries, where Commerce must use actual prices and costs in those countries to determine dumping, foreign companies can use computer programs to make sure that they are not dumping.

Thus it is not surprising that Commerce calculated 0% dumping rates for Korea in the OCTG preliminary determination. But with very substantial Congressional pressure on the Commerce Department, as suspected, Commerce came out with an affirmative antidumping determination in the Korea case.

On July 11, 2014, in the attached decision, factsheet-multiple-OCTG-ad-cvd-final-071114, Commerce issued its final determination pushing Korea’s AD rate to 9.89 to 15.75%, Taiwan 0 to2.52%, Saudi Arabia 2.69%, Philippines 9.88%, Ukraine 6.73% and an India CVD rate from 5 to 19%.

The point, however, is that these are not shut out rates, and in contrast to China, all of these countries will continue to export OCTG steel products to the United States in substantial quantities.

On July 15th at the US International Trade Commission’s (“ITC”) injury hearing, 4 US Senators testified about the importance of the ITC reaching an affirmative injury determination in the case.

TIRES

As mentioned in my last newsletter, on June 3, 2014, the USW union filed an antidumping and countervailing duty case aimed at $2 billion in imports of automobile and truck tires from China. The case is specifically described as Certain Passenger Vehicle and Light Truck Tires from the People’s Republic of China. A short form of the petition is attached to my last post on this blog.

At the end of June Commerce postponed the initiation of the case so it could survey the US industry because of standing concerns. But on July 15, 2014, the Commerce initiated the antidumping and countervailing duty investigations. See the attached fact sheet.  DOC Tires Initiation Fact Sheet

With the 20 day postponement, however, fully extended out, the Commerce Department preliminary countervailing duty determination will come out as soon as November 20, 2014, exposing the US importers to liability for Chinese tire imports, followed by the antidumping preliminary determination on January 19, 2015.

On July 16, 2014, the Commerce Department issued the the quantity and value questionnaire for Chinese companies, which is due August 1, 2014 at Commerce.  prc-qvq-tires-071614.  See also the attached separate rate application for Chinese companies.  prc-sr-app-20140429

On July 22, 2014, the ITC issued a preliminary injury determination in the case. See the attached announcement. ITC AFFIRMATIVE PRELIMINARY. The ITC will issue its formal determination and opinions to Commerce on August 1, 2014.

ACTIVATED CARBON

On June 24, 2014, in the attached decision, Jacobi Carbons et al. v. United States, the Court of International Trade affirmed the Commerce Department in the Activated Carbon fourth administrative review investigation.  ACTIVATED CARBON CIT

WOODFLOORING

In the Woodflooring case, there have been two Court decisions, not favorable to the respondents.

On July 14, 2014, in the attached decision, Changzhou Hawd Flooring Co. v. United States, the Court of International Trade rejected an attempt by a number of Chinese separate rate companies to participate in the appeal of the initial investigation. During the appeal, it became apparent that the Chinese separate rate companies might have an opportunity to obtain a 0% dumping rate and be completely excluded from the case.  CHANGQHOU HAWD FLOORING

On July 16, 2014, in attached decision, Swiff Train v. United States, the Court of International Trade affirmed the International Trade Commission in its injury determination stating that it had made a “but for” determination in the injury remand determination.  SWIFF TRAIN

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

As mentioned in past newsletters, in the trade world, the most important developments may be the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations.  These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

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

To summarize, on January 9, 2014, the Bipartisan Congressional Trade Priorities Act of 2014, which is posted on my February blog 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.

Now the story continues . . . .

On June 27, 2014, it was reported that there were still many tough issues outstanding in the TPP talks, including Agriculture, especially with Japan. Japan’s commitment to full tariff elimination in the agricultural sector appears to be very weak. Questions remain whether Japan will ever fully open its sensitive food sectors such as beef, pork, wheat, rice and dairy. There are warnings that the bilateral struggles between the U.S. and Japan have had ripple effects with other TPP partners using the impasse to hold off on tabling their best market access offers, not only for agriculture but also for other areas as well. In addition, the failure to pass the TPA has made it more difficult for the US trade negotiators to get a better deal.

Apparently the gaps between the US and Japanese negotiators on agricultural products are very wide. The U.S. had demanded that Japan’s beef and pork tariffs be lowered as close to zero as possible, and as a trade-off to accept low tariff rates. Japan has floated the idea of allowing it to activate safeguard measures that would trigger sharply higher tariffs for an extended period when import quantities reach certain thresholds, while the US position remains the same.

On July 9th seven House Democratic Congressmen, Rep. George Miller (D.-Calif.), Reps. Rosa DeLauro (Conn.), Louise Slaughter (N.Y.), Loretta Sanchez (Calif.), Mark Pocan (Wis.), Donna Edwards (Md.) and Peter DeFazio (Ore.) questioned whether Congress should grant the administration trade promotion authority (TPA)—particularly in light of what they called a lack of transparency during the talks.

The Democrats argued that an Administration deadline to conclude the TPP talks by the Nov APEC meeting was simply unrealistic because there are too many issues that must be resolved before a TPP agreement would win congressional approval.

On July 15th it was reported that Japan and the US had been able to narrow the gaps in negotiations on agricultural products, specifically rice, beef and pork, dairy, wheat and sugar—as well as safeguards.

On July 16th, it was reported that Deputy USTR Mike Punke spoke at a hearing of the House Ways and Means stating: “We agree with those who say that TPA needs to be updated and we look forward to working with this committee and Congress as a whole to secure a TPA that has as broad bipartisan support as possible.” Punke also stated: “We are very committed to getting TPA. I think Ambassador Froman has practically camped up here over the course of the last six weeks in terms of the outreach that he’s done personally.”

On July 17, 2014, at a Senate Finance Committee hearing about Technology and Trade, http://www.finance.senate.gov/hearings/hearing/?id=565ec6a8-5056-a032-526e-77a13f9f56e5, Republican Senator Orin Hatch, the Ranking Member, spoke about the importance of the TPA and the Enforce Act.

On July 17th, all Republican members of the House Ways and Means Committee sent the attached letter, HOUSE REPS WAYS MEANS, to USTR Froman 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. In the letter, the Members stated:

“We are strong supporters of the Trans-Pacific Partnership (TPP) negotiations. . . .While progress has been made in the TPP negotiations, there is a long way to go to finalize an acceptable deal. Therefore, we were surprised when the President recently announced an ambitious timeline for completing the TPP negotiations, potentially by November, without mentioning how he would ensure the enactment into law of Trade Promotion Authority (TPA) before concluding TPP negotiations. TPA must be enacted into law before the President completes TPP for two important reasons.

First, TPA shows our trading partners that the U.S. government speaks with one voice. Without TPA, the Administration simply is not in the strongest position in its negotiations with our trading partners. That means that any agreement reached cannot be the best agreement obtainable for American workers, farmers, and businesses. The positions that many of our trading partners are taking in the negotiations are unacceptable, demonstrating that the Administration has not yet been able to achieve the necessary market access and rules outcomes to ensure a successful TPP negotiation. We believe that if the Administration were negotiating with the authority of TPA, it would be able to achieve a stronger agreement worthy of Congressional support.

Second, the Administration negotiates trade agreements under a delegation of authority from the Congress. TPA is the process by which Congress gives the Administration that authority and sets out negotiating objectives, strengthening and reinforcing the consultative relationship between Congress and the Administration. Concluding TPP or any major trade agreement without TPA undermines the Constitutional role of Congress over trade policy. Only Administrations that work closely with Congress and make it an equal partner in the negotiations are successful in passing and implementing trade deals.

Because of the critical importance of TPA in ensuring a successful outcome in the TPP negotiations, we will not support TPP if the agreement, even an agreement in principle, is completed before TPA is enacted. Once TPA is enacted, we will have laid the necessary groundwork to bring to conclusion a solid TPP agreement that will pass Congressional muster, and we will work with you to achieve this goal. Congress will not approve a TPP agreement that does not meet the objectives Congress first establishes through TPA. Therefore, TPA is the key to achieving the outcome we all want to see.

We call on the Administration to continue to push our trading partners to improve upon their current offers in the TPP negotiations. At the same time, we call for the entire Administration, including the President, to immediately and fully engage with the House, the Senate, and stakeholders to achieve enactment of the Bipartisan Congressional Trade Priorities Act (H.R. 3830) well before the end of 2014. Progress should continue with our TPP partners even as we work domestically with you and the President now to build support for- and ultimately pass TPA.”

CHINA ANTIDUMPING

CHICKEN

On July 8, 2014, the Chinese Ministry of Commerce (“MOFCOM”) announced that as a result of a WTO decision it would lower anti-dumping and countervailing duties on U.S. chicken imports to between 46.6 and 73.8 percent for producers like Tyson Foods Inc. and Butterfield Foods Co.

Under the previous anti-dumping duty orders, MOFCOM levied rates ranging from 50.3 to 53.4 percent for U.S. producers who responded to its investigation, while assigning an “all others” duty rate of 105.4 percent.

As for countervailing duties, MOFCOM said it would lower CVD rates between 4 and 4.2 percent from 4 to 12.5 percent with an “all others” rate of 30.3 percent

The duties were imposed in 2010 and two years later, in August 2013, a WTO panel sided with the US.

Although MOFCOM lowered the rates, the rates will still shut out most US chicken from China. As a result of the MOFCOM decisions on US chicken, U.S. exports of chicken to China have fallen 90 percent over the past four years, costing US chicken exporters an estimated $1 billion after China imposed the high antidumping duties in 2010.

PATENT/IP AND 337 CASES

337 CASES

LOOM KITS

On July 1, 2014 Choon’s Design Inc. filed a section 337 patent case against imports of certain loom kits for creating linked articles against China respondents:. Wangying of China, Yiwu Mengwang Craft & Art Factory of China; Shenzhen Xuncent Technology Co., Ltd of China; Hong Kong Haoguan Plastic Hardware Co., and Itcoolnomore of China.  See the attached ITC notice.  LOOM KITS

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

On June 26, 2014, Orlando Communications filed the attached complaint for patent infringement against Huawei Technologies Co., Ltd., Huawei Technologies USA, Inc., Huawei Device USA, Inc. and T-Mobile US, Inc.ORLANDO HUAWEI

On July 9, 2014, Charles C. Freeny III, Bryan E. Freeny and James P. Freeny filed the attached complaint for patent infringement against ZTE (USA) Inc.  Freeney ZTE complaint

On July 9, 2014, Charles C. Freeny III, Bryan E. Freeny and James P. Freeny filed the attached complaint against Huawei Device USA, Inc. for patent infringement.  Freeny v Huawei complaint

PRODUCTS LIABILITY–DRYWALL

On July 17, 2014 in the attached Drywall Products liability case, 7-17-14 Taishan contempt In Re: Chinese Manufactured Drywall Products Liability Litigation, US Federal Judge Eldon E. Fallon in Louisiana barred a Chinese manufacturer from doing business in the U.S. until it shows up in court to answer questions about its failure to pay a $2.7 million default judgment in multidistrict litigation over defective drywall, holding the company in both civil and criminal contempt.  Taishan Gypsum Co. Ltd. must also cover $15,000 in attorneys’ fees for the plaintiffs in the case and pay a $40,000 fine, and should the company defy the injunction, it will get hit with another penalty equaling 25 percent of its annual profits.

As Judge Fallon states in the attached order:

“From 2005 to 2008 a housing boom coincided with the destruction caused by Hurricanes Katrina and Rita to sharply increase the demand for construction materials in the Gulf South and East Coast.  In response, Chinese companies manufactured, and sold to homeowners throughout the United States, considerable quantities of gypsum wallboard which came to be known as “Chinese drywall.” Homeowners experienced problems with the drywall. Specifically, the drywall emits various sulfide gases, damages structural mechanical and plumbing systems of the home, and damages other appliances in the home. The affected parties sued the entities involved in the manufacturing, importing, and installing the Chinese drywall. The cases multiplied and the Judicial Panel on Multidistrict Litigation (“MDL”), declared the matter an MDL and transferred the cases to this Court. After a period of discovery, it became clear that there were two principal manufacturers, (1) the Knauf Entities, and (2) the Taishan Entities. There are four cases in particular in which Taishan Entities have been served (via international means at the Hague, costing at least $100,000 per service of process).  . . . Defendant. Taishan refused to participate in any of these proceedings.   . . .so such judgment has become final and enforceable.  In order to execute the judgment, Plaintiffs moved for a Judgment Debtor Examination. The Court ordered Taishan to appear in open court on the morning of July 17 . . .Taishan failed to appear . . . has refused to appear in open court for the Examination.

As a consequence of Taishan’s refusal to appear at this Judgement Debtor Examination, in direct, willful violation of this Court’s June 20, 2014 order, the Court holds Taishan in contempt of court, both criminally and civilly. This refusal to appear is a direct contemptuous act occurring in open court after actual notice of the proceedings. Such disobedience of the Court’s order harms both the many other parties in this case and the decorum of the Court. Due to the “affront to the Court’s dignity [that] is[] widely observed,” it is necessary to summarily punish Taishan’s contempt. . . .

In punishing Taishan’s contempt, the Court “has broad discretion in assessing sanctions to protect the sanctity of its decrees and the legal process.” . . . In this massive suit, the harm from Taishan’s noncompliance is high and requires strong sanctions to coerce compliance and restore integrity to these proceedings. . . .

IT IS FURTHER ORDERED that Taishan, and any of its affiliates or subsidiaries, is hereby ENJOINED from conducting any business in the United States until or unless it participates in this judicial process. If Taishan violates this injunction, it must pay a further penalty of 25% of the profits earned by the company or its affililates who violate the order, for the year of the violation. . . .”

Lead counsel for the plaintiffs vowed to trace the company’s funds through its banks and make sure that the 4,000 homeowners involved in the litigation receive money to remediate their houses, which he said will cost between $200,000 and $300,000 per home. Levin added that the plaintiffs will also go after Taishan’s parent corporations, one of which, CNBM Group, is allegedly controlled by the Chinese government.

COMPLAINTS

On July 15, 2014, Vincent Dondson filed the attached products liability case against Beijing Capital Tire Company, Ltd. and World Wide Distribution Inc.  BEIJING TIRES CASE

CFIUS—CHINESE INVESTMENT IN THE US

On July 15, 2014, the Federal DC Circuit Court of Appeals in the attached Ralls Corp. v. Committee on Foreign Investments (“CFIUS”), RALLS VS CFIUS issued a very surprising decision reversing the Presidential/CFIUS decision to invalidate Ralls and a Chinese company’s attempt to acquire four Oregon wind firms that were close to a US military base on national security grounds.

There is a presumption that Presidential decisions with regard to foreign policy are given deference by the court, so it is unusual for the Court to overturn a Presidential decision, such as this decision by CFIUS. The president was first granted the authority to block proposed deals in the name of national security by the Exon-Florio Amendment in 1988.

The DC Circuit overturned the CFIUS decision on due process procedural grounds:

“In sum, we conclude that the Presidential Order deprived Ralls of constitutionally protected property interests without due process of law. We remand to the district court with instructions that Ralls be provided the requisite process set forth herein, which should include access to the unclassified evidence on which the President relied and an opportunity to respond thereto. . . . Should disputes arise on remand––such as an executive privilege claim––the district court is well-positioned to resolve them.”

Appeal is likely, either through a petition for en banc review or a petition to the U.S. Supreme Court.

The CFIUS review process, however, has been described as a black box into which foreign investors feed information, only to get out a yes or no answer with no way of appealing the decision. The DC Circuit’s decision, however, will require the President and CFIUS at a minimum to explain why the decision was made and grant the company respondent access to the unclassified evidence used to come to that decision and give the company an opportunity to rebut the evidence.

GENERAL LITIGATION–CONTRACT

On July 18, 2014, in the attached complaint Saint Jean Industries Inc. filed a breach of contract case against ZF Chassis Components LLC, ZF Lemforder and ZF Lemforder Shanghai Chassistech Co.  ZF CHASSIS SHANGHAI

ANTITRUST

VITAMIN C AND AUO OPTRONICS

On July 8, 2014 the Plaintiffs, US Purchasers of Vitamin C products, filed the attached brief, VITAMIN C PLAINTIFFS BRIEF 2ND CIRCUIT, urging the Second Circuit to reject the arguments in their briefs by the two Chinese companies and the Ministry of Commerce to overturn the $153 million jury award against them over price-fixing claims. Plaintiffs argued that the Chinese companies lack any evidence they were compelled to fix prices by the Chinese government. The purchasers argued that no Chinese law required any alleged co-conspirator to fix prices at high levels for vitamin C imported into the U.S.

As the Brief states:

“Regardless of the proper interpretation of Chinese law in this case, the facts as determined by the jury. . . showed that no entity, governmental or not governmental, acted to compel the conduct at issue here; rather, the jury found Appellants liable for their own voluntary conduct. . . .

The district court afforded deference to statements by the Ministry, and properly determined that Appellants did not meet their burden to prove the Chinese government compelled them to violate the Sherman Act as a matter of law. The jury had an ample evidentiary basis to conclude that the Chinese government did not compel Appellants’ cartel agreements as a factual matter. . . .

NCPG is liable for participating in the price-fixing conspiracy. The district court properly exercised personal jurisdiction over NCPG because NCPG participated in the vitamin C conspiracy targeting the United States. The “effect” of NCPG’s participating in price-fixing meetings in China, which caused buyers in the U.S. to purchase vitamin C at inflated prices, is sufficient to establish minimum contacts with New York. And the district court properly held that Appellees presented sufficient evidence for the jury to conclude that NCPG participated in the cartel.

The litigation dates back to 2005 and 2006, when the vitamin C purchasers began accusing Chinese manufacturers and their affiliates of taking part in an illegal cartel to fix prices and limit supply for exports. In March 2013 a jury determined that NCPG and HeBei met with competitors between December 2001 and June 2006 to coordinate pricing in China’s vitamin C industry, awarding the plaintiffs $54.1 million. Judge Cogan later trebled the damages, pushing the companies’ liability to $162.3 million.”

U.S. District Court Judge Brian Cogan refused to throw out the case based on MOFCOM’s argument of the so-called foreign sovereign compulsion defense that the Chinese government compelled the Chinese companies to set the export price.  In MOFCOM’s April brief to the 2nd Circuit, which was posted on my May blog post, the Ministry argued that the District Court’s decision should be thrown out because of the failure to defer to the Chinese government’s interpretation of Chinese law.

