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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR OCTOBER 20, 2017

Dear Friends,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Best regards,

Bill Perry

TRADE AT A CROSSROADS AND IT’S NOT JUST CHINA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Billionaires at the Barricades at 313 (footnotes omitted).

According to Ingraham, Clinton promised that NAFTA would:

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

They received pink slips instead.

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

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

Billionaires at the Barricades at 385 to 389.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But Ms. Ingraham also states that:

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

Id. at 1163-1164.

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

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

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

My fellow Americans:

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

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

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

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

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

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

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

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

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

Emphasis added.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

COSTS OF PULLNG OUT OF NAFTA AND TPP

CANADA

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

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

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

MEXICO

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

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

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

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

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

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

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

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

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

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

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

JAPAN

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

AGRICULTURE

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

U.S. ANTI-TRADE STANCE AIDS EU

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

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

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

US CHAMBER OF COMMERCE

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

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

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

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

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

NAFTA NEGOTIATIONS HAVE STALLED

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

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

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

US Robert Lighthizer responded:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here are four of them:

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

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

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

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

Let’s look briefly at each of these.

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

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

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

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

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

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

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

Yeah, right.”

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

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

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

US ANTIDUMPING AND COUNTERVAILING DUTY CASES BECOME MORE POLITICAL

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

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

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

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

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

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

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

NO SYMPATHY FOR BOMBARDIER IN BOEING FIGHT.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SECTION 201 SOLAR CELLS CASE

On May 17, 2017, Suniva filed a Section 201 Escape Clause against all Solar Cell imports from all countries at the US International Trade Commission (“ITC”).  On May 23, 2017, in the attached Federal Register notice, ITC iNITIATION NOTICE SOLAR CELLS, the ITC decided to go ahead and institute the case.

The ITC had to determine whether “crystalline silicon photovoltaic (“CSPV”) cells (whether or not partially or fully assembled into other products) are being imported into the United States in such increased quantities as to be a substantial cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly competitive with the imported articles.”

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

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

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

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

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

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

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

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

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

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

SEIA argued in its brief:

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

TRUMP AND CHINA

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

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

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

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

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

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

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

There are many fights to come.

SECTION 301 CASE AGAINST CHINA ON FORCED TECHNOLOGY TRANSFERS MOVES FORWARD

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

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

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

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

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

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

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

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

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

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

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

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

CHINA NME STATUS

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

In the announcement, the EU stated:

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

EU Trade Commissioner Cecilia Malmström further stated:

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

WINE FIGHT AGAINST BRITISH COLUMBIA AND CANADA

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

According to the US complaint:

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

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

According to the complaint:

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

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

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

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

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

SECTION 232 STEEL AND ALUMINUM CASES REMAIN STALLED

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

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

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

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

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

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

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

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

This was a problem personally approved by President Ronald Reagan.  The Trade Adjustment Assistance for Firms/Companies program does not put up barriers to imports.  Instead the TAA for Companies program works with US companies injured by imports on an individual basis to make them more competitive.  The objective of TAA for Companies is to save the company and by saving the company it saves the jobs that go with that company.

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

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

Moreover, the Federal government saves money because if the company is saved, the jobs are saved and there are fewer workers to retrain and the saved company and workers end up paying taxes at all levels of government rather than being a drain on the Treasury.  To retrain the worker for a new job, the average cost per job is $50,000.  To save the company and the jobs that go with it in the TAA for Companies program, the average cost per job is $1,000.

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

But TAA for Companies has been cut to the bone.  On August 22, 2017, in the attached press release, US Commerce Department Announces $133 Million to Boost Competitiveness of US Ma, the U.S. Commerce Department announced $13.3 Million to Boost Competitiveness of U.S. Manufacturers.

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

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

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

NEW TRADE CASES

ANTIDUMPING AND COUNTERVAILING DUTY CASES

PTFE RESIN

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

FORGED STEEL FITTINGS

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

UNIVERSAL TRADE WAR CONTINUES

FOREIGN ANTIDUMPING AND COUNTERVAILING DUTY LAW AND CASES

CHINESE ANTIDUMPING CASES AGAINST US AND JAPAN

HYDRIOC ACID FROM THE US and JAPAN

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

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

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

CHINA AD/CVD NEWSLETTERS

Attached are newsletters from Chinese lawyer Roland Zhu and his trade group at the Allbright Law Office about Chinese trade law.  Team’s newsletter-EN Vol.2017.37 Team’s newsletter-EN Vol.2017.38 Team’s newsletter-EN Vol.2017.39 Team’s newsletter-EN Vol.2017.40

SECTION 337 AND IP CASES

NEW 337 CASES AGAINST CHINA

REUSABLE DIAPERS

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

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

AMORPHOUS METALS

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

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

LED LIGHTING

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

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

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

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

BEVERAGE CONTAINERS

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

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

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

Best regards,

Bill Perry

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

US Capitol North Side Construction Night Washington DC ReflectioFIRM UPDATE

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

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

TRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR SEPTEMBER 8, 2016

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

President Obama went to state:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As the GAO report states:

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

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

The GAO Report concludes at page 56-47:

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

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

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

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

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

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

The following are key points from these new regulations:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SOLAR CELLS FROM CHINA CHINESE VERSION OF THE ARTICLE

中国进口太阳能电池反倾销案即将到来的最后期限重返美国市场的机会

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

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

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

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

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

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

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

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

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

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

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

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

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

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

STEEL TRADE CASES

HOT ROLLED STEEL FLAT PRODUCTS

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

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

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

SEPTEMBER ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

Best regards,

Bill Perry

US China Trade War–Developments Trade, Solar Cells, 337 Patent, Customs and Securities

Wushu in Park, Practicing Tai Chi, Temple of Sun pavilionDear Friends,

There have been some major developments in the trade, solar cells, 337/patents, and securities areas.

TRADE

SOLAR CELLS NEGOTIATIONS—PRICE UNDERTAKING/SETTLEMENT IN EC CHINA CASE

The Chinese government and the EU Trade Commission announced on July 27th an agreement to settle the EC antidumping and countervailing duty case on solar cells from China.  But that agreement was immediately attacked by both sides.  Attached are the official announcements of the Agreement.  EC COMM ANNOUNCESEC OFFICIAL ANNOUNCE SOLAR DEAL PRO SUN REACTION SOLAR CELLS FACTS

The settlement— known as a “price undertaking” —replaces EU antidumping (AD) and countervailing duty (CVD) duties with a minimum floor price for solar panels, cells and silicon wafers imported from China, which is valid as long as those imports do not exceed 70 percent of the EU market for those products. Above that, the normal AD duty of 47.6 percent would apply.

The European Commission, which brokered the deal, has not yet disclosed the floor price, but informed sources said it will start at 0.56 euros per watt. Given that prices for solar products have been steadily declining, observers also said the floor price would likely be gradually reduced to respond to market shifts before the deal’s expiration at the end of 2015.

Commentators have stated that the floor price would amount to an increase of about 0.10 euros per watt over the prices that Chinese producers were selling at in early 2013. But according to one analyst, that price is still significantly below what EU competitors, who sell at between 0.60 and 0.80 euros per watt, are typically able to offer.  At the price of 55-56 euro cents, many European manufacturers are not yet competitive.

The main outcome of the deal, the analyst said, is that Chinese exporters will be able to pocket additional profit rather than paying it in duties, making large producers even stronger. The analyst also said that the price undertaking’s cap of 70 percent of the EU market will not act as a barrier to Chinese exports to Europe. Not all of China’s suppliers are participating in the price undertaking — only about 70 percent of all Chinese solar companies.

All of this points to the new deal having limited spillover effect on the U.S. market. Chinese solar panels already face antidumping and countervailing duties in the U.S., although the scope of those trade remedies is more limited because of the third country loophole.  If the Chinese panels and modules contain third country solar cells, they are not cover by the US antidumping and countervailing duty order.  But see information about Commerce Department investigation below.

The EC case already had Chinese solar companies looking elsewhere — including the U.S. — but also increasingly to other Asian markets like Japan. By individual country, the largest consumers of solar panels this year are expected to be China (6.9 GW), Japan (5.3 GW), the U.S. (4.9 GW), Germany (4.3 GW), and Italy.

Meanwhile, the U.S. government and China have held informal discussions about a potential settlement of the U.S. solar case, so the EU-China deal could influence a potential agreement between the U.S. and China. However, because the nature and scope of their cases are different, there is no indication that the U.S. would be party to the EU-China deal.

