US CHINA TRADE WAR–TRADE, OCTG AND SOLAR, TTP, CUSTOMS, IP/PATENT, ANTITRUST AND SECURITIES

Renmin Square Chongqing Sichuan China at Night“TRADE IS A TWO WAY STREET”

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER—MARCH 7, 2014

Dear Friends,

There have been major developments in the trade, Solar Cells, TTP, TPA, Chinese Antidumping, patents, US/Chinese antitrust, and securities areas.

TRADE

THE OCTG EXAMPLE—WHY NME STATUS FOR CHINA DOES NOT REFLECT MARKET REALITY

As indicated in past newsletters, the nonmarket economy status of China means that the Commerce Department does not use actual prices and costs in China to determine dumping rates for Chinese companies.  In addition, Chinese companies must submit separate rates applications to show that the company is separate and independent from the Chinese government or the Chinese company will be considered part of the Chinese entity and get the highest antidumping rate.

Although the US China WTO Agreement provides that China is to be treated as a market economy by December 11, 2016, recently in Washington DC, US government officials indicated that they have no intention of abiding by this Agreement and will continue to follow the US antidumping law as written.  In other words, as it stands now, the Commerce Department will not make China a market economy country in 2016, even though this provision was put into the WTO Accession Agreement at the demand of the United States.

The unfairness of the NME methodology against China, however, is illustrated by the Countervailing Duty and Antidumping Cases on Oil Country Tubular Goods, which are steel pipes used to drill oil wells.  In January 2010 the Commerce Department issued a countervailing duty order on OCTG from China with rates ranging from 10.49 to 15.78.  On May 2010, the Commerce Department issued an antidumping order on OCTG from China with dumping rates ranging from 32.07% to 99%.  These high rates had the effect of shutting most Chinese OCTG out of the US market.  CVDOCTGORDER  AD ORDER OCTG

Again, since it is a Nonmarket Economy Country, the Chinese CVD/anti-subsidy  rates are based on the Commerce Department’s refusal to look at any benchmarks in China.  In the Antidumping (“AD”) Case, the Commerce Department refused to look at any prices or costs in China.  In the China OCTG case, Commerce used surrogate values from publicly available published information in India, most of which were Indian import statistics.  But if products can be sourced domestically in India, often import statistics are highly inflated.

In the first review investigation on OCTG from China, Commerce decided to pick values for raw materials from a list of different surrogate countries, including Colombia, Indonesia, Peru, the Philippines, South Africa, Thailand, and Ukraine.  Commerce chose Indonesia.  OCTG PRELIM  Since importers are exposed to retroactive liability if antidumping rates go up and the Commerce Department is constantly switching surrogate countries so the Chinese companies cannot know whether they are dumping, no importer is willing to take the risk and import from China with exposure to millions of dollars in retroactive antidumping and countervailing duties on OCTG from China.

So what happened?  Because of the high antidumping and countervailing duty rates against China based on bogus cost calculations, imports from other countries entered the United States and replaced the Chinese imports.  On July 2, 2013, in response to the increase in imports from other countries, the US OCTG industry filed antidumping investigations against India, Korea, the Philippines, Saudi Arabia, Taiwan, Thailand, Turkey, Ukraine, and Vietnam and countervailing duty investigations against India and Turkey.

As the ITC stated in its atached preliminary staff report:

Subject imports of OCTG have increased since 2010.  At the beginning of 2010, Countervailing duties on OCTG imported from China entered into effect, and antidumping duties followed in April 2010.  After the placement of AD and CVD duties on Chinese product, subject imports increased….

ITC PRELIMINARY OCTG MANY COUNTRIES Pub4422 OCTG pdf

As the Commission also stated in its preliminary staff report, “Korea has been the largest source of imports of OCTG since 2010.”  In fact, the word on the street was that the Koreans had increased their exports to the US replacing more than 50% of the Chinese imports.

In fact, since 1984 OCTG imports have been the subject of approximately 50 antidumping and countervailing duty investigations against various countries.  The first OCTG cases were filed in 1984 and I worked on those cases when I was at the US International Trade Commission (“ITC”) in the early 1980s.  In effect, the US OCTG industry has had some form of protection from imports for about 30 years.

In the CVD cases, the Petition alleged that the Indian companies were allegedly benefitting from almost 70 different Indian government subsidy programs and the Turkish companies from almost 25 different Turkish government programs.

But now the Commerce Department must use actual benchmarks in target countries to calculate countervailing duty rates and actual prices and costs to calculate antidumping rates.

