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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR JUNE 16, 2017

Dear Friends,

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

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

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

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

TRUMP’S TRADE WAR

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL

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

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

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

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

AMERICAN AUTOMOTIVE POLICY COUNCIL (AAPC)

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

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

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

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

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

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

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

 The AAPC concludes:

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

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

ASSOCIATION OF EQUIPMENT MANUFACTURERS (“AEM”)

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

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

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

CATO INSTITUTE—FORMER ITC COMMISSIONER DAN PEARSON

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

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

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

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

FORGING INDUSTRY ASSOCIATION

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

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

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

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

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

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

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

INDUSTRIAL FASTENER INSTITUTE (“IFI”)

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

In its comments, the IFI stated:

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

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

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

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

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

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

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

MOTOR & EQUIPMENT MANUFACTURERS ASSOCIATION (MEMA)

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

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

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

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

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

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

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

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

NATIONAL ELECTRICAL MANUFACTURERS ASSOCIATION (NEMA)

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

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

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

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

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

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

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

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

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

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

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

BORG WARNER

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

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

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

BSH HOME APPLIANCE

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

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

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

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

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

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

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

BUSINESS AND INSTITUTIONAL FURNITURE MANUFACTURERS ASSOCIATION (“BIFMA”)

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

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

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

STEEL BUILDING AND CONSTRUCTION COMPANIES

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

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

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

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

TRANSFORMER MANUFACTURERS

Several transformer manufacturers stated in their comments:

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

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

TRUCK AND ENGINE MANUFACTURERS ASSOCIATION

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

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

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

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

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

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

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

ALUMINUM

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

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

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

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

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

Now, I know that if I were to ask most of you how you like to spend your Saturdays in the summertime, sitting down for a nice, long discussion of international trade wouldn’t be at the top of the list. But believe me, none of us can or should be bored with this issue. Our nation’s economic health, your well-being and that of your family’s really is at stake.

That’s because international trade is one of those issues that politicians find an unending source of temptation. Like a 5-cent cigar or a chicken in every pot, demanding high tariffs or import restrictions is a familiar bit of flimflammery in American politics. But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth.

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

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

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

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

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

SOLAR 201 ESCAPE CLAUSE CASE

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

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

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

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

COMMERCE AND ITC DEADLINES ARE VERY VERY STRICT

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

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

ALUMINUM PALLETS ARE WITHIN THE SCOPE OF THE ALUMINUM EXTRUSIONS CASE

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

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

FINE DENIER POLYESTER STAPLE FIBER

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

CITRIC ACID AND CITRATE SALTS FROM BELGIUM, COLOMBIA AND THAILAND

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

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

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

Alleged AD Rates

Belgium: 56.02 – 118.44%

Colombia: 41.18 – 49.46%

Thailand: 4.6 – 67.1%

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

Estimated Schedule of AD/CVD Investigations

June 2, 2017 – Petition filed

June 22, 2017 – DOC initiates investigations

June 23, 2017 – ITC staff conference

July 17, 2017 – ITC Preliminary Determination

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

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

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

June 27, 2018 – ITC Final Determination (extended)

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

OTHER TRADE CASES

SECTION 201 ESCAPE CLAUSE CASE AGAINST RESIDENTIAL WASHERS

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

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

USTR ROBERT LIGHTHIZER CONFIRMED—NAFTA FIGHT

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

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

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

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

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

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

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

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

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

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

BORDER ADJUSTMENT TAXES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

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

SECTION 337 AND IP CASES

NO NEW 337 CASES AGAINST CHINA

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

Best regards,

Bill Perry

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MAY 26, 2017

Dear Friends,

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

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

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

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

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

TRUMP’S TRADE WAR

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

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

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

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

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

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

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

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

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

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

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

As stated in our ITC postconference brief:

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

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

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

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

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

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

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

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

As Andrew Ball further stated in the ITC Postconference brief:

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

Another auto parts company stated in the brief:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 232 INVESTIGATIONS  — STEEL AND ALUMINUM

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

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

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

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

STEEL

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

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

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

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

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

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

At the Trump Press Conference, Ross stated:

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

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

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

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

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

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

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

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

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

Secretary Ross further stated in the past:

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

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

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

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

ALUMINUM

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

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

During this investigation, the Secretary will consider the following:

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

The capacity of domestic industries to meet such requirements.

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

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

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

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

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

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

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

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

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

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

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

SCOPE OF THE 201 INVESTIGATION

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

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

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

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

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

SECTION 201 PROCEDURES IN SOLAR CELL CASE

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

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

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

REASONS FOR SECTION 201 PETITION

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

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

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

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

The Petition also states:

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

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

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

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

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

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

The Petition also states:

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

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

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

TOOL CHESTS FROM CHINA AND VIETNAM

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

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

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

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

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

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

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

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

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

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

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

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

100 TO 150 SEAT CIVIL AIRCRAFT

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

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

LIGHTHIZER CONFIRMED—NAFTA FIGHT

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

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

NAFTA FIGHT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

BORDER ADJUSTMENT TAXES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

CHINA AD/CVD NEWSLETTERS

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

SECTION 337 AND IP CASES

NEW SECTION 337 CASES AGAINST CHINA AND OTHER COUNTRIES

COLLAPSIBLE SOCKETS FROM MOBILE ELECTRONIC DEVICES

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

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

ROBOTIC VACUUM CLEANING DEVICES

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

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

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

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP TRADE AGENDA, INTERNAL TRADE BATTLES, LIGHTHIZER, BORDER ADJUSTMENT TAXES, AGRICULTURE, NAFTA, TRADE ADJUSTMENT ASSISTANCE, CFIUS, ZTE AND SECTION 337

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

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

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

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

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

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

China: 88.2% – 188.88%

India: 25.48%

Italy: 37.23% – 69.13%

Germany: 70.53% – 148.32%

Republic of Korea: 12.14% – 48.61%

Switzerland: 40.53% – 115.21%

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

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

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

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

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

TOOL CHESTS FROM CHINA AND VIETNAM

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

As indicated in the attached notice, ITC PRELIM MECHANICAL TUBING NOTICE, in the Tool Chests case, the ITC will conduct its preliminary injury hearing on May 2, 2017.  US importers’ liability for countervailing duties on imports from China will start on September 8, 2017, 150 days after the petition was filed, and for Antidumping Duties from China and Vietnam will start on November 7, 2017, 210 days after the petition was filed.

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

If Importers want to fight the case, they must move quickly.  The first ITC hearing in the case will be on May 2, 2017, which is the part of the proceeding where importers can have a real impact.

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

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

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

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

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

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

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

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

NEW SECTION 337 CASES AGAINST CHINA AND OTHER COUNTRIES

COLLAPSIBLE SOCKETS FROM MOBILE ELECTRONIC DEVICES

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

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

ROBOTIC VACUUM CLEANING DEVICES

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

Bissell Homecare, Inc., Grand Rapids, Michigan; Hoover Inc., Glenwillow, Ohio; Royal Appliance Manufacturing Co., Inc. d/b/a TTI Floor Care North America, Inc., Glenwillow, Ohio; Bobsweep, Inc., Canada; Bobsweep USA, Henderson, Nevada; The Black & Decker Corporation, Towson, Maryland; Black & Decker (U.S) Inc., Towson, Maryland; Shenzhen ZhiYi Technology Co., Ltd., d/b/a iLife, China; Matsutek Enterprises Co., Ltd., Taiwan; Suzhou Real Power Electric Appliance Co., Ltd., China; and Shenzhen Silver Star Intelligent Technology Co., Ltd., China.

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

Best regards,

Bill Perry

US CHINA TRADE WAR MARCH 26, 2017

Dear Friends,

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

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

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

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

TRUMP TRADE REPORT

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In conclusion, the Agenda states:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

LIGHTHIZER CONFIRMATION HEARING

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

INTERNAL ADMINISTRATION TRADE FIGHTS—NAVARRO CREATES AN INTERNAL TRADE WAR

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

They would do none of those things.

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

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

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

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

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

NAVARRO’S STANDING WITH CONGRESS DROPS

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

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

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

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

G-20 BECOMES MORE PROTECTIONIST

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

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

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

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

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

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

As Senator Pat Roberts stated at the Lighthizer Confirmation hearings:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

That would harm vastly more Americans than it would help.

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

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

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

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

European Trade Commissioner Cecilia Malmstrom also stated recently:

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

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

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

Katainen stated that:

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

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

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

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

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

TPP CONTINUES WITHOUT THE US

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

New Zealand Trade Minister Todd McClay stated:

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

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

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

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

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

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

Japanese State Minister Takao Ochi stated:

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

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

BORDER ADJUSTMENT TAXES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But as Bloomberg further states:

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

EUROPE, THE WTO AND CHINA

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

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

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

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

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

NAFTA RENEGOTIATION

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

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

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

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

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

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

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

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

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

CHINA NONMARKET ECONOMY

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

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

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

MORE TRADE CASES COMING

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

ALUMINUM FOIL FROM CHINA

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

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

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

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

SILICON METAL FROM AUSTRALIA, BRAZIL, KAZAKHSTAN AND NORWAY

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

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

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

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

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

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

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

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

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

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.

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

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

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

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

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

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

MEXICO

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

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

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

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law, Team’s newsletter-EN Vol.2017.09.

CFIUS—WILL INVESTMENT RECIPROCITY BE A NEW REQUIREMENT??

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

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

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

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

CHINESE MILITARY BUILDUP TO PROTECT ITS TRADE INTERESTS???

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

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

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

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

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

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

ZTE HIT WITH SANCTIONS FOR VIOLATING EXPORT CONTROLS ACT

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

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

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

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

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

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

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

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

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

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

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

SECTION 337 AND IP CASES

DOMESTIC INDUSTRY FROM PATENT LICENSEE

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

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

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

NEW 337 CASES AGAINST CHINA

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

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

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP AND TRADE, LIGHTHIZER AS USTR, BORDER ADJUSTMENT TAXES, MANUFACTURING CAN COME BACK TO THE US, TAA FOR COMPANIES, WTO CASES AGAINST ALUMINUM AND NME STATUS, AND 337

Washington Monument 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 JANUARY 12, 2017

Dear Friends,

This blog post contains several articles about recent developments in the Trump Transition and its impact on trade.  January 20th, inauguration day, is only 8 days away and Trump will be President.  The transition, however, moves quickly.

Although the past appointments of Governor Branstad of Iowa as Ambassador to China and Wilbur Ross to Commerce, two persons who know China well, indicate no potential trade war, the two latest appointments of Bob Lighthizer to USTR and Peter Nararro as Chairman of the National Economic Advisors indicate that protectionism, especially against China, is back on the menu.

Trump may be trying to use uncertainty to create leverage and a deal with the Chinese and other governments on trade and other topics.  Bob Lighthizer will be the hammer of the Trump trade policy that will negotiate those deals.

But the next question is how will Trump help revive manufacturing in the United States and help the Rust Belt states, Wisconsin, Michigan, Pennsylvania and Ohio, which put him in the White House?

One answer may be taxes, the border adjustment kind, which may, in fact, be a response to the Value Added Taxes levied on US exports.  Trump and Congress have apparently decided to fight fire with fire—mercantilism to fight mercantilism, border adjustment taxes to fight value added taxes, which put US exports at a major disadvantage.

No longer will the US take a passive approach to foreign trade barriers to US exports.  Trump and his team will raise US trade barriers to counter the trade barriers erected by other countries.  Reciprocity is the name of the game.

Moreover, the recent noises from many US companies indicate that they like what Trump is doing and manufacturing will move back to the US.  Low corporate taxes, less regulations and the threat of trade barriers will bring manufacturing back to the US.  In fact, it may even encourage Chinese and other foreign companies to move production to the United States.  Trump will do everything possible to increase jobs in the United States.

Also the US China Trade relationship is getting out to an interesting start in 2017 with the filing today, January 12, 2017, of a major WTO case against China on Aluminum.

Hopefully Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them, will expand.  But TAA for Companies is not TAA for Workers.  They are very different programs.

In addition, with regards to the recent WTO complaint China filed against the US and the EC for failing to give it market economy status under their antidumping and countervailing duty laws, Canada and Japan have now jumped into the case because of the impact on their trade laws.

Under the Universal Trade War theme, attached are newsletters from Roland Zhu of the Allbright Chinese law firm on Chinese trade law.

Finally, a recent 337 intellectual property case was filed against China on Basketball Backboard Components.