Sen. Ron Wyden (D-OR), who chairs the Senate Finance Committee, Subcommittee on Trade, criticized the EU settlement in a statement. “It’s hard to see how this decision helps anyone except companies in China and Taiwan,” Wyden said. “In the end, the E.U. will not have just sold out its workers and companies that produce solar panels, but U.S. workers and employers as well.”

An aide to Wyden said the senator believed that the EU had failed to exert maximum leverage over China by not including the U.S. at the negotiating table. In addition, by agreeing to a “low bar” deal, the EU has weakened the chances that the U.S. will be able to secure a meaningful agreement in its own negotiations with China.

U.S. Trade Representative Michael Froman said in a statement that the U.S. is still aiming for some kind of world-wide deal to end the Solar Cells trade problems but did not elaborate on how that could be achieved. “We believe there needs to be a global solution, consistent with our trade laws, that creates stability and certainty in the various components of the solar sector,” Froman said. “We look forward to working toward that objective.”

 Meanwhile, on July 20, 2013 the Chinese government imposed preliminary antidumping duties ranging from of 53.3 to 57% on US imports of Polysilicon.  See the attached notice form MOFCOM. MOFCOM POLYSILICON ENGLISH ANNOUNCEMENT

In addition, the Press is reporting major problems in the Chinese polysilicon industry with three-quarters of Chinese polysilicon producers facing closure.  As Reuters reports:

“As smaller polysilicon producers, with average annual capacity of a few thousand metric tons, are pushed out, the likely winners will be larger producers such as GCL Poly, TBEA Co Ltd, China Silicon Corp and Daqo New Energy Corp. The shake-out is already underway as polysilicon prices have plunged to below $20 per kg from a 2008 peak of almost $400, forcing some producers in the northwestern province of Ningxia and eastern China’s Zhejiang province to file for bankruptcy.”

“Their plight is made worse by cheaper, and better quality, imports from producers such as MEMC Pasadena Inc and Michigan-based Hemlock Semiconductor Group – a venture of Dow Corning, Shin-Etsu Handotai and Mitsubishi Materials Corp – and Norway’s Renewable Energy.”

See http://www.reuters.com/article/2013/07/31/us-china-solar-polysilicon-idUSBRE96U1CD20130731.  From the face of it, this looks like a domestic industry in China facing material injury, which makes it a potentially more dangerous case for antidumping and countervailing duties against Korean and US imports.

The EC has indicated that the Solar Cells agreement is linked to other EU-China talks on Chinese plans to impose AD duties against EU polysilicon exports and wine. The preliminary date for imposition of antidumping duties on polysilicon from the EC is February 2014, with final duties due out two months later. For wine, a decision on provisional duties is due out at the end of April 2014, and final measures are due in June 2014.

On the US side, one of the key technical issues is the legal basis under which the Obama administration can seek a settlement given that the AD and CVD orders are now in effect. The time for negotiating a suspension agreement in a case is legally set between a preliminary and a final determination, which has now passed.

In the preliminary explorations of a potential settlement, the U.S. has discussed the option of a changed circumstances review as a legal basis. Such a review would assess whether the existing U.S. trade remedy cases are still needed or could be replaced with a settlement. But that option would require the consent of the U.S. industry.

As indicated in past posts on this blog, the US Solar Cells Trade case has not worked and has not protected the US domestic industry. Prices for solar cells in the US have only gone up by $3. Also in response to the US case, the Chinese Government has brought an antidumping and countervailing duty cases against $2 billion of imports of US produced polysilicon, which goes into the Chinese solar cells.

A negotiated deal would also close the third country loophole in the US Solar Cells case, although there is no third country loophole with regards to the EC. The third country loophole allows China to export solar cells produced in third countries, such as Taiwan, in panels and modules produced in China to the United States. A negotiated settlement would also result in the removal of Chinese antidumping and countervailing duties on US produced polysilicon.

COMMERCE CRACKS DOWN ON THIRD COUNTRY SOLAR CELLS

On August 6, 2013, the Commerce Department initiated an inquiry into whether major Chinese solar panel manufacturers selling to the United States have evaded trade remedy orders by falsely claiming that their panels are assembled from cells made in third countries.

If Chinese produced solar panels and modules contain solar cells from third countries, such as Taiwan or Malaysia, the solar panels and modules are considered not within the scope of the Solar Cells antidumping and countervailing duty orders and out of the case.  As a result of this decision, many Chinese solar companies developed tolling operations under which Chinese companies produce the polysilicon wafers and ship them to another country for transformation into solar cells.  Commerce is now investigating to what degree those solar cells were actually produced in a third country.

In the attached August 6th letter from Commerce to Renesola Ltd., one of the Chinese solar companies, DOC Second Letter to Renesola Commerce states:

“As stated in the required importer and exporter certifications introduced in the underlying investigations, any failure to substantiate a claim that panels/modules imported into the United States do not contain solar cells produced in the PRC will result in suspension of all unliquidated entries for which these requirements were not met and the requirement that the importer post an AD cash deposit or, where applicable, a bond, on those entries equal to the PRC-wide rate in effect at the time of the entry and a CVD cash deposit, or where applicable, a bond rate equal to the all-others rate in effect at the time of the entry. Furthermore, as noted in the required importer and exporter certifications, records pertaining to such certifications may be subject to verification by Department of Commerce officials.”

Petitioners allege that in many instances Chinese companies are shipping almost completed cells, rather than simple wafers, for minimal processing outside of China.  In certain extreme cases, the allegation is that a Taiwanese company may just stamp its name on a solar cell before shipping it back to a Chinese firm for final assembly. Chinese companies may be tempted to undertake such practices because the majority of the value in creating a solar panel comes from the manufacturing of the cell.

If Commerce finds that this kind of circumvention is taking place, it could mean that new duties would be leveled against the imports of modules and panels with the third country cells in them.  Apparently Petitioners have provided evidence of these practices to Customs.  In the spring Commerce sent out inquiries to six Chinese companies — Trina Solar, Yingli, Wuxi Suntech, Renesola, Talesun and LDK — asking them for detailed information about their sales and supply chains. Some of those companies have already responded, while others have until early August to do so.  Rensola and Talesun are facing antidumping rates of 250% on their imports.

In theory, Chinese exporters and U.S. importers of solar panels and cells should have all of the information on hand already. Commerce instituted a certification requirement at the time it issued the final trade remedy orders which required them — if they believed the goods were not subject to the orders — to state that “that these solar panels/modules do not contain solar cells produced in the People’s Republic of China.”

Importers and exporters also had to acknowledge in their certification that relevant records may be requested by CBP at any time, and that failure to be able to substantiate the claims that they were not shipping subject merchandise could result in the processing of customs paperwork — or liquidation — being suspended for further scrutiny.

COMMERCE CHANGES THE ANTIDUMPING RULES AGAIN TO MAKE IT TOUGHER—MARKET ECONOMY INPUTS AND SEPARATE RATES

One would think that since the US-China WTO Agreement provides that China is to be made a market economy country by November 2016, just about three years away, Commerce would set up a transition period.  Just the opposite is happening as Commerce is doubling down on its nonmarket economy methodology.

On August 1st, Commerce published in the Federal Register its final regulation regarding using imports from market economy countries to value factors of production in nonmarket economy antidumping cases, especially against China and Vietnam.  See the attached notice.  DOC REGS NME INPUT PRICES

In prior cases, if the Chinese company imported inputs from a market economy country, Commerce would use the actual market price, rather than surrogate values to value the specific input if the percentage of imports of the specific input were “meaningful”, more than 33%.  Under the new regulation, the percentage of imports of the specific input must account for substantially all of the input used or 85% or more of the input.  This rule will be effective as of September 3rd, meaning that all investigations or reviews that are initiated after September 3rd will be subject to the new rule.

COMMERCE DEPARTMENT SEPARATE RATES REGULATIONS

On July 5th the Commerce Department issued the attached final rule regulatory announcement in the Federal Register stating that in determining whether Chinese or other companies in Nonmarket Economy Countries were entitled to a separate rate in antidumping cases, it would examine more closely whether the company meets certain de facto criteria for obtaining a separate rates. See the attached Federal Register notice.  COMMERCE DE FACTO REGULATION

Commerce specifically stated that it will examine on a case by case basis certain issues related to a respondent’s separate rate status in nonmarket economy dumping cases. This action is part of its Trade Enforcement initiative.

In determining whether a Chinese or other nonmarket economy company is entitled to a separate rate, Commerce looks at the following criteria, whether the Chinese/NME company:

• has export prices set by or subject to approval of a governmental agency;

• has authority to negotiate and sign contracts and other agreements on the company’s behalf;

• has autonomy from the government in decision making on management;

• retains proceeds of its export sales and makes independent decisions regarding disposition of profits or financing of losses.