In the attached brief, the Plaintiffs responded:

“The Ministry and Appellants ask this Court to find Appellants immune from antitrust liability, despite a trial on the merits, because the Ministry says so. But no matter what level of deference is accorded to the Ministry’s statements concerning Chinese law, under Rule 44.1 this Court must determine itself whether that law provides a defense to claims of damages under the Sherman Act. . . .

The extent of deference sought by the Ministry in this case is breathtaking. The deference is not limited to how a regulation should be read, but seeks to include what factually happened, i.e., whether the Ministry or the Chamber actually exercised any compulsion.

For its current position, the Ministry ignores the contrary positions that the Chinese government has taken with the WTO, namely that in 2002 it gave up “export administration . . . of vitamin C. . . . .

The predicate for application of the act of state doctrine only exists when the suit “requires the Court to declare invalid . . . the official act of a foreign sovereign.” . . . . This Court need not declare invalid any official act of the Chinese government because (as the district court and the jury found) there was no official act of the Chinese government compelling Appellants’ actions. As the district court explained: “Chinese laws themselves were not placed on trial. Rather, the jury was only required to determine whether the Chinese government acted, not the propriety of its actions. . . .

Defendants that engage in antitrust conspiracies that affect a forum state have established the requisite “minimum contacts” for purposes of due process. . . .”

On July 15, 2014, the 9th Circuit Court of Appeals in the attached decision United States v. Hsiung and Au Optronics Corp. (“AUO”), AUO OPTRONICS, affirmed the convictions of all defendants, in a criminal antitrust case that stems from an international conspiracy between Taiwanese and Korean electronics manufacturers to fix prices for Liquid Crystal Display panels known as TFT-LCDs in violation of the Sherman Act. The Court also affirmed the $500 million fine imposed on AUO.

On July 16, 2014, the Plaintiffs argued that the recent 9th Circuit ruling in the AUO case supports their claims in the Vitamin C case against the Chinese companies. In particular, the 9th Circuit’s interpretation of the Foreign Trade Antitrust Improvements Act supports their argument that the FTAIA does not bar claims from vitamin C buyers who purchased the product directly for delivery in the U.S.

COMPLAINTS

HONG KONG EXCHANGE

In a series of antitrust cases that have been posted on my blog, companies are suing banks, including the Hong Kong Exchanges & Clearing Ltd, for triple damages under Section 1 and Section 2 of the Sherman act for conspiring to drive up prices of aluminum and zinc through the London Metal Exchange.  On July 8, 2014, the attached new antitrust complaint was filed by Galvanizers Company against the London Metal Exchange and number of other Metal Exchange companies, including the Hong Kong Exchanges & Clearing Ltd.  HONG KONG EXCHANGE

FOX CONN

On July 9, 2014, the attached new antitrust complaint was filed by Joseph Lai dba Ultra Tek against USB-Implementers Forum, Inc, Hon Hia Precision Industry Co., Ltd. and Foxconn International Holdings Ltd., including Foxconn (Kunshan) Computer Connect.  HON HAI FOX CONN ANTITRUST

CHINA ANTITRUST CASES

MOFCOM–SHIPPING DISAPPROVAL

As US antitrust cases have been on the rise in the United States, they are also rising in China. On June 17, 2014, in direct contrast to the US and EC, which had approved the merger, China’s Merger Office in the Ministry of Commerce known as MOFCOM blocked a proposed alliance among Danish shipping giant A.P. Moller-Maersk A/S and two of its partners to pool ships used on Eurasian trade routes.

MOFCOM declared that the merger agreement violated China’s anti-monopoly law because it excludes the effect of restricting competition in the European container liner shipping routes services market. As a result, Maersk and its partners agreed to stop work on the merger.

On June 20, 2014, MOFCOM issued the attached announcement,SHIPPING DISAPPROVAL, stating:

“On June 17, Ministry of Commerce announced its disapproval after the anti-monopoly investigation in the concentration of undertakings of Maersk, Mediterranean Shipping Company S.A. and CMA CGM establishing an Internet center. The large-scale collaboration of the three largest shipping companies in the world will bring profound influence to global shipping industry, and attract high attention from all circles. A leading official of Anti-monopoly Bureau of Ministry of Commerce made an explanation about the case.

The official said Ministry of Commerce has no objection to enterprises gaining advantageous market position through its competitiveness. For those enterprises who have already possessed certain market prowess and want to further strengthen the forces and achieve dominant market position through the concentration of undertakings, the impact on market competition should be analyzed seriously. After assessment of related market share, market control, market access and industrial features, Ministry of Commerce believes that after the concentration, the three companies will form a tight combination, and their share of transport capacity of Asia-Europe container liner transportation will reach 47%, with remarkable increase of market concentration.

The official said that during the investigation, Ministry of Commerce stated to the declarer that the concentration of undertakings may have the impact of competition elimination and restriction, and had several consultations on how to reduce the adverse impact of the concentration of undertakings to competition. The declarer submitted several remedy plans. After evaluation, Ministry of Commerce considered that there were no legal basis and convincing evidence to support the remedy plans, and it cannot be proved that the concentration of undertakings has more positive effect than adverse effect or accord with public interests. Therefore, according to the Antimonopoly Law of People’s Republic of China, Ministry of Commerce decided to forbid this concentration of undertakings.”

SED TALKS–CHINESE COMPETITION POLICY

On July 3, 2014, it was reported that US business associations demanded that in the upcoming US-China Strategic & Economic (“S&ED”) talks with China that the US raise the problems US companies are facing with the Chinese anti-monopoly law. The allegation was made that “it has become increasingly clear that the Chinese government has seized on using the AntiMonopoly Law (“AML”) to promote Chinese producer welfare and to advance industrial policies that nurture domestic enterprises.”

On July 12, 2014 at the end of the 6th meeting SED talks, the Treasury Department released the attached fact sheet, TREASURY DEPARTMENT ANNOUNCEMENT, about the outcome. With regards to the Chinese Anti-Monopoly law, the Treasury Department stated:

“Competition Law: In response to concerns of U.S. companies and government officials regarding enforcement of China’s Anti-Monopoly Law, China recognized that the objective of competition policy is to promote consumer welfare and economic efficiency, rather than to promote individual competitors or industries, and that enforcement of its competition law should be fair, objective, transparent, and nondiscriminatory. We are also encouraged by China’s commitment to provide any party under investigation with information about the competition concerns with the conduct or transaction, as well as an effective opportunity to present evidence in its defense.”

SECURITIES

CHINESE COMPANIES STRIKE BACK!—RECENT SECURITIES VICTORY BY DORSEY LAWYERS FOR CHINESE COMPANY

Dorsey lawyers Geoffrey Sant, Kent Schmidt, Bryan McGarry, Ray Liu, and Ted Farris representing Haiting Li and Pacific Bepure had a major victory for Chinese clients.As Mr. Sant states:

“For years, plaintiff law firms in the US have brought a seemingly endless stream of securities lawsuits against Chinese companies that are either listed or traded in the US.

  • In 2010, securities litigations against Chinese companies represented 46.8% of all US securities suits against non-US companies
  • In 2011, securities litigations against Chinese companies represented 59.6% of all US securities suits against non-US companies
  • In 2012, securities litigations against Chinese companies represented 47% of all US securities suits against non-US companies
  • In 2013, securities litigations against Chinese companies represented 45.7% of all US securities suits against non-US companies.

Last week, in what appears to be the first instance of its kind ever, a Chinese company sued under the securities laws in the United States not only achieved a dismissal of the lawsuit brought against it, but also obtained damages from the lawyers who sued the company. Specifically, in the attached Great Dynasty International Financial Holdings Ltd. v. Li order, GREAT DYNASTY Sanctions Order, the Court sanctioned the attorneys who brought a $5 million dollar claim against the company (Pacific Bepure), ordering the plaintiffs’ law firm and its lead attorneys to pay all of the legal expenses of the defendant. Past securities lawsuits against Chinese companies have resulted in many settlements and at least one massive $882 million default judgment. But last week’s ruling is the first time that a Chinese company has succeeded in not only dismissing securities litigation against it, but also obtaining payment from the very plaintiffs’ firm that brought the litigation. This may make plaintiff firms more hesitant or careful when bringing lawsuits against Chinese companies. Dorsey & Whitney represents Pacific Bepure, the company that won the sanctions award against the opposing attorneys.

In the Court’s decision sanctioning the plaintiffs’ law firm and attorneys, the Court stated:

  • Page 12-13.  “The Court finds that there is clear and convincing evidence that GDI’s counsel, Ms. Sally W. Mimms and Mr. John F. Kloecker of Locke Lord, LLP (collectively ‘Counsel’), assertion of federal securities law claims, including violation of section 10(b) and Rule 10b-5 and section 20(a), on behalf of GDI as well as most Assignor Shareholders, was both reckless and frivolous, and amounted to conduct tantamount to bad faith.”

第12-13页。“本院裁定有明确且令人信服的证据证明高汉的法律顾问即美国洛克律师事务所律师Sally W. Mimms女士和John F. Kloecker先生(统称‘法律顾问’)代表高汉以及大多数转让股东提出的联邦证券法索赔主张(包括违反第10(b)条和规则10b-5及第20(a)条的行为)是鲁莽且无法律事实依据的,等同于恶意的行为。”

  • Page 13.  “Counsel’s conduct was reckless and frivolous because a reasonable and competent inquiry into the law would have revealed that GDI and most Assignor Shareholders could not demonstrate (1) standing to assert federal securities fraud claims or (2) a causal connection between the purchase or sale [of] the PBEP securities in reliance on the alleged misrepresentations, and an economic loss.”

第13页。“法律顾问的行为是鲁莽且无法律事实依据的,因为对法律进行合理且合适的调查后将会发现高汉及大多数转让股东不能证明(1)坚持主张联邦证券欺诈索赔或(2)依赖于被指称的不实陈述的宝飘证券的购买或出售与经济损失之间的因果关系。”

  • Page 14.  “Counsel had all necessary facts in their possession of which to evaluate whether the claims could be asserted; although GDI clearly lacked standing and could not demonstrate a causal connection, Counsel asserted the claims.  Such conduct by Counsel was at the very least reckless and frivolous, because the claims had no basis in fact and Counsel failed to make a reasonable and competent inquiry into the law.”

第14页。“法律顾问拥有所有必要的事实来评估是否能提出诉讼请求;尽管高汉明显没有立场并且不能证明因果关系,法律顾问仍旧提出了诉讼请求。法律顾问的这种行为最起码是鲁莽且无依据的,因为索赔没有事实依据并且法律顾问未能对法律进行合理且合适的调查。”

  • Page 19.  “Here, the Court finds Ms. Mimms, Mr. Kloecker, and Locke Lord LLP jointly and severally liable for Defendants’ attorneys’ fees and costs in connection with litigating the frivolous federal securities fraud claims in both the complaint and the FAC.  Such an award would both vindicate the Court’s judicial authority while also mak[ing] Defendants whole for expenses incurred to defend the frivolous claims.”

第19页。“在此,本院裁定,对于被告在就诉状和FAC中的无依据联邦证券欺诈索赔进行诉讼时产生的律师费,Mimms女士、Kloecker先生和美国洛克律师事务所承担连带责任。此项裁决将维护本院的司法权威并同时使被告承担就无依据索赔进行辩护时产生的全部费用。”

This ruling may encourage some Chinese companies to more vigorously defend themselves, and in appropriate circumstances – such as meritless lawsuits – to fight the lawsuit rather than settle or to default. This, in turn, may cause plaintiff law firms to be less eager to bring lawsuits against Chinese companies.”

FOREIGN CORRUPT PRACTICES ACT (“FCPA”)

In the attached June edition of the FCPA Digest, Anti_Corruption_Digest_June2014, Dorsey lawyers report on a corruption investigation involving China stating:

“Serious Fraud Office (“SFO”) Investigates GlaxoSmithKline

Further to the April and May Digests which reported GSK investigations in Poland and China, it has been reported that the director of the SFO has opened a criminal investigation into the commercial practices of GlaxoSmithKline plc and its subsidiaries.

The SFO action follows the Chinese police announcement on 14 May that they had charged the former British boss of GSK’s China business and other colleagues with corruption, after an investigation disclosed evidence of a scheme to bribe doctors and hospitals.”

On July 10, 2014, David Richardson and Alesya Tepikina, two Dorsey lawyers, also issued the attached article entitled “Anti-Corruption Campaign in China – Causes of Corruption, and Hope? – Part One,” eu-cm-china-anti-corruption-campaign-brib, about the ongoing bribery and corruption investigations in China. In the Article they state:

” “I have seen corruption boil and bubble Till it o’er-run the stew.” – William Shakespeare, Measure for Measure

Corruption in the People’s Republic of China (“China”) presents a major administrative and financial burden on businesses operating in China and creates an unfavorable business environment (by undermining the operational efficiency of businesses and raising the costs and risks associated with doing business in China). As noted by some researchers, corruption is so widespread in China that it has become a norm, an unwritten law, and a way of living. Corruption threatens the vitality and international credibility of China’s emerging new economy. Out of 2,700 firms surveyed from November 2011 through March 2013, 19.2% reported that they were expected to give gifts to obtain import licenses, 18.8% said they were expected to give gifts to obtain construction permits, 10.9% reported they were expected to give gifts to tax inspectors and 10.7% said they were expected to give gifts to public officials “to get things done”. Bribery incidence (i.e., a percentage of firms that experienced at least one bribe payment request) was 11.6% and bribery depth (i.e., a percentage of public transactions where a gift or informal payment was requested) was 9.9%.

Since President Xi Jinping announced a crackdown on corruption among government officials in China in November 2012, multiple anti-graft and ant-extravagance regulations have been passed by government agencies at the central and local levels. The regulations allowed the Xi administration to single out officials for punishment, starting at the local level and moving up the ranks of party hierarchy.

This eUpdate is the first part in a series of eUpdates on topics related to the present anti-corruption campaign in China. It focuses on the social practices which allow corruption to thrive in China, and on economic reforms (and a developing legal system) which could reign in such corruption.

Extent of corruption

In 2013, the Transparency International’s Corruption Perceptions Index (the “Index”), which ranks countries based on the perception of corruption in their public sector, ranked China at 40.6 placing it in the 80th place out of 175 countries surveyed, on a par with Greece. China was ranked less corrupt than El Salvador, Jamaica, Panama, Russia and Peru, but more corrupt than Brazil and more developed countries. Over the past fourteen years, China’s rank remained at the lower range of the Index. For example, in 2008, China was ranked at 3.6 (on a scale of 0 – 10 used by the Index at that time), placing it in the 70th place out of 163 countries surveyed, and in 2000, China was ranked at 3.1, placing it in the 63rd place out of 90 countries surveyed. China historically ranked less corrupt than India, Russia and Venezuela, but more corrupt than Zambia, Colombia, Mexico, Ghana and South Korea.

As elsewhere, power over transactions and wealth in China appears to lead inevitably to corruption and corrupting behavior, or, in the words of Lord Acton, “power tends to corrupt and absolute power corrupts absolutely”. These words seem to apply perfectly to China, where the Communist Party has had a monopolistic power on politics and economics of the country for a prolonged period of time.

In China, as is often the case elsewhere, corruption is also a consequence of deeper stresses and changes. Underlying corruption is a growing tension between new policies and economic realities on the one hand, and traditional values, customs and established political system on the other, in the context of a political and institutional framework poorly-suited to handle such tension.

Understanding the characteristics and reasons underlying corruption in traditional China is crucial to comprehending the nature of the relationship between politics and economics in contemporary China, and to envisioning the future direction of reforms.

As described by some researchers, “post-reform corruption is a complex mixture of universal, transitional socialist and unique Chinese characteristics in its origins, consequences, as well as definitions.”

Definition and characteristics of corruption

One of the most general definitions of corruption, which seems to apply to China as well, describes it as ultimately “the use of public office for private gain”. It is also commonly understood as “behavior which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains; or violates rules against the exercise of certain types of private regarding behavior”.

Corruption can be characterized by the following features:

Power exploited for personal gain which includes monetary and non-monetary rewards;

An implicit contract concluded via a specific transaction, i.e. the transference of property rights, which because of its illegality is not subject to any officially legitimized institutional executive or sanctioning instance; and

At least two economic subjects interacting in the above transference of property right; this explicitly excludes the theft or embezzlement of state property as well as influencing of the political process to preserve power.

Guanxi networks

Corruption has deep roots and a long history in China. To understand the phenomenon of corruption as it applies to contemporary China, the historical role of patron-client and instrumental-personal ties in traditional China must first be analyzed.

The spread of corruption in traditional China is often connected to the Confucian concept of renzhi, or “government of the people,” as opposed to “government of law.” Chinese social behavior leading to corruption can be partly understood in terms of the hierarchical roles taught by Confucianism. These roles dictate the obligations an individual has in five cardinal relationships.

Among them is the filial responsibility of son toward father, which is the template for other hierarchical relationships in the system of Confucian ethics, such as that of subject-to-emperor and student-to-teacher. This hierarchical system of ethics was transplanted into the workplace, where it became the basis of a pervasive “organized dependency” of society upon the communist state. It evolved into an unofficial method utilized by workers to secure access to scarce goods and services (e.g., food, housing, or admission to schools) which were selectively distributed by shop officials. As benefits and resources were allocated directly by the planning bureaucracy in factories, workers relied on an informal “natural economy” of personal connections based on the exchange of gifts and favors in order to build privileged interactions with the gatekeepers who controlled them: factory officials.

Traditional Confucian values also emphasize consensus, lasting authority and clearly-defined personal relationships, a unity of state and society, and a socially encompassing moral order. These values led to social and cultural practices based on the extended personal-exchange and patron-client relationships encompassed by the term guanxi, which means interpersonal connections in order to secure favors in personal relations.

 Guanxi networks can be seen as institutions that arose centuries ago to secure trade relations in an environment that was only insufficiently covered by the legal system. An individual was able to expand his radius of economic relations, backed up by guanxi networks, to include various networks each with different resources.

A targeted expansion of an individual’s network to a counterparty which was regarded as useful for the pursuit of common interests could also be achieved by the giving of a gift or service. By accepting the gift or service, the counterparty obligated itself to perform an undefined reciprocal service at an unspecified time in the future. In this way, an implicit contract was concluded the fulfillment of which was linked to the particular network.