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

Best regards,

Bill Perry

PS, If anyone wants to unsubscribe to the newsletter, please let me know and I will remove them from the list.

TRADE AND TRADE POLICY

TRUMP’S APPOINTMENTS NOW BECOME MORE PROTECTIONIST AND TOUGH ON TRADE—BUT MAYBE THAT IS WHAT IS NEEDED IN THIS ENVIRONMENT

After the first two appointments of Governor Branstad as ambassador to China and Wilbur Ross as new Commerce Department secretary, the two recent appointments of Bob Lighthizer as United States Trade Representative (“USTR”) and China critic, Peter Navarro, to head the National Trade Council indicate that the Trump Administration will take a much tougher line on trade and China.  Full disclosure in the late 1980s, as described more below, I worked for Bob Lighthizer at Skadden, Arps, and he is certainly a much tougher negotiator than any trade negotiator China or other countries have dealt with before.

Recently on Bloomberg news, I heard one bank spokesman say that their research group gives a 25% chance that under Trump the US will return to a Smoot Hawley situation, such as in the 1930s.  Although Lighthizer is a very tough guy, he is also a very experienced trade lawyer with substantial contacts in Congress so hopefully he will be pragmatic enough not to simply put up the protectionist walls and return the US to the 1930s.

But let there be no mistake, the Trump Administration will erect barriers to imports to offset the many trade barriers other countries, including Mexico, China and the EC, have erected against US exports.  Reciprocity will be the new approach to trade policy.

USTR FROMAN ADDS A PARTING SHOT

As present USTR Froman of the Obama Administration is leaving, he issued on January 5, 2017 the attached Cabinet Exit Memo, USTR-Exit-Memo.  In that Cabinet Exit Memo, Froman stated that the United States cannot withdraw from Globalization.  The issue is whether the US can shape globalization so as to benefit the US.  Froman also warned that if the US withdraws, the major beneficiary will be China.  As Froman stated:

“The fundamental economic question of our time is not whether we can stop globalization, but whether we can use all the tools at our disposal to shape globalization in a way that helps the majority of Americans, and reflects not just our economic interests, but our values.”

Froman went on to emphasize the importance of Agreements, such as the Trans Pacific Partnership (“TPP”):

“These agreements offer a positive vision for American leadership in the global economy.  This vision is vitally important, because in the absence of U.S. guidance and leadership, the world is likely to turn to alternative policy models that will put the United States at a permanent disadvantage.”

Froman went on to argue that the US can only counter China through negotiations that set high standards for the World’s trading countries:

“If we step back from a global leadership role, it will be our loss and China’s gain.  This alternative vision would place a large portion of America’s industry at risk of lost exports and create powerful incentives to invest in Asia in order to sell in Asia. Should this alternative come to dominate the next generation of trade agreements, the consequence will be an erosion of economic security and opportunity for all Americans.”

Froman apparently is arguing that the trade game cannot be changed and only small changes can be made through negotiations, such as the TPP, because globalization is here to stay.  Trump intends to overturn the trade policy table all together.

TRUMP PICKS AN ENFORCER ROBERT LIGHTHIZER AS NEXT UNITED STATES TRADE REPRESENTATIVE (“USTR”)

On January 3, 2017 Donald Trump announced that he has picked a very tough negotiator, Robert Lighthizer, a Skadden, Arps partner, as the next United States Trade Representative (“USTR”).  In doing so, Trump stated:

“Ambassador Lighthizer is going to do an outstanding job representing the United States as we fight for good trade deals that put the American worker first.  He has extensive experience striking agreements that protect some of the most important sectors of our economy, and has repeatedly fought in the private sector to prevent bad deals from hurting Americans. He will do an amazing job helping turn around the failed trade policies which have robbed so many Americans of prosperity.”

Almost 20 years ago, I worked with Lighthizer in the late 1980s at Skadden, Arps.  Before joining Skadden, Arps, Lighthizer was a Deputy USTR and was legendary.  One of my colleagues at Skadden told me that as a Deputy USTR when Lighthizer was negotiating with the Japanese government on a trade deal, he took one proposal from the Japanese government, folded it into a paper airplane and threw it out the door.

After Lighthizer joined Skadden in the late 1980s, Lighthizer brought in US Steel as a client and went on to represent US Steel for decades bringing many antidumping and countervailing duty cases against steel products from various countries.  Being the former Chief of Staff to Senator Robert Dole, the former Senate Majority leader, Lighthizer has extremely good contacts with the Republicans in Congress.

From my personal experience with Lighthizer, he will be an extremely tough negotiator with an agenda of protecting US companies from import competition and he will not be a friend of China, but that may be a good thing.  In contrast to the tough approach on trade of President Trump, Lighthizer may be the best choice free traders could get.  Lighthizer is a very experienced trade lawyer, who is not an ideologue, but a pragmatic deal maker.

More importantly, Trump’s appointment of an experienced tough trade lawyer as the USTR indicates that Trump does not really want a trade war.  He wants better, tougher deals more in line with US interests, such as a renegotiated NAFTA and possibly even a renegotiated TPP.  Trump is seeking to hire one of Washington’s top trade lawyers to negotiate tougher international trade agreements and then enforce them more vigorously.  Lighthizer, in effect, will be the hammer of Trump’s trade policy.

The desire for a much tougher trade policy is bipartisan.  Many Democratic lawmakers agree with Trump and many Republicans on a tougher trade policy.  On January 3rd, AFL-CIO President, Richard Trumka met with nine House Democrats to urge renegotiation of the North American Free Trade Agreement with Mexico and Canada and stating that he does not think Trump “has enough Republican support to do it, and rewriting the rules of trade is a necessary first step in righting the economy for working people.”

In response to the appointment, Senator Orrin Hatch of Utah, the chairman of the Senate Finance Committee, who knows Lighthizer very well and will hold hearings on his nomination, stated:

“Ensuring our past, present, and future trade agreements are the best possible deals for American workers and job creators is a shared goal supported by pro- trade lawmakers and the Trump Administration alike. As the incoming administration undertakes this enormous responsibility, Bob will be a critical player in ensuring that America’s trade agenda reflects U.S. commercial interests, while helping set the standard for global trade. Armed with bipartisan Trade Promotion Authority, the incoming Trump Administration has a unique opportunity to pursue new, bilateral trade pacts of the highest caliber that can be submitted to Congress for an up or down vote with no amendments. As the world and our economic competitors move to expand their global footprints, we can’t afford to be left behind in securing strong deals that will increase access to new markets for American-made products and services, protect our intellectual property rights abroad, and ensure domestic businesses can successfully compete in the 21st century global economy. I look forward to a vigorous discussion of Bob’s trade philosophy and priorities when he comes before the Finance Committee.”

Bill Brock, the former USTR under President Reagan, stated:

“He is in most ways, if not many ways, in line with Trump’s comments during the campaign.  He’s very bright, he’s very aggressive.”

There was speculation prior to the Lighthizer appointment that USTR would take a secondary role in trade negotiations.  In fact, Lighthizer’s appointment indicates that Trump wants to make USTR under Lighthizer’s leadership the tip of sword in changing and negotiating tough trade agreements and enforcing them.  Of Trump’s trade advisors, only Lighthizer has government experience.

Alan Wolff, another former senior American trade official who represented the steel industry as co- counsel in many trade cases with Lighthizer, referred to Lighthizer’s broad knowledge of trade law and went on to state:

“Those who say U.S.T.R. will be subordinated to other agencies are mistaken.  He’ll be a dominant figure on trade, in harmony with Wilbur Ross and Navarro.”

Lighthizer’s appointment is a clear indication that the Trump Administration will focus on the enforcement of trade agreements and on the letter of the law.  Lighthizer is not a bull in a China shop.  He is a very smart, tough trade lawyer and negotiator, and he will do everything possible to protect the US industry.

And Lighthizer will be very tough with China.  In the attached 2010 statement testimony to the US-China Economic and Security Review Commission, LIGHTHIZER 2010 STATEMENT US CHINA ECONOMIC SECURITY COMMISSION, Lighthizer stated:

Misjudging Incentives for Industries to Shift Production Wholesale to China and then Ship Back to the United States. . . . In other words, supporters assumed that since the United States had been granting MFN status to China for decades, granting MFN on a permanent basis would make no significant difference to how companies would serve this market.

But this assumption failed to account for the many incentives Western companies had to bet on the other side, and use China as a manufacturing platform to serve the U.S. market. As shown throughout this paper, China practices numerous forms of mercantilism – including subsidies, currency manipulation, and government programs that encourage developing new products in China – that give companies strong reasons to move production to that country. China’s relatively weak labor and environmental policies have a similar effect. China also manipulates raw material markets in a manner that encourages manufacturers to move there.  . . .

Many experts agree that our trading relationship with China presents a serious threat to our economy and the effective functioning of the WTO.  How should U.S. policymakers respond to these problems? As described in more detail below, I believe they should stop being so passive, take a number of straightforward steps to mitigate the harm caused by Chinese mercantilism, and consider more imaginative steps to deal with China.

We must stop being so passive. For ten years now, U.S. policymakers have done very little as China pursued policies that have resulted in an enormous trade imbalance. This approach has not worked, and it is past time for the U.S. government to become more aggressive. . . .

Lighthizer went on to state:

Indeed, I would take the argument even further. Trade policy discussions in the United States have increasingly been dominated by arcane disputations about whether various actions would be “WTO ­consistent” – treating this as a mantra of almost religious or moral significance.  The fact is that the WTO is built upon a framework of mutual concessions and purported mutual benefits from expanded trade and open markets. WTO commitments are not religious obligations, do not (and should not be construed to) impinge upon national sovereignty, and are not subject to coercion by some WTO police force. Viewing them as such – and implicitly establishing this viewpoint as the inviolate touchstone of all U.S. trade policy – is at odds with the structure of the WTO itself, not to mention the vociferous and repeated statements made by proponents of the WTO when it was established.

In this regard, WTO commitments represent mutually beneficial, market ­opening stipulations by individual countries. Where a country fails to fully implement commitments it has made, other countries are given the right to reciprocally suspend market­ opening commitments of their own – in an amount precisely equivalent to, and no greater than, the value of trade they have lost as a result of the derogation that has occurred. In this way, the entire WTO system is in a very real sense premised upon the assumption of relatively equal costs and benefits among and between WTO participants – whereby compliance with WTO norms is encouraged by the knowledge that derogations will result in the suspension of equivalent trade concessions. Where this relationship does not hold – that is, where a trade relationship has become so unbalanced that the threat of retaliation pales in comparison to the potential benefits of derogation – it only makes sense that a sovereign nation would consider what options are in its own national interest (up to and including potential derogation from WTO stipulations).

This need not be seen as some fundamental threat to the integrity of the WTO system.  Indeed, let me state explicitly that I am not advocating that the United States leave the WTO – that body is too important to us and the global trading system. I am merely pointing out that derogation may be a common sense, economically rational analysis by participants in the system – whereby potential decisions to derogate from WTO rules give rise to compensatory rights of other parties within the system.

Indeed, such an approach is plainly anticipated by the WTO agreements and has been acknowledged by U.S. policymakers. Properly understood, WTO rules do not infringe on the ability of individual nations to make their own sovereign decisions about economic policies –subject to the rights and obligations that flow from the WTO agreements themselves and any derogation of those agreements.   In this regard, U.S. officials have consistently stated that WTO commitments do not interfere with our national sovereignty, and that WTO rulings cannot alter U.S. law. These points were made repeatedly by Members of Congress during the debate over whether the United States should join the WTO. Furthermore, USTR has plainly stated that WTO legal panels “have no authority to change U.S. law or to require the United States or any state or local government to change its laws or decisions.” USTR has specifically explained that other countries cannot force the United States to comply with WTO law; instead, their only available response is to retaliate by withdrawing trade benefits . . .

In the context of U.S. ­China trade – whereby the United States is consistently running trade deficits viewed by virtually all rational observers as catastrophic and unsustainable – it is certainly advisable to consider all options available. To the extent that the United States were to consider more dramatic action to address the problem – such as tariffs or quantitative limitations that would arguably derogate from WTO commitments – the prospect of reciprocal denial of trade benefits by China must of course be assessed. At some point, however – where goods imports from China exceed $300 billion while U.S. exports to China are below $70 billion – one must ask whether potential retaliation from China really would or could even remotely offset the benefits to the United States of more aggressive trade measures. . . .