Since respondents generally possess information on their day-to-day operations, Commerce will consider, on a case-by-case basis, issuing supplemental questionnaires to identify and review additional documentation and information relating to de facto government control by any level of government in cases where the respondent’s initial questionnaire responses are insufficient to support its separate rate claim. Supplemental questions might address:

• selection and removal of directors and managers at the producing/exporting company;

• identification of parties with authority to approve contracts and bank transactions on behalf of the company;

• ownership, including individual and corporate;

• whether any corporate owners are state-owned, state-controlled, or otherwise affiliated with the state, at the national or sub-national levels; and,

• whether any managers hold government positions at the national or sub-national levels.

Consistent with comments urging Commerce to conduct more separate rate verifications, Commerce said it would continue to consider verification of separate rate information where warranted, on a case-by-case basis.

This new regulation may make it harder for Chinese companies to obtain separate rates in antidumping investigations at the Commerce Department.

ALUMINUM EXTRUSIONS—QV QUESTIONNAIRES ISSUED IN AD AND CVD REVIEWS

On August 6, 2013, the Commerce Department issued quantity and value questionnaires in the Aluminum Extrusions Antidumping and Countervailing Duty cases to Chinese exporters to be used to determine the mandatory respondents in the new Antidumping and Countervailing Duty review investigations.  There could easily be 50 respondents in the review investigation and yet the Commerce Department will look at only 2 to 3 companies as mandatory respondents.  Only those companies have the right to prove that they are not dumping or receiving subsidies.  The other 48 plus Chinese companies will get affirmative rates.

These review investigations have also become very complicated because of the Commerce Department’s decision in many instances to expand the scope of the orders and include finished products, such as curtain walls, the sides of buildings, auto and refrigerator parts, in the scope of the antidumping and countervailing duty orders.

IMPORTERS’ LOBBYING COALITION/AMERICAN IMPORT COALITION

As mentioned in prior newsletters, we are working with APCO, a well-known lobbying/government relations firm in Washington DC, on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.  Our first organizational meeting was held on July 24th in Washington DC.  Sixteen US importer/end user companies have agreed to join the Coalition and were at the meeting in person or on a conference call.

The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US China trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

We will be targeting two major issues—Working for market economy treatment for China in 2016 and working against retroactive liability for US importers. The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries.

If anyone is interested in the Coalition, please feel free to contact me.

CHINESE ANTIDUMPING AND COUNTERVAILING DUTY LAW

US WTO VICTORY AGAINST CHINA IN CHICKEN WARS

On August 2, 2013, the WTO agreed with the US in most aspects of its challenge against antidumping and countervailing duties imposed by the Chinese government on US exports, Chinese imports, of US chicken broiler products.  In the attached announcement, the USTR announced that it won on most of the important issues.  USTR STATEMENT CHICKEN  See also the attached WTO conclusions in the Chicken case.  WTO CHICKEN CONCLUSIONS

USTR pointed to several reasons why the victory is important.  First, the WTO sided with the United States in arguing that the Chinese government should not have used the “average cost of production” methodology to calculate AD duties on poultry products.

“For years, we’ve been concerned about other countries rejecting costs based on U.S. producers books and records [and] instead using the weight of a product to allocate production costs,” USTR Mike Froman said at an Aug. 2 press conference, in reference to this methodology. “This methodology artificially inflates and creates antidumping margins.”

The United States argued that China’s methodology dramatically overestimated the cost of production for relatively cheap parts of a chicken, such as the chicken feet. The panel agreed that the approach China took to estimate the cost for producing chicken feet factored additional costs not actually associated with production of feet –such as skinning and removal of bones and veins from breast meat — into the cost of producing feet. Therefore, China’s straight, weight-based allocation does not meet the obligation to arrive at a “proper allocation of costs” for the products under investigation, the panel concluded.

Second, USTR stressed that this was the second convincing win against China’s use of antidumping and countervailing duty investigations against the US.  USTR stated that it hoped that this would force Beijing to fundamentally re-evaluate how it proceeds in AD and CVD investigations.

Third, Commerce Secretary Penny Pritzker suggested that this case underscores the U.S. resolve to not allow China to get away with throwing up unjustified trade remedies in response to U.S. trade policy actions. ”

Fourth, a USTR attorney noted that the panel sided with the U.S. in many aspects of the challenge related to the transparency of China’s procedures for calculating trade remedies.

China now has 60 days to determine whether it wants to appeal the ruling. The U.S. also has a chance to appeal any aspects of the panel ruling with which it disagrees, and a USTR attorney declined to say if the U.S. would exercise this right.

As the attached WTO Conclusions from its decision states, in part:

“China acted inconsistently with the first sentence of Article 2.2.1.1 of the Anti-dumping Agreement when MOFCOM declined to use Tyson and Keystone’s books and records in calculating the cost of production for determining normal value. With respect to Pilgrim’s Pride, the United States has not established that China acted inconsistently with the first sentence of Article 2.2.1.1.”

“v. China acted inconsistently with the second sentence of Article 2.2.1.1 because: (i) there was insufficient evidence of its consideration of the alternative allocation methodologies presented by the respondents; (ii) MOFCOM improperly allocated all processing costs to all products; and (iii) MOFCOM allocated Tyson’s costs to produce non-exported products to the normal value of the products for which MOFCOM was calculating a dumping margin.”

The WTO concluded:

“Pursuant to Article 19.1 of the DSU, we recommend that China bring its measures into  conformity with its obligations under the Anti-Dumping Agreement and the SCM Agreement.”

Although the US government has been able to prevail at the WTO, it should be noted that the Chinese government imposed the very high antidumping and countervailing duties on imports US chicken for three years with a potential loss to US producers of $3 billion.  The WTO recommendation is that China bring its Chicken case into conformity with its obligations under the WTO Anti-Dumping Agreement.  That does not mean that Chinese antidumping and countervailing duties on US chicken will be lifted tomorrow. There is still a long way to go in this case and US chicken will continue to be pushed out of the Chinese market.

The Chicken case is an outgrowth of the US government’s decision to use the special 421 investigation to block lower cost Chinese tires from being imported into the United States.  In addition, since Commerce considers China to be nonmarket economy country, Commerce refuses to use actual prices and costs in China to determine whether a Chinese company is dumping so one can understand why the Chinese government might play around with prices and costs in the US with regard to Chinese antidumping and countervailing duty cases against US companies. Both governments are firing the trade guns in this war.

SILICON STEEL—GOES

The limitation on the US pressure on the Chinese government’s implementation of its antidumping and countervailing duty laws is indicated by the August 6th announcement by the Chinese government that it has fully complied with the WTO rulings against the Chinese government’s determinations in the antidumping and countervailing duty case aimed at imports of US grain-oriented flat rolled electrical steel (GOES).  The US industry disagrees.

In response to the WTO decision, China lowered the CVD rate facing AK Steel from 11.7 percent to 3.4 percent, sources said. One source said Beijing also lowered the CVD rate facing ATI Allegheny Ludlum, the other main company affected by the case, down from its previous rate of 12 percent.

Concerning AD rates, China did not alter the AD duties of 7.9 percent and 19.9 percent on steel exports from AK Steel and Allegheny Ludlum, respectively, although it did lower the “all others” AD rate from 64.8 percent to 13.8 percent.

China maintains that the Appellate Body ruling did not require it to alter the AD rates facing the two primary steel companie.

This dispute between the US and China on US exports of GOES has been going on for years.  Meanwhile, however, the United States has imposed numerous antidumping and countervailing duties on imports of Chinese steel.

In addition, because US importers are exposed to retroactive liability on Chinese imports under the US antidumping and countervailing duty laws, no US importer dares to keep importing Chinese steel once cases are filed.  So the real effect of steel antidumping and countervailing duty cases against China is to shut out Chinese steel imports into the United States.

No other country exposes its importers to retroactive liability under the antidumping and countervailing duty laws.  Only the United States.

When viewed in this context, it is easier to understand why the Chinese government is playing the trade game in the GOES case.

CUSTOMS

JOINT CHINA US STING COUNTERFEIT GOODS

On July 31st, Customs and Border Protection (“CBP”) announced the first joint intellectual property enforcement action.  See the attached announcement.  The month-long operation resulted in the seizure of over 243,000 counterfeit consumer electronics products including popular trademarks such as Apple, Beats by Dr. Dre, Blackberry, Samsung, Sony, and UL.