Guanxi networks can also be seen as clubs that guarantee their members the enforceability of available property rights in an institutionally disorderly environment, thus lowering transaction costs. To a certain extent, guanxi networks through personal connections and cooperation over a long period acted as a substitute for the market and the legal-institutional environment that supported it. At a later stage, connections served as a coordinating mechanism that allowed for a more efficient allocation of shortage goods than that provided by the fissures and fault lines of the communist economy. “This pattern is the result of structural features common to all communist factories: the workers’ economic dependence on the enterprise; political dependence on party and management; and, most important, the wide discretion of shop officials over promotion, pay, direct distributions, and sociopolitical services”.

Developed over centuries, guanxi networks were strongly anchored in traditional China and had an important function not only on an economic, but also on a political and social, level. They are still a factor in numerous areas in contemporary China, and virtually every Chinese person is connected to at least one guanxi network.  As noted by some researchers, guanxi networks stood in an antagonistic relationship to the Western system of legal rights. In the West, Christianity combined with pre-existing institutions to produce clear jurisdictional lines of top-down personalized authority. In the economic sphere, this led to legal definitions of property and ownership. Chinese institutions, however, rested on relationships and not jurisdictions, on obedience to one’s own roles and not on bureaucratic command structures. “Both jurisdictional principles and the autonomous individuals are historically absent in the Chinese worldview, and thus were not incorporated in Chinese institutions. Instead, Chinese society consists of networks of people whose actions are oriented by normative social relationships.”

Guanxi networks and economic reforms in China

With the advent of the “open-door policy” in China in 1978 and the subsequent reform period, guanxi networks underwent a gradual but substantial transformation from vertical relationships between officials and the rank and file to vertical relationships between officials and business. This change was brought about by the introduction of a market economy that was permitted to run in parallel with the old command economic mode. Following the implementation of the dual-track system, old central-administrative mechanisms were abandoned, often without putting in place new market-oriented substitutes capable of governing the transition. In this new hybrid system, the coexistence of guanxi networks and an emerging product market blurred the limits between regular economic transactions and corruption.

To a certain extent, guanxi networks advanced development of division of labor in the economic process and development in Chinese society over the centuries, and existed as complementary and parallel mechanisms for orderly economic interaction.

In the reform period, organization of economic activities by guanxi networks regained importance. Guanxi networks created governance structures that forced contract-honoring behavior of the transaction partners, analogous to vertical integration solutions.

Guanxi networks thus managed to provide an infrastructure in which the transaction partners could safeguard themselves from the ex post opportunism of one side. For some time, guanxi networks appeared to be an efficient and transaction-cost lowering co-ordination mechanism for regulating transactions in an environment characterized by high institutional uncertainty.

The reforms were aimed at the dissolution of established, central-administrative orderly mechanisms and development of the legal system. However, the first contract law did not take effect until July 1982, four years after the reform period had begun. The law was still strongly bound to the old central administrative system and quickly came into contradiction with subsequent laws and decrees, but was not revised until 1993. A comprehensive contract law only came into effect in October 1999. Even more problematic than this delayed enactment of laws was the poor enforcement of the existing laws mainly due to the administrative interventions and insufficient training of the officials enforcing the law.

The continuing liberalization of the Chinese economy requires a developed legal system which would provide a well framed regulatory and institutional framework for regulating financial and commercial transactions, testing them against principles of anti-corruption and offering legal security at a supra-individual level beyond social relationships. Such legal system would remove uncertainty as to enforcement of contractual rights and would therefore eliminate reliance on guanxi networks to safeguard transactions. However, transaction partners would need to regard such legal system as performing more effectively than guanxi networks before they could view it as preferable for regulating transactions. In addition, as noted by some researchers, pressure by political decision-makers would be required in order for the legal system to displace guanxi networks. Thereafter, as transaction costs for corrupt transactions would increase, guanxi networks would gradually lose importance and ultimately disappear, and incidences of corruption would decline.

TO BE CONTINUED”

SECURITIES COMPLAINTS

On June 16, 2014, Roger Artinoff filed the class action securities case against China Ceramics Co., Ltd., Huang Jia Dong, Su Pei Zhi, Hen Man Edmund, Ding Wei Dong, Paul K. Kelly, Cheng Yan Davis, William L. Stulginsky and Su Wei Feng.  CHINA CERAMICS

On June 20, 2014, Darryl Reitan filed a class action securities case against China Mobile Games & Entertainment Group, Ltd., Ken Jian Xiao, Ying Shuling, Credit Suisse Securities USA LLC, Barclays Capital, Inc., Jeffries LLC, Brean Capital LLC, and Nomura Securities International.  CHINA MOBILE

On June 26, 2014 Sophia Chang filed a class action securities case against China Mobile Games & Entertainment Group, Ltd., Ken Jian Xiao, Ying Shuling, Credit Suisse Securities USA LLC, Barclays Capital, Inc., Jeffries LLC, Brean Capital LLC, and Nomura Securities International.  CHINA MOBILE

On June 30, 2014, Michael H. Resh filed a class action securities case against China Agritech Inc., Yu Chan, Yau-Sing Tang, Gene Michael Bennett, Xiao Rong Teng, Ming Fang Zhu, Lun Zhang Dai, Charles Law, and Zheng Anne Wang. CHINA AGRITECH

On July 2, 2014, Richard Finlayson filed a class action securities case against China Ceramics Co., Ltd, Huang Jia Dong, Su Pei Zhu, Hen Man Edmund, Ding Wei Dong, Paul K. Kelly, Cheng Yan Davis, William L. Stulginsky, Su Wei Feng and Jianwei Liu.  CHINA CERAMICS LIU JIANWEI

On July 8, 2014, the SEC sued Child Van Wagoner & Bradshaw PLLC, a Salt Lake City accounting firm, for a substandard audit of Yuhe International, a Chinese chicken producer, which later admitted it lied to investors, resulting in millions of dollars in investor losses.  See the attached order.  SEC COMPLAINT YUHE AUDIT COMPANY

The SEC alleged that there was no evidence that the auditor made any inquiries concerning Yuhe’s internal policies related to the prevention of illegal acts or fraud, despite the resignation of the prior auditor, the existence of prohibited related party loans, numerous suspect accounting entries, a weak or nonexistent control environment and the use of personal bank accounts for Yuhe payments.

On July 15, 2014, Sungw An Yang filed a class action securities case against China XD Plastics Co., Ltd., Jie Han, and Taylor Zhang.  CHINA PLASTICS

On July 16, 2014, Shawn Tompkins filed a class action securities case against China XD Plastics Co., Ltd., Jie Han, and Taylor Zhang. TOMPKINS CHINA PLASTICS

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEFAULT DANGERS, TRANS PACIFIC PARTNERSHIP IN JEOPARDY, TRADE, CUSTOMS ANTITRUST AND SECURITIES

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER

Dear Friends,

There have been some major developments in litigation, including dangers of default judgments, trade, Solar Cells, Chinese Antidumping, patents, US/Chinese antitrust, and securities areas.

January was a very important month for US Trade Policy because of the problems with the Trade Promotion Authority/Fast Track Trade Bill and the Trans Pacific Partnership (“TPP”) and Trans- Atlantic (“TA”) Trade Agreements in Congress.  Literally there have been day to day developments culminating with President Obama’s January 28th State of the Union address followed by the January 29th decision of Senate Majority leader Harry Reid to oppose the Trade Promotion Authority (“TPA”) Bill and the TPP and TA Negotiations.

As described below, Senator Reid’s decision to not allow the TPA bill to be introduced in the Senate may be the day free trade died.  If Senator Reid’s decision becomes final, this will have a dramatic impact on all trade relations, including trade relations with China, as the United States becomes more and more protectionist.

US LITIGATION AGAINST CHINESE COMPANIES—DANGERS OF DEFAULT

Recently through a Chinese law firm a Chinese company approached us because they were facing a US trademark case brought by a competitor in the United States.  The company’s question, why respond?  We are a Chinese company and you cannot catch us and make us pay damages in the United States.

We pointed out that the trademark case in question is a tough case for the Plaintiffs to prove because the trademarks in question are not registered marks and are common law marks.  If the Chinese company fights the case, it would have a good chance of winning the case.  But if the Chinese company defaults, it loses the right to contest the merits of the case.

In antidumping and countervailing duty cases, Chinese companies with US import operations have also told us, “Don’t worry.  We will never pay antidumping and countervailing duties; they cannot catch us in China.”  The times, however, are changing.

In many US cases against Chinese companies in Federal District Court, Plaintiffs are asking for damages, an injunction and punitive damages.  If the Chinese company wants to sell its products in the United States again, it has to fight.  If it does not fight, when the Chinese company sells its products in the United States, those products, including all inventory and accounts receivable, can be attached to satisfy the judgment.

Moreover, when a default judgment is for money damages, the US company is seeking to collect actual damages, interest from the date of the judgment or before, statutory damages, possibly punitive damages and attorney’s fees, which eventually will total millions of dollars.  If the Chinese company has a strong legal argument against the US Plaintiff, when it defaults, the Chinese company loses the right to make those legal arguments.

Moreover, this is no longer the 1990s or even early 2,000s.  Over the last two decades, Chinese companies have grown up and have bank accounts and assets/money and subsidiaries all over the world.  But that means it is easier for US judgment holders to collect money on their default judgments against Chinese companies.

If the Chinese company continues to do business in the US in the face of a default judgment, Plaintiffs can attach the company’s assets.  U.S. Marshalls can show up at a U.S. trade show and take all the company’s trade show materials to satisfy the judgment.  US Marshalls can go to warehouses where the company stores its products and take them.  US plaintiffs can go after the Chinese company’s accounts receivable.  The US Plaintiffs and their US lawyers can attach or garnish the Chinese company’s bank accounts–in the U.S., Hong Kong, the EC, Taiwan and countries all over the World where US judgments are enforceable and also now in China itself.

If the Chinese company banks with a Chinese bank that has a branch in the U.S., such as New York, Plaintiffs will garnish that branch bank and go after the China company’s  assets/bank accounts located in any of the bank’s other branches, wherever located, including China.

In 2010 a US inventor sued Chinese tire companies in Shandong Province for patent infringement and unfair competition in a Federal District Court in Virginia.  The Chinese companies did not fight the case and the Federal District Court entered a default judgment for $26 million.

In September 2013, in the attached complaint TIRES COLLECTION CASE the US law firm and inventor sued the Chinese Industrial and Commercial Bank Branch in New York City, saying give the US Plaintiffs the records and assets of these companies in China to satisfy the US $26 million judgment.  If the Chinese bank branch refuses to pay, the Bank could face fines of $100,000 a day, as an example.

Under the Single Entity Doctrine, US Federal Courts have held that if the Court has jurisdiction over the Chinese bank branch, it has jurisdiction over the bank worldwide.  If a Chinese company has any bank accounts in Chinese banks, such as the Bank of China or the Industrial and Commerce Bank, those banks have branches in New York City and the Chinese company can be attacked through its bank.  We are presently representing a Chinese Bank in a similar case and have 30 lawyers working full time on the case in Guangzhou on discovery.

The point is that Chinese companies can run, but they cannot hide.  If a Chinese company defaults in US litigation, it can be attacked in the US, Hong Kong, Taiwan, EC, Canada and many other countries, and now China through Chinese bank branches in the US.  So when a Chinese company defaults in US litigation, it puts the entire company at risk.

On the other hand, if the Chinese company decides to fight the case and hire a US lawyer, it may be able to pay a small amount of money as compensation or simply change its product or trade dress slightly and settle the entire case.  In many cases, if the Chinese company fights, it may be able to win the entire case and in certain situations get money from the US company bringing the case.

Ignoring US litigation is like picking up the sesame and losing the watermelon.  If the Chinese company does business in the United States and intends to continue to do business in the United States, trying to avoid service or defaulting after service may materially damage its business.  It will certainly materially damage its ability to do business in the United States.  The costs of default may be significant and far greater than that which would be necessary to defend against the US lawsuit.

TRADE

TRADE NEGOTIATIONS—TPP AND BALI/DOHA ROUND

As mentioned in my past newsletter, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA) negotiations with the EC.  Experts have estimated that TPP and TA Agreements could increase global business by several trillion dollars, if they can be concluded and implemented. These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

This is particularly a problem because the protectionism is coming from the Democratic side of the aisle.  Democratic Senators and Congressmen are supported by labor unions.  Although companies see the substantial increase in business from the TPP and TA Trade Agreements, unions only see a loss of US manufacturing jobs.  To date, President Obama cannot get one Democratic Congressman to support Trade Promotion Authority (“TPA”) in Congress.  Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the mid-term elections as soft on trade.

This rising protectionism in Congress directly threatens the TPP and all future trade deals with China and many other countries.

TPP NEGOTIATIONS MAY END AS SENATOR MAJORITY LEADER HARRY REID REFUSES TO LET THE TPA BILL GET TO THE SENATE FLOOR

As the Doha Round chances went up, the chance of TPP and TA Agreements fell down and may have fallen down completely.  As mentioned in my last post, USTR and US government officials were predicting that the TPP negotiations would conclude at the end of the year with an Agreement.  That is not going to happen.  The Congressional problems regarding the TPP have grown larger and larger and, in fact, may now be insurmountable.

Although the TPP does not include China, China is the elephant in the room and so its presence is very much in the mind of all the negotiators and the political powers in the United States.  The public reaction to TPP and the TPA, which is needed to conclude the TPP agreement, in part, is a reaction to trade with China and is a reflection of public and political attitudes in the United States to trade with China.

In January the TPP and Trans-Atlantic Agreements have created high drama on Capitol Hill as there have been literally day to day developments.

TRADE PROMOTION AUTHORITY (“TPA”)

On January 9, 2014, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014. HOUSE FAST TRACK BILL The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

In introducing the new Trade Priorities Act, Senator Baucus stated that “This is our opportunity to tell the Administration – and our trading partners – what Congress’ negotiating priorities are.  TPA legislation is critical to a successful trade agenda. It is critical to boosting U.S. exports and creating jobs. And it’s critical to fueling America’s growing economy.”

According to Senator Hatch, “Every President since FDR has sought trade promotion authority from Congress because of the job-creating benefits of trade. Renewing TPA will help advance a robust trade agenda that will help American businesses, workers, farmers and ranchers by giving them greater access to overseas markets.”

The TPA Bill set out a clear directive on currency manipulation, provided greater transparency and gave Congress greater oversight of the Administration’s trade negotiations.

Both Senators Baucus and Hatch and Congressman Camp called TPA a “vital tool” as the U.S. continues TPP negotiations as well as free trade TA agreement talks with the European Union (EU).   The National Association of Manufacturers and the National Retail Federation quickly got behind the proposal and urged Congress to quickly pass it

As mentioned in past posts, however, the Administration considers the TPP negotiations to be secret and has not released any official negotiating texts.  Thus opposition is growing in Congress.  In November 2013, a group of over 170 lawmakers in the House sent letters to the President saying they opposed fast-track authority because modern trade agreements affect so many policies under Congress’ purview, and it should have much larger role in shaping the terms of the Agreements.

Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, stated that he was developing alternative legislation

On January 10th, it was reported that with opposition growing in Congress and the upcoming midterm elections, President Obama was going to have to mount a very serious lobbying effort to move the TPA legislation through Congress.  The proposed TPA legislation has drawn strong opposition from labor unions, including the AFL-CIO, which vowed to “actively work to block its passage,” and also environmental groups like the Sierra Club and consumer advocacy groups like Public Citizen.  Many Congressmen and Senators, especially on the Republican side of the aisle, stated that moving the TPA bill through Congress would require a strong lobbying effort on the part of the Obama administration, possibly even including remarks about TPA in the 2014 State of the Union address.

Prospects for a fast-track bill moving forward in 2014 are further complicated by the Congressional elections in November.  The TPA Bill is a test of the administration’s influence and clout on Capitol Hill and right now the Administration’s clout on Capitol Hill is very weak.  The TPA fight is a fight over a number of different issues and the extent to which Congress can influence the negotiating process.

Typically multi-national corporations strongly back free-trade agreements. The Chamber of Commerce, which sometimes spends more than $100 million lobbying a year, and the Business Roundtable, were quick to put out statements supporting the legislation. Also weighing in was a coalition called Trade Benefits America, which includes companies ranging from General Electric Corp. to Wal-Mart Stores Inc.

On January 15th it was reported that President Obama could not find one Democratic Congressman in the House of Representatives to co-sponsor the TPA bill. Meanwhile, the bill’s main Democratic backer in the Senate, Finance Committee Chairman Max Baucus, is retiring from the Senate and on his way out to be Ambassador to China, and key senior Democratic Senators on the committee, including Senator Wyden, its incoming chairman, say they either don’t support the bill or want to change it.

Democratic Reps. George Miller of California, Louise Slaughter of New York and Rosa DeLauro of Connecticut said of the proposed TPA Bill: “Our constituents did not send us to Washington to ship their jobs overseas, and Congress will not be a rubber stamp for another flawed trade deal that will hang the middle class out to dry.”

The free-trade push joins a growing list of policies Obama has championed that are unpopular with Democrats.  Both Republican and Democratic Members complained that the Obama administration’s outreach on trade has been disorganized.

Another Democratic complaint is that the negotiations for both trade deals are confidential and too far along for Congress to play a meaningful role in their outcome. Five influential Senate Democrats told U.S. Trade Representative Michael Froman that they won’t support the trade promotion authority bill without assurances that Congress can hold U.S. trade negotiators “more accountable” during the talks, rather than after a deal is finished and lawmakers can only cast up-or-down votes.

For Republicans, Democrats used pro-trade votes to blast GOP presidential candidate Mitt Romney and House Republicans in the Midwest states and elsewhere as supporters of outsourcing jobs.  According to one GOP leader in the House, given Obama’s political problems within his own party, House Republicans are insisting that Democrats deliver at least 50 votes in support of the bill, including at least one from the party’s leadership, before they’ll bring it to the floor.

On January 16, 2013, the Senate Finance Committee held a hearing on the TPA Bill and the TPP and TA negotiations, but USTR refused to send a witness.  Many industry witnesses did appear, however.  See http://www.finance.senate.gov/hearings/hearing/?id=bd99ab08-5056-a032-523f-27ddae65e3d0 for a video of the hearing.  The failure of USTR to show up at the hearing illustrated the difficulty ahead for the TPP.