Of course, none of the policies I have suggested can be effective unless U.S. policymakers have the will to implement them in a strong and determined manner. For years, our economic position vis ­a ­vis China has deteriorated because U.S. policymakers have refused to take the inevitable risks associated with challenging Chinese mercantilism. As a result, we are now burdened with a trade imbalance that everyone agrees is unsustainable. Wringing our hands and hoping for the best is not the answer. We need strong leaders who are prepared to make tough decisions, and who will not be satisfied until this crisis has been resolved.

“One must ask whether potential retaliation from China really would or could even remotely offset the benefits to the United States of more aggressive trade measures.”

On the other hand, although Lighthizer’s statements show that he will be very tough on China, as certain trade experts have stated, in light of the very tough trade policy of the next President Donald Trump, Lighthizer’s appointment may be the best that free traders could hope for from this new Administration.  Lighthizer is a very smart, experienced political operator with excellent contacts in Congress, especially on the Republican side of the aisle, and a tough, outstanding negotiator.  But these experts also believe that Lighthizer is not a blind ideologue, but a pragmatic, rational deal maker.  After driving a very hard bargain and reaching a deal, he could end up even keeping NAFTA and possibly even the TPP.  Relations with China may actually improve, but only after a better deal is reached.

PETER NAVARRO TO HEAD NATIONAL TRADE COUNCIL

In another sign that the Trump Administration will take a much tougher line on China, on December 21, 2016, Trump announced that he has picked Peter Navarro, a China critic, to be the head of a new National Trade Council.   A Harvard trained economist, who is a professor at the University of California, Irvine, Navarro has taken a very strong position on China.  He is the author of a book, “Death by China”, which became a 2012 documentary film in which a Chinese knife stabs a map of the United States causing blood to throw.  See http://deathbychina.com/.  Navarro, in effect, argues that China is waging an economic war by subsidizing exports to the United States and blocking imports into China creating an enormous trade deficit.

Trump has stated that he will persuade China to change its policies by applying pressure through trade laws, designating China a currency manipulator, and, if necessary imposing high tariffs on Chinese imports.  As indicated below, however, those tariffs may actually be border adjustment taxes.

In a statement, Mr. Trump described Mr. Navarro as “a visionary economist” and said he would “develop trade policies that shrink our trade deficit, expand our growth and help stop the exodus of jobs from our shores.”

On December 23, 2016, in response the China Daily stated:

That individuals such as Navarro who have a bias against China are being picked to work in leading positions in the next administration, is no laughing matter. The new administration should bear in mind that with economic and trade ties between the world’s two largest economies now the closest they have ever been, any move to damage the win-win relationship will only result in a loss for both sides.

Still, Chinese companies in the US should be on high alert to a more difficult business climate.

US TRADE POLICY MAY CHANGE AND THREATS DO NOT HELP THE US CHINA TRADE RELATIONSHIP

There is an old saying in Chinese “Bei Mi Yang Feng You Dou Mi Yang Chao Ren” (杯米养朋友,斗米养仇人) one cup of rice makes a friend, thousands of cups of rice make an enemy.  Another old saying in English, give a person $5 make a friend, give a person $100 make an enemy.

Since World War II the United States has been a relatively open market and many foreign countries, including China, have benefitted.  As described more below, with border adjustment taxes and the current US economic situation, that situation may well change and could change dramatically.  Many countries will be very upset when the US starts to close down, in effect, favoring domestic products over imports.  When markets are taken away and countries lose their bag of rice, they will not be happy.

Mexico’s peso is in free fall and has fallen to the lowest level against the US in decades.  Mexico is in crisis because under pressure from Trump US companies are canceling plans to set up production facilities in Mexico and moving production facilities back to the US.  Mexico is not happy.

China is upset with the Lighthizer appointment and is talking about retaliation.  On January 4th, in response to the Lighthizer appointment, China’s state-run Media, the Global Times, warned Trump of ‘Big Sticks’ if he seeks a Trade War:

“There are flowers around the gate of China’s Ministry of Commerce, but there are also big sticks hidden inside the door — they both await Americans.”

When a current US China trade deficit of well over $300 billion, however, that threat rings hollow.

On January 9, 2017, State-run Chinese tabloid Global Times warned U.S. President-elect Donald Trump that China would “take revenge” if he reneged on the one- China policy, only hours after Taiwan’s president made a controversial stopover in Houston.

When the Chinese State-Controlled media, such as the Global Times, castigates Trump as an “ignorant child” and threatens the Trump Administration with Chinese retaliation, it is waving a red flag in front of a bull.  The new Trump Administration will not be intimidated.  It will not be bullied.  Threats will not work with this Administration.

So it is a much better idea to let cooler heads prevail and negotiate.  As stated above, the Trump Administration wants a deal and the Chinese government and other governments are extremely good negotiators so negotiate.

Let’s keep any Trade War at the cold war stage and not let it break out into a hot Trade War where every country, including the United States and China, are burned.

BORDER ADJUSTMENT TAXES MAY BE THE NEW TRADE PROTECTIONIST BARRIER TO IMPORTS

As stated in my last blog post, Trump and Republicans in Congress may be creating an alternative to tariffs to spur US manufacturing and that is taxes.  Tariffs have become so passé.  There is now an attempt in Congress to give American-made products a big tax advantage over their foreign competitors through border adjustment taxes, and, in effect, counter the value added taxes used in other countries to deter imports.

The key issue is a plan to fundamentally remake the tax system by taxing US companies based on where they sell their goods, not where the business happens to be located. As part of that, Republican tax legislators want to include what experts call “border adjustments” — new taxes on imports as well as tax rebates on exports.

Another fancy term for this new tax is “destination-based cash flow tax with border adjustment” or DBCFT.  This plan would replace the current corporate tax code with something known among experts as a “border-adjustable, destination-based” tax system.  Under their proposal, imports would be charged the same 20 percent tax that domestic companies would face. Exports would be excused from taxes.  It would amount to a fundamental change, with the government taxing companies based on where they sell their wares, rather than where the business is located.

The way this tax would work is if a U.S. company sold a product for $100 and it spent $70 on its workers’ pay, under the Republican plan the remaining $30 would be subject to the 20% tax. That would produce a $6 tax bill. An imported version of the same product would be forced to pay the 20% tax on the entire $100 sale, producing a $20 tax bill.

The best case for a border adjustment tax is an article by Stephen Moore, an expert on economic issues at the Heritage Foundation, in the International Business Daily in which he argues that a Border Adjustment Tax, in effect, is equivalent to the Value Added Tax that countries use to kill imports.  See http://www.investors.com/politics/columnists/stephen-moore-we-need-tax-reform-not-tariffs/.

As Moore states:

If America’s competitors were intentionally trying to design a tax system to destroy the American economy, they probably couldn’t come up with a dumber tax system than the way the United States currently taxes our own businesses.

To fully appreciate the stupidity of the American corporate tax, consider this simple example:

If you are an American company making cars in Michigan, you have to pay a 35% profits tax on the car made here and then if the car is sold across the border to Mexico, the Mexicans slap a 16% value added tax on the car, so it is taxed on both sides of the border. Almost all countries tax goods produced in the United States this way.

Now let us say that the auto factory is moved from Michigan to Mexico City. Now the car produced in the factory in Mexico is not taxed by the Mexicans if the auto is sold in the United States.

Even more amazing:  the U.S. imposes no tax on the imported car. To summarize, the car is taxed twice if it is built in America and then sold abroad and never taxed if it is built abroad and sold here in the U.S. And we wonder why companies are moving out in droves for China, India, Ireland, Mexico and the like.

Donald Trump is right. What we have in America is not free trade. It is stupid trade with the deck sacked against American producers and workers. Our federal tax is effectively a 35% tariff imposed on our own goods and services.

It doesn’t help matters that our 35% rate is the highest in the industrial world. Yet the corporate tax- despite being onerous and complex — and despite depressing employment, investment and wages here at home — raises very little revenue for the government. . . .

To create a level playing field, the U.S. has to reconstitute our tax system.  This can be accomplished by lowering the tax rate and then turning the tax on its head so we are taxing our imports, but not our exports. In other words, we should tax activities based on where they are consumed, not where they are produced.

This is called a border adjustable tax system, and here are the reasons we need to do it:

  • A border adjustable tax will end all talk of tariffs and trade wars.

tariffs violate our trade agreements and often lead to retaliatory measures by other countries. The free traders will rightly object loudly to these trade barriers.

A better solution is to impose the Trump 15% corporate income tax on goods when they are brought into the U.S. and exempt from tax goods produced in the U.S. but sold outside the U.S.

In other words, our corporate tax would be based on where goods are consumed, not on where they are produced.  This tax does not violate trade laws and only mirrors the valued added tax systems foreigners use to gain advantage over us. . . .

In exchange for a border adjustable tax, the U.S. should eliminate all existing tariffs and duties which can now range from 2% on shoes to 25% on toys. . .

Retailers like Walmart will complain . . .

We have to make things in America to make America great again. Tax reform is the key to making that happen.

In effect, taxes, whether border adjustment or value added, have become the new tariffs.  But if one is to look at it rationally, tariffs were always taxes.  In fact, after the American Revolution, the first tax the US Government used to run the government was tariffs on imported goods.

The fact that border adjustment taxes will hurt retailers is evidenced by Trump’s criticism of large internet retailer Amazon when he stated that Amazon will have “such problems” during his Presidency because of this new tax system.  Jeff Bezos, who owns Amazon also owns the Washington Post, and that newspaper has not been Trump’s friend.

The argument against the DBCFT is made by Brian Garst in the attached article, CFP_PolicyBrief_Border_Adjustment, entitled the “Political and Economic Risks of a Destination-Based Cash Flow Tax,” published in January 2017.  In the Article, Brian Garst argues:

The DBCFT would be a new type of corporate income tax that disallows any deductions for imports while also exempting export-related revenue from taxation.  This mercantilist system is based on the same “destination” principle as European value-added taxes, which means it is explicitly designed to preclude tax competition. . . . This mercantilist approach typically is associated with credit-invoice value-added taxes (VATs) that exist in European nations.

Garst goes on to state that in addition to retailers another target industry is energy because the United States is a net importer of oil and petroleum products.  Trump might argue, however, that when he is done cutting regulations the United States will be a net exporter of oil and petroleum products.  But Garst also points out that when other countries adopt the DBCFT, there will be more taxes on US exports.

More importantly, Garst points out what happens when the Democrats come back into power:

“In this case, left-leaning politicians would see the DBCFT not as something to be undone, but as a jumping off point for new and higher taxes.  A highly probable outcome is that the United States’ corporate tax environment becomes more like Europe, consisting of both consumption and income taxes.”

Garst goes on to add that the eventual result of higher taxes, no matter what they are called, is bigger government and slower economic growth.

On December 19, 2016, however, Chairman Brady of House Ways and Means stated that U.S. companies that rely on imports will “have to adjust” to a House Republican plan and that such a plan is a priority of the Trump Administration.  As Brady stated on a December 18th CSPAN program:

“We cannot leave in place any tax policies that encourage our companies to move their operations overseas just to sell back to the United States.  We want to listen to and find solutions with those who rely a lot on imported goods coming into America.”

The plan would apply a 20 percent corporate tax to revenues earned from goods and services consumed within the United States, while exempting economic activity outside the U.S, amounting to a 15 percent cut in the nominal corporate tax rate and eliminating corporate taxes on U.S. exports.

The opposition to this new tax system is not only from retailers but from US producers, which either assemble products in the US from imported parts or use cheaper raw materials to produce competitive value added products.  Many manufacturing groups that rely on global supply chains, such as Boeing and other companies, should be very concerned about this new policy.

But the border adjustment tax proposal has allowed Trump to call out automobile companies, such as GM, which produce substantial cars in Mexico and praise Ford Motor Co. for its decision to scrap plans for a $1.6 billion factory in Mexico.  The threat of a border adjustment tax is enough during this Presidential transition period to cause US companies to bring production back to the US.

Many businesses that rely on imported raw materials or component parts, will not be able to deduct the cost of imported goods under the GOP plan, the full value of these goods is taxed instead of just the value added in the U.S.  This means that even if Congress lowers the corporate tax rate from 35 percent to the Republicans’ proposed 20% or 15%, companies could still see an effective increase in their tax rates.