“The success of this joint operation fully proves that earnest and effective cooperation cross the border is needed to curb the movement of counterfeit products”, said Zou Zhiwu, Vice Minister of the General Administration of China Customs (GACC). “IPR infringement is a global issue involving not only the process of production and export, but also that of import and circulation. It not only harms the order of global trade, but also threatens the health and safety of consumers. Enforcement agencies around the world should work more closely to crack down on these illegal activities. China Customs has been making unremitting efforts to promote international cooperation in this field. The results of this joint operation are very inspiring and have consolidated our confidence and resolve to jointly fight against IPR violations under the framework of Memorandum of Cooperation on Strengthened Cooperation in Border Protection Enforcement of IPR between GACC and CBP.”

PATENTS

ITC MAKES DOMESTIC INDUSTRY REQUIREMENT MORE TOUGH IN 337 CASES

The US International Trade Commission (“ITC”) has created a new procedure to deal with the situation of Patent Trolls or Non Practicing Entities (NPEs).  That is companies that do not practice the patent in the United States.

Section 337, 19 USC 1337, provides that for there to be a violation the unfair acts, such as infringement of a US patent, the threat or the effect of the importation of articles into the United States must “be to destroy or substantially injure an industry in the United States.”  Thus 1337 has an injury to a US industry requirement in the statute.  The economic part of section 1337, however, has not been as important because 1337(a)(3) provides that an industry in the United States is considered to exist “if there is in the United States, with respect to the articles protected by the patent, copyright, trademark or mask work concerned—(A) significant investment in plant and equipment; (B) significant employment of labor or capital; or (C) substantial exploitation in its exploitation, including engineering, research and development or licensing. . . .”

Many companies that do not practice the patent in the United States have brought 337 cases under Subpart C arguing that licensing or research and development in the United States was enough to be a domestic industry.  Because 337 cases can be privately settled, cases could be filed and then settlements reached before there was an ITC decision on the domestic industry.

US high tech companies, such as Apple, Intel and IBM, have been very concerned about NPEs bringing section 337 cases and then obtaining settlements before the domestic industry issue was decided.  Section 337 proceedings can be very costly because the entire litigation is over in just over a year, which puts substantial pressure on the respondent companies.

Recently in the Laminated Packaging 337 case, in March 2013 the Commission initiated a 337 Patent case but ordered the Administrative Law Judge (“ALJ”) to hold an expedited proceeding on domestic industry.  On July 5, 2013, under protest about the procedures in the case, the ALJ issued an expedited initial determination in the Laminated Packaging case, in effect, dismissing the section 337 case because there was no domestic industry.

In the attached decision, LAMINATED PACKAGING DOMESTIC INDUSTRY ID  the ALJ stated on pages 39-40 of his decision:

“In addition, as Staff and Respondents have noted, even if the ALJ were to accept that Lamina’s licensees made certain expenditures in the purchase of the laminated packaging, there is no evidence that those laminated packages were made here in the United States. . . . Absent evidence that the laminated packages purchased by Lamina’s licensees were made here in the United States, any such expenses cannot be considered in the economic prong analysis.”

“Thus, for the foregoing reasons, the ALJ finds that Lamina has failed to show that its licensees have made significant investments in labor and capital in the United States.”

In response to the argument of Petitioner that its domestic industry is licensing, the Administrative Law Judge determined at pages 42-44:

“However, the ALJ finds that Lamina has failed to establish a sufficient nexus to licensing. As an initial note, the ALJ does not find the nexus to licensing as weak as Respondents and Staff assert. Respondents and Staff make much of the fact that Lamina’s licenses with its licensees resulted from litigation. However, the Commission has explicitly stated that such activities can constitute licensing activities. . . .”Depending on the circumstances, such activities may include, among other things, drafting and sending cease and desist letters, filing and conducting a patent infringement litigation, conducting settlement negotiations, and negotiating, drafting and executing a license .” . . . The evidence is clear that Lamina has filed and conducted patent infringement litigation, conducted settlement negotiations, and negotiated drafted and executed a license agreement. As such, those activities, while not necessarily focused on “putting the patent to productive use,” are the type of “licensing activities that ‘take advantage of the patent, i.e., solely derive revenue. . . .”

“The Commission further noted, however, that “[t]he mere fact[] that a license is executed does not mean that a complainant can necessarily capture all prior expenditures to establish a substantial investment in the exploitation of the patent.” . . . It appears that this is exactly what Lamina has sought to do, i.e., capture “all prior expenditures” to establish a domestic industry. Lamina did so without “clearly link[ing] each activity to licensing efforts” and instead made general assertions that its activities related to licensing . . . Thus, there is insufficient evidence before the ALJ clearly showing that all of the investments made by Lamina were costs that were clearly linked to licensing efforts and the ALJ cannot make a finding that Lamina’s investments have a nexus to licensing.”

“Even assuming that Lamina had established a nexus to licensing, the ALJ further finds that Lamina has failed to show that its own investments in exploiting the Asserted Patents are substantial. Specifically, while Lamina has shown that, as a small company, it has made substantial monetary investments relating to the Asserted Patents, it is not clear whether such investments are substantial relative to the industry. Indeed, even assuming that the “industry” is not “manufacturing” laminated packages but is the licensing industry for laminated packaging, Lamina has set forth no evidence as to the type of efforts taken in that industry. . . . Here, there is no evidence on the licensing industry for laminated packaging, but only evidence of Lamina’s own expenditures. Consequently, the ALJ cannot make a determination as to whether Lamina’s investments are substantial.”

On August 6, 2013, the Commission affirmed the ALJ’s initial determination and dismissed the 337 Laminated Packaging case because there was no domestic industry.  In the attached notice, COMMISSION DECISION PACKAGING  the Commission determined that procedurally it could have an expedited domestic industry proceeding, reversing that part of the ALJ’s decision, but then going on to affirm the ALJ’s decision as to no domestic industry.

The decision in the Laminated Packaging case will make it much more difficult for Non Practicing Entity to bring 337 cases in the future.

APPLE CASE—PRESIDENTIAL VETO

On August 3, 2013, the United States Trade Representative (“USTR”) on behalf of the President vetoed an exclusion order in a 337 Patent case that was issued against Apple and would have resulted in the exclusion of earlier versions of the Iphone.  The last time the President overturned an ITC exclusion order was in 1987.

The President/USTR overturned the exclusion order because the Samsung Patents used to attack Apple were “Standard Essential Patents Subject to Voluntary FRAND Commitments.  In the attached announcement, USTR Order USTR stated:

“Under section 337, the President . . . may disapprove an order on policy grounds, approve an order, or take no action and allow the order to come into force upon the expiration of the 60-day review period. This authority has been assigned to the United States Trade Representative. . . .”

“In addition, on January 8, 2013, the Department of Justice and United States Patent and Trademark Office issued an important Policy Statement entitled “Policy Statement on Remedies for Standard-Essential Patents Subject to Voluntary FRAND Commitments” (“Policy Statement”). The Policy Statement makes clear that standards, and particularly voluntary consensus standards set by standards developing organizations (“SDO”), have incorporated important technical advances that are fundamental to the interoperability of many of the products on which consumers have come to rely, including the types of devices that are the subject of the Commission’s determination. The Policy Statement expresses substantial concerns, which I strongly share, about the potential harms that can result from owners of standards-essential patents (“SEPs”) who have made a voluntary commitment to offer to license SEPs on terms that are fair, reasonable, and non-discriminatory (“FRAND”), gaining undue leverage and engaging in “patent hold-up”, i.e., asserting the patent to exclude an implementer of the standard from a market to obtain a higher price for use of the patent than would have been possible before the standard was set, when alternative technologies could have been chosen. At the same time, technology implementers also can cause potential harm by, for example, engaging in “reverse hold-up” (“hold-out”), e.g., by constructive refusal to negotiate a FRAND license with the SEP owner or refusal to pay what has been determined to be a FRAND royalty.”

“As the Policy Statement makes clear, whether public interest considerations counsel against a particular exclusion order depends on the specific circumstances at issue. The statement also explains that, to mitigate against patent hold-up, exclusionary relief from the Commission based on FRAND-encumbered SEPs should be available based only on the relevant factors described in the Policy Statement. The courts are also engaged on the issue of appropriate remedies for infringement of SEPs and we look forward to the development of appellate jurisprudence on this issue. The SEP Policy Statement is one part of the Administration’s continuing efforts to consider the scope of appropriate remedies for owners of SEPs, and encourage the development of strong, innovative standards.”

“The Administration is committed to promoting innovation and economic progress, including through providing adequate and effective protection and enforcement of intellectual property rights. Relief available to the owners of intellectual property rights through section 337 is an important facet of achieving that objective. At the same time, standards, and particularly voluntary consensus-based standards set by SDOs, have come to play an increasingly important role in the U.S. economy. Important policy considerations arise in the enforcement of those patents incorporated into technical standards without which such standards cannot be implemented as designed, when the patent holder has made a voluntary commitment to offer to license these SEPs on FRAND terms. Licensing SEPs on FRAND terms is an important element of the Administration’s policy of promoting innovation and economic progress and reflects the positive linkages between patent rights and standards setting. . . .”