At the hearing in the attached statement LARRY COHEN TESTIMONY TPP DIFFICULTY Labor Leader Larry Cohen, President of the Communications Workers of America, a union, spoke against the TPP, stating:

 

“Free trade agreements have been devastating for our balance of trade. In 1993, the year before the North American Free Trade Agreement (“NAFTA”), our trade deficit in goods was -$132 billion or -1.9 percent of our GDP. By 2012, our trade deficit ballooned to -$741 billion or -4.6 percent of our GDP. The growth of our trade deficit to such levels has been a strong drag on our economy and especially in terms of jobs and wages.

And specific trade deals have been most at fault for the increased trade deficit. Here are three examples. In 1993, the U.S. had a trade surplus in goods with Mexico of $1.66 billion. By 1995, just one year after NAFTA, this had changed to a $15.8 billion deficit and by 2012 the deficit with Mexico had increased even further to $62 billion.

Allowing China into the WTO also has been disastrous. The U.S. had a trade deficit in goods with China of $83 billion in 2001 when China was admitted to the WTO. This deficit has ballooned to $315 billion in 2012. And for a most recent example, in just one year after the U.S.-Korea trade agreement took effect, our trade deficit in goods with South Korea increased by $5.5 billion or 46%.

Last year, our federal budget deficit was more than $680 billion. But our trade deficit in goods for 2012 was $741 billion. While a lot of attention in Congress and in Washington, DC has focused on the federal deficit, little attention has been focused on our trade deficit and its negative impact on our economy, jobs and wages. If we had trade deals that actually led to balanced trade, our economy would generate more than 3 million more jobs. Unfortunately, our current model for free trade agreements increases our trade deficits and reduces our employment. . . .

In the economy as a whole, average real weekly take home pay for a U.S. worker today is $637 compared to where it was 40 years ago at $731 a week — $100 less.  . . .

Trade agreements have become the new tool in the arsenal for the unfettered corporate attack on collective bargaining rights. With trade agreements, threats to offshore work and actually offshoring the work in highly unionized industries has increased. The result — the share of the private sector workforce protected by a collective bargaining agreement has declined from a high of 35.7 percent to just 6.6 percent today. This is another direct link cited by most economists as a factor in the rising inequality in our country today.  . . .

In telecommunications, we have seen the virtual elimination of telecom manufacturing equipment in the US, the elimination of a U.S. national company, and hundreds of thousands of lost jobs in that supply chain.  . . .

Many groups representing U.S. consumers are especially concerned with how trade agreements can be used to degrade our food safety protections. Allowing for Fast Track consideration of TPP would further jeopardize the safety of the food consumed in the U.S. Seafood standards in particular could be challenged through the TPP. The FDA has detained hundreds of seafood exports from TPP countries because they were contaminated. For example in Fiscal Year 2012, the FDA detained 206 imported seafood products from Vietnam alone because of concerns including salmonella, e-coli, methyl mercury, filth and residues from drugs that are banned in the U.S.  Currently the FDA is only able to inspect between 1-2 percent of our food imports.  The TPP, by greatly expanding our food imports (especially seafood) would result in an even lower percentage of inspections.  . . . .

Trade agreements are no longer just about tariffs and quotas – they are about the food we eat, the air we breathe, the jobs we hold. Congress needs to have an enhanced and enforceable role in this new era when massive trade agreements can cover so many policy issues. We cannot abdicate the legislative and policy formation process to the USTR and non-elected representatives. Or, we would argue that trade policy should commence with the Congress adopting policy priorities and the countries with whom we will negotiate. It’s clear that this is not what has happened.  . . .

For example, we are concerned that Vietnam has been chosen as a trade partner. In Vietnam which has a population of 90 million people, the minimum wage is $0.28 per hour and the average wage is $0.75 an hour. There is no right to free association or expression. Our own Department of Labor has placed garments made in Vietnam on the federal “Do Not Procure” list for documented use of forced child labor in apparel production.  Vietnam’s extremely low wages, non-existent workers’ rights, and extensive roster of human rights violations will only further exacerbate the already strong downward pressure on U.S. wages.  We should not enter into trade agreements with countries with such records. . . .

Shouldn’t this proposition of including countries with such abysmal records like Vietnams be debated? Shouldn’t the U.S. Congress determine if that approach is appropriate? Shouldn’t the US Trade Representative further consult with Congress as negotiations progress?  . . . .”

 

For more details, see also video on CWA website http://action.cwa-union.org/c/1372/p/dia/action3/common/public/?action_KEY=7357

Yet at the same time, Senator Portman of Ohio, who was formerly USTR under President Bush, noted at the Senate Finance hearing that in terms of exports, in ranking of countries the US rates just above Ethiopia and that 40% of US exports were to countries that had signed trade agreements with the US.

After the hearing, Republicans, including House Speaker Boehner, and free trade Democrats urged President Obama to get more involved saying that the President has to become personally involved in pushing the TPA or the new Bill will simply not pass Congress.  As mentioned, in the House, President Obama faces the problem that not one Democratic Congressman is willing to co-sponsor a TPA Bill.

On January 16th, there were also reports that Congressional Democrats were very upset about the draft environmental provisions of the TPP that had been leaked by Wikileaks.  The draft environmental chapter of the TPP agreement and a report by negotiators from the 12 countries involved in the talks, show that the pact would fall short in enforcing the higher environmental standards of other recent U.S. trade deals. Those pacts threaten sanctions against trading partners that violate international agreements to protect endangered species, prevent overfishing and regulate chemicals that deplete the ozone layer.

Immediately, Sen. Bob Casey (D-Pa.), a member of the Senate Finance Committee, which oversees Trade, stated ““It’s of grave concern. It’s as if our negotiators, decade after decade, have to walk into the door and … say, ‘Yes, we have concerns about leveling the playing field on labor and environment protections,’ but by the end of it, we say, don’t worry about it.”

Although the United States is pushing for robust environmental provisions, apparently the 11 other countries are all opposed to more strict environmental standards.  The inability of the U.S. to secure its key environmental demands made it even more difficult for the TPA bill.

According to Rep. Rosa DeLauro (D-Conn.),” As more information about the Trans-Pacific Partnership being negotiated in secret is revealed, the more the public can see how clearly this potential agreement, which is unprecedented in scope, would not only lead to the outsourcing of jobs, but also harm American consumers and the environment.”   All of this did little to help Obama persuade liberal Democrats on the TPA Bill

On January 17, 2013, it was reported that progressive advocacy groups were ramping up efforts to oppose the TPP and TPA legislation urging their members to push their representatives in Congress to fight the trade policies.

The progressive-leaning Democracy for America sent an email to its members saying they should call their local congressional representatives and urge them to vote down a proposal that would grant trade promotion, or “fast-track,” authority to the Obama administration.

On Monday, January 27th, 550 labor, environmental and consumer advocacy groups, including the United Autoworkers, which provided President Obama critical support on previous trade pacts, such as the South Korea FTA, sent a letter to Congress urging them to reject the fast-track bill.

The email campaign comes two days after a dozen Senators, comprised of 11 Democrats and Sen. Bernie Sanders, an independent from Vermont, wrote to Senate Majority Leader Harry Reid, D-Nev., expressing “deep concern” over the chance that trade promotion authority would be renewed.

JANUARY 28 — STATE OF THE UNION

In response to the Republicans call in Congress for the Administration to do more regarding the TPA bill, President Obama responded in his State of the Union pushing the TPA bill and TPP and the TA Agreements.  President Obama stated:

“We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA”.  Look China and Europe aren’t standing on the sidelines.  Neither should we.”

What was very interesting about this point is that in contrast to almost every other point made in the State of the Union, when President Obama spoke about Trade, the Republicans cheered, but the Democrats in President Obama’s own party were silent.

JANUARY 29TH—THE DAY FREE TRADE MAY HAVE DIED

But the next day, Senator Harry Reid, the Senate Majority Leader, the head Democrat in the Senate, came out against TPA, stating:

“Everyone knows how I feel about this.  Senator Baucus knows.  Senator Wyden knows.  The White House knows.  Everyone would be well-advised to not push this right now.”

As Majority Leader, Senator Harry Reid controls the bills that are allowed on the Senate Floor.  With Senator Harry Reid’s opposition, the TPA bill is dead in the Congress, which means that the President’s trade agenda and his push for these agreements are also dead.  In an ironic point, this situation will probably only change if the Republicans take over the Senate in 2014.

The lawmakers opposed to the TPA Bill argue that in light of the top secret nature of the negotiations, multiparty trade deals go far beyond the scope of the smaller, typically single-nation trade accords that were done in the past.  These new multinational deals affect larger portions of the U.S. and global economies and touch on many policies under Congressional jurisdiction.  Congress, therefore, should have a greater say on trade deals beyond the ability to accept or reject them.

On January 29, 2014, David Bonior, a former Michigan Congressman, who voted for NAFTA, in an article entitled Obama’s Free-Trade Conundrum stated:

 

“But Mr. Obama’s desire for fast-track authority on the T.P.P. and other agreements clashes with another priority in his speech: reducing income inequality.

This month is the 20th anniversary of the North American Free Trade Agreement, which significantly eliminated tariffs and other trade barriers across the continent and has been used as a model for the T.P.P.  Anyone looking for evidence on what this new agreement will do to income inequality in America needs to consider Nafta’s 20-year record. . . .

The result is downward pressure on middle-class wages as manufacturing workers are forced to compete with imports made by poorly paid workers abroad. . . .The shift in employment from high-paying manufacturing jobs to low paying service jobs has contributed to overall wage stagnation. The average American wage has grown less than 1 percent annually in real terms since Nafta, even as productivity grew three times faster. . . .

The Nafta data poses a significant challenge for President Obama. As he said on Tuesday, he wants to battle the plague of income inequality and he wants to expand the Nafta model with T.P.P.  But he cannot have it both ways.”

 

In response to Senator Reid’s statement, it was reported that Sen. John Cornyn  (R., Texas.) stated “You can kiss any new trade deals goodbye. . . I think the majority leader’s focus is on the November elections and he doesn’t want to expose his vulnerable members to controversial votes.”

The latest developments come amid growing skepticism in Japan about the U.S.’s commitment to free trade. “It’s up to the resolve of the U.S. government,” Japan’s economy minister, Akira Amari, told reporters in Tokyo. “If the president comes to the negotiating table with a strong enough determination to wrap it up by spring, other countries will follow suit.”

Sen. Chuck Schumer (D., N.Y.) stated “I think there’s a lot of dubiousness in our caucus to fast track, given that every time we sign a free-trade agreement it seems other countries violate the rules and we don’t”.

Unions opposing the trade deals were happy with the outcome.   According to Larry Cohen, head of the Communications Workers of America, “For those of us who want to have a progressive trade agenda, it means that we’re encouraged.”

On January 30th, House Speaker John Boehner spoke out against President Obama suggesting that he needs to push Senate Majority Leader Harry Reid to get the TPA bill through Congress.

On February 3rd, President Obama met with Senate Majority Leader Harry Reid but the President did not bring up the trade issue and made no effort at the meeting to change Senator Reid’s mind on the TPA bill.

On February 4th, it was reported that StopFastTrack.com, a new coalition opposed to the TPA bill and the TPP and TA Trade Agreements is building grassroots support, gathering more than a half a million signatures and making tens of thousands of calls to Senators and Congressmen lawmakers to argue against trade legislation in Congress.

According to the report, unions, environmental groups, and political organizations—working under the umbrella site —have nearly 600,000 supporters  and made more than 40,000 phone calls to Congress, opposing the trade measures.

Another political organization, Democracy for America, has obtained 125,000 electronic signatures on a petition requesting that Nancy Pelosi, top House Democrat, follow Senator Reid’s lead and stop the TPA bill in the House.

Many trade experts believe that Senate Majority Leader Harry Reid’s decision not to bring the TPA bill to the Senate Floor casts substantial doubt over the negotiations for the TPP and the TA deals.  Most commentators are stating that all these Agreements are at risk right now.

White House press secretary Jay Carney stated on Wednesday, January 29th,

“Leader Reid has always been clear on his position on this particular issue.  As the President said in the State of the Union address, he will continue to work to enact bipartisan trade promotion authority to protect our workers and environment and to open markets to new goods stamped ‘Made in the U.S.A.’ And we will not cede this important opportunity for American workers and businesses to our competitors.”

Harry Reid’s decision could be a critical tipping point in US trade policy as the US becomes more and more protectionist.  It took a President Bill Clinton with his tremendous political ability to persuade Democratic Senators and Congressmen “to do the right thing” on NAFTA and enact it into law.  But President Obama is not Bill Clinton.

DOHA ROUND-BALI

As mentioned in the last newsletter, much to the surprise of many Government officials and companies, in December the WTO round in Bali resulted in all the WTO countries agreeing to Trade Facilitation Agreement to modernize customs procedures, as well as provisions on agriculture and economic development.  If there had been no Agreement in Bali, it could very well have meant the end of the multilateral effort to lower trade barriers through negotiations.

On January 7, 2014 WTO Director-General Roberto Azevedo stated:

“Just six weeks ago, the fate of the multilateral trading system hung in the balance. Today, we can talk with confidence about how we can continue to develop and strengthen the system for the future.”

According to Azevedo, the Bali Trade Facilitation Agreement could possibly add as much as $1 trillion to the world’s economy each year.

The question now is what happens in the future.  Most experts believe that the WTO members will in the short term pursue agreements that affect only certain sectors or include only some countries.  Thus, there will probably be sector-by-sector trade negotiations at the WTO.

Agreements affecting trade of environmental goods and services might be one of the likely near-term targets.  But the Trade Facilitation Agreement still must be implemented as the details have to be ironed out, including Customs procedures in developing countries and other issues.  Implementation also means the Agreement must go through Congress and without TPA, it will be difficult for Bali Agreement to get through Congress.

Azevedo himself realizes the problems stating, “The task of strengthening the multilateral system and moving towards delivering on the[Doha Development Agenda] will be difficult, but it is not impossible.”

SOLAR PRODUCTS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN–QUANTITY AND VALUE QUESTIONNAIRE DUE FEBRUARY 13TH AT COMMERCE

Commerce has issued a quantity and value questionnaire in the new Solar Products/Modules/Panels antidumping case/initial investigation against China.  The deadline for the response to the Quantity and Value Questionnaire is February 13, 2014.

Attached are the quantity and value questionnaire and the fact sheet that was issued by Commerce. factsheet-multiple-solar-products-initiation-012313   prc-qv-solar-products-012714

The quantity and value questionnaire requires the Chinese exporter to report all sales during the period April 1, 2013 to September 30, 2013.  Specifically, Commerce is requiring the Chinese exporter to report the total number of modules, panels or laminates during that period, the total number of megawatts, the terms of sale and the total value of sales.

A Chinese exporter/producer must submit a response to this quantity and value questionnaire by February 13th.  If not, it will receive the highest dumping rate of 165%.

SOLAR CELLS REVIEW INVESTIGATION

To further complicate the Solar case, on February 3rd Commerce published in the attached Federal Register notice initiating the first Solar Cells review investigation.  This case will cover imports of Chinese solar cells during the review period.

So to be clear, the Solar Cells Review Investigation covers Chinese solar cells.  The Solar Products new investigation covers imports of Chinese modules and panels with Taiwan and other solar cells in them.

For the first Solar Cells Review Investigation, attached are the notice, in which many Chinese companies are named, and the Quantity and Value questionnaire.  Solar Cells AD CVD Initiation Notice 1st Review (2) SOLAR CELLS REVIEW QV Chinese companies named in the Solar Cells Review investigation need to file the QV questionnaire response on February 19th .   Chinese companies also need to file separate rate applications or certifications on or before April 4, 2014 at Commerce in first review investigation to keep their separate rate from the Solar Cells initial investigation.  Failure to file these documents meand that imports of Chinese solar cells will be assessed a rate of 250%.

Solar Trade problems with China are getting complicated.

SOLAR PRODUCTS INITIAL INVESTIGATION

As mentioned in my last post, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  The Scope of the Merchandise, the specific products covered by the new antidumping and countervailing duty investigations, are described in the attached notice and petition:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

See the injury petition in my last post on this blog.

In the subsequent Commerce Department initiation notice, which is attached, however, in contrast to the petition, solar consumer products are specifically excluded:

“Also excluded from the scope of this investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm2 in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.”

Initiation Notice – Certain Crystalline Silicon Photovoltaic Products 1-24-14

In addition, Commerce reduced the All Others/Facts available rate in the China case from 298% to 165%, but raised the antidumping rate for Taiwan to 75.68% from 39%.  The trade volume is large.  According to Commerce, imports of the subject merchandise from China and Taiwan were valued at $2.1 billion and $513.5 million, respectively.

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days, when the Commerce Department’s preliminary determinations are due on May 30, 2014 (CVD) and July 29, 2014 (AD).  Commerce Department investigations almost always are extended out to the full time.

Chinese companies also must submit their response to the quantity and value questionnaire by February 13th and be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 22nd, the day after the Government was closed, the ITC held a preliminary conference.  The Commission’s preliminary injury determination is due February 14th.

Meanwhile, many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

The Solar Energy Industries Association (SEIA) has announced that it is opposed to the case, calling it an “escalation” of the U.S.-China solar trade conflict.  Experts also stated that the duties could cripple the end user portion of the solar Industry, which is far larger than the domestic production industry.  As the SEIA stated, “From past experiences, we have learned that a conflict within one segment of the solar industry ripples across the entire solar supply chain.”

The market pressure driving solar prices downward is not caused by dumping, but the industry’s efforts to achieve so-called grid parity, where the price for solar power is comparable to that for traditional-source power.  But prices for US oil and natural gas are falling fast.  With falling costs for traditional forms of energy, it is very difficult for solar energy to be competitive.

The effect of this case, however, will be to drive up the costs of solar products,

Although the SEIA and some members of Congress have called for a settlement of the solar trade dispute, Solar World has expressed skepticism about such a deal, making it more difficult to conclude a government to government deal settling the case.  As mentioned in a prior post, there is no public interest standard in US antidumping and countervailing duty law, as compared to EC, Canada and China.  Also End Users have no standing in US antidumping and countervailing duty cases.  Thus it is difficult for the US Government to pressure Solar World to drop its case.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases stating:

 

“The two parties should follow the trend and make efforts to promote cooperation proceeding from the overall interests of clean energy development, so as to ensure the steady development, rather than restricting competition and cooperation by frequently taking trade remedy measures. It is proved that, that U.S. initiated investigations and levy high anti-dumping and countervailing duties in 2011 not only failed to change the situation of poor operation and lacking of competitiveness of its domestic industries, resulting in significant negative impacts on downstream industries including the assembly industry and services sector, but also triggered a worldwide chain reaction of trade disputes on PV products, which caused chaos in the whole industry.  . . .”