Jennifer Safavian, the executive vice president of government affairs at the Retail Industry Leaders Association, recently made this point stating:

“With this tax on imports, we actually will see our effective tax rate increase.  It will increase, in some cases, double or three times the amount we’re paying right now. Some companies are concerned that they will actually have to go out of business because they’ll owe more in taxes than they’ll actually bring in in income.”

COULD MANUFACTURING RETURN TO THE UNITED STATES?

As stated above, during just this Presidential transition period, the threat of border adjustment taxes and a dramatic change in trade policy, along with cuts to corporate taxes to as low as 15 to 25% and regulations rollback, has caused many companies, such as Ford, Softbank, Fiat, Sprint and Carrier, to announce their reduction or abandonment of offshore production and their movement back to the United States.  Jack Ma at Alibaba also met with Trump to state that he believes 1 million more jobs can be added in the US from small and medium size business.

In December 2016, small business optimism in the United States has soared to levels not seen in over ten years.  The National Federation of Independent Business Index jumped 7.4 points in December the highest since 2004.  Trump and Congress are using carrots and sticks to move US production and jobs back to the United States.

With almost 40% of the US population on some form of welfare, the situation has to change.  Even here in Seattle, one dramatic example of the state of economy during the Obama Administration has been the dramatic rise in homeless camps.  The election of Trump means change.  And change it will be.

Recently, a Chinese entrepreneur asked me how could manufacturing move from China back to the United States because China has so many advantages.  In October 2016, Fuyao Glass announced a $1 billion investment into Moraine Ohio and Plymouth Michigan to start producing windshields in the United States.  When Chinese media and the government asked the owner Cho Tak Wong why he was moving production to the United States.  There were two answers: higher wages in China and higher tax rates.

Wages in China have steadily moved upward and the lower wage countries now are Vietnam, Bangladesh and other countries.  Much of China’s textile manufacturing capability has moved to Bangladesh in the search of lower wages.

Another major problem in China is taxes.  Although the US has the highest corporate tax rate of 35% in the developed countries, higher than China, China has corporate tax rates ranging from 25 to 33%.  More importantly, China has a personal income tax rate of 45% with US tax rates for the highest incomes ranging from 35 to 39.6%.

When I started working in China in the 1990s and all the way until about 5 to 10 years ago, although the tax rates were high, the Chinese government was very liberal on deductions.  The more expenses the company and the person had, the lower the actual tax rate.  Thus Chinese employees were always looking for a “fapiao”, a receipt so that they could claim expenses.

But several years ago, the Chinese government cracked down and started to enforce the actual tax rates.  High tax rates give companies and individuals a real incentive to leave the place where they are located.  Residents vote with their feet.  We can see that in the United States, where high tax rates in the states of New York and California have caused companies and people to move to lower tax states like Texas and Washington State, which has no state personal income tax.  An old economic saying, when you tax more of anything, you get less of it.

China and the United States are competing with other countries to attract foreign investment and even domestic investment in their own countries.  Higher tax rates and excessive regulations cause companies to move and seek better places to produce products.

Another reason to move to another country is trade restrictions.  In the early 2000s, Windshields from China were hit with a US antidumping case.  I represented two companies in the case, Xinhe and Benxun; Fuyao was represented by another law firm.  Antidumping rates in this case went down to single digits and eventually the case went away.  But this does not mean a new case could not be brought.

Fuyao coming to the US to escape potential US trade cases is nothing new.  Many, many Japanese companies, including automobile companies, Toyota and Honda, auto part companies, such as Nippon Denso, television producers, such as Sanyo, portable electric typewriter companies, such as Brother, and photography companies, such as Fuji, set up production operations in the United States to get around US antidumping orders and other trade restrictions.  In fact, Chinese solar companies, such as Wanxiang Energy, have started producing solar panels in the United States to get around move US antidumping and countervailing duty orders against Chinese solar cells and solar panels.

So manufacturing can move back to the United States if the business environment is better than other countries.  When companies move back to the US and economic growth increases significantly, all boats rise and that means more good paying jobs and the average American will do better.

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

TAA FOR FIRMS/COMPANIES IS NOT TAA FOR WORKERS

In my blog post last month, an open letter to the new Commerce Department secretary was included about the Trade Adjustment Assistance for Firms/Companies program.  It is important, however, to distinguish TAA for Companies from TAA for Workers.  The two programs are very different.

TAA for Workers is government money given to displaced workers to retrain workers.  On January 12, 2017, Jamie Dimon of Chase spoke out on Good Morning American about TAA for Workers.  In the past when Dimon has spoken out for TAA for Workers, financial publications, such as Forbes, have spoken out against the program because they view the $711 million program as an entitlement, a handout to workers, that does not save jobs.

The TAA for Firms/Companies program, however, is very different from the TAA for Workers program because the objective of TAA for Companies is to save the company and by saving the company save the jobs that go with that company.  I believe that publications, like Forbes, might change their tune if they knew that President Reagan probably personally approved the TAA for Firms/Companies program.  Why do I say this? Jim Munn.

Congress started the TAA adjustment assistance programs in 1962 as part of the Trade Expansion Act and as a means of securing support for the Kennedy Round of multilateral trade negotiations.  Trade Adjustment Assistance essentially was a tradeoff.  If Unions and Workers would support trade liberalization, including free trade agreements, workers would be compensated because of the disruption caused by increased imports.

In the early 1980s, President Reagan himself put in requirements to set up standards so that Trade Adjustment Assistance for Workers would not simply be an open ended entitlement.   President Reagan, however, was puzzled by the TAA for Companies and asked an old friend, Jim Munn, here in Seattle to look into the program.

As stated in the attached 2002 obituary, JIM MUNN, Jim Munn was a famous criminal lawyer in Seattle and an early supporter and personal friend of Ronald Reagan.  I am now on the Board of Directors of the Northwest Trade Adjustment Assistance Center (“NWTAAC”).  When I started my involvement in NWTAAC, I was told that the Center was in place because President Reagan himself asked Jim Munn to look into the program.

Both President Reagan and Jim Munn were firmly opposed to government interference in the marketplace.  What did Jim Munn discover when he looked into the Trade Adjustment Assistance Program for Companies?  It works.  Jim Munn decided to head up NWTAAC for the next 22 years.

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

Right now the total cost to the US Taxpayer for this nationwide program is $12.5 million dollars—truthfully peanuts in the Federal budget.  Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.

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

But as also stated in my last blog post, in this environment with so many injured companies, funding for TAA for Firms/Companies has to be increased so it can do its job.

An article from David Holbert, Executive Director Northwest TAAC, below states how the program works in more detail.

IMPORTS HAVE LANDED – SOMETHING HAS TO CHANGE

David Holbert, Executive Direct Northwest TAAC

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

In a previous post I talked about recognizing trade impact. Once a company figures out that imports are the cause of sales declines, they must respond. That response depends on the specifics of the trade threat.

Companies work within a set of cost and market access factors. Where those factors are shared, a new competitor or an established one upping their game, is usually a manageable theat. Some alteration in course might be recommended, but it is all in the range of expectations in a competitive landscape. Imports, however, generally perceive a significant advantage before they enter a market – whether that’s in design, technology, scale, or cost. Extreme cost differentials tend to be the province of imports and, more specifically, imports from low-labor cost, low-regulation sources. New arriving imports tend to be very strong competitors if not disrupters.

Before the imports arrived, customers had seen value in the available options. Now those customers can see a better cost-benefit exchange with the imported product.  Unattended, the new entrant (the import) will gain market share – the only questions are how much and how fast.

Imports may have any of several weaknesses:

  • Importers are probably bearing a loss producing level of initial expense to establish a brand, set up sales capability, and establish distribution and service networks. The domestic company already is established, or can become so more easily.
  • Importers often have to order and ship in large quantities. It takes time for delivery to occur. What is an advantage in a standard product/price sensitive segment is a disadvantage in a customized / price elastic segment. Customization is almost always an advantageous capability for the domestic company
  • Importer service capability and quality can be weak. Service can be a challenge for those in different time zones, and speaking different languages. In low-cost economies, businesses often display a culture that values cost and quantity over all else. Quality and service are likely comparative strengths of the domestic company.

If the price differential is minor, improvements in operations without changing the business model may close the gap. The challenge is not less urgent, just less extensive. Every business I’ve worked with has a list of pending improvements. Now would be the time to implement some of these. Topping the list would the ones that lead to revenue faster. At this stage, the domestic company is probably losing sales. To the extent that you need a “plan”, that list is probably it. Let’s call it the minimum required response.

If the price differential is large, the business will face the uncharted territory of strategic change. That change will likely affect product, systems, processes, distribution, promotion, and pricing.  In other words, everything.

Just as every business owner has a list of pending improvements, they also have more than one idea about a serious change in course. That is very likely an incomplete list. How could it be otherwise? Whatever the right change may be, the confidence to take that leap will almost certainly be absent. That is where TAA comes in.  Most people don’t realize how thin of a line of viability businesses walk. It took a lot to get to the point where things work. A lot of what seemed like good ideas were proven wrong along the way. Changing that formula under conditions of less than certainty and necessity is almost always a bad idea. With trade impact, a business may have a condition of necessity. Now that business has to work on certainty.

It is not exactly clear how to get to that state of envisioning a strategic change with confidence and assurance. For a business owner, this is a life’s work. For the record, there are consultants that are capable in this area. Not that hiring in help is necessarily a solution.  What is clear is that a full range of options and information supporting them become precious commodities.

Here are how some companies with TAA help dealt with trade impact:

A commercial products company makes a specialized tool and faced a sudden entry of imports at close to half the price. The company’s plan was to radically improve operations in the same market position. The owners had been complacent in a mature market. The plan included such actions as developing an automated version of the tool, emphasizing service and parts replacement capability, and revising sales and promotion activity. This works in commercial markets because buyers are informed and easily value factors like quality, service, and durability.

A contract manufacturer that machines metal parts specializing in titanium had lost their single industry customer base to imports. The owner recognized that their capabilities would be valued in the aerospace industry. Achieving AS9100 (aerospace industry quality certification) was an essential step. Entering the industry and becoming known among buyers was the larger challenge. This works because at the time aerospace was growing in the region.

  • A nut grower was priced out of its commodity market position by imports. The owners had thought of packaging for consumers and private labeling. With TAA help, they gained the confidence to proceed. It was exactly the right move –they removed a layer of distribution and gained back their profit margin. The company grew at tech industry rates.
  • A safety products producer was being displaced in large retailers by imports priced about 50% lower. With outside TAA consultants, they developed a radical plan to concentrate on commercial uses of their products that emphasized perpetual restocking rather than consumer products as final articles. This entailed converting from producing hundreds of low-cost, finished products a week to producing dozens of high-cost units and thousands of micro-orders of replacement articles. The company reversed sales declines in a surprisingly short time.

Threats from imports tend to be severe. They may have an insurmountable cost advantage. Under these conditions, the domestic company cannot win by just trying harder – something has to change. The first thing that has to change is the plan for the business. Deferred improvements might become urgent necessities. Incompletely conceived ideas about a change in the business model might have to be seriously considered. In future posts, I’ll talk about challenges of implementation.

Our role at the Northwest Trade Adjustment Assistance Center is to help small and medium-sized companies that are negatively affected by trade. Sometimes called “made in America grants” this federal program offers a matching fund for outside expertise of up to $75,000 for qualifying companies.  NWTAAC serves companies in Washington, Oregon, Idaho and Alaska. You can learn more about us at NWTAAC.org.

NEW US WTO CASE AGAINST ALUMINUM FROM CHINA

On January 12, 2017, in the attached notice, Obama Administration Files WTO Complaint on China’s Subsidies to Aluminum Produ, USTR announced that it was bringing a WTO case against China for its subsidies to aluminum producers.  As the notice states in part:

United States Trade Representative Michael Froman announced today that the United States has launched a new trade enforcement complaint agains the People’s Republic of China at the World Trade Organization (WTO) concerning China’s subsidies to certain producers of primary aluminum.  This action follows numerous bilateral eforts by the Obama Adminisration to persuade China to take strong seps to address the excess capacity situation in its aluminum sector.  The complaint fled today begins a process to address U.S. concerns that China’s subsidies appear to have caused “serious prejudice” under WTO rules to U.S. interests by artifcially expanding Chinese capacity, production and market share and causing a significant lowering in the global price for primary aluminum. Today’s announcement marks the 16th trade enforcement challenge the Obama Adminisration has launched agains China at the WTO.