“After extensive consultations with the agencies of the Trade Policy Staff Committee and the Trade Policy Review Group, as well as other interested agencies and persons, I have decided to disapprove the USITC’s determination to issue an exclusion order and cease and desist order in this investigation. This decision is based on my review of the various policy considerations discussed above as they relate to the effect on competitive conditions in the U.S. economy and the effect on U.S. consumers.”

“I would like to underscore that in any future cases involving SEPs that are subject to voluntary FRAND commitments, the Commission should be certain to (1) to examine thoroughly and carefully on its own initiative the public interest issues presented both at the outset of its proceeding and when determining whether a particular remedy is in the public interest and (2) seek proactively to have the parties develop a comprehensive factual record related to these issues in the proceedings before the Administrative Law Judge and during the formal remedy phase of the investigation before the Commission, including information on the standards essential nature of the patent at issue if contested by the patent holder and the presence or absence of patent hold-up or reverse hold-up. In addition, the Commission should make explicit findings on these issues to the maximum extent possible. I will look for these elements in any future decisions involving FRAND-encumbered SEPs that are presented for policy review. The Commission is well-positioned to consider these issues in its public interest determinations.”

SECURITIES

SEC V. CHINA INTELLIGENT LIGHTING AND ELECTRONICS

Attached is a complaint filed on July 13th by the SEC against China Intelligent Lighting and Electronics alleging that  China Intelligent Lighting & Electronics, Inc. and its offices engaged in fraudulent schemes to raise and divert money received from stock offerings.  CHINA LIGHTING SEC COMPLAINT

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

Best regards,

Bill Perry

 

US CHINA TRADE DEVELOPMENTS TRADE, CRIMINAL IP, ANTITRUST AND SECURITIES

Smithsonian Castle Statue  Night With Stars Washington DCDear Friends,

There have been some new developments in the trade, solar cells, 337/patents, antitrust and securities areas.

TRADE

SOLAR CELLS NEGOTIATIONS

Recently EC officials have returned to Brussels after about two weeks of negotiations in Beijing without an agreement that would resolve the Solar Cells fight with China.  Talks continue, less than a month before preliminary EC antidumping (AD) duties on Chinese solar imports are due to ratchet up to more than triple their current amount on Aug. 6.

On the Chinese side, the talks are being handled primarily by the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME).

The solar cell negotiations between China and EC continue, but the devil is in the details.  The hurdle is creating a deal that the EC can defend as eliminating the injury to the EC producers without demanding a floor price so high that the Chinese government abandons negotiations and walks away.

The talks include discussions on both a floor price for solar wafers, cells and modules — more commonly called panels — and voluntary quantitative restrictions, but there appears to be no breakthrough.

One contact stated that the EC offered up a floor price of 65 eurocents per watt, but indicated that would not be acceptable to the EC industry because it would barely over the cost of production.  For the Chinese industry, however, a price floor of 65 eurocents would be a huge concession that the Chinese companies could not accept.

The EC imposed AD duties of 11.8%, but these would go up to 47.6 percent or higher next month unless a deal is reached.

In the US, however, negotiations are still down the road.  There have been initial, informal discussions between the U.S. and China on a potential settlement of the trade cases with USTR added by the Commerce Department leading the initiative.

But so far there is no plan for the U.S. to be party to any eventual EU-China arrangement. The EC has not welcomed the idea because that it fears that US involvement could complicate already difficult negotiations.

If the EC and China are able to reach a deal, however, it will almost certainly influence any potential deal between the US and China.  One problem, however, is the third country loophole.  Unless the loophole is eliminated, the U.S. industry is unlikely to be interested in a deal, and Chinese companies have adjusted to the US order by obtaining the solar cells from third countries.  The third country loophole allows China to export solar cells produced in third countries, such as Taiwan, in panels and modules produced in China to the United States.

In the EC 18 out of 27 EC countries are opposed to the case so if there is no deal, the Chinese government may walk away and take a chance that the member states will overturn the case.

In the US on the technical side, one of the key issues is the legal basis under which the Obama administration can seek a settlement given that the AD and CVD orders are now in effect. The time for negotiating a suspension agreement in a case is legally set between a preliminary and a final determination, which has now passed.

In the preliminary explorations of a potential settlement, the U.S. has discussed the option of a changed circumstances review as a legal basis. Such a review would assess whether the existing U.S. trade remedy cases are still needed or could be replaced with a settlement. But that option would require the consent of the U.S. industry.

As indicated in past posts on this blog, on June 4th, the Solar Cell case really heated up as the EC issued a preliminary antidumping decision on Solar Cells from China with a preliminary antidumping rate of 11% that would escalate by August 5th to a rate as high as 67.9%.

In a March 2013 hearing of the Senate Finance Committee, Subcommittee on Trade, Senator Ron Wyden, the Chairman and the political supporter of Solar World, pressured Acting USTR Demetrios Marantis for a global agreement in the Solar Cells situation. The US Solar Cells Trade case has not worked and has not protected the US domestic industry. Prices for solar cells in the US have only gone up by $3. Also in response to the US case, the Chinese Government has brought an antidumping and countervailing duty cases against $2 billion of imports of US produced polysilicon, which goes into the Chinese solar cells.

A negotiated settlement would also result in the removal of Chinese antidumping and countervailing duties on US and EC produced polysilicon.

DIAMOND SAWBLADES– SECTION 751 CHANGED CIRCUMSTANCES ITC INVESTIGATION

On July 11, 2013, Husqvarna Construction Products North America, Inc. filed a request for a 751 changed circumstances investigation at the ITC on Diamond Sawblades and Parts from China.  In the attached petition, Req for Commission Review-7-11-13 Husqvarna argues that the Commission reached a 3-3, tie vote, in the Diamond Sawblades case only by cumulating, that is adding together the imports of Korea and China.

The Commerce Department, however, has now determined to revoke the antidumping order on diamond sawblades from Korea because there was no dumping during the period of investigation.   In addition, Huqvarna is the largest domestic producer and now opposes the order.  Finally, the other US producers in response to the order have expanded with low-cost foreign manufacturing affiliates, rather than expanding their US production.

 ALUMINUM EXTRUSIONS—NOW COMES EVASION

On June 21st, ICE, Immigration and Customs Enforcement arrested 5 individuals from Sultana Screens and Aluminum and PRP Trading for importing aluminum extrusions from China by passing false and fraudulent invoices and documents to CBP to defraud the US of approximately $26.7 million in antidumping and countervailing duties.  See the attached announcement. ICE ANNOUNCEMENT ALUMINUM

 ALUMINUM EXTRUSIONS — NEW REVIEW COVERS MANY MORE CHINESE COMPANIES

On June 28, Commerce initiated the Antidumping and Countervailing Duty Review Investigations on Aluminum Extrusions from China naming many Chinese companies based on a request by petitioners.  See the attached notice.  ALUMINUN EXTRUSIONS INITIATION NOTICE

Separate Rate applications are due August 27th at Commerce.

CAFC LAMINATED WOVEN SACKS

On June 24th, in AMS Associates, Inc. v. United States, the Court of Appeals for the Federal Circuit affirmed the Commerce Department’s determination in the Laminated Woven Sacks case that where the Chinese company withdrew the evidence on the record, the Commerce Department was correct in giving the Chinese company the country wide rate.  See the attached decision.  CAFC SACKS DECISION

 IMPORTERS’ LOBBYING COALITION AGAINST EXPANSION OF ANTIDUMPING AND COUNTERVAILING DUTY LAWS AGAINST CHINA

As mentioned in prior newsletters, we are working on establishing a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.  Our first organizational meeting will be July 24th in Washington DC.  If anyone is interested in the Coalition, please feel free to contact me.

The objective of the Coalition will be to educate the US Congress and Administration on the damaging effects of the US trade war, especially the impact of US antidumping and countervailing duty laws, on US importers and US downstream industries.

We will be targeting two major issues—Working for market economy treatment for China in 2016 and Working against retroactive liability for US importers. The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries.

16 US importers in a number of different industries have joined the Coalition, but we continue to search for additional members.