On December 17, 2013, the Commerce Department issued its preliminary Countervailing Duty Determinations against India and Turkey.  Despite the allegations that the Indian and Turkish companies were benefitting from a total of almost a hundred government programs, the Countervailing Duty Rates for India and Turkey, Drum Roll Please, were 0 to 3.5% for India and 0% for Turkey.  factsheet-OCTG-Prelim-multiple-121713

On February 18, 2014, the Commerce Department issued its attached preliminary antidumping determinations.  OCTG PRELIMINARY AD DETERMINATION FACT SHEET  Other than Thailand, most producers in the countries answered the Commerce Department’s antidumping questionnaire.  What were the actual calculated antidumping rates based on actual prices and costs in their respective countries?

The Korean producers, the largest exporters, received antidumping rates of 0% and a complete negative antidumping determination as to Korea.

The Indian producers received antidumping rates of 0 to 55.29%.  The Philippines producer received 8.9%.  The Saudi Arabian producer 2.65%.  The Taiwan producers received antidumping rates ranging from 0 to 2.65%.  The Turkish producers received rates of 0 to 4.87%.  The Ukrainian producer, Ukraine is a market economy country, received a rate of 5.31%.

When the Commerce Department uses actual prices and costs in the subject country to calculate actual antidumping rates, high dumping rates fall dramatically and are often non-existent.  But the Commerce Department has used an unfair methodology against China in US AD and CVD cases for more than 30 years and has no intention at the present time of ever treating China as a market economy country.  This is fairness Commerce style.

TRADE NEGOTIATIONS—TPA, TPP, TTIP/TA AND BALI/DOHA ROUND

As mentioned in past newsletters, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA)/ the Transatlantic Trade and Investment Partnership or TTIP negotiations.  These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

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

During a recent trip to Washington DC, Government officials and Congressional staff stated that they were firmly convinced that the TPA will eventually pass Congress.  Apparently, the TPA must start up in the House of Representatives and according to a knowledgeable source, there is bipartisan support for the TPA in the House.  The source mentioned that if the House passes the TPA, there will be substantial pressure in the Senate to pass the TPA and knowledgeable officials believe that a House originated TPA would pass the Senate today.  But that source could be wrong.

According to government officials, any Senator or Congressman can see the current negotiating text of the TPP or TTIP.  Also any interested Senator or Congressman can ask to be a “Congressional advisor” and such Senator or Congressman will be given negotiating credentials and can attend any of the negotiating sessions.  Congressional Staffers from relevant Congressional committees also have been at the TPP and TTIP negotiations.

These activities indicate that the Trade Agreements are moving and when Trade Agreements move in Congress, at a certain point in time, there becomes a band wagon effect and everyone wants to jump onboard the Free Trade/FTA Express.  We will have to see if that bandwagon effect truly starts up in Congress.

TRADE PROMOTION AUTHORITY (“TPA”), TPP AND THE TTIP/TRANS-ATLANTIC NEGOTIATIONS CONTINUE AS CONGRESSIONAL GROUPS PUSH TPA THROUGH CONGRESS

As mentioned, in my last newsletter, on January 29th, the day after President Obama pushed the TPA in the State of the Union, Senate Majority leader Harry Reid stated that the TPA bill would not be introduced on the Senate Floor.

To summarize, on January 9, 2014, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014,. HOUSE FAST TRACK BILL  The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

Senators Baucus and Hatch introduced the TPA in the Senate.  Chairman Camp of the House Ways and Means Committee introduced the TPA bill in the House, but President Obama could not persuade one Democratic Congressman to introduce the TPA bill into the House.

After the January 16th hearing, Republicans, including House Speaker Boehner, and free trade Democrats urged President Obama to get more involved saying that he has to become personally involved in pushing the TPA or the new Bill will simply not pass Congress. Many trade commentators were stating that if the President’s trade agenda falls apart, there is no one else to blame but the President himself.  They argue that the President has failed to reassure doubters, explain trade’s enormous benefits, assuage concerns, correct misconceptions, or make an affirmative public case as to why new trade agreements are essential to the nation’s prosperity.  This failure has left a vacuum that has been filled by organized, anti-trade interests, many on the Democratic side of the aisle, who have made it very difficult for Democratic Congressmen to support the TPA and the Trade Agreements.

In response to the Republicans call in Congress for the Administration to do more, on January 28th President Obama spoke about the importance of the importance of the TPA and the Trade Agreements in his State of the Union.  On January 29th, however, Senator Harry Reid, the Senate Majority Leader, the head Democrat in the Senate, came out against TPA, stating, “Everyone would be well-advised to not push this right now.”

Since the Majority Leader, Senator Harry Reid controls the bills that are allowed on the Senate Floor, the statement appeared to indicate that the TPA bills are dead in the Congress, which means that the President’s trade agenda and his push for these agreements are also dead.