“This lates challenge once again demonsrates the Obama Adminisration’s unwavering commitment to ensuring a fair and level playing field for American workers and businesses,” said United States Trade Representative Michael Froman. “Artifcially cheap loans from banks and low-priced inputs for Chinese aluminum are contributing to excess capacity and undercutting American workers and businesses. Today’s action follows significant engagement by this Adminisration on excess capacity and demonstrates our commitment to hold China to its trade obligations. Our record of tough enforcement with China speaks for itself: When China cheats, we’ve been right there, securing recourse for our workers, farmers, ranchers and businesses. This is the 16th time we have taken action agains China at the WTO, and we’ve won every challenge that has been decided.”

CANADA AND JAPAN JUMP INTO CHINA’S WTO CASE AGANST THE US AND EC FOR FAILURE TO GIVE CHINA MARKET ECONOMY STATUS IN AD AND CVD CASES

As indicated in the past blog post, pursuant to the China WTO Accession Agreement, from the Chinese point of view December 11, 2016 is the date when countries can no longer treat China as a nonmarket economy under their antidumping (“AD”) and countervailing duty (“CVD”) law.  Neither the United States nor the EC declared China a market economy country on December 11th so predictably China filed a WTO complaint against the US and EC over their price comparison methodologies used in their AD and CVD laws.

On January 5, 2017, Canada and Japan decided to jump into the WTO case as third-party observers, citing the case’s potential to dramatically alter global antidumping laws.  As Canada stated in its announcement:

“In many cases, Canadian exports to the United States compete directly with exports from China. As a result, Canada has a substantial trade interest in these proceedings which concern the ability of U.S. investigating authorities to properly determine normal values for allegedly dumped Chinese exports.”

As the Japanese Government stated:

“The legal basis of China’s complaint identified in its requests, if accepted, appears to affect anti-dumping investigation practice of many WTO Members … and in turn have substantial impact on international trade involving products originating in China.  Japan is one of the major importers of goods … from China and one of the users of anti-dumping measures.”

The dispute is at the consultation stage, but will soon move on to a WTO panel.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

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

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

Because of this situation, this part of the newsletter will concentrate on trade cases in other countries and how other countries see the trade problem with the United States.

CHINA

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law.  Team’s newsletter-EN Vol.2016.47 Team’s newsletter-EN Vol.2016.48 Team’s newsletter-EN Vol.2017.01 Team’s newsletter-EN Vol.2017.02.

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

BASKETBALL BACKBOARD COMPONENTS

On December 30, 2016, in the attached ITC notice, BASKETBALL 337, Lifetime Products, Inc. filed a section 337 patent case against Russell Brands, LLC d/b/a Spalding, Bowling Green, Kentucky; and Reliable Sports Equipment (Wujiang) Co. Ltd.,   China.

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

Best regards,

Bill Perry

US CHINA TRADE WAR–TRUMP, APPOINTMENTS, TRADE POLICY, TAA FOR COMPANIES, CHINA NME AT WTO, SOLAR CELLS, HARDWOOD PLYWOOD, CYBERHACKING, TRADE CASES IN CHINA, CANADA AND MEXICO

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 DECEMBER 19, 2016

Dear Friends,

This newsletter contains several articles about trade and Trump after his victory on November 8th.  As mentioned in my last blog post, the Trump victory will have a significant impact on trade policy.  The TPP is dead.

But the next question is how will Trump help revive manufacturing in the United States and help the Rust Belt states, Wisconsin, Michigan, Pennsylvania and Ohio, which put him in the White House?

Will there be a trade war with China and other countries?  Trump’s tough talk on the One China policy indicates a trade war, but his appointments to the US Ambassador to China and to the Commerce Department Secretary indicate the contrary.  Trump, however, may be trying to use uncertainty to create leverage and a deal with the Chinese government on trade and other issues.

Will Trump use taxes to give US manufacturing an advantage at the detriment of imports?

Trump will try and do everything possible to increase jobs in the United States.  Hopefully, that will mean more support to Trade Adjustment Assistance for Companies, which is the only effective US trade remedy that saves companies and the jobs that go with them without damaging US downstream production.

In addition, this blog post describes the recent WTO complaint China filed against the United States and the EC for failing to give it market economy status under the US and EC antidumping and countervailing duty laws.  The newsletter also gives the upcoming deadlines under the Solar Cells and Hardwood Plywood cases against China.

Under the Universal Trade War theme, under China is an article on ways in which the Chinese government can retaliate against US companies in the trade war and newsletters from a Chinese law firm.  In addition, under Canada attached is an article from Dan Kiselbach, a Canadian trade lawyer, about whether the Trump Administration can truly get out of NAFTA and also information about the recent Softwood Lumber Case against Canada.  Finally, from Mexico there is information about a recent Carbon Steel Pipe and Tube case filed against imports from Korea, India, Spain and Ukraine, along with a brief description of Mexican antidumping law.

Finally, there is an announcement from the Justice Department about the accomplishments in the recent US/China meetings on Computer Hacking and also recent 337 intellectual property cases against China.

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

Best regards,

Bill Perry

TRADE AND TRADE POLICY

TRUMP AND TRADE – A BULL IN A CHINA SHOP OR A SAVVY NEGOTIGATOR?

On December 2, 2016, President-elect Donald Trump took a phone call from President Ing Wen Tsai of Taiwan.  Trump’s decision to take the phone call from the Taiwan President created a fire storm as commentators questioned whether the United States would stick to the “one China” policy that implies that Taiwan is a part of China and that the long term relationship between China and the US would change.

In response, many commentators wrote articles suggesting that Trump was a “Bull in a China shop”, a clumsy inexperienced person taking actions without thinking about consequences.  Chinese media called Trump “an ignorant child.”

It has since come out that the specific phone call with President Tsai had been discussed for several months and set up by former Republican Congressional leader Bob Dole.  In fact, in addition to taking the call from President Tsai, President-elect, Trump met with Henry Kissinger, who is serving as a liaison for the Chinese government.

Instead of a Bull in China Shop, what President-Elect Donald Trump may have been trying to do with China is create a perception of strength and set up a sense of uncertainty.  What is Trump going to do?

President Ronald Reagan was a master at playing a similar game.  Projecting strength and also a feeling of uncertainty.  What is Reagan going to do?  Reagan’s projection of strength and uncertainty created agreements with Russia that led to the collapse of the Soviet Union.

A projection of strength and a sense of uncertainty gives Trump something Reagan had—leverage, which makes it easier to negotiate better deals.

On December 11. 2016, Trump stated on Fox News:

“I fully understand the ‘one China’ policy, but I don’t know why we have to be bound by a One China policy unless we make a deal with China having to do with other things, including trade.”

Companies and countries should not make the mistake that many in the mainstream US media have made.  Do not underestimate Donald Trump.  He is not an ignorant child and many of his advisors are very knowledgeable about China.  Trump wants a deal with China and he will not give something for nothing.

TRUMP’S APPOINTMENTS DO NOT INDICATE A TRADE WAR WITH CHINA

BRANSTAD TO BE AMBASSADOR TO CHINA

Through his appointments, Trump is indicating that he realizes how important the relationship is with China and he intends to appoint experts that understand China.  On December 7th at a “Thank You” rally in Iowa, President-elect Trump announced that six term Iowa Governor Terry Branstad will be his pick for Ambassador to China.  Governor Branstad has personally known Chinese President Xi Jinping since 1985 when Branstad was governor of Iowa and Xi was an agricultural official in northern China. For two weeks, Xi stayed with a family in the town of Muscatine, Iowa, an experience he likes to recall when visiting the State.  Subsequently he met with Gov. Branstad in 2012 as vice chairman of the Chinese government.

Chinese foreign ministry spokesman Lu Kang welcomed Branstad as an “old friend of the Chinese people” playing “a bigger role in China–U.S. relations”.

Branstad is also a friend of Trump, working actively on Trump’s campaign.  During the general election, his son, Eric Branstad, managed Trump’s campaign in the state. Trump then won in Iowa, 51% of the vote to 42% for Clinton.

This appointment may be a signal that President-elect Trump does not want a trade war with China because Iowa has $2.3 billion in exports to China mostly agricultural exports, including corn and soybeans.  Trump’s selection of Branstad for the most important diplomatic position to China suggests that the president-elect wants to keep negotiating channels open with Beijing, rather than adopt a knee jerk confrontational attitude

On December 8, 2016, at a speech in Iowa, which can be found at https://www.youtube.com/watch?v=-rPh9YG3AmY, Trump stated:

“One of the most important relationships we must improve and we have to improve is our relationship with China.  The nation of China is responsible for almost of half of America’s trade deficit.

China is not a market economy they got a lot of help and that is why we designate them as being them as a nonmarket economy.  Big thing.”

Trump went on to state, that the Chinese government has not “played by the rules, and they know it’s time that they’re going to start.” Trump went on to cite that China was responsible for “massive theft of intellectual property,” “putting unfair taxes on our companies,” “massive devaluation of their currency” and “product dumping”.

Trump further stated that the Ambassador he was going to appoint to China has “lots of friends there”.  According to Trump, Branstad requested that Trump not speak ill of China because in Iowa “we do well with China”.

Trump also stated that he is looking to work on the relationship between China and the US and that Governor Branstad “knows China and likes China” and “knows how to deliver results.”  Trump went on to state that Governor Branstad is highly respected by Chinese officials and a great friend of mine.

Donald Trump finished by stating “We’re going to have mutual respect, and China is going to benefit and we’re going to benefit. And Terry is going to lead the way.”

As the phone call with President Tsai of Taiwan indicates and his statement to Fox News, Trump is no push over.  There is a new strong President in town so do not try and bully him.  This President has options.

On the other hand, during the Primary and even after the election, well-respected conservative newspapers and commentators have stated that President Trump has to be careful not to create a trade war, especially with China.  As recently as November 30, 2016, in Investors Business Daily, the one newspaper that projected a Trump victory prior to the election, two commentators, Congressman David Mcintosh and Scott Linicome in an article entitled “Trump Should Tread Softly On His New Trade Agenda” stated:

“exploiting ambiguities in the current web of U.S. trade laws to enact the President’s trade priorities by executive fiat could engender opposition from Congress, the U.S. business community and U.S. trading partners, thus leading to court challenges similar to those fled by the Republican Congress against President Obama’s executive actions on immigration.

The crucial difference, however, is that the months of uncertainty surrounding the trade challenges would imperil trillions of dollars’ worth of goods and services, especially if the courts refused to enjoin the executive branch from acting while any such litigation is pending.”

WILBUR ROSS—NEXT COMMERCE DEPARTMENT SECRETARY

In addition, as explained in more detail below, Trump has decided to appoint billionaire private equity investor Wilbur Ross, a Warren Buffet type, to be the next Commerce Department Secretary.  Trump’s decision to appoint Ross, a brilliant investor, industry expert and deal maker, indicates a decision to put trade/business professionals at the highest level in his Administration, who are very experienced with regard to business, international competition and China.

Ross was one of the important creators of Trump’s economic plan, which the campaign claimed will increase federal revenues by $1.7 trillion.  With regards to Tariffs, Ross has specifically stated:

“Tariffs will be used not as an end game but rather as a negotiating tool to encourage our trading partners to cease cheating.  If, however, the cheating does not stop, Trump will impose appropriate defensive tariffs to level the playing field.”

In this video interview with the Epoch Times, Wilbur Ross himself shows a great knowledge of the US relationship with China, http://www.theepochtimes.com/n3/1751796-billionaire-investor-wilbur-ross-china-still-lags-us-in-innovation/.  In the video, Ross acknowledges that although China has made progress, the US is the most innovative country in the World.  Ross also states that in 2003 when he spoke out against China he was acquiring the majority interest in Bethlehem Steel and he was against Chinese companies’ product dumping:

“namely selling products for less in a foreign market than their true price in your domestic market.

That’s the kind of activity that we think should be protected against. We are generally free market people but what was happening back in the early 2000s with steel and what is starting to happen again, is that product was actually being sold in this country for less than the total cost of manufacturing it.

That’s not legitimate competition. If someone can make things more inexpensively in their country and sell it here that’s fine with me. But it shouldn’t be that they have one price in their country and a lower price outside.”

In the video Ross further states that the reason China was dumping is:

“they had a period of overcapacity and because China is so much about jobs as opposed to profits, it was very important for the government to maintain jobs. So to maintain jobs they had to maintain production, even though there was not enough demand for it. The way they tried to solve the problem was by dumping it outside.”