COMMERCE DEPARTMENT SEPARATE RATES REGULATIONS

On July 5th the Commerce Department issued a regulatory announcement in the Federal Register COMMERCE DE FACTO REGULATION stating that in determining whether Chinese or other companies in Nonmarket Economy Countries were entitled to a separate rate in antidumping cases, it would examine more closely whether the company meets certain de facto criteria for obtaining a seaprate rates.  See the attached Federal Register notice

Commerce specifically stated that it will examine on a case by case basis certain issues related to a respondent’s separate rate status in nonmarket economy dumping cases.  This action is part of its Trade Enforcement initiative.

In determining whether a Chinese or other nonmarket economy company is entitled to a separate rate, Commerce looks at the following criteria, whether the Chinese/NME company:

• has export prices set by or subject to approval of a governmental agency;

• has authority to negotiate and sign contracts and other agreements on the company’s behalf;

• has autonomy from the government in decision making on management;

• retains proceeds of its export sales and makes independent decisions regarding disposition of profits or financing of losses.

Since respondents generally possess information on their day-to-day operations, Commerce will consider, on a case-by-case basis, issuing supplemental questionnaires to identify and review additional documentation and information relating to de facto government control by any level of government in cases where the respondent’s initial questionnaire responses are insufficient to support its separate rate claim. Supplemental questions might address:

• selection and removal of directors and managers at the producing/exporting company;

• identification of parties with authority to approve contracts and bank transactions on behalf of the company;

• ownership, including individual and corporate;

• whether any corporate owners are state-owned, state-controlled, or otherwise affiliated with the state, at the national or sub-national levels; and,

• whether any managers hold government positions at the national or sub-national levels.

Consistent with comments urging Commerce to conduct more separate rate verifications, Commerce said it would continue to consider verification of separate rate information where warranted, on a case-by-case basis.

This new regulation may make it harder for Chinese companies to obtain separate rates in antidumping investigations at the Commerce Department.

 NEW EU CASE AGAINST STONE IMPORTS FROM CHINA

If the granite fabricators had a problem with the Steel Sinks case, they may have a larger problem down the road.  On Friday the European Union launched an Antidumping investigation against imports of stone from China used in countertops and tiles.  The specific product is agglomerated stone – a material consisting of rock pieces held together by resin that is often used for kitchen and bathroom tiles and counter tops.  The complaint was filed by ASIA Europe.

EU cases are often followed by similar cases in the United States and vice versa.

CHINA ANTIDUMPING AND COUNTERVAILING DUTY CASE–WINE FROM THE EC

On July 1, 2013, China said it will initiate an antidumping and countervailing duty case against Wine from the EC.  See the attached initiation notice and press release from the Chinese Ministry of Commerce or MOFCOM. MOFCOM ANNOUNCEMENT MOFCOM NOTICE

Notices of appearance are due by July 24th at MOFCOM.

PATENTS

 CRIMINAL IP CASE AGAINST CHINESE COMPANY

In a highly unusual case, the US Justice Department has brought a criminal case and indictment against a Chinese Wind Tower company, Sinovel Wind Group Co.  SINOVEL COMPLAINT SINOVEL INDICTMENT In the attached complaint and indictment in United States v. Sinovel Wind Group, the Justice Department charged the Chinese company with stealing trade secrets including proprietary source code from its former vendor American Superconductor Corp. and causing it losses of more than $800 million.

An indictment filed Thursday in Wisconsin federal court targeted Sinovel along with two of its employees and former American Superconductor employee Dejan Karabasevic, 40, who allegedly gave source code stolen from American Superconductor’s computer system to Sinovel employees.

The indictment also targets Sinovel’s deputy director of its research department, Su Liylng and its technology manager, Zhao Halchun, both of whom allegedly convinced Karabasevic to come work for Sinovel and bring the stolen code with him.

“Today, we announce charges against Sinovel and three individuals for stealing proprietary wind-turbine technology from [American Superconductor] in order to produce their own turbines powered by stolen intellectual property” Acting Assistant Attorney General, Mythili Raman, said in a statement.

“This charged intellectual property theft caused significant harm to a domestic company that develops cutting edge technology and employs Americans throughout the country,” she said. “Stamping out intellectual property theft is a top priority for this administration and we will continue to work with our intellectual property task force partners to ensure that American ingenuity is protected.”

The indictment followed an investigation by the Federal Bureau of Investigation into the code allegedly stolen from the Massachusetts-based firm, which it found were used in certain 1.5 megawatt Sinovel turbines, according to American Superconductor’s own statement Thursday on the charges.

American Superconductor has so far filed four suits against Sinovel in China over the alleged thefts, and has asked for more than $1 billion in damages, but Chinese courts have yet to address its claims.

“In the U.S., the Department of Justice has indicted Sinovel,” the U.S. firm’s CEO Daniel P. McGahn said in a statement Thursday. “In China, however, the legal system has yet to take substantive action. We believe this clearly demonstrates that the rights of foreign businesses are not being protected. The inability to rely on the rule of law is creating a risk for U.S. businesses operating in China.”

NEW 337 CASES

SILICON MICROPHONE PACKAGES

On June 21, 2013 Knowles Electronics, LLC filed a section 337 patent case against GoerTek, Inc., China; and GoerTek Electronics, Inc., Sunnyvale, California.

See ITC announcement below.

Docket No: 2962

Document Type: 337 Complaint

Filed By: Sturgis M Sobin

Firm/Org: Covington and Burling

Behalf Of: Knowles Electronics, LLC

Date Received: June 21, 2013

Commodity: Silicon Microphone Packages

Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Silicon Microphone Packages and Products Containing Same. The respondents are: GoerTek, Inc., China; and GoerTek Electronics, Inc., Sunnyvale, California.

If anyone wants short copies of the complaints, please feel free to contact me.

 PATENT CASES

 PATENT COMPLAINTS

Two patent complaints have been filed recently, June 17th complaint by Safe Storage v. Huawei and a June 25th complaint by Cellular Communications Equipment v. ZTE.  CELLULAR ZTE SAFE STORAGE HUAWEI

 ANTITRUST—PROPOSAL TO QUINTUPLE DAMAGE AWARDS IN CARTEL CASES

If Chinese respondents believe that triple damages are unfair, two antitrust professors are claiming that Congress should revise the law and provide 5x or quintuple damages for price fixing.  See the attached article, Cartels as Rational Business Strategy: Crime Pays by John M. Connor and Robert H. Lande.  QUINTUPLE ANTITRUST AWARDS

The two professors state at page 479 of their article:

“Perhaps the most straightforward policy conclusion that follows from our study would be to quintuple the overall current U.S. cartel sanction levels. A modest, ultra-conservative step in the right direction would be to double the average sanction level.”

SECURITIES

CHINESE GOVERNMENT AGREES TO RELEASE AUDIT DOCUMENTS TO SEC

On July 12th following the Strategic and Economic Dialogue talks led by U.S. Treasury Secretary Jack Lew, the Treasury Department announced that the Chinese government has agreed to turn over audit paperwork to the US Securities and Exchance Commission and the Public Company Accounting Oversight Board. China has also agreed to work with the United States to develop a cooperative process governing how the two nations oversee auditing foreign-listed companies.

The Chinese government has repeatedly resisted requests from the SEC and US regulators seeking the power to inspect Chinese auditing firms. The agreement between the two governments to protect investors and combat fraud comes following several high-profile accounting scandals, that have led to enforcement actions against fraud.

As Treasury Secretary Jack Lew stated on July 11th in the attached announcement:

“China’s securities regulator announced that it will begin providing certain requested audit work papers to our market regulators, an important step towards resolving a long-standing impasse on enforcement cooperation related to companies that are listed in the United States.”  TREASURY SECRETARY ANNOUNCEMENT PAPERWORK

CHINA MEDIA SEC COMPLAINT–SEC CROSS BORDER WORKING GROUP

Attached is a June 20th complaint filed by the U.S. Securities and Exchange Commission (SEC) against China Media Express Holdings Inc. in Washington DC federal court accusing the advertising company of fraud in grossly exaggerating its finances.  CHINA MEDIA COMPLAINT  The SEC complaint follows class action lawsuits against China Media Express.

The complaint alleges that China Media Express “massively overstated its cash balances” after it entered the public market in 2009, touting balances that overshot reality by 452 to over 40,000 percent.

This complaint is the latest product of the SEC’s Cross-Border Working Group, which cracks down on foreign-operating companies that are publicly traded in the United States.  Probes led by the Group have produced fraud cases against more than 65 foreign issuers or executives and forced more than 50 companies to de register securities.

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEVELOPMENTS–TRADE, SOLAR CELLS, WINE, PATENTS, ANTITRUST AND SECURITIES

Dear Friends,

Mao Tomb from Qianmen Gate Tiananmen Square Beijing China NightThere have been some new developments in the trade, solar cells, 337/patents, antitrust and securities areas.