On January 29th White House press secretary Jay Carney stated:

“Leader Reid has always been clear on his position on this particular issue. As the President said in the State of the Union address, he will continue to work to enact bipartisan trade promotion authority to protect our workers and environment and to open markets to new goods stamped ‘Made in the U.S.A.’ And we will not cede this important opportunity for American workers and businesses to our competitors.”

On February 4th, it was reported that StopFastTrack.com, a new coalition opposed to the TPA bill and the TPP and TA Trade Agreements is building grassroots support, gathering more than a half a million signatures and making tens of thousands of calls to Senators and Congressmen lawmakers to argue against trade legislation in Congress.

Although the Administration apparently looked at Senator Reid’s statement as a setback, they have decided to push forward.  On February 10th, the United States Trade Representative (“USTR”) Froman stated with regards to Labor Standards that the TPP and the other agreements offer a chance to improve global labor practices and to raise standards across the globe.  On February 14th the Administration stated that despite opposition of the top Congressional Democrats, the Administration still aims to complete the TPP negotiations in 2014.

On February 18th President Obama promoted the benefits of the TPP in discussions with the Mexican President and Canadian Prime Minister.  During that trip, Obama stated that it was “inaccurate” to suggest that Democratic lawmakers universally oppose the TPP, adding that he believes the agreement, if it’s a good one, will ultimately pick up approval in Congress. “There are elements of my party that oppose this trade deal; there are elements of my party that oppose the South Korea free trade agreement, the Colombia free trade agreement and the Panama free trade agreement — all of which we passed with Democratic votes.  So what I’ve said to President Peña Nieto and Prime Minister Harper is we’ll get this passed if it’s a good agreement.”

On February 18th USTR Michael Froman stated that the Obama administration would put in place transparency measures to quell criticism of TPP and TTIP, stressing that the two deals need to advance to significantly improve employment and environmental standards around the globe and better protect U.S. intellectual property.

In a speech at the Center for American Progress’ office, Froman stated that the and that the Trade Agreements are opportunities to help shape the terms of a significant segment of international trade and raise global standards through the promotion of U.S. values, according to the USTR.  Froman stated:

“Trade, done right, is part of the solution, not part of the problem. . . Through enforcement actions we are able to stand up for our rights and fight for our people. Through negotiations we are able to create new opportunities.”

The USTR acknowledged Congressional criticism about the deals and urged Congress to “step forward” and update its role in negotiating trade agreements. He said members of Congress were welcome to view the text of the deals as they stand at any time, and noted that no trade agreement will win approval without Congressional assent.

The Chorus has begun to rise about the benefits of the Agreements.  On February 19th, Mr. Myron Briliant, the executive vice president and head of international affairs at the U.S. Chamber of Commerce, published an article in the Wall Street Journal entitled, “Why Harry Reid Must Reconsider on Trade”, stating:

“Take the U.S. auto industry, which has made a comeback after the recession. Automobiles made in the U.S. face a 35% import tariff in Malaysia, shutting American manufacturers out of the market.

Though the U.S. is the largest agricultural exporter in the world, Vietnam levies double- and triple-digit duties on U.S. farm goods. The country recently raised taxes on a number of products ranging from walnuts to tomato sauce. Express shippers, insurers and banks are at a major disadvantage in Japan, where regulations prop up a state-owned company called Japan Post Holdings.

The interference damages the U.S. economy.  In 2010, the Commerce Department estimated that foreign tariffs reduce the earnings of U.S. factory workers by as much as 12%. The impact spreads to other sectors such as agriculture due to non-tariff barriers including unscientific sanitary requirements. The way to fix these inequalities? New trade agreements that demand accountability and fairness.

Free trade agreements have eliminated disadvantages in the past. America’s 20 trade-agreement partners represent 10% of the global economy, but they buy nearly half of our exports. Citizens of these countries purchase 12 times more U.S. exports per capita than citizens of countries without trade agreements. The U.S. boasts a trade surplus in manufacturing, agriculture and services with these 20 partners, unlike the trade deficit it runs with the rest of the world.

American workers reap the benefits. Earnings are 18% higher for workers in factories that export than in those that don’t, according to a 2010 Commerce Department report.

Small businesses also stand to gain from freer trade. Large firms often find a way to work around foreign trade barriers, but tariffs are often a deal-breaker for small companies. Creating new trade agreements would significantly help the U.S.’s 300,000 small exporters. . . .

But to tackle any of these inequalities, Congress must first approve TPA. . . .Without TPA, U.S. exports will remain at a profound disadvantage. Renewing TPA would help restore fair competition in trade—and put economic growth in the U.S. ahead of partisan politics.”