Ross is correct that with its large overcapacity, most Chinese steel companies were dumping and probably at very high rates.  But as indicated below, since the Commerce Department continues to treat China as a nonmarket economy and refuses to look at actual costs and prices in China, no one knows for certain which Chinese companies are truly dumping and what the real dumping rate of the Chinese companies is.

With regard to Chinese innovation, Ross indicates that he is very knowledgeable about China stating:

“China is coming along in terms of innovation. They now have the world’s biggest and fastest computer. That would have been unimaginable a decade ago. They’ve launched spaceships into outer space. They have not yet gotten to be as innovative as the United States is, nobody has been as innovative. Year after year the United States gets more patents than any other country by a wide margin. Interestingly, it’s Japan that comes in second.”

As to why China lags the US in innovation, Ross states:

“The United States is basically a free market economy and their entrepreneurship has been highly prized here for centuries and centuries so there’s a real tradition of risk-taking. Innovation involves a lot of risk-taking.

A state-owned enterprise is much less likely to be a big risk-taker then private capital. Since China had been so dominated by the state-owned enterprises it’s hard in a big bureaucratic system to be innovative. Look at the U.S. government itself, what interesting innovations have they come up with?”

Being a Warren Buffet type and very involved in the US Stock market, Wilbur Ross also has very educated views about the problems with the China Stock Market:

We think that China has two separate problems right now. One is the market itself, the equity market, and that got completely out of control. . . .

I think what then happened, the government seemed to have panicked and made lots and lots of very panicky moves. They first raised the margin requirement then they lowered it. They threw hundreds of billions of dollars into the market. Now they’re prosecuting people who spread negative stories about the market.

I think the difficulty with all that is, when a government shows signs of panic, particularly a government that historically has been able to control what happens pretty well, when that government shows panic it makes people more frightened, not less frightened.

Like many China experts, Ross believes that China’s growth numbers are not accurate:

The Chinese economy clearly is not growing at anything like 7 percent. We have felt for a couple of years that those figures were very, very generous. If you look at physical indicators—electricity consumption, natural gas consumption, oil consumption, cement consumption, steel consumption, telecom consumption, retails sales—if you look at all those indicators, none of them were growing at a rate that was equal to 7 percent and neither were the exports.

With regard to economic reform in China, Ross states:

I think what they’re trying to do is several things all at once and that makes it very challenging.

They’re trying to become more of a consumer-driven economy, but the reality is that their largest driver is capital investment. It’s hard to make that transition because capital investment is still about 44 percent of the economy.

They’re trying to make the transition, but meanwhile they’re doing the very- much-needed anti-corruption drive and that in a strange way has hurt consumer spending.  . . .

I think they’ll get there, just that the transition is a hard one. Meanwhile there is super-imposed upon it, the economic issues in the rest of the world. Combined with China’s rising labor costs and the very strong currency, make it very difficult to be an exporter.

These responses along with the video indicate that Ross is not a knee-jerk protectionist and has a deep knowledge of China, which does not indicate a trade war any time soon.

COULD TAXES BE THE WAY TRUMP MAKES US INDUSTRY GREAT AGAIN

On the other hand, Trump and Republicans in Congress may be creating an alternative to tariffs to spur US manufacturing and that is taxes.  In the Congress, one proposal in the House Republicans’ tax-reform plan is to give American-made products a big tax advantage over their foreign competitors.  Although some commentators have pointed to a potential trade war, Ways and Means Chairman Kevin Brady stated, “We are now in the process of designing all aspects of our ‘Build for Growth’ tax plan to withstand any WTO challenge. We’re confident we can win any case.”

The key issue is a plan to fundamentally remake the tax system by taxing US companies based on where they sell their goods, not where the business happens to be located. As part of that, Republican tax legislators want to include what experts call “border adjustments” — new taxes on imports as well as tax rebates on exports.  This plan would replace the current corporate tax code with something known among experts as a “border-adjustable, destination-based” tax system.  Under their proposal, imports would be charged the same 20 percent tax that domestic companies would face. Exports would be excused from taxes.  It would amount to a fundamental change, with the government taxing companies based on where they sell their wares, rather than where the business is located.

According to tax experts, this new tax plan would offset inversions and other types of international tax avoidance because companies would have less incentive to go to other countries looking for tax savings. The proposal would also finance a huge chunk of the Republicans’ overall tax plan — the Tax Policy Center estimates border adjustments would raise $1.2 trillion, making it the third-largest pay-for in the plan.

The proposal is already controversial because it threatens big tax increases to many large retailers, such as Walmart and Home Depot and other companies, which heavily rely on imports.

But critics say it would also violate free-trade agreements by favoring American-made goods over imports. That’s because, while they would all be subject to the same 20 percent tax, U.S. companies would be able to deduct the cost of workers’ pay when calculating their tax bills. Imports would not be given the same treatment and the difference could be dramatic.

If a U.S. company sold a product for $100 and it spent $70 on its workers’ pay, under the Republican plan the remaining $30 would be subject to the 20% tax. That would produce a $6 tax bill. An imported version of the same product would be forced to pay the 20% tax on the entire $100 sale, producing a $20 tax bill.

On December 7, 2016, Koch Industries came out against the Border Adjustment provision of the new tax overhaul with Philip Ellender, the head of government affairs at Koch Companies Public Sector LLC, stating that the so-called border adjustment proposal currently being considered by Republican lawmakers:

“would adversely impact American consumers by forcing them to pay higher prices on products produced in and goods imported to the U.S. that they use every single day.  While companies like Koch who manufacture and produce many products domestically would greatly benefit in the short-term, the long term consequences to the economy and the American consumer could be devastating.”

Another problem is the World Trade Organization (“WTO”) allows border adjustments for so-called indirect taxes on transactions, such as value-added taxes, but not on direct taxes, such as income taxes. The Republican plan is a hybrid, raising questions about how the WTO would categorize it.

Any change in US tax treatment could be challenged by other countries in the WTO as a violation of the WTO Agreement of most favored nation, which requires imports to be treated the same as domestically produced products.  If a WTO tribunal were to rule against the United States, the prevailing countries could be allowed to retaliate against US exports to account for the injury to their exports, which could be as high at $1.2 trillion.

But any challenge in the WTO will take years to litigate.  A good example of this is the Byrd Amendment.  The Byrd Amendment allowed US petitioner companies to get the dumping and countervailing duties collected by Customs.  The Byrd Amendment passed in 2000 and after WTO litigation resulting in possible retaliation by other countries against the United States, the Congress repealed the Byrd Amendment in December 2005 on 51 to 50 vote in the Senate with Vice President Cheney breaking the tie.  But for five years US petitioners collected the duties.

So instead of a direct protectionism using tariffs, any protectionism may be indirect, but it will have the same effect.  Give US companies a major incentive to produce their products in the US, rather than rely on imports.

But the real problem with the tax plan is international trade/globalization victimhood which will lead the companies not to make the changes they need to make to be competitive.  Just like the steel industry, US companies would continue to hunker down behind protectionist walls and never modernize their production to meet competition.  That is the problem.  As President Reagan himself observed, protectionism makes companies weaker not stronger and in the end does not save the companies and industries that are being protected.

On December 13th in a letter to Congress more than 50 retail and manufacturing associations urged Congress to abandon border tax adjustments saying the proposal to increase taxes on all imports could hurt domestic industry.  Although the retail groups argue that border tax adjustments could raise consumer prices, as the letter states the real problem is the impact of higher raw material costs on downstream US production:

“Companies that rely on global supply chains would face huge business challenges caused by increased taxes and increased cost of goods, which would in turn likely result in reductions in employment, reduced capital investments and higher prices for consumers.”

Congress does not care if prices for consumer products go up a few dollars at Walmart, but what happens when US downstream producers in Congressional districts are forced to close down because of higher raw material costs.  As one friend, who represented a major steel producer for years, told me, the total employment in the entire Steel industry is less than one high tech company and yet we want to protect the Steel industry at the expense of downstream high value added US production?

TRUMP APPOINTS WILBUR ROSS A PRAGMATIST TO BE COMMERCE DEPARTMENT SECRETARY

As indicated above, President Elect Donald Trump has announced that he will appoint billionaire investor Wilbur Ross as the next Secretary of Commerce.  Ross is a pragmatist, not an ideologue, who understands and values the problems of the working class more than other capitalists.  As Ross states in the following video http://www.theepochtimes.com/n3/1750905-billionaire-investor-wilbur-ross-on-the-people-factor-in-investing/:

“That man who has stood behind a machine for 15 or 20 years, he knows better than the people who built it, how to get more productivity out of it. So you need   to create an environment where he feels someone will pay attention if he makes a suggestion, and if it turns out to be a good suggestion, that he’ll be rewarded for it.”

Ross, worth $2.9 billion according to Forbes, has made his name in distressed assets investments and rose to fame turning around Bethlehem Steel for a short time as well as Burlington Industries.  Ross also worked closely with labor unions, stating:

“There’s a big misconception in management–labor relations throughout the industrial world; too often management and labor view each other as adversaries. We truly view labor as our partner because they only have one company they’re working with and we only have one group of workers.

So we think it’s very important that we have a good, functional relationship. We don’t negotiate with unions having a big battalion of lawyers and accountants and human relations people. We tend to negotiate mano-a-mano with the union leadership. Once we’ve worked out the essence of the deal, we then turn it over.”

Ross probably knows the Rust Belt better than any politician, one of the reasons why President-elect Trump picked him.   In the early 2000s he combined Acme Steel, LTV Steel, and Bethlehem Steel saving all of them from bankruptcy for a short period of time and returning the employees to the job but under new work rules and with 401(k)s instead of pensions.

Meanwhile, in early 2000, China suddenly had an insatiable demand for steel, combined with the U.S. automakers’ zero-percent financing push.  American steel was suddenly red hot. The price per ton of rolled steel soared and Ross took the new entity, ISG, public in December 2003.  Ross then sold ISG combined entity to Indian steel giant Mittal in 2005 for $4.5 billion.  As Ross stated:

“It’s nice being the chairman of a huge company in a vital industry. But it’s nicer to make fourteen times your initial investment in just two years.”

Eventually, however, Bethlehem Steel fell into bankruptcy.

OPEN LETTER TO NEW COMMERCE DEPARTMENT SECRETARY WILBUR ROSS— ONLY TRADE REMEDY PROGRAMS THAT SAVE US COMPANIES—TAA FOR FIRMS/COMPANIES AND MEP

The Honorable Wilbur Ross

New Commerce Department Secretary Trump Administration

Re: Trade Adjustment Assistance for Firms/Companies and MEP– Only Trade Remedy Programs That Save US Companies

Dear Secretary Ross,

The Press reports that President-elect Donald Trump has nominated you to be the next Commerce Department secretary.  Your expertise in working with bankrupt US companies, such as Bethlehem Steel, gives the United States a unique chance to make its industry great again.

In the 1980s during the Reagan Administration, I worked at the Commerce Department and before that at the US International Trade Commission.  Since the 1980s, I have represented many US importers/foreign producers in international trade cases, including metal, chemical and steel products, and am now on the Board of Directors of the Northwest Trade Adjustment Assistance Center in Seattle, Washington, which provides assistance to US companies injured by imports.

In my experience, ultimately these unfair trade cases do not work.  Although they provide a breathing space, they do not save the companies and the jobs that go with them.  Importers simply switch to a new country.  Both of us have experience with Bethlehem Steel, which had 40 years of trade protection from steel imports through various antidumping and other trade orders.  Where is Bethlehem Steel today? Green fields.

But trade cases also create enormous collateral damage in downstream industries that need competitive raw material inputs.  Many US companies may use the cases to hide behind protectionist walls.  The “hunker down” mindset is not in America’s DNA.  Instead, this nation’s manufacturing businesses need to regain the competitive dynamism they once possessed. We need a new aggressive US manufacturing policy unleashing American global competitiveness to make companies strong enough to not only survive, but thrive in the US market.

A starting point would be for the Commerce Department to build upon two existing programs that have proven track records of success in this area that can be quickly ramped up and can have an immediate and tangible impact on the 250,000 small and medium manufacturing companies which serve as the bases of our supply chain: EDA’s Trade Adjustment Assistance for Firms /Companies (“TAAF”) and NIST’s Manufacturing Extension Partnership Program (“MEP”) (inexplicably, these programs have been marginalized by the Obama Administration).  TAAF has 11 regional (multi-state) TAAF Centers but the program has been cut to only $12.5 million annually. 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.