TRADE

SOLAR CELLS NEGOTIATIONS

The Solar Cell case has really heated up as the EC issued on June 4th a preliminary antidumping decision on Solar Cells from China with a preliminary antidumping rate of 11% that would escalate by August 5th to a rate as high as 67.9%.  See the attached decision by the EC in the Solar Cells case. EC PRELIMINARY ANTIDUMPING DECISION SOLAR CELLS

In response, the Chinese government initiated an antidumping and countervailing duty case against Wine from the EC.  See article below.

In the United States, on June 6th, Deputy National Security Adviser Michael Froman testified on Capitol Hill at his nomination hearing that he supports a global settlement to the Solar Cell war.  Froman testified that the Administration had reached out to China and the European Union to explore a possible negotiated settlement.  Apparently, any agreement would involve the whole supply chain of the solar industry, ranging from the polysilicon producers to the manufacturers of solar panels and solar installers who are using the products.

After the hearing, Wyden said it is critical to have a global solution because the “whole future of solar production [in the United States] is on the line.”

The USTR nominee conveyed a similar message in a written response to a question on this topic from Sen. Maria Cantwell (D-WA). “I assure you that this [solar dispute] is an urgent matter and that if confirmed, USTR will explore all avenues to attempt to address this matter,” he wrote.

Cantwell, in her question, noted that China plans to make a decision in its trade remedy case against U.S. exports of polysilicon, a raw material used in the production of solar cells, “in the coming weeks.” Some industry observers say the push for a negotiated solution comes from the U.S. makers of polysilicon, which are hurt by the Chinese trade case.

EC officials have stated that this phased in approach of antidumping duties in their Preliminary Antidumping determination avoids disruption in the EC market, but also provides China with a clear incentive to negotiate.  In the past, EU officials have shown little enthusiasm for including the U.S. in any negotiated settlement on the solar cases for fear it will dilute their leverage over China to negotiate an acceptable deal.

On June 5th, Coco Liu in an article in Climate Wire, entitled “TRADE: E.U. softens its tone in Chinese solar case, but trade tensions remain” stated:

“Although the European Commission has the final say on trade issues, it does not want to be seen as acting against the interests of member states.  The lower initial tariff also reflects the European Union’s desire to avoid a trade war with its second largest trade partner, China. As the solar trade case will affect Chinese exports worth more than $20 billion and more than 400,000 domestic jobs, the Chinese government made it clear that it won’t stand by without reacting. . . .

Chinese politicians and industry groups have been in talks with their European counterparts since the trade dispute was sparked, but their negotiations often turned into mutual recriminations. If both sides fail to reach an agreement this time, the tariff will be raised to 47.6 percent on Aug. 6. That means the Chinese solar industry will face a killing blow from its biggest customer.

“Chinese solar manufacturers have a chance to compete in the European market as long as the tariff is below 15 percent,” said Steven Han, analyst at U.S.-based consultancy Solarbuzz. “But if the tariff is being raised, their market access to the E.U. market will cease to exist.”

Another chance for the Chinese to talk off the tariffs is December 2013, when the European Union makes its final decision whether or not to set the punitive tariffs for five years and at what rate. But Han doubts Chinese solar companies could survive into that time.

Overcapacity and a ferocious price war as a result have already driven the Chinese solar industry to a breaking point, forcing many small factories out of business and leaving industry giants with red ink in their financial reports  . . .The E.U. decision is seen as the straw that broke the camel’s back.

The Alliance for Affordable Solar Energy, a coalition of more than 400 companies in the European solar industry, says that its members’ already thin profit margins are also at risk due to the E.U. decision.

“We need to be clear about one thing: The current market development leaves no room for price increases. Therefore already duties as low as 11.8 percent will put a halt to most of the PV projects in the E.U. and cause severe damage to the European solar value chain,” the association said in its statement issued yesterday.”

See article at www.eenews.net/cw.

 

As indicated in past posts on this blog, in a March 2013 hearing of the Senate Finance Committee, Subcommittee on Trade, Senator Ron Wyden, the Chairman and the political supporter of Solar World, pressured Acting USTR Demetrios Marantis for a global agreement in the Solar Cells situation. The US Solar Cells Trade case has not worked and has not protected the US domestic industry. Prices for solar cells in the US have only gone up by $3. Also in response to the US case, the Chinese Government has brought an antidumping and countervailing duty cases against $2 billion of imports of US produced polysilicon, which goes into the Chinese solar cells. So Senator Wyden has created a fire storm.

In response, the US and EC have decided to try and negotiate settlements with China in the Solar Cells case involving roughly $30 billion a year in solar panel shipments to both the US and the EC. The strategy is to essentially carve up the global solar panel market into regional markets. This would have the effect of driving up the prices for Chinese solar panels by requiring Chinese companies to charge higher prices and limit the total number of solar panels that they ship. In return, the Chinese companies would no longer be charged the steep antidumping and countervailing duties against their solar cells.

Francisco Sanchez, the under secretary of commerce for international trade, recently visited Beijing to discuss this issue along with a number of other issues. The US Administration is just in the early stages of sounding out Congress on the terms of a possible settlement.

A negotiated deal would close the third country loophole, although there is no third country loophole with regards to the EC. The third country loophole allows China to export solar cells produced in third countries, such as Taiwan, in panels and modules produced in China to the United States. A negotiated settlement would also result in the removal of Chinese antidumping and countervailing duties on US and EC produced polysilicon.

Negotiations with China are still in a very early stage, so it may take several months before a final deal, if any, is struck. It is also possible that no deal will emerge at all.

Both Chinese, EC and US officials indicate that they want a deal, but any negotiated settlement could be difficult. EC negotiators have already met three times with Chinese officials at the request of the Chinese side, but at none of these meetings has China put forward any plan to limit export volumes or raise prices.  According to EC officials, however, the negotiations could not really start until the Preliminary Determination was issued, which just happened on June 4th.

In the EC when the Solar Cells case was first brought, Chancellor Merkel indicated that this trade fight should end in a negotiated settlement.  Thus, Germany and a number of other EC countries have indicated their opposition to antidumping and countervailing duty orders against solar cells from China.  France, however, supports the EC antidumping and countervailing duty cases against Solar Cells from China.

In US Antidumping and Countervailing Duty cases, however, an agreement is usually struck before the orders are issued–called a Suspension Agreement. As a result of the negotiated deal, the antidumping and countervailing duty investigations are “suspended” before the orders are issued. In the Solar Cells case, therefore, normally any Agreements would have had to be negotiated before the orders were issued. Thus, it will be interesting to see if the US government goes forward, how it will craft a settlement with China in this situation.  The US government might have the Petitioners withdraw their petition in return for a negotiated settlement.

With the US Congress involved, however, anything is possible.

ALUMINUM EXTRUSIONS

The Commerce Department on Tuesday, June 7th, issued preliminary determinations in the first review investigations on Aluminum Extrusions from China.  See the Attached Determinations.  AluminumExtrusions.PrelimNotice.signed   FR UNPUBLISHED SIGNED OCR PUBLIC This case has become very important because Commerce has expanded the antidumping and countervailing duty orders on aluminum extrusions to cover many downstream products, including jungle gyms, auto parts and curtain walls, the sides of buildings.

In the initial investigation, the Commerce Department set a countervailing duty cash deposit rate of 374%, but through a series of appeals in the McLain Fogg case that cash deposit rate was reduced to 137%.

As US importers know, however, the really important decision is the Commerce Department’s final determination in the review investigations, because that decision determines the actual antidumping and countervailing duties that US importers have to pay.  If the rates go up in an antidumping or countervailing duty review investigation, the US importers are retroactively liable for the difference plus interest.  If the rates go down, however, the US importers get back the difference plus interest.

These June 7th preliminary determinations by the Commerce Department are the first indication of what the actual liability for US importers will be and there is some good news.

As indicated in the attached preliminary determinations, the Antidumping rate basically stayed the same as the rate in the initial investigation at 32.79%, but the countervailing duty rates for most Chinese companies fell from 137% to 12.57% in 2010 and 20.75% in 2011.  There will be a set off between the antidumping and countervailing duty rates so there will be some changes later on.

This means that a US importer that imported $100 of aluminum extrusions in 2011, will probably owe a final amount of $32 plus to the US government.

It should be noted that some Chinese companies received antidumping and countervailing duty rates as low as 0 to 1%, where certain Chinese companies were hit with a countervailing duty rate as high as 170%.  A US importer, therefore, should look at the attached notices to figure out which company has which rate.

These rates also will change in the Commerce Department final determinations and those rates then can be appealed to the Court of International Trade and Court of Appeals for the Federal Circuit.