 

On February 24th, it was reported that the US and Japan were not able to reach agreement in the most recent TPP negotiations.  In attached letter dated February 21st, Grassley-Bennet-Letter-to-Froman-Japan-TPP-2-21-14-2 a bipartisan group of senators urged the U.S. not to close TPP negotiations unless Japan agrees to drop protection for certain agricultural products.  Specifically, 18 senators led by Sens. Charles Grassley, R-Iowa, and Michael F. Bennet, D-Colo., told U.S. Trade Representative Michael Froman that they were concerned that Japan had not yet made an offer in the course of the TPP negotiations to open up its agriculture sector without exceptions. The senators said that allowing special treatment for some of Japan’s agricultural products may undermine U.S. efforts to secure more access to the agriculture markets in the 11 other countries involved in the TPP.

As the Senators stated:

“We write to express our concerns that Japan has not yet made a comprehensive offer on agricultural products as part of the Trans-Pacific Partnership (TPP) negotiations. We believe that this situation could undermine the Administration’s goal of significantly increasing market access for U.S. agricultural products in TPP party countries.

In previous trade negotiations, the United States requested and received full and comprehensive liberalization in the agricultural sector from both developed countries like Japan as well as developing countries. By requesting special treatment for its agricultural sector in the TPP, Japan may upset the careful balance of concessions that the eleven economies involved in the negotiations have achieved. If Japan continues to insist on protecting certain agricultural products, other countries with sensitivities in the agricultural sector may make similar demands.

As intended, the TPP will facilitate additional trade relationships with Asia-Pacific countries and set an important precedent for future trade agreements. Most immediately, a positive outcome with Japan on sensitive agricultural products will buoy the prospects for reaching an acceptable agreement with the EU in the Transatlantic Trade and Investment Partnership negotiations.

The market access package that the Administration negotiates with Japan has the potential to support billions of dollars in future exports and hundreds of thousands of jobs. For this reason, we seek assurances from you that the U.S. will not close the TPP negotiations without an acceptable comprehensive agreement with Japan to eliminate tariff and non-tariff barriers in agriculture.”

 

In the last week in February, USTR Froman went to Singapore to meet with trade ministers from the 11 other TPP countries — Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The ministerial meeting was the first since December, when the TPP countries stated they could not wrap up negotiations by the end of 2013.

At the Singapore meeting, the two countries that had problems were Japan and Canada.  The TPP discussions ended February 25th with no agreement although gaps on unresolved issues had narrowed, and the 12 countries in the talks remain “fully committed” to closing a deal.

The U.S. has pushed for greater access to the Japanese agriculture market, while Japan has sought to keep tariff and other trade protections on certain agricultural products, such as rice, wheat and pork.

On March 3rd it was reported that representatives of the US dairy industry were losing patience with Japan and Canada and their failure to fully open their markets to foreign dairy productions.  The concern was so high that they raised the issue of closing the talks without Japan and Canada.  Apparently, in Singapore, not only the United States, but the rest of the countries were increasingly impatient with Japan and Canada.

After the close of a TPP ministers’ meeting in Singapore, the National Milk Producers Federation and the U.S. Dairy Export Council issued a joint statement calling for negotiators to ramp up the pressure on Japan and Canada to secure full tariff elimination on dairy products.

“It is time to finish the Trans-Pacific Partnership negotiations, including resolving the treatment of agricultural trade,” USDEC President Tom Suber said. “The principle of creating comprehensive market access is too important to this and future trade agreements. Therefore, if Japan and Canada are not committed to this goal, we need to move forward without them.”

Recently, in Washington DC, government sources indicated that if there is no movement from the two countries, the TPP should be finalized without Japan and Canada.

The two US Dairy groups also reiterated their longstanding demands that a final TPP deal include effective disciplines for applying sanitary and phytosanitary measures that are science based and enforceable and prevent restrictions on the use of common food products.

The Congressional problem is most apparent in the debate over whether to include currency manipulation restrictions in the TPP.  Dire warnings over misaligned currency creating unfair advantages in exports have become a rallying cry for US industries.  It appears quite likely that any bill providing trade promotion authority will insist that the TPP and any other trade agreement include a provision addressing the use of monetary policy or other methods to promote exports through currency manipulation.

Numerous countries participating in the TPP negotiations, however, have already taken a strong stance against the inclusion of any provision on currency, and the Obama administration is on record opposing the provisions for that reason.

Obama wants the Trade Agreements, but not if they conflict with a more immediate political goal, preserving the Senate in the mid-term 2014 for the Democrats.  That balancing act has marked Mr. Obama’s approach since 2008. To persuade union voters who blame globalization for stagnant wages, Obama the candidate spoke of renegotiating the North American Free Trade Agreement. Then, as President, he dropped the idea.

As a fallback strategy, Mr. Obama and his aides now aim to flip the situation around. They hope to persuade lawmakers to grant that authority after midterm elections by showing them a tentative Asia deal.  That would leave little time for action before the 2016 presidential primary season — which, if 2008 is any guide, will probably increase Democratic resistance.