No federal funds go to any companies in the program. In fact, companies are required to pay into the program by matching any federal monies on a dollar-for-dollar basis. This sharing of costs between Uncle Sam and the companies creates a pool of seed dollars subsequently used to hire outside professionals. These professionals create a series of knowledge-based projects aimed at permanently upgrading key business processes over the span of several years. Here’s the kicker – the program does not block imports in any way.

Does it work? Yes it does. 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 Mid-Atlantic Trade Adjustment Assistance Center, uses a video, http://mataac.org/howitworks/, to show in detail how the program resulted in significant turnarounds for four companies. The reason the TAA for Firms/Companies is so successful—Its flexibility in working with companies on an individual basis to come up with a specific adjustment plan to make them competitive once again in the US market as it exists today.  For a sample recovery plan, see http://mataac.org/documents/2014/06/sample-adjustment-plan.pdf, which has been developed specific to the strengths, weaknesses and threats each company faces.

NIST’s MEP program provides high quality management and technical assistance to the nation’s small manufacturers through independent Centers in every State and Puerto Rico, staffed by non-federal advanced manufacturing experts and is one of the remedies suggested by TAAF.  MEP reaches nearly 30,000 firms each year, and works intensively (think “McKinsey for manufacturers”) with nearly 10,000 of them.  As a consequence of a just completed nation-wide reinvention and reform of the program, MEP is positioned to assist even more companies.  Currently funded at $130 million, a commitment of $100 million over four years would serve an additional 8400 firms.  These funds could be targeted to those small and medium enterprises that are the base of our domestic supply chain, critical to your overall reshoring agenda.  Like the TAAF program, no MEP funds go directly to the companies, which instead are required to cost share the cost of expert consultants.  They have “skin in the game”.

Increasing funding will allow the TAA for Firms/Companies and the MEP programs to expand their bandwidth and provide relief to larger enterprises, including possibly even steel producers.  If companies that use steel can be saved, why can’t those who produce it?

Attached is a longer proposal on how to expand TAA for Firms/Companies and the MEP Program to make US companies more competitive again.

I wish you great success in your new appointment.  It gives me a level of confidence for the future of America’s manufacturing base that hasn’t been felt for quite some time.

I hope that the above has been of some interest. I would consider it an honor to expand on it in person if you think it appropriate.

Very truly yours,

William Perry

CHINA SUES US AND EC IN WTO FOR FAILURE TO GIVE CHINA MARKET ECONOMY STATUS IN AD AND CVD CASES ON DECEMBER 11, 2016

As indicated in past blog posts, pursuant to the China WTO Accession Agreement, from the Chinese point of view December 11, 2016 is the date when countries can no longer treat China as a nonmarket economy country under their antidumping (“AD”) and countervailing duty (“CVD”) law.  Neither the United States nor the EC declared China a market economy country on December 11th so predictably China has filed a WTO complaint against the US and EC over their price comparison methodologies used in their AD and CVD laws.

On December 12, 2016, in the attached notice, wto-2016-news-items-china-files-wto-complaint-against-us-eu-over-price-comp, the WTO announced:

“China notified the WTO Secretariat that it had requested dispute consultations with the United States and the European Union regarding special calculation methodologies used by the US and EU in anti-dumping proceedings.”

Pursuant to US antidumping law, since China is a nonmarket economy country, Commerce refuses to use actual prices and costs in China to determine whether a Chinese company is dumping.  Instead Commerce constructs a cost for the Chinese company using consumption factor information from China and “surrogate” values from import statistics in 5 to 10 different surrogate countries. In its proceedings, the Commerce Department can choose value data from different countries between a preliminary and final determination and between initial investigation to review investigation.   Because of the numerous surrogate values from many different surrogate countries, it is impossible for the Chinese company, never mind the US importer, to know whether the Chinese company is dumping.

As former USTR General Counsel Warren Maruyama recently stated:

“The nonmarket economy methodology tends to generate extremely high margins and a lot of Chinese companies have basically concluded that it’s futile to defend NME cases, so this is a dispute with extremely high stakes for both sides.”

The controversy surrounds Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, which 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 us a nonmarket economy methodology in Article 15 (a)(ii) “shall expire 15 years after the date of accession”.  China acceded to the WTO on December 11, 2001 so Section 15(d) should have taken effect on December 11, 2016, but did not.

But where did the 15 years come from?  It came from a demand by the United States in the 2000 US China WTO negotiations and the resulting US-China WTO Accession Agreement. In fact, several years ago, former USTR Charlene Barshefsky, who negotiated the US China WTO Agreement, was asked at a conference in Beijing where the 15 years came from.  Her response was that she knew what she needed to get from the Chinese government to get the Agreement through Congress.  A USTR negotiator once told me that, in fact, this was “nonnegotiable demand” from the US government.  So you would think that the US government would follow the Agreement it negotiated with China and the demand that it made of the Chinese government.  Not so fast.

The United States’ apparent position is that although the 15 years was demanded by the US, since the 15 years is in not in a Treaty approved by Congress, the US does not have to follow the provision because it is not in the US Antidumping and Countervailing Duty law.

Iran has market economy status and has always been considered a market economy country.  Although once classified as nonmarket economy countries, Russia and Ukraine have market economy status under the US antidumping law.  Why and how did they become market economy countries?

For Russia, it was 911.  As a result, of the 911 attack the US government wanted Russian bases to attack Afghanistan.  President Putin told the United States Government make Russia a market economy country under the US antidumping law.  Secretary Evans of Commerce flew into Russia and said looks like a market economy to me.  See http://news.bbc.co.uk/2/hi/business/2032498.stm; http://www.themoscowtimes.com/business/article/washington-mulls-status-of-russias-economy/247431.html; http://www.russialist.org/archives/5545-4.php.

As CBS news stated about the announcement:

The Russian leader has aggressively pursued closer ties with the West since the Sept. 11 terrorist attacks, and many analysts had predicted the United States would grant Russia market economy status and help in its WTO bid in exchange for Putin’s strong support for the U.S.-led campaign in Afghanistan.

http://www.cbsnews.com/news/russia-joins-club-capitalism/

Sources in China reported that when he learned about the decision then Premier Zhu Rongyi in China was extremely angry, stating how could Russia get market economy before China?  The answer—politics and the Chinese know it.

What about Ukraine?  How did it get market economy?  Orange Revolution.  On February 17, 2006, Commerce determined that Ukraine is a market economy country.  See http://www.trade.gov/press/press_releases/2006/ukraine_021706.asp; 71 Fed. Reg. 9520 (February 24, 2006).

Regarding China’s challenged in the WTO, Nicholas R. Lardy, a senior fellow at the Peterson Institute for International Economics, recently stated:

“I think this is potentially far more significant than most trade disputes … because the Chinese believe, with some justification, that they were promised something both verbally and in writing back at the time when they were negotiating their accession and now both Europe and the United States are walking away from it.”

SOLAR CELLS FROM CHINA PRELIMINARY DETERMINATION

On December 19, 2016, the Commerce Department issued the attached preliminary determination, 2014-2015-solar-cells-from-china-preliminary-determination, in the 2014-2015 antidumping revivew investigation on Solar Cells from China.  Trina received an antidumping rate of 7.72%, Canadian Solar 30.42% and separate rate companies received a rate of 13.97%, the weighted average of Trina and Canadian Solar’s dumping rates.  These are just preliminary rates and those rates can change in six months in a preliminary determination.

SOLAR CELLS FROM CHINA REVIEW INVESTIGATION STARTS THIS MONTH

As indicated in the attached Commerce Department review notice, december-2016-commerce-opportunity-to-request-reviews, this is the month to request review investigations in the Solar Cells ( formal name “Crystalline Silicon Photovoltaic Cells”) from China case.  Requests for review investigation must be filed at the Commerce Department by December 31st.

There has been much confusion about the difference between the Solar Cells case and the Solar Products (formal name “Crystalline Silicon Photovoltaic Products”) case.

The Solar Cells from China case covers exports and imports of Chinese Solar Panels with Chinese produced solar cells in them. The anniversary month is December to request a review investigation and the review period will cover imports and sales of Solar Cells to the United States during the period December 1, 2015 to December 31, 2016.

The Solar Products from China case covers exports and imports of Chinese Solar Panels with foreign produced solar cells in them. The anniversary month is February to request a review investigation and the review period will cover imports and sales of Solar Products to the United States during the period February 1, 2016 to January 31, 2017.

NEW HARDWOOD PLYWOOD AD AND CVD CASE AGAINST CHINA

On November 18th, the Coalition for Fair Trade in Hardwood Plywood and its individual members: Columbia Forest Products (Greensboro, NC), Commonwealth Plywood Inc. (Whitehall, NY), Murphy Plywood (Eugene, OR), Roseburg Forest Products Co. (Roseburg, OR), States Industries, Inc. (Eugene, OR), and Timber Products Company (Springfield, OR) filed an AD and CVD case against imports of hardwood plywood from China.

On December 9, 2016, in the attached factsheet, factsheet-prc-hardwood-plywood-products-ad-cvd-initiation-120916, the Commerce Department initiated the AD and CVD cases.  To get a separate antidumping rate in the AD case, Chinese companies must submit a quantity and value questionnaire by December 22, 2016 and a separate rates application by January 13, 2017.

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

STEEL TRADE CASES

On November 30, 2016, in the attached factsheet, factsheet-multiple-clt-plate-ad-final-113016, Commerce announced its affirmative final determinations in the AD investigations of imports of certain carbon and alloy steel cut-to-length plate from Brazil, South Africa, and Turkey.  The Brazil AD rate is 74.52%.  The South African rate ranges from 87.72% to 94.14%.  The Turkey rate ranges from 42.02% to 50%.

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

UNIVERSAL TRADE WAR CONTINUES

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

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

Because of this situation, this part of the newsletter will concentrate on trade cases in other countries and how other countries see the trade problem with the United States.

CHINA

HOW THE CHINESE GOVERNMENT CAN RETALIATE

What Happens When Trump Starts a Trade War with China

By Adams Lee, Partner, Harris Bricken

During the campaign, Donald Trump said “we can’t continue to allow China to rape our country” and vowed to aggressively fight back against China’s unfair trade practices. Trump promised his trade agenda would:

(1) declare China to be a currency manipulator,

(2) impose a 45 percent tariff on all Chinese imports into the U.S.,

(3) abandon/ renegotiate “bad” trade agreements such as the Trans-Pacific Partnership (TPP), and

4) use the full arsenal of US trade laws against Chinese unfair trade practices.

President-elect Trump’s trade actions likely will raise many legal and policy questions.  Can he really do that? Should he do that? Will those actions achieve anything? Pundits, academics, lawyers, and ultimately U.S. judges will weigh in on these questions, but it is fair to assume China will not wait for the resolution of these questions.  Instead China likely will retaliate with its own actions. This post looks at three possible ways China could respond to any attempts under the Trump administration to get tough against China.

  • China’s AD/ CVD Actions

Unbeknownst to many, China has initiated many of its own antidumping (AD) and countervailing duty (CVD) actions against the United States and other countries.  Having been on the receiving end of the most number of AD/CVD actions worldwide, China has incorporated into its own AD/CVD procedures some of the most effective techniques and practices from the AD/CVD investigations conducted by the U.S., EU, and other jurisdictions. For example, China’s AD questionnaires have burdensome and comprehensive sales and cost data requests, similar to, and even exceeding US practice. China’s AD/CVD margin calculation methodologies are as non-transparent as the EU’s margin calculations. China has even copied many of the annoying administrative practices of the US and EU such as giving only limited extensions, disregarding national holidays, or insisting on burdensome filing requirements (e.g., all documents of all filings must be fully translated into Chinese).

To date, China’s AD/CVD actions have largely been symbolic and timed to be initiated after specific U.S. actions against China.  Although many of China’s AD/CVD cases have involved well-known companies (e.g., Corning, Dupont, Tyson Foods, Cadillac), most of these cases have had only limited economic impact. For example, in 2010, China imposed AD/CVD duties against U.S. chicken broiler products after the U.S. imposed special safeguard duties against Chinese tires in 2009. Most of the U.S. exports to China were of chicken feet, which had limited demand in the U.S., other than as a byproduct to make animal feed.