 

See attached statement MOFCOM STATEMENT

CURTAIN WALL UNITS ARE COVERED BY THE ALUMINUM EXTRUSIONS CASE

On January 30, 2014, in Shenyang Yuanda Aluminum Industry Engineering Co. v. United States, Judge Eaton in the Court of International Trade affirmed the Commerce Department’s determination that Curtain Wall Units, the sides of buildings, are with the scope of the AD and CVD orders on aluminum extrusions from China.  The Court stated in part;

“Because curtain wall units are “parts for” a finished curtain wall, the court’s primary holding is that curtain wall units and other parts of curtain wall systems fall within the scope of the Orders.”

See the attached decision.  SHENYANG YUANDA

As a result of the Court’s and the Commerce Department’s determination, the sides of buildings from China are now covered by US antidumping and countervailing duty orders with duties as high as over 100 to 300% for certain imports.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

WIRE ROD

On January 31, 2014, a new antidumping and countervailing duty case was filed against carbon steel wire rod from China.  See notice below.

Docket No: 3000

Document Type: 701 & 731 Petition

Filed By: Kathleen Cannon

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: ArceloMittal USA LLC, Charter Steel, Evraz Rocky Mountain Steel, Gerdau Ameristeel US Inc., and Keystone Consolidated Industries Inc, and Nucor Corporation.

Date Received: January 31, 2014

Confidential: Yes

Commodity: Carbon and Certain Alloy Steel Wire Rod

Country: People’s Republic of China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and antidumping duties on Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China.

Status: 701-TA-512 & 731-TA-1248

ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

In February Chinese producers and exporters, US importers and US producers have the opportunity to request an antidumping and/or countervailing duty review investigation of certain outstanding AD and CVD orders by filing a review request at Commerce by the last day of February for the following cases against China :

Period of review ————————————————————————              Antidumping Duty Proceedings

The People’s Republic of China:

Certain Preserved Mushrooms, A-570-851………..     2/1/13-1/31/14

Folding Metal Tables and Chairs \2\, A-570-868…     6/1/12-11/5/12

Frozen Warmwater Shrimp, A-570-893……………     2/1/13-1/31/14

Heavy Forged Hand Tools, With or Without Handles,     2/1/13-1/31/14      A-570-803…………………………………

Small Diameter Graphite Electrodes, A-570-929….     2/1/13-1/31/14

Uncovered Innerspring Units, A-570-928………..     2/1/13-1/31/14

Utility Scale Wind Towers, A-570-981………….    2/13/13-1/31/13

Countervailing Duty Proceedings

The People’s Republic of China:

Utility Scale Wind      2/13/13-12/31/13  Towers, C-570-982.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

In forthcoming posts we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

CHINESE ANTIDUMPING CASE

POLYSILICON

On January 20, 2014, China issued final antidumping and countervailing duties against solar-grade polysilicon imported from the U.S.  Under the Chinese polysilicon antidumping duty order, US companies face dumping rates ranging from 53% to 57%.  On the Countervailing Duty side, US companies face rates from 0 to 2.1%.

On January 26, 2014, MOFCOM announced that given “the special market conditions” it has decided not to carry out antidumping and anti-subsidy measures for the moment.  Apparently, MOFCOM is hoping for a negotiated suspension agreement in the new Solar Products case.

FDA—FOOD PROBLEMS

CHINESE CHICKEN

On December 19, 2013, fourteen Congressmen circulated a letter in Congress asking their Congressional colleagues to ensure Chinese-processed chicken is kept out of the school lunch and other child nutrition programs. The letter also states that chicken slaughtered in China should be banned from the US market.  The letter states:

“It is because we are deeply concerned about the safety of the food served to the American people, especially our children, that we write to express our serious apprehension about the Food Safety and Inspection Service (FSIS) recent decision to allow China to process chicken raised in the United States, as well as Canada and Chile, to then export to the United States. Furthermore, we believe FSIS is likely to eventually allow China to export its own raw poultry to the United States.”

CHINA CHICKEN PROBLEM CONG LETTER

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

On December 5th, the Washington State Government reported that on December 3rd the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Washington, Oregon, and northern California. China reported a shipment of geoduck clams tested high in paralytic shellfish poison (PSP) and arsenic.  See my past post on this blog for more on this fight and the attached announcement.

The ban has already devastated shellfish growers in Washington, Alaska, Oregon and Northern California.  It also affects clams, oysters and other shellfish from U.S. waters.

China is the world’s largest importer of geoducks (pronounced “gooey duck”), with more than half of all the harvest from Washington, British Columbia and Alaska getting shipped to China. With China cut off, there are few places for the harvest to go.

Test results showed that, on average, arsenic was present in the geoduck bodies at a level of 0.327 parts per million (ppm), which falls below China’s legal limit of 0.5 ppm. Arsenic in the actual meat of the geoducks registered at 0.063 ppm, eight times lower than the limit.

On January 9th it was reported that Laboratory tests on Washington State’s exports of geoduck clams, found no evidence of unsafe or excessive levels of arsenic.  Although the test results have been sent to China, to date they have not yet received a response, and the ban remains in place.

The problem, however, arises from US export forms for the geoduck shipment.  The form does not allow for more specificity in identifying the source from which the shellfish were harvested.  While the problem shipments of shellfish came from isolated areas in Washington and Alaska, “Area 67″ encompasses all the coastal regions from Northern California through Alaska’s Pacific Coast. As a result, Chinese authorities were forced to ban shellfish from all of Area 67.

National shellfish programs provide forms that set forth specific shippers and harvest locations, which allow the governmental authorities to easily trace shipments back to specific shippers and harvest locations. If there’s a contamination problem domestically, shellfish growers can easily isolate the problem instead of shutting down the entire industry.

The World Health Organization is said to be considering setting safe levels for
inorganic arsenic in food in the .2-.3 ppm range in 2014. The Washington geoduck claims that tested high for inorganic arsenic in China, however, were harvested from a tract of land managed by the Department of Natural Resources that has since been closed. The tract is within the shadow of a copper smelter that was operated near Tacoma for 100 years.   According to Marian Abbett, manager of the Tacoma smelter clean up for the Washington Department of Ecology, “Well we know that arsenic levels are elevated in the surface soils in that area.  Soil samples from the surrounding land show levels of arsenic between 40 and 200 ppm, though that number does not directly equate to levels of arsenic that will end up in the water, or in shellfish.”

The area was closed to all shellfish harvest until 2007, when the Puyallup Tribe petitioned state agencies to reopen the tract for geoduck harvest. At that time the Department of Health conducted tests on geoduck in the area and found levels of .05 ppm. That’s an order of magnitude below the amount found by the Chinese in October of 2013 and well within the safety parameters set by the Chinese.

However, state agencies have not tested for inorganic arsenic or other metals in shellfish from the area since it was reopened in 2007.

Arsenic is a carcinogen that has also been associated with long-term respiratory effects, disruption of immune system function, cardiovascular effects, diabetes and neurodevelopmental problems in kids.

“There’s no safe level, but at some point you’ve crossed the threshold to being really dangerous and we don’t quite know where that threshold is at this point,” Cottingham said.

But the ban is having a real effect on fishermen in Washington State.  Ninety percent of the geoduck harvested in Washington is sold to China and Hong Kong.

The clams can fetch up to $150 per pound in China, but today the Suquamish tribe is losing $20,000 each day that the ban is in place, but the impacts of the ban are being felt well beyond the reservation. John Jones, another Suquamish diver, stated, “My brothers are from Port Gamble and they’re out of work.  They shut down diving everywhere, not just for us but for the state.”

Although British Columbia in Canada is not affected, the Chinese ban impacts all shellfish throughout Puget Sound, Alaska, Oregon and Northern California.  The shellfish industry in Washington is worth $270 million annually, and China is the biggest market for exports.

This is the broadest shellfish ban China has ever put in place, but it’s not the first time China has banned a major import from the U.S.  Beef imports from the U.S. have been banned for the past ten years. More recently, China rejected about half a million tons of U.S. corn because it contained a genetically modified strain.

Chinese officials have been slow to reveal details of their shellfish testing methods. That’s prompted some to raise concerns about political motivations behind the shellfish ban.

Although there is a possibility that the Chinese are retaliating for past problems with food imports in the US, there is strong evidence that the Chinese have a legitimate problem.  The contaminated geoduck clams were harvested near the former site of a copper smelter in Tacoma, which had leached arsenic into the surrounding area.

Again Chinese problems with US shellfish must be kept in context.  As indicated above, US Congressmen want to ban all chicken processed in China.  Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

PATENT/IP AND 337 CASES

INTERDIGITAL SETTLES 337 PATENT CASE WITH HUAWEI

On January 2, 2014, InterDigital Communications Inc. and Huawei Technologies filed a confidential settlement of their 337 patent case over 3G and 4G wireless devices.  Huawei’s antitrust strategy seems to have worked.

CHINESE COMPANY LOOSES 337 RESINS TRADE SECRET CASE

On January 15, 2014, in Certain Rubber Resins and Processes for Manufacturing Same, Investigation No. 337-TA-849, the U.S. International Trade Commission (“ITC”) determined that there was a violation of section 337, 19 USC 1337, because a Chinese chemical maker and other companies had stolen trade secrets covering the recipe for rubber resins held by New York company, Sl Group Inc.  The Commission issued a limited exclusion order for 10-years excluding infringing imports of the Chinese resins into the United States from Sino Legend (Zhangjiagang) Chemical Co. Ltd. and the other named respondent companies in the case.

According to the 337 complaint, although SL Group had closely guarded the formula and the equipment used to create the resin, the manager of Sl Group’s Shanghai chemical plant defected to Sino Legend in 2007 and took the design with him.

The ITC’s ruling is directly contrary to the ruling of a Chinese court, which reached the opposite conclusion and found that there was no misappropriation.  After acquiring the trade secret, Sino Legend has been able to take over about 70% of the Chinese market for the rubber resins in question, which are used in tire production.

In response to the ruling, Sino Legend has stated that the Commission’s ruling will not substantially affect its business because the ITC’s ruling will allow its customers to use all Sino Legend resins in any of their non-U.S. production facilities, and then import those products into the U.S. without restriction.

DUPONT TRADE SECRETS CASE — TITANIUM DIOXIDE

In an ongoing criminal trial in California this month, prosecutors described how an ex-DuPont engineer and two conspirators stole DuPont trade secrets regarding a specific process to produce very high quality titanium dioxide, and sold the designs to Chinese state owned companies earning $28 million.

Chinese-American Walter Liew and his wife, Christina, founded multiple companies in Northern California and hired as a consultant ex-DuPont engineer Robert Maegerle, who knew the process of safely producing massive amounts of titanium dioxide.  Maegerle allegedly shared what he learned building plants for DuPont with the Liews, who used the information to negotiate contracts with Chinese companies, including Pangang Group Co., to build titanium-dioxide-making factories in China. However, both Maegerle and Walter Liew knew Dupont had patented that information and it was confidential.

Titanium dioxide is a white pigment used in everything from iPhone cases to toothpaste.  But it is hot, dirty and dangerous and DuPont figured out a way to make the product commercially viable.  According to the prosecutor, that process is what the Chinese companies wanted.

Maegerle is charged with trade-secrets theft, conspiracy and obstruction of justice.  Christina Liew faces charges of economic espionage, trade-secret theft, and tampering with witnesses and evidence in a separate trial.

Lawyers for the defendants argued that they did not copy DuPont’s factory plans verbatim, but used them as the basis to design around and develop their own production techniques for producing titanium dioxide.

Later in the trial, however, a government expert testified that Dupont fiercely guarded its trade secrets for making high-quality titanium dioxide and that the trade secrets made Dupont the envy of the industry.

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

On December 31, 2013, Laserdynamics filed a patent case against Haier. HAIER PATENT CASE

On January 7, 2014, Bluebonnet Telecommunications filed patent cases against ZTE and Huawei. BLUEBONNETZTE HUAWEI BLUEBONNET

On January 7, 2014, Toyo Tire and Rubber filed a patent case against South China Tire and Rubber Co. TOYO TIRE CASE

On January 10, 2014, Personal Audio filed a patent case against Huawei and ZTE. PERSONAL AUDIO HUAWEI ZTE

On January 10, 2014, Thomas & Betts filed a trademark, unfair competition, case against Zhejiang Shengyu City Fengfan Electrical Fittings Co. TRADEMARK WRENCH ZHEJIANG

On January 13, 2014, Laerdahl Medical filed a patent case against Shanghai Honglian Medical Instrument Development Co. SHANGHAI MEDICAL

On January 13, 2014, ICON Health and Fitness filed a trademark case against Zhongshan Camry Electronics Co. ZHONGSHAN TRADEMARK

On January 14, 2014, Kee Action Sports filed a patent case against Shyang Huei Industrial Co., a Taiwan company. TAIWAN SUN

On January 14, 2014 Toyo Tire and Rubber filed a patent case against Hong Kong Tri-Ace Tire Co and Doublestar Dong Feng Tyre Co. TOYO DONG FENG

On January 16, 2014, Touchscreen Gestures filed patent cases against Huawei and ZTE. TOUCHSCREEN ZTE TOUCHSCREEN HUAWEI

On January 29, 2014, Standard Fiber filed a trade secret case against Shanghai Tianan Home Co, Teetex, LLC, and Anwen “Alvin” Li. SHANGHAI TRADE SECRET

Complaints are posted above.

ANTITRUST

VITAMIN C CASE

As mentioned in my last post, the Vitamin C antitrust case against Chinese Vitamin C companies is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  In addition, the judgment has increased by $4 million, specifically $4,093,163.35, to $158 million, specifically $158,203,163.35, to pay the Plaintiffs’ legal fees. FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

JUSTICE IS GETTING TOUGHER ON INTERNATIONAL CARTELS DEMANDING JAIL TIME FOR FOREIGN EXECUTIVES

There are reports that in 2013 and now 2014 the Justice Department has ramped up its enforcement in international cartels/price fixing antitrust cases looking for more prison sentences for foreign executives involved in these cartels.

On January 30th, Bill Baer, the Assistant Attorney General for the Antitrust Division gave the attached speech to the New York State Bar Association in which he described in detail international antitrust enforcement, including increased enforcement of antitrust cases against international cartels, and the DOJ’s increased cooperation with Chinese antitrust authorities.  BILL BAER DOJ STATEMENT ANTITRUST ENFORCEMENT The Assistant Attorney General stated:

 

“With those preliminary observations in mind, let me focus on the progress antitrust enforcement has made these last five years. President Obama promised during his first campaign that his administration would vigorously enforce the antitrust laws.  He pledged to “step up review of merger activity,” “take aggressive action to curb the growth of international cartels,” and ‘ensure that the benefits of competition are fully realized by consumers.’

“I think the record shows the Antitrust Division has followed through on the President’s pledge. Criminal enforcement provides an excellent starting point. We continue to vigorously pursue and prosecute international and domestic cartels. Since January 2009, we have filed 339 criminal cases, a more than 60 percent increase over the prior five years. We secured $4.2 billion in criminal fines in that period. . . .

Effective cartel enforcement requires holding accountable both corporations and the senior executives who orchestrate their unlawful conduct. We have charged 109 corporations with criminal antitrust violations since 2009. We have ensured that those corporations have paid appropriate—and stiff—criminal fines, and those 109 corporations together have paid the highest five-year fine total in division history. The division also charged 311 individuals with antitrust crimes during the past five years.

Experience teaches that the threat of prison time is the most effective deterrent against criminal antitrust violations. We seek sentences commensurate with the economic harm caused by the perpetrators. The statistics show that the courts are embracing the effort to hold company executives accountable for their bad behavior. The average prison sentence in our cases has increased from 20 months in the period 2000-09 to 25 months during the years 2010-2013. Of course, we can never know for certain the full deterrent effect of our enforcement efforts. But we do know that self-reporting under our leniency program remains at high levels and that, increasingly, non-U.S. companies are reporting anticompetitive behavior. They are responding to the fact we are prosecuting off-shore conduct with a U.S. impact. In recent years the number of foreign nationals sentenced to U.S. incarceration has increased threefold. The message should be clear: the division will vigorously and successfully prosecute international cartel behavior that harms U.S. consumers regardless of where that conduct takes place. . . .

The division has brought criminal cases in a range of industries over the past several years. One of our most significant ongoing investigations involves the auto parts industry. We are prosecuting price fixing and bid rigging involving a number of parts that were installed in cars sold in the U.S., including wire harnesses, instrument panel clusters, and seatbelts.  . . .

To date, we have charged 24 companies and 26 executives with participating in multiple international conspiracies, and those numbers are sure to grow as the investigation continues.   These charges have resulted in $1.8 billion in criminal fines, including the third-largest criminal antitrust fine ever.   Of the 26 executives charged so far, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements requiring significant sentences.

During the past several years, the division also prosecuted international price-fixing conspiracies involving liquid crystal display panels. These conspiracies hurt U.S. consumers by dramatically inflating prices for computer monitors, notebook computers, and televisions, among other products. In 2012, the division secured convictions of Taiwan-based AU Optronics, its subsidiary, AU Optronics Corp. America, and three former top executives for their participation in such a conspiracy.   The trial against AU Optronics was the first time the division proceeded under the alternative fine statute, 18 U.S.C. § 1571, which allows for fines up to two times the gain or loss resulting from the conduct. The division proved beyond a reasonable doubt to the jury that the combined gains to the participants in the conspiracy were $500 million or more and that the defendants’ conduct accordingly merited a fine exceeding the Sherman Act’s $100 million maximum.   . . .

There is more to come.  . . . There can be little doubt that the division vigorously prosecutes wrongdoers. . . .

During the Obama administration U.S. enforcers have broken new ground in relations with China and India. In the past few years, the division and the FTC have entered into Memoranda of Understanding (MOU) with the Chinese and Indian enforcement agencies.  These MOUs have led to annual bi-lateral meetings between the U.S. antitrust enforcement agencies and agencies from these nations.  Indeed, earlier this month, I attended with Chairwoman Ramirez a bi-lateral meeting with the Chinese authorities in Beijing. We see candid engagement with the Chinese and Indian agencies as important, and we look forward to increased cooperation in the coming years.

Cooperation also plays an important role in our international criminal cartel investigations. Working with competition enforcers in non-U.S. jurisdictions, we share information where we are able; and we can plan coordinated raids around the world, reducing the opportunity for key evidence to go missing or be destroyed. . . .”