During my recent trip to Washington, I began to see a more optimistic view of the Trade Talks.  Congressional staffers and commentators stated that Sen. Reid’s position on trade is well known and that he has a decades-long record of opposition to trade agreements.  His current stance is completely consistent with that record.  But Reid could have stopped the ratification of recent free-trade agreements with South Korea, Colombia and Panama, but he did not.

One reason is China.  While China is not part of the TPP, hopefully the TPP will create rules, which can used to restrain some of the Chinese actions in the future. People familiar with the negotiations say China is watching closely, consulting with players at the table and lobbying through its proxies against proposed new standards for state-owned enterprises.  New rules ratified in the Trans-Pacific Partnership would set a minimum expectation for any future, broader deal that might one day include China, such as an all-Asia free-trade zone.

USTR ISSUES ANNUAL TRADE REPORT TO CONGRESS

On March 3rd, the USTR issued its annual trade report to Congress.  Chapter I The Presidents Trade Policy Agenda  In its summary, the USTR stated that concluding the TPP and the TTIP with Europe were two primary objectives:

Conclude the Ambitious Trans-Pacific Partnership Negotiations . . .

TPP will expand U.S. trade with dynamic economies throughout the rapidly growing Asia-Pacific region. Experts estimate that economies around the Pacific Rim will continue to grow faster than the world average, elevating income levels and creating increased market opportunities. Along with the United States, TPP partners now include Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam. . . . According to an analysis supported by the Peterson Institute for International Economics, a successful TPP agreement would provide global income benefits of an estimated $223 billion per year, by 2025, while potentially expanding annual U.S. exports by $124 billion. TPP countries also account for 28 percent of global marine catch and over a third of global timber production, thus providing a meaningful opportunity to advance environmental stewardship efforts in the region.

The entry of Japan, the world’s third-largest economy, into TPP negotiations in July 2013 has further expanded the commercial impact of the TPP agreement.

Advance Negotiations with the European Union in the Transatlantic Trade and Investment Partnership

On June 17, 2013 President Obama and EU leaders announced that the United States and the EU would launch negotiations on a comprehensive trade and investment agreement to strengthen a partnership that already supports $1 trillion in annual two-way trade, nearly $4 trillion in investment, and roughly 13 million direct jobs – the Transatlantic Trade and Investment Partnership (T-TIP) agreement.

This year, we expect to make significant progress in the T-TIP negotiations. After three negotiating rounds in the latter half of 2013, the Administration plans to maintain a similar pace for the talks in 2014.

On March 4th, House Ways and Means Committee Chairman Dave Camp (R-MI) released the following statement in response to the President’s 2014 Trade Agenda:

Camp: “I welcome the Administration’s focus on developing new markets for goods and services produced by U.S. manufacturers, service providers, and farmers, as well as on ensuring that our trading partners play by the rules. In particular, I hope that we can conclude the Trans-Pacific Partnership shortly with those countries now willing, ready, and able to meet its ambitious obligations. We must increase market access for goods, services, and agriculture products, as well as secure enforceable rules related to issues such as intellectual property protection, disciplines on state-owned enterprises, restraints on localization barriers, investor-state dispute settlement, cross-border data flows, and disciplines on sanitary and phytosanitary barriers. . . .

“While the Agenda fails to address the problem of currency manipulation, it otherwise generally meets the objectives set in the bipartisan, bicameral Trade Priorities Act. That legislation also provides the necessary tools to address the unfairness and distortion caused when countries manipulate their currencies to gain a trade advantage.

“TPA is my top trade priority because it opens new markets and establishes enforceable rules for our trading partners, creating new U.S. jobs and economic activity. The President will not be able to conclude and implement any of the trade negotiations set forth in his Agenda without TPA. That’s why I was so surprised to see TPA barely mentioned in the document. In addition, while I welcome the transparency measures outlined in the Agenda, our bipartisan bill goes considerably further in setting out requirements for the Administration to consult with Congress and share timely and detailed information – another reason why I am seeking rapid bipartisan consideration of this bill. TPA is necessary to set out the negotiating objectives that Congress defines as vital, establish the terms for Congressional consultations during the negotiations, and retain for Congress the final say in consideration of implementing bills after the negotiations.

SOLAR CELLS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN

Attached is my latest article on the Solar Cell/Products Wars with China in the Solar Industry Magazine.  PERRY ARTICLE SOLAR INDUSTRY MAGAZINE

As mentioned in previous newsletters, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  See the attached initiation notice, factsheet-multiple-solar-products-initiation-012313 which includes the scope of the merchandise, the specific products covered by the new antidumping and countervailing duty investigations.