More recent China AD/CVD actions, however, have had greater strategic economic impact.  After the US and EU filed AD/CVD actions against Chinese solar cells and modules in 2011, China retaliated by initiating its own AD/CVD actions against solar-grade polysilicon from the United States, EU and Korea. China’s AD/CVD action effectively closed off the largest export market for US polysilicon producers, and was a significant contributing factor to REC Silicon’s decision to shutter its polysilicon production operations in Washington and Montana.

Even more recently, China in late September announced preliminary AD duties of 33.8% and CVD duties of up to 10.7% against imports of U.S. distillers dried grains (DDGS), an ethanol by-product used as animal feed. The U.S exported $1.6 billion of DDGS to China in 2015.

China apparently already has an AD/CVD action prepared against U.S. soybeans exports to China and is just waiting for the right time to initiate the action. The U.S. is the largest producer and exporter of soybeans and exported over $10 billion of soybeans to China in 2015.  If Trump wants to get tough against China, US soybean producers may well become collateral damage in the latest round of the escalating US-China trade war.

  • China’s Antitrust Enforcement

Another option for China to respond against any anti-China trade actions from the U.S. would be through the enforcement of its antitrust laws.  Although China implemented its anti-monopoly law only in 2008, China has become increasingly active in reviewing mergers and investigating abuse of market dominance. In February 2015, Qualcomm paid $975 million fine to settle Chinese antitrust investigations into its alleged abuse of market dominant position.  In 2016, China’s antitrust authorities have targeted pharmaceuticals, medical devices, vehicle manufacturing, ocean shipping, and smart manufacturing as industries of particular concern.  U.S. companies operating in these industries should be aware of possible dawn raids of its corporate offices in China and other enforcement action by Chinese antitrust authorities. Because these industries are already prioritized for extra scrutiny, China could ramp up its antitrust enforcement actions as an indirect way to retaliate quickly against Trump’s actions against China.

  • China’s Criminal Enforcement

China could also retaliate by simply enforcing its own criminal laws against foreign (i.e., U.S.) company officials while in China. Earlier this month, China detained at least three employees of Crown Resorts, Ltd, an Australian gambling company, and will be pursuing criminal charges because under Chinese law casinos are not allowed to promote gambling in China or organize groups to go to casinos overseas. No one knows where and when the next China anti-corruption effort will occur, but foreign companies doing business in China in important or politically sensitive industries need to be extra cautious.  Company officials need to know which way the wind is blowing in China, particularly when Trump’s enflamed trade rhetoric may trigger Chinese backlash.

So far, although Trump has talked a lot about China, China has taken the high road noting that U.S.-China trade relations are “too big to fail”. China appears to be waiting to see if Trump’s actions will in fact harm China.  For example, Trump’s decision to abandon the Trans-Pacific Partnership actually opens the door for China to step in and fill the TPP void by promoting its own regional trade agreement (RCEP – Regional Comprehensive Economic Partnership).  If, however, Trump does do anything that China considers excessive, it would be naïve to think China will do nothing.  Unlike the U.S.-Japan trade wars from the 1980s, China has a home market that is often the biggest export market for US producers. China has many options under its own laws to directly or indirectly retaliate against U.S. interests.  Anyone wishing to do business in China or with China should consider these risks that they could be targeted for symbolic retaliation in a spiraling US-China trade war.

CHINA AD/CVD NEWSLETTERS

Attached are newsletters teams-newsletter-en-vol-2016-44, teams-newsletter-en-vol-2016-45 teams-newsletter-en-vol-2016-46, from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office.

CANADA

LUMBER FROM CANADA CASE COMES BACK

On November 25, 2016, the Committee Overseeing Action for Lumber International Trade or Negotiations, the domestic lumber companies, filed an antidumping and countervailing petition against softwood lumber products from China.  In the attached notice, factsheet-canada-softwood-lumber-productsad-cvd-initiation-121616, on December 16, 2016, the Commerce Department initiated an antidumping and countervailing duty case on solftwood lumber products from Canada.

THE CANADIAN VIEW

In attached footnoted article, trumpnaftafinal, Dan Kiselbach, a well-known Canadian Trade and Customs lawyer, at Deloitte Tax Law in Vancouver, Canada discusses whether and how Trump can cancel NAFTA.

MEXICO

MEXICAN ANTIDUMPING CASE—CARBON STEEL TUBE FROM KOREA, SPAIN AND UKRAINE.

On December 15, 2016, in the attached notice in Spanish, dof-15-dic-16-resolucion-inicio-investig-antidumping-import-tuberia-de-a, the Mexican Government started up its own antidumping investigation against imports of carbon steel tube from Korea, India, Spain and Ukraine.  A large number of US companies have been named as respondent exporters.  All the exporters are named in pages 7 to 11 of the notice.

In the attached memorandum, carbon-steel-pipe-and-tube-mexicowhich will be attached in full on my blog, www.uschinatradewar.com, David Hurtado Badiola, a well known Mexican Trade and Customs lawyer, at Jauregui y Del Valle, S.C. in Mexico states:

Antidumping investigation on seamless carbon steel pipes, originating in Korea, Spain, India and Ukraine.

Below is a summary of the Initial Antidumping Resolution on seamless carbon steel pipes, produced in Korea, Spain, India and Ukraine, published today on the Federal Official Gazette.

The investigation is initiated today for importations of steel pipes described below, carried out at alleged dumping prices.

The products included in the investigation are seamless carbon steel pipes, with different diameters and thicknesses, classified under the following tariffs are:

Tariff fraction Description
Chapter 73 ARTICLES OF IRON OR STEEL
Heading 7304

Tubes, pipes and hollow profiles, seamless, of iron (other than cast iron) or Steel.

Line pipe of a kind used for oil or gas pipelines

Subheading 7304.19 Other

Tariff

7304.19.01

Hot-rolled tubes, uncoated or other surface-worked work, including Hot-drawn or lacquered: of an external diameter not exceeding o equal to 114.3 mm and a wall thickness equal to or exceeding 4 mm without exceeding 19.5 mm

Tariff

7304.19.02

Hot-rolled tubes, uncoated or other surface-worked work, including Hot-drawn or lacquered: of an external diameter

exceeding 114.3 mm but not exceeding 406.4 mm and having a wall thickness of 6,35 mm or more but not exceeding 38.1 mm .

Tariff

7304.19.99

The others.
Subheading 7304.39 Others, of circular cross-section, of iron or non-alloy steel:
Others.

Tariff

7304.39.05

Tubes known as “thermal” or “conducting” tubes, uncoated or surface-worked, including pipes called thermal or conducting, lacquered or varnished: of an external diameter not exceeding or equal to 114.3 mm and having a wall thickness equal to or greater than 4 mm, not to exceeding 19.5 mm.

Tariff

7304.39.06

Tubes known as “thermal” or “conducting” tubes, uncoated or surface-worked, including pipes called thermal or conducting, lacquered or varnished: of an external diameter greater than 114.3 mm not exceeding 406.4 mm and having a wall thickness equal to or greater than 6.35 mm, not to exceeding 38.1 mm.

Tariff

7304.39.99

Others.

There are two different periods covered in an antidumping investigation: (i) the investigated period and (ii) the analyzed period.

The investigated period covers importations from April 1, 2015 to March 31, 2016.

The analyzed period is a longer period that covers importations from April 1, 2013 to March 31 2016. This period is used to analyze injury caused by imports at dumping prices.

Every exporter that appears and files the information required is entitled to have its own dumping margin calculated.

Those exporters that do not appear or did not export in the investigated period shall be subject to the “all others rate”, equivalent to the highest duty imposed to the exporters of their country.

The term to file information in the official questionnaire and defense arguments expires on February 9, 2017.

If anyone is interested in participating in the case, please let me know and I will put them in touch with Mexican trade counsel.

COMPUTER HACKING

US AND CHINA MEETING

On December 8, 2016, the Justice Department issued a notice, on the recent high level Joint Dialogue between the United States and China on Cybercrime and Related Issues, which states:

Joint Summary of Outcomes

Yesterday, Attorney General Loretta E. Lynch and Department of Homeland Security Secretary Jeh Johnson, together with Chinese State Councilor and Minister of the Ministry of Public Security Guo Shengkun, co-chaired the third U.S.-China High-Level Joint Dialogue on Cybercrime and Related Issues. The dialogue aims to review the timeliness and quality of responses to requests for information and assistance with respect to cybercrime or other malicious cyber activities and to enhance pragmatic bilateral cooperation with regard to cybercrime, network protection and other related issues.

Both sides endorse the establishment of the dialogue mechanism as beneficial to bilateral communication and enhanced cooperation, and believe that further solidifying, developing and maintaining the dialogue mechanism and continuing to strengthen bilateral cooperation in cybersecurity is beneficial to mutual interests.

The outcomes of the third dialogue are listed as below:

  1. Combatting Cybercrime and Cyber-Enabled Crime. Both sides re-commit to cooperate on the investigation of cyber crimes and malicious cyber activities emanating from China or the United States and to refrain from cyber-enabled theft of intellectual property with the intent of providing competitive advantages to companies or commercial To that end, both sides:
    • Plan to continue the mechanism of the “Status Report on S./China Cybercrime Cases” to evaluate the effectiveness of case cooperation.
    • Affirm that both sides intend to focus cooperation on hacking and cyber-enabled fraud cases, share cybercrime-related leads and information with each other in a timely manner, and determine priority cases for continued law enforcement cooperation. Both sides intend to continue cooperation on cases involving online distribution of child Both sides seek to expand cyber-enabled crime cooperation to counter Darkweb marketplaces’ illicit sale of synthetic drugs and firearms.
    • Seek to provide concrete and timely updates on cases brought within the ambit of the
    • Exchanged views on existing channels of multilateral cooperation, and intend to continue exchanges regarding this
  2. Network Both sides acknowledged the network protection seminar held in August 2016 in China, and believe that enhancing network protection is beneficial to both sides. Both sides suggest holding regular network protection working-level meetings, either remotely or in-person, the next of which should be planned for 2017. Both sides seek to promote the protection of our respective networks through multiple methods. To that end, both sides:
    • Plan to enhance network hygiene by promoting the cleaning and patching of malware infections in our respective networks and promoting best network protection
    • Propose to engage in regular reciprocal sharing of malicious IP addresses, malware samples, analytic products, and other network protection information, and to develop standard operating procedures to guide network protection
    • Seek to assess the effectiveness of information shared and provide substantive feedback to each side regarding the utility of that
    • Plan to provide Principals with regular summaries of network protection
    • Intend to continue discussion on future cooperation concerning cybersecurity of critical infrastructure, and to provide timely assistance on cybersecurity incidents impacting critical
    • Intend to hold, as early as possible in 2017, a S.-China government and technology company roundtable to discuss cybersecurity issues of mutual concern.
  3. Misuse of Technology and Communications to Facilitate Violent Terrorist Activities. Both sides acknowledged the seminar on misuse of technology and communications to facilitate violent acts of terrorism held in November 2016 in China, and decided to continue cooperation on information sharing in countering the use of the Internet for terrorist and other criminal Both sides will consider holding a second seminar in 2017.
  4. Hotline Both sides welcomed the launch of the U.S.-China Cybercrime and Related Issues Hotline Mechanism, and decided to continue to use the hotline in accordance with the Work Plan. Both sides will conduct routine review of the use of the hotline.
  5. Dialogue Both sides recommend that the dialogue continue to be held each year, and that the fourth dialogue occur in 2017.

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

ARROWHEADS WITH ARCUATE BLADES

On December 2, 2016, in the attached ITC notice, arcuate-arrowheads, Flying Arrow Archery, LLC filed a section 337 patent case against Alice, China; Dongguan hong Song hardware alma iao, China; Huntingsky, China; liu, China; Jianfeng Mao, China; In-Sail Sandum Precision Industry (China) Co., Ltd., China; Arthur Sifuentes, Spring, Texas; Taotao (IT60), China; Wanyuxue, China; Wei Ran, China; YanDong, China; and Zhou Yang, China.

LIQUID CRYSTAL eWRITERS AND COMPONENTS THEREOF

On December 8, 2016, in the attached ITC notice, liquid-crystal, Kent Displays, Inc. filed a section 337 patent case against Shenzhen Howshow Technology Co., Ltd., (d/b/a Shenzhen Howshare Technology co., Ltd., d/b/a Howshare), China; and Shenzhen SUNstone Technology Co., Ltd., (d/b/a iQbe, China).

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

Best regards,

Bill Perry

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