 

When foreign corporate executives are found to be guilty of engaging in a cartel to set prices, this is considered a crime of moral turpitude and the foreign executive is barred from entering the US for a minimum of 15 years.  Under a memorandum of understanding between Justice and Immigration and Naturalization Services (“INS”), now Immigration and Customs Enforcement (“ICE”), if the foreign executive pleads guilty and cooperates with authorities, that executive can be exempted from the 15 year exclusion and continue to enter the US.  Antitrust criminal defense attorneys have argued that this exemption is unfair because it places unfair pressure on the foreign executive to forgo their right to trial.

On January 24, 2014, in response to questions from Congress on this issue, Assistant Attorney General Baer stated in the attached response:

 

“In general, moral turpitude has been held to be conduct that is inherently dishonest and contrary to accepted rules of morality and the duties owed between persons or to society in general. Tax fraud, mail fraud, securities fraud, and theft offenses, for example, have been held to be crimes of moral turpitude. Similarly, price-fixing, bid-rigging, and market allocation agreements among companies that hold themselves out to the public as competitors are inherently deceptive and defraud consumers who expect the benefits of competition. Thus, the division’s Memorandum of Understanding (“MOU”) with INS states that INS, now the Department of Homeland Security as successor to INS, considers criminal antitrust offenses to be crimes involving moral turpitude, which may subject an alien defendant to exclusion or deportation.

However, an alien defendant who is convicted of an antitrust offense at trial retains the ability to contest his removability from the United States.

In today’s global marketplace, many culpable executives involved in international cartels affecting U.S. consumers and commerce are foreign nationals. They may live and work outside the U.S., but their cartel conduct affects billions of dollars of U.S. commerce yearly and takes money out of consumers’ pockets. The MOU was drafted in order to allow the Antitrust Division to secure jurisdiction over and cooperation of these foreign nationals in the division’s investigations and prosecutions of international cartels and to hold these foreign nationals accountable for antitrust crimes, just as domestic defendants are held accountable.

The cooperation of defendants receiving immigration relief under the MOU is critical to the division’s ability to investigate and prosecute international cartel activity. A foreign defendant’s willingness to cooperate with the division provides the basis for the waiver of inadmissibility under the MOU, and fulfilling the continuing cooperation requirements with the division is a condition of a defendant’s retention of the waiver. Having cooperating witnesses from multiple companies is essential to fully investigate cartels and to hold responsible individuals at each corporate conspirator accountable.

Moreover, having defendants who have pleaded guilty is important at Antitrust Division trials. Extending the MOU waiver to noncooperating defendants would undermine the incentives provided by the MOU and be unjust to those foreign nationals who are willing to accept responsibility for their criminal conduct, submit to U.S. jurisdiction, cooperate with the division, and serve time in U.S. prison. It would also be unworkable to require pleading foreign defendants to continue their cooperation to maintain the waiver while at the same time giving the MOU waiver to non-pleading defendants who have not accepted responsibility and fully cooperated with the division.”

BAER STATEMENTS TO CONGRESS

CHINA ANTITRUST CASES

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from the NDRC.  China’s National Development and Reform Commission (NDRC) is becoming an increasingly aggressive regulator and is focusing on information technology providers, especially companies that license patent technology for mobile devices and networks.

Apparently, the NDRC is trying to lower domestic costs as China rolls out its faster 4G mobile networks this year.  US -based Qualcomm is scheduled to obtain the vast majority of licensing fees for the chip sets used by handsets in China, the world’s biggest smartphone market in the World.

Under the Chinese antimonopoly law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year.  Qualcomm reportedly earned $12.3 billion in China for its fiscal year ended September 29, or nearly half of its global sales.

Qualcomm is no stranger to substantial fines.  In 2009, South Korea’s Fair Trade Commission fined the company 273 billion won ($252 million), the highest Korean penalty ever against a single company, for abusing its dominant position in CDMA modem chips which were then used in handsets manufactured in Korea.

SECURITIES

SEC DROPS CHINESE AUDIT CASE AGAINST DELOITTE

On January 27th the SEC told the Federal Court that it was dropping its case against Deloitte for failure to turn over audit documents of a Chinese technology company.  The SEC stated that Deloitte was supplying the audit papers to the China Securities Regulatory Commission, which, in turn, was supplying the records to the SEC.

The dismissal of the case, however, will not affect a separate SEC action against the Chinese offices of the Big Four accounting firms for refusing to reveal client documents to the SEC.  An SEC administrative law judge recently ruled that the China based offices are barred from auditing companies that do business in the U.S.

JURY CLEARS CHINESE INVESTMENT ADVISOR SIMING YANG

On January 13th, a jury in the Federal District Court found Chinese investment adviser Siming Yang not guilty on insider trading claims brought by the U.S. Securities and Exchange Commission (“SEC”), but did find Yang guilty for other violations, including making false disclosures to the regulator.

FOREIGN CORRUPT PRACTICE ACT–CORRUPTION ISSUES IN CHINA FOR FOREIGN COMPANIES

On February 4th, Carl Hinze in Dorsey’s Shanghai office published the attached article “Doing business in and with China: Battling a corruption culture by building a compliance culture”.

HINZE ARTICLE FCPA

COMPLAINTS

On January 10, 2014, Deborah Donoghue filed the attached securities case against Secure alert, Short Swing Profits, which are all owned by Sapinda Asia and Lars Windhorst, a Hong Kong Company, for short swing profits. SAPINDA HK

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

Best regards,

Bill Perry

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

Suzhou Garden of the Humble Administrator ChinaNovember 29, 2013

ANNOUNCEMENT

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

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

“TRADE IS A TWO WAY STREET”

NEWSLETTER

Dear Friends,

There have been some major developments in the trade, Customs fraud, patents, US/Chinese antitrust, and securities areas.

I have just returned from a trip of more than 2 weeks in China.  While in China, we discussed US and Chinese antidumping and antitrust cases and other US Litigation against Chinese companies along with the US Importers Lobbying Coalition.  In addition, we circulated the attached PowerPoint description in English and Chinese of Dorsey’s Trade and Litigation Team.  FINAL CHINA TRADE LITIGATION POWERPOINT NOV 2013 Final CHINESE China Trade Litigation PowerPoint Nov 2013

TRADE

SOLAR CELLS ANTIDUMPING AND COUNTERVAILNG DUTY CASE—SETTLEMENT AND THIRD COUNTRY CELLS LOOPHOLE

Apparently, negotiations between the US and China in the Solar Cells case have slowed down because there have been no further developments that have been announced publicly.

Meanwhile, however, the U.S. Department of Commerce and Customs are continuing to press Chinese exporters and US importers of solar panels to demonstrate that their imports of Chinese modules and panels fall outside of existing antidumping (AD) and countervailing duty (CVD) orders by proving that they contain solar cells in the Chinese panels and modules that are produced in third countries.

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

As mentioned in my last post, the Commerce Department continues to investigate, but has not launched a formal circumvention inquiry yet.  In addition to Commerce, Customs is requiring similar documents to prove that the solar cells were actually produced outside of China.  On November 16, 2013, USTR Michael Froman said that a close partnership between USTR and U.S. Customs and Border Protection (“CBP”) was the key to enforcing trade duty orders against Chinese solar panels.

After touring the Los Angeles port the USTR said in a statement that the U.S. takes a “whole-of-government” approach to trade enforcement. As one example, the USTR explained that his office and Customs had partnered to protect the U.S. solar industry by challenging unfair trade practices on the part of China through disputes at the World Trade Organization and enforcement of U.S. trade remedy laws.

“When it comes to solar, the Obama administration is enforcing U.S. trade remedy laws and U.S. rights under WTO agreements,” Froman said. “At the same time, [Customs] is stepping up reviews of imports of solar panels from China to determine whether they are improperly evading payment of antidumping and countervailing duties.”

USTR also pointed to the coming WTO multilateral negotiations in Bali on trade facilitation measures, which would  streamline customs procedures, and is “poised to close” the proposed Trans-Pacific Partnership with 11 other Pacific Rim countries.

Unfortunately, the November 27, 2013 reports are that the WTO multilateral negotiations in Bali have broken down, in part over the Trade Facilitation report, which means the Trans Pacific Partnership and other negotiations will become even more important.

ATTACK ON SUNTECH

On November 6, 2013, Solar World launched an attack in the Solar Cells case arguing that Commerce should raise Suntech’s antidumping cash deposit rate from 29.14 to 250% because it is now owned by a new company.  SOLAR SHUNFENG  In the attached submission, Solar World argues:

“On behalf of SolarWorld Industries America Inc. (“SolarWorld”), Petitioner in the above-captioned investigations, we respectfully request the U.S. Department of Commerce (“the Department”) to instruct U.S. Customs and Border Protection (“CBP”) to assess antidumping and countervailing duties on all entries of crystalline silicon photovoltaic cells, whether or not assembled into modules (“solar cells and modules”), imported into the United States by Shunfeng Photovoltaic International Ltd. (“Shunfeng”) or related entities at the PRC-wide rate of 249.96 percent and the All Others rate of 15.24 percent. . . .”

“Publicly available information now indicates that Suntech has ceased to exist as an independent entity and is thus no longer entitled to these separate rates. In March of this year, Suntech was forced into bankruptcy proceedings after defaulting on U.S. bond payments.  This month, Shunfeng, a mid-size solar manufacturer in China, announced that it won a bid to purchase the main unit of Suntech’s assets, i.e., Wuxi Suntech Power Co.  Reports indicate that Shunfeng has paid a deposit of CNY500 million ($82 million) to acquire Suntech, and is expected to pay an additional CNY2.5 billion (or $410 million).”

“In light of this acquisition, solar cells and modules produced by the former Suntech entity will now be imported into the United States by Shunfeng. While Shunfeng participated in the original investigation, it did not submit an application for a separate rate. Antidumping duties on imports of Chinese solar cells and modules from Shunfeng, therefore, are assessed at the PRC-wide rate of 249.96 percent, while countervailing duties are assessed at the All Others rate of 15.24 percent.”

“Given the recent asset acquisition, the PRC-wide and All Others rates now also apply to solar cells and modules manufactured by the former Suntech entity and imported by Shunfeng. Shunfeng is not entitled to Suntech’s separate rates absent a request for a changed circumstances review, a full investigation, and a final determination by the Department.  Indeed, based on publicly available information about the nature and structure of the transaction, in particular that Suntech’s assets were purchased out of bankruptcy, it is unlikely that Shunfeng would be entitled to Suntech’s separate rates.”

HARDWOOD PLYWOOD—NEGATIVE ITC INJURY DETERMINATION

On November 5, 2013, in a very surprising decision, the US International Trade Commission (“ITC”) reached a negative, no injury, no threat of material injury determination in the antidumping and countervailing duty case on hardwood plywood from China.  All five voting Commissioners reached a negative determination.

In its opinion, the Commission found that although subject import volume increased from 2010 to 2012, it did so solely at the expense of nonsubject imports and that there was no “significant correlation between subject import prices and the domestic industry’s prices or shipment volumes. Prices for the subject imports trended upward throughout the period of investigation for all six of the products.”

The ITC also determined that “the underselling did not cause a shift in volume from the domestic like product to the subject imports. To the contrary, for most of the pricing products, quarterly shipments of domestically produced hardwood plywood were greater in 2012 when total subject import volume was at its peak, than in 2010.  We also note that despite the prevalent underselling over the period of investigation, the domestic industry did not lose market share.  Rather, as discussed above, the domestic industry’s share of apparent U.S. consumption increased steadily throughout the period of investigation while lower‐priced subject imports also gained market share.  To the extent that subject imports gained market share, they did so at the expense of nonsubject imports and without depressing domestic prices. . . .”

“Most of the industry’s trade and employment indicators improved during the period of investigation, including in interim 2013 as the industry continued to recover from the recession. The domestic industry’s U.S. shipments increased steadily from 2010 to 2012 and were higher in interim 2013 than in interim 2012.”

Two factors that may have had an indirect impact on the case were the Commerce decision and the impact on downstream industries.

As mentioned in the last newsletter and blog, the Commerce Department used Bulgaria as the surrogate country to find dumping by Chinese hardwood plywood companies.

In addition, as indicated in past newsletters and blog posts, US downstream producers of kitchen cabinets, doors and windows have been very vocal in their opposition to these cases because of the very damaging effect any antidumping and countervailing duty orders on Chinese hardwood plywood could have on US downstream industries.

Although the ITC cannot take these two factors into direct account in their determination because they are not statutory factors to be considered, they could have an indirect effect and may have made certain ITC Commissioners more predisposed to reach a negative injury determination if there was a way to do so.

WOOD FLOORING — COMMERCE DEPARTMENT ANTIDUMPING REVIEW INVESTIGATION

Meanwhile, the Commerce Department has issued a preliminary determination in the first antidumping review investigation in the Wood Flooring from China case raising the antidumping rate slightly from 3.88% to 4.77%.  See the attached preliminary determination.  Wood_Flooring_AD Prelim_FR_signed_pub[2]

This decision will not have any actual impact on the US market, however, because it is only Commerce Department final determinations in review investigations that set new cash deposit and assessment rates for imports of wood flooring from China.

COMMERCE NEW SAMPLING METHODOLOGY

On November 4, 2013, the Commerce Department issued the attached Federal Register notice announcing that it was changing its respondent selection methodology in antidumping review investigations to include sampling. SAMPLYING NME METHODOLOGY COMMERCE  As it stands now, in choosing the “mandatory” respondents in antidumping review investigations, Commerce generally creates a list of the Chinese exporters during the relevant review period and picks the two or three largest exporters of the products under investigation during that period.

As mandatory respondents in antidumping review investigations, Chinese export companies must respond to the entire 100 page Commerce Department questionnaire and numerous supplemental questionnaires and be subject to Commerce Department verifications.   Because of the substantial added work, mandatory respondent companies can often pay more than $100,000 in legal fees.  Such high legal fees can cause smaller Chinese export companies simply to give up, which, in turn, can create enormous liability for US importers because of retroactive liability.

As the Department states in the attached Federal Register notice:

“As explained in the Proposed Methodology, when the number of producers/exporters (“companies”) involved in an AD investigation or review is so large that the Department finds it impracticable to examine each company individually, the Department has the statutory authority to limit its examination to: (1) A sample of exporters, producers, or types of products that is statistically valid  based on the information available to the administering authority at the time of selection, or (2) exporters and producers accounting for the largest volume of subject merchandise from the exporting country that can reasonably be examined.  The Department has, to date, generally used the second option in proceedings in which limited examination has been necessary. One consequence of this is that companies under investigation or review with relatively small import volumes have effectively been excluded from individual examination.”

“Over time, this creates a potential enforcement concern in AD administrative reviews because, as exporters accounting for smaller volumes of subject merchandise become aware that they are effectively excluded from individual examination by the Department’s respondent selection methodology, they may decide to lower their prices as they recognize that their pricing behavior will not affect the AD rates assigned to them.  Sampling such companies under section 777A(c)(2)(A) of the Tariff Act of 1930, as amended (the “Act”), is one way to address this enforcement concern. . . .”

“The statute requires that the sample be “statistically valid.”  The Department has interpreted this as referring to the manner in which the Department selects respondents.  Therefore, to ensure the statistical validity of samples, in the Proposed Methodology, the Department proposed employing a sampling technique that: (1) is random; (2) is stratified; and (3) uses probability-proportional-to-size (“PPS”) samples. Random selection ensures that every company has a chance of being selected as a respondent and captures potential variability across the population.  Stratification by import volume ensures the participation of companies with different ranges of import volumes in the review, which is key to addressing the enforcement concern identified above. Finally, PPS samples ensure that the probability of a company being chosen as a respondent is proportional to its share of imports in the respective stratum.”

“In general, the Department will normally rely on sampling for respondent selection purposes in AD administrative reviews when the following conditions are met: (1) There is a request by an interested  party for the use of sampling to select respondents; (2) the Department has the resources to examine individually at least three companies for the segment; (3) the largest three companies (or more if the Department intends to select more than three respondents) by import volume of the subject merchandise under review account for normally no more than 50 percent of total volume; and (4) information obtained by or provided to the Department provides a reasonable basis to believe or suspect that the average export prices and/or dumping margins for the largest exporters differ from such information that would be associated with the remaining exporters.”

COMMERCE NAME CHANGE—NOW ENFORCEMENT AND COMPLIANCE

On October 22, 2013, the Commerce Department changed the name of the organizational unit assigned to administer and calculate antidumping and countervailing duty rates from “Import Administration” to “Enforcement and Compliance.”  In the attached Federal Register notice, COMMERCE NAME CHANGE Commerce states that “The revision more accurately reflects the breadth of the agency’s activities with respect to the enforcement of, and compliance with U.S. trade laws and agreements.”

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance.  Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies.  In US politics, only squeaky wheels get the grease.

CUSTOMS

HONEYGATE GOES ON

On November 15, 2013, the Justice Department announced that a Federal judge in Illinois sentenced Jun Yang, a U.S.-based honey broker, to three years in federal prison for his role in a scheme to evade nearly $38 million in antidumping duties on imports of Chinese honey into the U.S.  In March Jun Yang pled guilty to mislabeling Chinese honey and declaring falsely to Customs that the honey originated from India or Malaysia to avoid the antidumping duties on Chinese honey.  Yang has already paid $2.89 million in penalties to the US government.

According to Gary Hartwig, an agent with U.S. Immigration and Customs Enforcement’s Homeland Security Investigations unit “This is a significant sentence against a perpetrator of one of the largest food fraud schemes uncovered in U.S. history.  Together with our partners at Customs and Border Protection, we will continue to protect American industries from deceptive import practices, while facilitating the lawful flow of goods across our borders that is so critical to the U.S. economy.”

DOJ said that an undercover HSI agent helped uncover the scheme. Court filings show that Yang delivered 778 container loads of honey to processors and distributors that were falsely declared as Malaysian or Indian imports while knowing that all or some of the honey had originated in China.

Yang’s arrest was part of an ongoing government probe of Chinese honey smuggling operations that allegedly evaded a total of $180 million in antidumping duties.