Many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases.

In the attached February 5, 2014 letter to President Obama, SOLAR WORLD LETTER Solar World, the Petitioner in the Solar Cells and Solar Products cases, stated that it “remains open to any prospective resolution that promises to hold China accountable to trade agreements and laws that enable fair trade. “

On February 14, 2014, as indicated in the attached announcement, ITC AFFIRMATIVE PRELIM SOLAR PRODUCTS CASE.htm the US International Trade Commission (“ITC”), four Commissioners voting, reached an affirmative preliminary injury determination finding that there is a reasonable indication that a U.S. industry is materially injured by reason of imports of certain crystalline silicon photovoltaic products from China that are allegedly subsidized and from China and Taiwan that are allegedly sold in the United States at less than fair value.

In response to the ITC vote, on February 19, 2014, MOFCOM stated that the ITC failed to consider the facts in determining that Chinese solar products had caused “substantial damage” to the U.S. domestic industry.   MOFCOM in particular pointed out that solar products “originated in China bring huge commercial benefits and job opportunities for the upstream and downstream industries of the U.S.”

MOFCOM went on to emphasize that solving trade disputes through dialogue and negotiations is the best way to solve the Solar problems between the US and China.

As mentioned in previous newsletters, the ITC’s standard in a 45 day preliminary injury investigations in antidumping and countervailing duty cases is very low.  To find a “reasonable indication” of material injury or threat of material injury all the Commissioners have to find is that more evidence will be discovered in a final injury investigation  Thus, the ITC decision was simply to continue the investigation and not that that Chinese imports caused substantial damage to the US industry.

Also as mentioned in previous newsletters, there is no public interest test and end user companies do not have standing in US antidumping and countervailing duty cases.  Thus, the ITC cannot consider whether the Chinese imports are providing substantial benefits to downstream industries or consumers in its determination.

On a recent trip to Washington DC, several knowledgeable sources stated that there is still no real movement at the Commerce Department on a Suspension Agreement in the Solar Cells/Products cases.  This would indicate that although there has been a lot of talk, there is still no action.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

We will be targeting two major issues—Working for market economy treatment for China in 2016 as provided in the US China WTO Agreement and working against retroactive liability for US importers. The United States is the only country that has retroactive liability for its importers in antidumping and countervailing duty cases.  The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance.

As indicated above, at the present time, Commerce takes the position that it will not make China a market economy country in 2016 as required  by the WTO Accession Agreement.  Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

In forthcoming newsletters we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

CHINESE ANTIDUMPING CASE—DRY CLEANING CHEMICALS FROM THE US

On February 20th, it was reported that China has imposed provisional anti-dumping duties ranging from 33 percent to more than 76 percent on dry cleaning chemicals from the U.S. and Europe after finding the imports were sold at unfair prices and were injuring Chinese producers.  More specifically, MOFCOM announced that it would level antidumping duties on imports from the US and Europe of perchlorethylene, a chemical sometimes referred to as tetrachloroethylene, and used as a solvent in the dry cleaning industry.

According to MOFCOM, U.S.-based Dow Chemical Co., PPG Industries Inc., Axiall Corp. and Occidental Chemical Corp. all face 76.2 percent dumping margins under the provisional Chinese duty order.

CUSTOMS

EXECUTIVE ORDER TO STREAMLINE TRADE 

On February 19th, President Obama signed the attached executive order executive order to speed up the creation of a single, electronic portal for businesses to submit information related to shipments that cross U.S. borders, a move intended to save time and money for importers and exporters.

The executive order calls for the development, by the end of 2016, of an International Trade Data System that would allow businesses to provide import and export data to the U.S. government through a “single window,” according to a fact sheet put out by the White House. The changes are expected to cut processing and approval times “from days to minutes” for shipments coming to and leaving the U.S.

CUSTOMS FRAUD—LIABILITY OF INDIVIDUAL OWNERS AND EMPLOYEES

There has been a recent development at the Court of Appeals for the Federal Circuit (“CAFC”) regarding the liability of individuals for Customs violations with a CAFC decision to hold an en banc review by the entire Court of its July 30, 2013 decision in United States v. Trek Leather, Inc.  United States v. Trek Leather, Inc., 724 F.3d 1330 (CAFC 2013) In that case a three judge panel in the CAFC based on a 2-1 decision determined that corporate officers of an “importer of record” are not directly liable for penalties under § 1592(c)(2) “absent piercing Trek’s corporate veil to establish that Shadadpuri was the actual importer of record, as defined by statute, or establishing that Shadadpuri is liable for fraud under §1592(a)(1)(A), or as an aider and abettor of fraud.”