Keep in mind these new rates only apply to the Chinese companies that requested a review investigation.  If there was no request for the review investigation, the China wide CVD rate will be the rate from the Initial Investigation, which is still on appeal to the Court of Appeals for the Federal Circuit.

In the first review investigation, probably because of the high 374% CVD rate, the Petitioner did not request review investigations of many Chinese companies.

In contrast to the first review, however, in the 2012-2013 Antidumping and Countervailing Duty Review Investigations that just started, the Petitioners have requested a review of almost all the Chinese companies that were involved in exporting products to the United States.

IMPORTERS’ LOBBYING COALITION AGAINST EXPANSION OF ANTIDUMPING AND COUNTERVAILING DUTY LAWS AGAINST CHINA

We continue to put together a US importers/end users lobbying coalition to lobby against the expansion of the antidumping and countervailing duty laws against China.  In particular, we will be trying to educate the US Congress and Administration on the damaging effects of the US trade war, especially US antidumping and countervailing duty laws, on US importers and US downstream industries.

We will be targeting two major issues—Working for market economy treatment for China in 2016 and Working against retroactive liability for US importers.  The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries.

13 US importers in a number of different industries have joined the Coalition, but we continue to search for additional members.  If anyone is interested in such a Coalition, please feel free to contact me.

CHINESE ANTIDUMPING AND COUNTERVAILING DUTY CASES

WINE FROM THE EC

On June 5th, the Ministry of Commerce in Beijing (“MOFCOM”) announced that it was initiating an antidumping and countervailing duty case against wine from the EC.  Coming just after the EC preliminary antidumping determination in the Solar Cells from China case, many commentators speculated that the Wine case against the EC was retaliation against the EC Solar Cells decision.

Thus the UK Telegraph stated in an article on June 5, 2013:

“China has launched a trade probe against European Union wine imports, a day after Brussels imposed stinging duties on its solar panels, as it emerged that the commissioner leading the EU probe could personally be hit by any Chinese penalties. . . .

In a move that will increase tensions between two of the world’s biggest trading blocs, the commerce ministry in China said the government had begun an anti-dumping and anti-subsidy probe into EU wines at the request of Chinese wine manufacturers.

The Chinese move targets France, one of the countries that supported the commission’s tariffs on Chinese solar panels, levies that were opposed by Germany and Britain. . . .

In an added twist, Karel de Gucht, the EU trade commissioner who hit China with the solar panel levies, is himself a wine producer. He owns the Tuscan vineyard that produces “La Macinaia”, a Chianti Classico that retails in Belgium at €22,49 a bottle.

Italy and Spain, which both supported the solar panel tariffs, will have exports worth €77 million and €89m potentially covered by any Chinese measures against European wines. . . .

The French trade ministry has condemned the Chinese move and warned of an escalating trade war if Beijing did not follow WTO rules procedures. . . .”

On June 6th, a Chinese newspaper, Xinhua, reported that the Chinese trade investigation of EC wine imports was not retaliation against EC because of the EC Solar Cells determination:

“China’s trade investigation of wine imports from Europe is not retaliation against European Union’s (EU) decision to impose punitive tariffs on China’s solar panels, a spokesperson of the Chinese Mission to the EU said Thursday.

“China has long been exercising restraint in adopting trade remedy measures despite of clear evidence for the EU dumping and subsidizing certain exports to China,” the spokesperson said in a statement.

The investigation launched by the Ministry of Commerce (MOC) of China is in response to requests and complaints from Chinese wine producers, the spokesperson said.

“The decision complies with the World Trade Organization (WTO) rules and China’s anti-dumping and countervailing regulations. Such regular investigation should not be regarded as retaliation,” the spokesperson stressed.

The statement came a day after China decided to begin an anti-dumping and anti-subsidy investigation into wines imported from the EU.

China’s wine producers filed a petition to the ministry last year, calling for probes into the EU’s dumping of wine that received unfair government subsidies and was damaging China’s wine industry, according to the ministry Wednesday.

The MOC said China has always been cautious about the use of trade remedy measures, and the ministry has observed that wine imports from the EU has (sic) risen at a high speed in recent years and will carry out a strict investigation according to relevant laws.”

CUSTOMS FRAUD

On June 10, 2013, Hartford Insurance filed a complaint against one of the US Honey companies involved in the Honey Antidumping Evasion Scheme, asking the Illinois Court for a declatory judgement that it does not have to pay for the class action lawsuit from the duty-evasion scheme.  Hartford argues that Groeb Farms, the defendant, breached various aspects of the insurance policies it signed, because it knew about the fraud problems when it signed the insurance policies.

See attached complaint.  HARTFORD COMPLAINT

PATENTS

 337

On June 7th the Court of Appeals for the Federal Circuit issued the attached decision in Interdigital Communications v. ITC reversing the Commission’s decision in the 337 Case in Certain Wireless Devices.  In that case, the ITC dismissed the 337 Case against LG based on an arbitration clause.  CAFC DECISION LG

CRAWLER CRANES NEW 337 CASE AGAINST CHINA

On June 12th, a new section 337 case we filed against Crawler Cranes from China.  See the notice below.  A short form of the Complaint is attached. Certain Crawler Cranes Short Version PUB Complaint-6-14-13

Docket No: 2960

Document Type: 337 Complaint

Filed By: Mark. L. Whitaker

Firm/Org: Baker & Botts

Behalf Of: Manitowoc Cranes LLC

Date Received: June 12, 2013

Commodity: Crawler Cranes

Description:  Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding Certain Crawler Cranes and Components Thereof. The respondents are: Sany Heavy Industry Co, Ltd., China and Sany America Inc., Peachtree City, Georgia.

PATENT CASES

SUPREME COURT HOLDS THAT GENES CANNOT BE PATENTED

Attached is the June 13th decision of the Supreme Court holding unanimously that Myriad cannot patent DNA itself, because that falls within the law of nature exception, but that cDNA is not a product of nature and can be patented.  SUPREME COURT GENE OPINION

PATENT COMPLAINTS

Two patent complaints have been recently filed against Chinese companies—a May 31, 2013 case—Emerson Electric Co. v. Suzhou Cleva Electric Appliance Co. and another  June 4, 2013 case filed by Patentmarks Communications v. ZTE (USA).  SUZHOU PATENT CASE ZTE PATENT CASE

ANTITRUST

VITAMIN C

On June 3, 2013, North China Pharmaceutical Group and Hebei Welcome filed the attached reply brief in an attempt to toss out the $153 million damages award in the Vitamin C price fixing case.  The companies argued that the Act of State doctrine was designed to block the kind of case made by Plaintiffs at the trial.  This argument was previously rejected by the Court in a September 11, 2011 Summary Judgment determination by the Court.

See the attached reply brief and September 11th decision by the Court. vitamin c response  SEPT 11 VITAMIN C DECISION

It should be noted that a jury in March awarded plaintiffs $54.1 million in damages, which was tripled to $162 million, but former defendants had paid the remaining $9 million in settlement of the trebled award lowering the total amount due from the remaining defendants from $162 million to $153 million.

SECURITIES

CHINA ELECTRIC MOTOR

On June 3, 2013, a California Federal District Court agreed to a $3.7 million settlement of a securities class action alleging China Electric Motor Inc. made misleading statements in its initial public offering documents.  The Court found the deal was fair and reasonable for investors.

The agreement resolves one of numerous securities fraud suits filed against U.S.-Iisted Chinese companies since 2010.

See the attached settlement. CHINA ELECTRIC SETTLEMENT

SHELL COMPANIES

On June 3, 2013, the US Securities and Exchange Commission (“SEC”) suspended trading in 16 dormant shell companies, whose stocks could be used in fraud schemes.  See attached announcement.  SHELL COMPANIES ORDER  This was the second-largest suspension in SEC history.  One of the companies was China Renyuan International, Inc.

The SEC said an analysis by its Microcap Fraud Working Group found that the companies were delinquent in their public filings and appeared to no longer be in business, raising the risk that their securities could be used in pump-and-dump schemes.

In a pump-and-dump scheme, fraudsters will purchase shares of a thinly traded company, tout the firm to investors through false and misleading statements, and sell the stock for significant profit once investors buy in.

“Stock manipulators crave empty shell companies that they can use to conduct pump-and dump schemes and line their pockets with illicit trading profits by taking advantage of unsuspecting investors,” said Andrew J. Ceresney, co-director of the SEC’s Division of Enforcement. “We will aggressively suspend trading in such empty shells to take away a tool of their trade and help rid our markets of fraud.”

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

Best regards,

 

Bill Perry

Law Blog Development & Digital Marketing by Adrian Dayton & Company