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

On October 31, 2013, Rockstar Consortium filed a patent case against Huawei.  ROCKSTAR HUAWEI

On November 7, 2013, Mobile Telecommunications Technologies filed a patent case against ZTE. ZTE CASE

On November 8, 2013, Secure Nova LLC filed a patent case against ZTE. SECURE ZTE CASE

On November 15, 2013, Bendpak filed a trademark, trade secrets, unfair competition case against Qingdao Lianhai Hydraulic Machinery Co. QINGDAOTMK

On November 26, 2013, Long Corner Consumer Electronics filed a patent case against Huawei. LONGCORNER HUAWEI

On November 26, 2013, Crossroads Systems Inc. filed a patent case against Huawei. CROSSROADS HUAWEI

On November 26, 2013, Memory Integrity filed a patent case against Hisense. HISENSE

ANTITRUST

VITAMIN C CASE

The Vitamin C case is wrapping up at the District Court level.

As mentioned in my last post, the October 16, 2013 proposed settlement agreement with China Pharmaceutical Group Ltd. and Weisheng Pharmaceutical Group Co., Ltd. provided for the payment of Plaintiffs’ legal fees of $7.8 million plus $1.5 million in expenses by the Chinese companies.  In other words, the Chinese respondent companies pay the legal fees of the US lawyers bringing the case.

On November 26, 2013, in the attached memorandum order and decision, VITAMIN C JUDGMENT the Federal Court rejected arguments by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) that as a matter of law they should not be found guilty under Section 1 of the Sherman Act for price fixing.  The effect of the Court’s decision is to leave in place a judgment of $153 million damages award against the two companies.

The most important part of the decision is the response to Hebei and NCPGC’s arguments that the Act of State, Foreign Sovereign Compulsion, and International Comity doctrines bar the jury’s verdict as a matter of law under the US antitrust law.  As the Court states in the attached decision on pages 1-3:

“First, defendants argue that the jury’s verdict against them is barred as a matter of law by the doctrines of act of state, foreign sovereign compulsion, and international comity.  In essence, defendants contend that the Court’s prior rulings that Chinese law did not compel defendants’ actions were erroneous and that plaintiffs’ claims never should have been brought before a jury.  . . . The Court stands by and reaffirms its prior rulings that Chinese law did not compel defendants to engage in antitrust violations, that the doctrines of act of state and international comity do not bar plaintiffs’ suit, and that it was inappropriate to present evidence about the meaning of Chinese laws to the jury. Nothing has changed from these pretrial rulings and defendants have stated no additional grounds to revisit them.”

“Moreover, defendants ignore that one purpose of the trial in this matter was to determine whether, regardless of what Chinese law authorized, defendants’ conduct was actually compelled by the Chinese government as a matter of a fact. Therefore, the Court instructed the jury that it was required to return a defense verdict if defendants proved, by a preponderance of the evidence, that the Chinese government actually compelled them to fix the price or limit the supply of vitamin C and defendants have not challenged this instruction.”

“There was ample evidence presented at trial from which the jury could have found that the Chinese government did not actually compel defendants’ decisions to fix the price and limit the supply of vitamin C – including evidence suggesting that the “verification and chop” mechanism did not actually compel defendants to enter into anticompetitive agreements and that the Vitamin C Subcommittee of the Chamber of Commerce of Medicines and Health Products Importers and Exporters (the “Chamber”) was a voluntary trade association. Moreover, in rejecting the compulsion defense, the jury necessarily assessed the credibility of witnesses’ testimony and, on a Rule 50(b) motion, the Court may not second-guess those determinations. . . .”

“Nor, despite defendants’ suggestion, was it error for the Court to exclude from the jury copies of Chinese laws and regulations and witness testimony about the meaning and content of those laws. Pursuant to Fed. R. Civ. P. 44.1, the determination of foreign law is a question of law. It is for the Court, not for the jury, to decide questions of law and the Court did so when it ruled that, as a matter of law, Chinese law did not compel defendants’ conduct. Accordingly, defendants’ renewed motion for judgment as a matter of law based on the act of state, foreign sovereign compulsion, and international comity doctrines is denied.”

The Court rejected the arguments of the two Chinese companies and in addition issued an injunction enjoining the Chinese companies from fixing prices in the future.

During my recent trip to China, many Chinese companies and the Chambers of Commerce simply did not realize that US judgments against Chinese companies can be enforced through Chinese bank branches in New York City.  We are presently representing a major Chinese bank in litigation in New York City in which the US lawyer, David Boies, is attempting to get money damages from the Chinese bank in China through its bank branch in New York city.  This same lawyer, David Boies, is a Plaintiff attorney in the Vitamin C case.

The times they are a changing and the Chinese companies should understand that they are now vulnerable to attacks from US litigation.

JAPANESE AUTO PARTS ANTITRUST CASES

On November 26 and 27, 2013, the Justice Department issued two announcements that Toyo Tire and Rubber TOYO GUILTY and Stanley Electric STANLEY ELECTRIC had agreed to plead guilty to price fixing on automobile parts installed in US cars.  Although these Auto Parts antitrust cases are against Japanese and Taiwan companies, they should be of interest to Chinese auto parts and other companies and US importers.

With regards to the plea by Toyo, the Justice Department issued the attached announcement stating:

“Japan-based Toyo Tire & Rubber Co. Ltd. has agreed to plead guilty and to pay a $120 million criminal fine for its role in two separate conspiracies to fix the prices of automotive components involving anti-vibration rubber and driveshaft parts installed in cars sold in the United States and elsewhere, the Department of Justice announced today.”

“According to a two-count felony charge filed today in U.S. District Court for the Northern District of Ohio in Toledo, Toyo engaged in a conspiracy to allocate sales of, to rig bids for, and to fix the prices of automotive antivibration rubber parts it sold to Toyota Motor Corp., Nissan Motor Corp., Fuji Heavy Industries Ltd. – more commonly known by its brand name, Subaru – and certain of their subsidiaries, affiliates and suppliers, in the United States and elsewhere.  . . .”

“In addition, according to the charge, Toyo engaged in a separate conspiracy to allocate sales of, and to fix, raise and maintain the prices of automotive constant-velocity-joint boots it sold to U.S. subsidiaries of GKN plc, a British automotive parts supplier. . . .”

“Today’s charge is the latest step in the Antitrust Division’s effort to hold automobile part suppliers accountable for their illegal and collusive conduct,” said Renata B. Hesse, Deputy Assistant Attorney General for the Department of Justice’s Antitrust Division. “The division continues to vigorously prosecute companies and individuals that seek to maximize their profits through illegal and anticompetitive means.”

“The department said the company and its co-conspirators carried out the conspiracies through meetings and conversations, discussed and agreed upon bids, price quotations and price adjustments, and agreed to allocate among the companies certain sales of the anti-vibration rubber and constant-velocity-joint boots parts sold to automobile and component manufacturers.”

“Including Toyo, 22 companies and 26 executives have been charged in the Justice Department’s ongoing investigation into the automotive parts industry. All 22 companies have either pleaded guilty or have agreed to plead guilty and have agreed to pay more than $1.8 billion in criminal fines. Of the 26 executives, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements calling for significant prison sentences. . . .”

“The charges are the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by each of the Antitrust Division’s criminal enforcement sections and the FBI.”

CHINA ANTITRUST CASES

On November 25, 2013, the Wall Street Journal reported that Qualcomm is subject to an antitrust investigation in China and Cisco is facing retaliation because of the actions of the US Congress against Huawei.  The investigation by the NDRC in China is regarding Qualcomm’s patent royalties on chips used for handsets.

Qualcomm’s chief executive acknowledged the investigation and indicated that the investigation is in response to U.S. restrictions on Chinese companies and revelations about surveillance by the National Security Agency.

Qualcomm, however, is the largest maker of processors and communications chips for mobile phone and has a dominant position in the high-speed technology called LTE that Chinese carriers are moving to adopt.

Qualcomm charges for patent royalties to mobile phone makers for use of its chips have resulted in South Korean and Japanese antitrust cases. Qualcomm is appealing adverse rulings in both countries.

In an interview with the Wall Street Journal, Qualcomm Chief Executive Paul Jacobs said the de facto U.S. ban on telecom gear maker Huawei Technologies and revelations about NSA spying were affecting Qualcomm’s business in China.  Executives of Cisco Systems also recently suggested that Chinese customers are cutting purchases of US tech gear because of the reaction to the US ban.

What goes around, comes around.

SECURITIES

COMPLAINTS

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

On October 29, 2013, Pang filed a class action securities case against NQ Mobile and various Chinese individuals. PANGNQ

On October 30, 2013 Hiller filed a class action securities action against NQ Mobile and various Chinese individuals. HILLER NQ

On November 5, 2013 Gangaramai filed a class action securities action against NQ Mobile and various Chinese individuals. GANGNQMOBILE

On November 14, 2013 Martin filed a class action securities action against NQ Mobile and various Chinese individuals. MARTINNQMOBILE

In talking with insurance brokers in China, it is now clear that the reason that the Chinese individuals are named in Class Action Securities cases is that insurance companies often insure the individuals that are in management or on the Board of Directors, but not the companies themselves

FOREIGN CORRUPT PRACTICES ACT

In November 2013, three Dorsey partners, Tom Gorman, who was formerly with the enforcement division of the US Securities and Exchange Commission, Nick Akerman, Nike Burkill and Aidan Colclough published the attached Anti-Corruption Digest regarding the Foreign Corrupt Practices Act and other UK Legal Actions against bribery. FCPA DIGEST

With regards to China the Dorsey partners state:

“FCPA Compliance in China “

“The US China Business Council (the “USCBC”) has published a report which provides an insight into practices which can assist companies doing business in the higher risk environment of the PRC. The report, entitled Best Practices for Managing Compliance in China, is based on a survey of 30 companies doing business in China, spanning a variety of industry sectors.”

“The survey highlights compliance practices currently being utilized by companies doing business in China. These include:

— Entertainment. One of the key risks faced by companies stems from commercial and government entertainment. 94% of the firms responding in the survey reported using mandatory monetary thresholds or limits on the amount that can be spent on entertainment and gift giving. 44% of those companies use global company wide limits in U.S. dollars while 56% keep the thresholds in local currency. The average threshold for entertainment expenses in China is about $72 per event.

–Gifts. Gift giving is a key issue because it is a customary practice in China. Most companies reported that they discourage gifts. When they are unavoidable, typically firms favor giving gifts of minimal monetary value with corporate logos such as flash drives, calendars, notebooks and small toys directly related to the business of the company. Most companies also maintain a threshold for gifts. The average amount for those in the survey was $57.

–Whistleblowers. Nearly all of the companies in the survey offer hotlines for staff to anonymously report compliance concerns. The most successful are those with multi-lingual support and local call-in numbers.

–Joint ventures. Given the local laws restricting the modes of foreign investment in China, these present one of the most challenging issues. Companies in the survey stated the importance of continually discussing compliance to ensure that it is considered a priority in the partnership. Given that a foreign partner may not always have direct input with regards to the joint venture’s day-to-day operations, the respondents noted that it is vital to ensure that senior leaders at the joint venture company continually reinforce the compliance message.”

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

Best regards,

Bill Perry

US CHINA TRADE WAR–TRADE, CHINA BANK COLLECTIONS, PATENTS/337, SECURITIES

US Capitol Dome Houses of Congress Washington DCDear Friends,

There have been some major developments in the trade, solar cells, collection actions against Chinese banks, 337/patents, antitrust and securities areas.

TRADE

 

SOLAR CELLS—CHINESE ANTIDUMPING CASE ON POLYSILICON PUTS WASHINGTON STATE/USA JOBS AT RISK

On August 20, 2013, in the attached article the Seattle Times reported about the impact of the Chinese Polysilicon Antidumping and Countervailing Duty case against the United States on REC Silicon, a Washington State manufacturer of polysilicon.  POLYSILICON IMPACT REC SILICON  The article states:

“REC Silicon, a large manufacturer of solar-grade polysilicon in Central Washington, warns of a “massive blow” to its business if China and the United States don’t resolve a trade dispute.”

The article goes on to state:

“REC Silicon, with 500 workers in this Central Washington town, annually produces enough solar-grade polysilicon to power more than 2 million homes. But a global trade battle over solar panels threatens to plunge REC and its local workforce into financial crisis.

China last month slapped hefty duties on U.S.-made polysilicon in a move widely seen as retaliation for American tariffs imposed last year on imports of Chinese solar panels. Now, China’s solar-panel producers face a 57 percent tariff on polysilicon bought from REC, raising the likelihood that they’ll get the raw material elsewhere.

Chinese customers account for nearly 80 percent of the polysilicon produced in Moses Lake, so the stakes are huge, said REC general counsel Francine Sullivan.  “This is potentially a massive blow to our business. We’re doing all we can to keep going, but we can’t manage too much longer without government help,” she said. . . .

Polysilicon, a hyper-pure form of silicon, is the main material in solar panels. REC places fifth on an IHS ranking of the world’s largest polysilicon producers. Last fall, the United States imposed tariffs of 30 to 35 percent on solar panels from China after finding that unfair government subsidies had enabled Chinese producers to sell below cost.

A group of seven U.S. solar panel makers, including the American division of Germany-based SolarWorld, which operates a plant in Oregon, set off the investigation after filing a trade complaint against China.

REC warned that steep tariffs on Chinese imports would drive up solar energy costs, dampen consumer demand and destroy jobs. Chief Executive Officer Tore Torvund also said China might use the tariffs as an excuse to introduce duties on U.S.-made polysilicon.  In an April 2012 op-ed piece for The Seattle Times, Torvund noted that uncertainty surrounding the trade dispute already had caused REC to put off a planned $1 billion investment in new capacity at the Moses Lake plant.

“Other companies in every segment of the industry may also hedge their bets,” he wrote. Indeed, Dow Corning-owned Hemlock Semiconductor, the third-largest polysilicon producer, announced plans in January to lay off 400 employees at its Michigan and Tennessee plants, citing an oversupply of solar panels and the potential for Chinese tariffs. . . .

As expected, China’s Ministry of Commerce moved July 18 to enact preliminary tariffs on U.S. polysilicon, setting REC’s rate at 57 percent and Hemlock’s at 53 percent. The duties are an initial step before a final ruling due next February. . . .

To supporters of a U.S.-China trade accord, REC serves two bigger purposes: Not only is it part of America’s green-energy push, but it also provides the sort of jobs sorely lacking in today’s still-struggling economy.

“It would be a big blow to the community if they were to lose them,” said Brian Bonlender, director of the Washington state Department of Commerce. “We’re taking this very seriously, because there’s no doubt a lot of jobs in jeopardy right now.”

What goes around in the US China Trade War comes around.

GLYCINE CASE

An illustration of how the Commerce Department can use surrogate values to distort antidumping rates is the Glycine from China case.  In the 2012 antidumping review investigation, after years of using India as a surrogate country, Commerce switched surrogate countries to Indonesia.  Since Indonesia does not have good surrogate values for raw material/chemical inputs, such as chlorine, Commerce calculated a dumping margin that went from 52 to 452% for Baoding Mantong.  No dumping rate is too high for Commerce.  As you know, US importers are retroactively liable for the difference plus interest.

NEW ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

On August 28, 2013 the Commerce Department initiated antidumping and countervailing duty review investigations on Certain Steel Gratings from China.  Chinese companies in the review are listed below:

Anping Jinyuan Metal, Anping Jinyuan Metal Co., Ltd., Comtrust Metal & Ware Mesh Products Co. Ltd., Dalian AW Gratings,     Dalian AW Gratings, Ltd., Fujian Youxi Best Arts & Crafts Co., Ltd., Guangzhou Webforge Grating Co., Ltd., Hebei Jinshi Industrial Metal Co., Ltd., Jiashan Qilmei Grating Co., Ltd., Kingjoy Building Decorative Materials Co., Ltd., Ningbo Haitian International Co., Ltd., Ningbo Jiulong Machinery Manufacturing Co., Ltd., Ningbo Lihong Steel Grating Co., Ltd., Ningbo Zhenhai Jiulong Electronic Equipment Factory, Shanghai Shenhao Steel Structure Designing Co., Ltd., Shanghai DAHE Grating Co., Ltd., Sinosteel Yantai Steel Grating Co., Ltd., Tianchang Flying-Dragon Metallic Products Co., Ltd., Qing Auging Mechanical Xinxing Grating Factory, Yantai Hercules Metal Ltd., Yantai Xinke Steel Structure Co., Ltd., Zhejian Hengzhou Steel Grating Co., Ltd.

Also another antidumping (“AD”) review was initiated on Circular Welded Carbon Quality Steel Pipe from China.  Chinese companies are listed below:

Baoshan Iron & Steel Co., Ltd., Beijing Jia Mei AO Trading Co., Ltd., Beijing Jinghua Global Trading Co., Ltd., Benxi Northern Steel Pipes, Co. Ltd., CNOOC Kingland Pipeline Co., Ltd., ETCO (China) International Trading Co., Ltd., Guangzhou Juyi Steel Pipe Co., Ltd., Huludao City Steel Pipe Industrial, Jiangsu Changbao Steel Tube Co., Ltd., Jiangsu Yulong Steel Pipe Co., Ltd., Liaoning Northern Steel Pipe Co., Ltd., Pangang Chengdu Group Iron & Steel Co., Ltd., Shanghai Zhongyou TIPO Steel Pipe Co., Ltd., Tianjin Haoyou Industry Trade Co., Ltd., Tianjin Baolai International Trade Co., Ltd., Tianjin Longshenghua Import & Export, Tianjin Shuangjie Steel Pipe Co., Ltd., Weifang East Steel Pipe Co., Ltd., WISCO & CRM Wuhan Materials & Trade, Zhejiang Kingland Pipeline Industry Co., Ltd.

If Chinese companies in these cases exported these products during the July 1, 2012-June 30, 2013 review period, they must enter a notice of appearance and apply for a separate antidumping rate.  Failure to do so will result in the Chinese company receiving the highest antidumping rate, and the US importer of such products during the review period being exposed to substantial retroactive liability.

IMPORTERS’ LOBBYING COALITION/AMERICAN IMPORT COALITION

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

The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

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

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

CHINESE ANTIDUMPING AND COUNTERVAILING DUTY LAW

SILICON STEEL—GOES

The limitation on the US pressure on the Chinese government’s implementation of its antidumping and countervailing duty laws is indicated by the attached August 12th announcement by the Chinese government that it has fully complied with the WTO rulings against the Chinese government’s determinations in the antidumping and countervailing duty case aimed at imports of US grain-oriented flat rolled electrical steel (GOES). MOFCOM GOES ANNOUNCEMENT The US industry disagrees.