On March 5, 2014 the CAFC issued the attached orderTREK LEATHER CASE accepting the US Government’s petition for a rehearing en banc, which means a hearing before all eleven judges of the CAFC.  The CAFC ordering the parties to file briefs on the following issues:

A) 19 U.S.C. § 1592(a) imposes liability on any “person” who “enter[s], introduce[s], or attempt[s] to enter or introduce” merchandise into United States commerce by means of fraud, gross negligence, or negligence by the means described in § 1592(a). What is the meaning of “person” within this statutory provision?  How do other statutory provisions of Title 19 affect this inquiry?

B) If corporate officers or shareholders qualify as “persons” under § 1592(a), can they be held personally liable for duties and penalties imposed under § 1592(c)(2)

and

(3) when, while acting within the course and scope of their employment on behalf of the corporation by which they are employed, they provide inaccurate information relating to the entry or introduction of merchandise into the United States by their corporation? If so, under what circumstances?

C) What is the scope of “gross negligence” and “negligence” in 19 U.S.C. § 1592(a) and what is the relevant duty? How do other statutory provisions in Title 19 affect this inquiry?

In its request for the rehearing, the Government stated:

“The panel’s decision provides a roadmap for importers to negligently violate the customs laws; one individual can transact the same importing business using multiple shell companies as importers of record, allowing evasion of personal liability for duties and penalties in all but the most egregious situations.”

FDA—FOOD PROBLEMS

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA—NOW TRANSSHIPMENT

With regards to the Chinese ban on shellfish from the West Coast, on January 31st it was reported that the Chinese government wants to send an audit team to the US to check how seafood is tested.  In the meantime, they would not relax the ban on the West Coast shellfish.

The Chinese government had detected inorganic arsenic in a November shipment of geoducks from Washington’s Poverty Bay. That shipment and another from Ketchikan, Alaska, that was tainted with algae toxin, led China on Dec. 3 to ban all imports of bivalve shellfish harvested in Washington, Alaska, Oregon and Northern California.

The ban has seriously hurt the Pacific Northwest shellfish industry, blocking imports to the major market for geoducks right before Friday’s observance of Chinese New Year.

In Early February it was reported that the ban on Pacific Coast shellfish is still in place as the US government had received a letter from China stating the fact.

See the attached article and a link to a report by Chinese television on the Geoduck problem http://pugetsoundblogs.com/waterways/2014/01/23/chinese-tv-discusses-shellfish-import-ban/#axzz2v8CrqCIY

A local Washington newspaper reported that one Indian tribe was able to get around the Chinese ban on shellfish imports by shipping the geoducks to Hong Kong and Canada.  One Tribal Fisheries Manager stated that Buyers were able to get around the ban “by going through Canada and Hong Kong to get restricted American geoducks to China. .  . Some of the buyers are Canadian.  They end up buying product, crossing the border and shipping to China that way . . .Other buyers have been able to get product to Hong Kong and over to China. . . The buyers themselves are figuring out ways to get product to China.”

The problem is that these schemes are considered transshipment, and the US government and US Congressmen have been complaining about this unfair practice in Chinese food imports for many, many years.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

What goes around does indeed come around.

PATENT/IP AND 337 CASES

ITC IS MAKING IT MORE DIFFICULT FOR PATENT TROLLS

In a Jan. 9 decision clearing Hewlett-Packard Co. and others of infringement, the ITC reversed long-standing precedent and held for the first time that in order to use licensing activities to satisfy the domestic industry requirement for suing at the ITC, nonpracticing entities (“NPES”) must prove that there are products that practice the patent.

The Commission specifically stated in the order:

“We affirm the ALJ’s application of his ground rules to find that TPL failed to demonstrate the existence of articles practicing the mapping patents.  . . .  Because TPL did not demonstrate the existence of articles practicing the mapping patents, it cannot demonstrate the existence of a domestic industry.”

In this decision the ITC reversed long-standing precedent and held for the first time that in order to use licensing activities to satisfy the domestic industry requirement for suing at the ITC, NPES must prove that there are products that practice the patent.

The ITC had previously held that licensing alone could satisfy the requirement, regardless of whether licensees used the patents in their products. Proving the existence of products covered by the patents may be difficult for NPES and could discourage them from suing at the ITC.  Those NPES that do not keep close watch on whether the invention is being practiced will have a much more difficult time meeting the domestic industry requirement at the ITC.

ITC REQUESTS EN BANC REHEARING AT CAFC OF SUPREMA DECISION

On February 21, 2014, the ITC requested at the Court of Appeals for the Federal Circuit (“CAFC”) a panel rehearing or a rehearing en bank of the CAFC December 13th decision in Suprema v.International Trade Commission.  In Suprema, the CAFC by a split vote vacated the exclusionary order in Certain Biometric Scanning Devices, Inv. No. 337-TA-720, holding that “an exclusion order based on a violation of 19 U.S.C. §1337(a)(1)(B)(i) may not be predicated on a theory of induced infringement under 35 U.S.C. §271(b) where direct infringement does not occur until after importation of the articles the exclusion order would bar.”  See previous January Post for a description and copy of the CAFC decision.