In response to the WTO decision, China lowered the countervailing duty (“CVD”) rate facing AK Steel from 11.7 percent to 3.4 percent. MOFCOM also lowered the CVD rate facing ATI Allegheny Ludlum, the other main company affected by the case, down from its previous rate of 12 percent to 3.4%.

Concerning antidumping (“AD”) rates, China did not alter the AD duties of 7.9 percent and 19.9 percent on steel exports from AK Steel and Allegheny Ludlum, respectively, although it did lower the “all others” AD rate from 64.8 percent to 13.8 percent.

China maintains that the Appellate Body ruling did not require it to alter the AD rates facing the two primary steel companies.

This dispute between the US and China on US exports of GOES has been going on for years. Meanwhile, however, the United States has imposed numerous antidumping and countervailing duties on imports of Chinese steel.

In addition, because US importers are exposed to retroactive liability on Chinese imports under the US antidumping and countervailing duty laws, no US importer dares to keep importing Chinese steel once cases are filed. So the real effect of steel antidumping and countervailing duty cases against China is to shut out Chinese steel imports into the United States.

No other country exposes its importers to retroactive liability under the antidumping and countervailing duty laws. Only the United States.

When viewed in this context, it is easier to understand why the Chinese government is playing the trade game in the GOES case.

LITIGATION AGAINST CHINESE BANKS TO COLLECT US JUDGMENTS AGAINST CHINESE COMPANIES

In prior posts, I have mentioned that US Plaintiffs could bring an action against Chinese banks in New York Federal District to recover money owed on US judgments by Chinese companies.  Attached is a complaint that was just filed on September 4, 2013 for garnishment in the US Federal District Court in New York against the Chinese Industrial and Commercial Bank for judgment debts owed by Chinese tire companies.  TIRES COLLECTION CASE

Plaintiffs sued Chinese companies, Shandong Linglong Rubber Co., Ltd., Linglong Group Co., Ltd., Shandong Linglong Tire Co., Ltd., AI Dobowi Ltd., Al Dobowi Tyre Co., LLC, Tyrex International, Ltd., and Tyrex International Rubber Co., Ltd., (collectively, “Judgment Debtors”) and in July 2010 a jury empaneled by the United States District Court for the Eastern District of Virginia held the Judgment Debtors jointly and severally liable for, among other claims, copyright infringement and conversion and awarded the Plaintiffs $26 million. The Eastern District of Virginia entered the judgment for $26,000,000 against the Judgment Debtors in the case, captioned In re: Outsidewall Tire Litigation, 1 :09-cv-1217 (E.D. Va. ), on October 28, 2010 (the “Judgment”).

Now the US Plaintiffs have sued the Chinese Bank Branch of the Industrial and Commercial Bank in New York saying give me the assets of the companies in China that you the Bank have to satisfy this $26 million judgment.

Note that this case is to recover money held by the Chinese bank in China to apply to the $26 million US judgment against the Chinese tire companies.  Lesson, the Chinese companies can run, but they can no longer hide from US judgments.

PATENTS

NEW 337 CASES

TIRES

On August 14, 2013 Toyo Tire filed a new section 337 design patent case against imports of tires from China.  The notice is set forth below:

Docket No: 2973

Document Type: 337 Complaint

Filed By: V. James Adduci, II

Firm/Org: Adduci, Mastriani and Schaumberg

Behalf Of: Toyo Tire & Rubber Co., Ltd., Toyo Tire Holdings of Americas Inc., Toyo tire U.S.A. Corp., Nitto Tire U.S.A. Inc., and Toyo Tire North America Manufacturing Inc.

Date Received: August 14, 2013

Commodity: Tires

Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Tires and Products Containing Same. The respondents are: Hong Kong Tri-Ace Tire Co., Ltd., China; Weifang Shunfuchang Rubber & Plastic Co., Ltd., China; Doublestar Dong Feng Tyre Co., Ltd., China; Shandong Yongtai Chemical Group Co., Ltd., China; MHT Luxury Alloys, Rancho Dominguez, CA; Wheel Warehouse, Inc., Anaheim, CA; Shandong Linglong Tyre co., Ltd., China; Dunlap & Kyle Company, Inc., d/b/a Gateway Tire and Service, Batesville, MS; Unicorn Tire Corp., Memphis, TN; West KY Customs, LLC, Benton, KY; Svizz-One Corporation Ltd., Thailand; South China Tire and Rubber Co., Ltd., China; American Omni Trading co., LLC, Houston, TX; Tire & Wheel Master, Inc., Stockton, CA; Simple Tire, Cookeville, TN; WTD Inc., Cerritos, CA; Guangzhou South China Tire & Rubber Co., Ltd., China; Turbo Wholesale Tires, Inc., Irwindale, CA; TireCrawler.com, Downey, CA; Lexani Tire Worldwide, Inc., Irwindale, CA; Vittore Wheel & Tire, Asheboro, NC; and RTM Wheel & Tire, Asheboro, NC.

OUTDOOR GRILLS

On August 21, 2013, A&J Manufacturing filed a 337 patent case against imports of Outdoor Grills from China and other Countries.  A&J also filed numerous patent cases in Federal District Court at the same time targeting the Chinese and other foreign respondent companies.  The ITC notice is listed below along with the names of the target companies.

Docket No: 2974

Document Type: 337 Complaint

Filed By: V. James Adduci, II

Firm/Org: Adduci, Mastriani & Schaumberg

Behalf Of: A&J Manufacturing LLC and A&J Manufacturing Inc.

Date Received: August 21, 2013

Commodity: Multiple Mode Outdoor Grills and Parts

Description:

Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Multiple Mode Outdoor Grills and Parts Thereof. The respondents are: The Brinkmann Corporation, Dallas, TX; W.C. Bradley Co., Columbus, GA; GHP Group, Inc., Morton Grove, IL; Kamado Joe Company, Duluth, GA; Outdoor Leisure Products Inc., Neosho, MO; Rankam Group, Gardena, CA; Academy Ltd, Katy, TX; HEB Grocery Company d/b/a H-E-B, San Antonio, TX; Kmart Corporation, Hoffman Estates, IL; Sears Brands Management Corporation, Hoffman Estates, IL; Sears Holding Corporation, Hoffman Estates, IL; Sears, Roebuck, & Company, Hoffman Estates, IL; Tractor Supply Company, Brentwood, TN; Guangdong Canbo Electrical Co., Ltd, China; Chant Kitchen Equipment (HK) Ltd, China; Dongguan Kingsun Enterprises Co., Ltd, China; Zhejiang Fudeer, China; Ningbo Huige, China; Keesung Manufacturing Co., Ltd, China; Ningbo Spring Communication, China; and Wuxi Joyray International Corp., China.

Complaints are available upon request.

NEW PATENT CASES AGAINST HUAWEI AND ZTE

On August 13, 2013, Hopewell Culture & Design LLC filed the attached patent case against Huawei and ZTE.  HOPEWELLHUAWEIZTE

On August 15, 2013, Wyncomm filed the attached patent case against Huawei. WYNCOMM HUAWEI

On August 23, 2013, Straight Path IP Group, Inc. filed the attached patent cases against Huawei and ZTE. STRAIGHT PATH HUAWEI STRAIGHT PATH ZTE

ANTITRUST

AUTO PARTS TAIWAN

Two class action antitrust complaints were filed in on August 21st and August 30th against Taiwan auto parts producers for price fixing.  AUTO PARTS TAIWAN ANTITRUST COMPLAINT AUTO PARTS TAIWAN ANTITRUST COMPLAINT FIREMAN’S AUTO PARTS TAIWAN

SECURITIES

COMPLAINTS

Attached is a class actions Securities case that was filed in the New York Federal District Court on August 27th against Lightinthebox Holding Co. located in Beijing, China.  LIGHTINTHE BOX HOLDING

Attached is a class actions Securities case filed against PetroChina in New York Federal District Court on September 3, 2013.  PETRO CHINA CLASS ACTION SECURITIES CASE

CHINA NORTH EAST PETROLEUM SECURITIES SETTLEMENT

Attached is a memorandum of law filed on August 19th in New York Federal court in which China North East Petroleum Holdings Ltd. has agreed to pay $2.5 million to settle a proposed securities class action accusing it of improper accounting and embezzlement. CHINA PETROLEUM MOTION FOR PAYOFF The settlement ends the consolidated class action brought in 2010 claiming the company’s improper accounting tactics led to an overstatement of its net profit in 2008 and 2009.

CNEP was delisted from the New York Stock Exchange in May 2010, after various accounting issues forced it to restate financial results from 2008 and 2009, and its stock price dropped when it was relisted in September 2010.

HOW TO CATCH A TIGER—DORSEY ARTICLE ON GOVERNMENT SECURITIES ACTIONS IN HONG KONG AND THE US

Three Dorsey lawyers have recently written an article on the how Government Securities Enforcement Agencies in Hong Kong and the US have coordinated their enforcement actions to go after a company that specializes in investments in China, Japan and Korea.

Thomas Gorman is a partner in Dorsey & Whitney’s Washington, D.C. office and used to work in the enforcement division of the US Securities and Exchange Commission. David Richardson and Eden McMahon are partners in the firm’s Hong Kong office.

The Article is important because it demonstrates how Chinese companies listed in the US and HK can face enforcement actions for the same violations in two different countries.

The Article is set forth below:

How To Catch A Tiger —On Both Sides Of The Pacific

Government securities enforcement agencies in Hong Kong and the United States have been pursuing Tiger Asia Management and its affiliates for four years with claims of insider trading and market manipulation on the Hong Kong Stock Exchange. In Hong Kong, that pursuit has resulted in an important legal precedent regarding the arsenal of weapons available to the Hong Kong Securities and Futures Commission. In the United States, it has demonstrated the ability of the U.S. Securities and Exchange Commission working in tandem with the U.S. Department of Justice to exact significant enforcement remedies relating to overseas transactions even after the U.S. Supreme Court’s decision in Morrison v. National Bank of Australia (2010).

Tiger Asia: A New York Hedge Fund Trading in Hong Kong

Tiger Asia is a Delaware limited liability company with its principal place of business in New York City specializing in equity investments in China, Japan and Korea. It has no physical presence or employees in Hong Kong, but maintained accounts in Hong Kong to enable it to trade in Hong Kong securities. All of Tiger Asia’s employees are in New York.

As a hedge fund, Tiger Asia is able to take short positions in equities. Between 2008 and 2009, Tiger Asia participated in three private placements for the securities of two Chinese banks. In each instance the placing agents approached Raymond Park, the head trader for the funds, about participating in a private placement of bank shares. Park agreed in his New York office. Prior to being given details of the placement, he agreed to Tiger Asia being “wall crossed,” a term used in the financial services industry to mean it agreed to receive price-sensitive information that was not generally known to the public, as part of selective pre-marketing of an offering to potential investors.

After entering into the wall-crossing agreements, under which Tiger Asia agreed not to trade shares of the banks, Bill Hwang ordered Park to short sell the relevant stock on the Hong Kong Stock Exchange in the days prior to each placement. Park did not inform the placement agent in either instance that their agreement had been breached.

As a result of the trading, Tiger Asia had net trading profits of about HK$16.2 million (US$2.09 million).

Hong Kong Securities Enforcement Legal Framework

Hong Kong has a dual civil/criminal regime to deal with misconduct in the financial markets under the Securities and Futures Ordinance (SFO). There is the Market Misconduct Tribunal (MMT), on the one hand, which imposes civil liability for market misconduct and can make orders barring a person from being a director or manager of a corporation, or from dealing in securities and can order disgorgement of any profits made or losses avoided to the Hong Kong government.

On the other hand, the SFO creates criminal offenses for various types of market misconduct. The two regimes are mutually exclusive, and proceedings brought by the Securities and Futures Commission of Hong Kong (HK SFC) under one means there can be no further proceedings under the other.

The question under consideration in the Hong Kong courts to date was essentially whether or not section 213 of the SFO, under which the courts have wide-ranging power to make a number of injunctions and orders on the application of the HK SFC, provides a “third route” for final orders, or if a prosecution under Part XIV or proceedings before the MMT under Part XIII was a prerequisite.

Proceedings in the Hong Kong Courts

The HK SFC applied for various orders against Tiger Asia. The HK SFC based its action on section 213(1), which states that where a person has contravened any of the relevant provisions (including the prohibition on insider dealing), the Court of First Instance (CFI) may make orders on the application of the HK SFC.

In HK SFC v. Tiger Asia, Hwang, Park and Tomita, the CFI[1], held that the court did not have the jurisdiction to make the declarations sought by the HK SFC because the criminal court or the MMT had not yet determined whether there had been a contravention of the relevant market misconduct provisions; the CFI had no jurisdiction to itself decide whether or not there had been a contravention.

The HK SFC appealed. The Court of Appeal[2] allowed the appeal and ruled that section 213 procedures are freestanding from the dual civil/criminal market misconduct process.

On April 30, 2013, the Court of Final Appeal[3] (CFA), in a unanimous decision, confirmed the decision in the Court of Appeal and held that the CFI does have independent jurisdiction to make orders under section 213 without any prior finding by a criminal court or the MMT in respect of any contravention of the relevant provisions of the SFO. Part of the reasoning of the court is that section 213 is concerned with providing remedies for the benefit of parties involved in the impugned transactions, and serves a different purpose from the penalties that can be imposed by a criminal court or the MMT. As we will see below, the HK SFC is keen to act as both a prosecutor in the general public interest and protector of the collective interests of the persons dealing in the market who have been injured by market misconduct.

Civil and Criminal Enforcement in the United States

SEC v. Tiger Asia Management LLC (D. N.J. Filed Dec. 12, 2012) is an action of the U.S. Securities and Exchange Commission against the firm.

The complaint of the SEC centers on two sets of transactions. First, the short and long sales of shares in the two banks as noted above. Second, the complaint focuses on an attempted manipulation on the Hong Kong Stock Exchange.

In four instances, Tiger Asia attempted to manipulate the month-end closing prices of certain stocks listed on the Hong Kong Stock Exchange. The stocks were among its largest short holdings. In each instance, Tiger Asia placed trades that were intended to depress the price of the stock, thereby increasing the value of its short position. Since the management of Tiger Asia was paid a fixed annual management fee equal to 1.5 percent of the value of the net assets of the fund, calculated at the end of the month, this action increased the fees by US$496,000. The SEC’s complaint alleges violations of section 10(b) of the Securities Exchange Act of 1934[4], section 17(a) of the Securities Act of 1933[5], and sections 206(1), 206(2) and 206(4) of the Investment Advisers Act.[6]

The defendants settled the action, consenting to the entry of permanent injunctions prohibiting future violations of the sections cited in the complaint. In addition, defendants Hwang and Tiger Asia will collectively pay disgorgement and prejudgment interest of US$19,048,787. Each also agreed to pay a penalty of  US$8,294,348. Park agreed to pay US$39,819 in disgorgement and prejudgment interest and a penalty of US$34,897.

The U.S. Attorney’s Office for the District of New Jersey announced a parallel criminal action against Tiger Asia. The disgorgement and prejudgment interest paid by defendants Hwang and Tiger Asia will be paid to the criminal authorities.

Conclusion

The availability of section 213 relief is of particular importance to the HK SFC in the context of combating market misconduct perpetrated by offshore market participants. A reason why the HK SFC opted for section 213 in pursuing its action against Tiger Asia was to avoid what it perceives as the slow and cumbersome procedure under the MMT regime, which can result in many years passing before a determination of a contravention is reached. In the absence of a relevant bilateral extradition agreement, it will often be difficult (if not impossible) for prosecutions to be made against the offshore wrongdoer.[7]

Moreover, section 213 is not limited to insider trading or market misconduct offenses, but also applies to alleged contraventions of any SFO provisions as well as certain provisions of the Companies Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing (Financing Institutions) Ordinance.[8]

The response of the HK SFC should also be taken as a solemn reminder for offshore wrongdoers who wish to take advantage of the difficulty of cross-country law enforcement: The HK SFC has instituted MMT civil proceedings (as criminal proceedings have been instituted in the United States) recently against Tiger Asia. This is the first time the HK SFC has instituted proceedings in the MMT directly. Meanwhile, proceedings under section 213 are expected to continue.

Across the Pacific, the SEC action against Tiger Asia illustrates the reach of the agency. Despite the clear ruling by the Supreme Court in Morrison v. National Australia Bank, Ltd.[9] that section 10(b) of the Securities Exchange Act does not reach transactions where the purchase or sale did not occur in the United States, the action brought here by the SEC relied in part on that provision.

Other courts have held that the Morrison limitation also applies to section 17(a) of the Securities Act, a second statute relied on by the SEC to bring this action. In contrast, at least one court has held that Morrison does not apply to sections 206(1) and (2) of the Investment Advisers Act. Whether the SEC would have been able to sustain this action in view of Morrison if the defendants had not elected to settle is at best problematic. Since the U.S. wire fraud statute on which the criminal case is based is not limited by Morrison, the U.S. Attorney did not face the same limitation in filing its charges.

–By Thomas O. Gorman, David A. Richardson and Eden McMahon, Dorsey & Whitney

LLP

[1] HCMP 1502/2009

[2] CACV 178/2011

[3] FACV Nos 10, 11, 12 and 13 of 2012

[4] This is the principal statutory weapon against fraud.

[5] This is a key anti-fraud provision in the Securities Act. It provides for liability for fraudulent sales of securities. Section 17(a) makes it unlawful to “employ any device, scheme or artifice to defraud,” “obtain money or property” by using material misstatements or omissions,” or to “engage in any transaction, practice or course of business which operates or would operate as a fraud or deceit upon the purchaser.” This provision is closely tracked by section 10(b) of the Securities Exchange Act.

[6] The sections laid down the prohibited transactions by registered investment advisers.

[7] The primary legislation governing the surrender of fugitive offenders between Hong Kong and the United States is the Fugitive Offenders Ordinance (Cap. 503) and the Fugitive Offenders (United States of America) Order (Cap. 503F), which contains the full text of the Agreement between Hong Kong and the United States for the Surrender of Fugitive Offenders signed in 1996. Another related legislation is the Mutual Legal Assistance in Criminal Matters Ordinance (Cap. 525) and the Mutual Legal Assistance in Criminal Matters (United States of America) Order (Cap. 525F), which implements the Agreement between the Government of Hong Kong and the Government of the United States of America on Mutual Legal Assistance in Criminal Matters signed in 1997.

[8] Please see section 213 and Schedule 1 of the SFO.

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

Best regards,

Bill Perry

 

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