In its Brief filed at the CAFC, the ITC argues that this December 13th decision overturns many past 337 decisions and is contrary to CAFC and Supreme Court precedent stating:

By holding that “there are no ‘articles that . . . infringe’ at the time of importation when direct infringement has yet to occur”, the panel overlooked Supreme Court precedent that culpability for induced infringement is independent from direct infringement and attaches at “the distribution of the tool intended for infringing use.” . . . The panel also overlooked this Court’s precedent that liability for infringement by inducement attaches “as of the time the acts were committed, not at some future date” of direct infringement. . . .

By interpreting 19 U.S.C. § 1337(a)(1)(B)(i) to reach only articles that directly infringe at the time of importation, the panel overlooked decades of precedent affirming Commission orders that exclude articles proven to indirectly infringe under 35 U.S.C. §§ 271(b) and (c). . . . Even though it appears that the panel in this case did not intend its decision to preclude an action under section 337 based on contributory infringement, parties in other cases have already argued to this Court that “[t]he reasoning in Suprema also dooms [a] contributory infringement claim” because in such a claim articles do not directly infringe at the time of importation.  . . .

By characterizing the Commission’s order as a “ban [on the] importation of articles which may or may not later give rise to direct infringement” . ., the panel confused the question of an appropriate remedy under 19 U.S.C. § 1337(d) with the question of liability under 19 U.S.C. § 1337(a)(1)(B)(i), in contravention” of past CAFC precedent.

DUPONT TRADE SECRET CONVICTION

As reported in my last newsletter, there is an ongoing jury trial in California Federal District Court regarding the theft of trade secrets from Dupont  by a California businessman and a former DuPont Co. engineer, which were accused of stealing DuPont’s proprietary method of manufacturing titanium dioxide and selling the information to Chinese government-owned companies for $28 million.

On March 5th, the jury found businessman Walter Liew and his company USA Performance Technology Inc. along with  Robert Maegerle, the former DuPont engineer, guilty of conspiracy to commit economic espionage and possession of trade secrets and a number of other charges.

The US Attorney’s office spoke in favor of the decision stating, “Fighting economic espionage and trade secret theft is one of the top priorities of this office and we will aggressively pursue anyone, anywhere, who attempts to steal valuable information from the United States. . .  . As today’s verdict demonstrates, foreign governments threaten our economic and national security by engaging in aggressive and determined efforts to steal U.S. intellectual property. I commend the efforts of the women and men of the FBI and the IRS in protecting America’s businesses and our national security.”

The jury’s verdict came after nearly a week of deliberations, following six weeks of testimony detailing Liew’s efforts to steal DuPont’s secrets and secure contracts with Chinese companies, including Pangang Group Co. and its subsidiaries, to build titanium-dioxide-making factories in China.  The Judge ordered Liew to prison, while Maegerle remains free.  Both are scheduled to be sentenced June 10.

NEW 337 CASE AGAINST CHINESE COMPANIES FOR IMPORTS OF SULFENTRAZONE

Docket No: 3004

Document Type: 337 Complaint

Filed By: Lisa a. Chiarini

Firm/Org: Hughes, Hubbard, & Reed LLP

Behalf Of: FMC Corporation

Date Received: March 5, 2014

Commodity: Sulfentrazone from China

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 Sulfentrazone, Sylfentrazone Compositions, and Processes for Making Sulfentrazone. The proposed respondents are: Beijing Nutrichem Science and Technology Stock Co., Ltd., China; Summit Agro USA LLC, Cary, North Carolina; Summit Agro North America Holding Corporation, New York, New York; and Jiangxi Heyi Chemicals Co. Ltd., China.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI

On February 13, 2014, Back Joy Orthotics filed a patent and copyright case against Forvic International, a Korean company, and Wook Yoon, a Korean national, against imports of back seat supports that are produced in China.  BACKJOY PATENT CASE

On February 17, 2014 Simon Nicholas Richmond filed a patent infringement case against Forever Gifts in Texas and Forever Gifts in China for imports of solar garden lights that allegedly infringe his patent. FOREVER SOLAR POWER GARDEN LIGHTS

On February 6, 2014,AIM IP filed a patent infringement case against Futurewei Technologies dba Huawei.  FUTUREWEI HUAWEI CASE

On February 27, 2014, Smartphone Technologies filed new patent cases against ZTE and Huawei.  SMARTPHONE HUAWEI  SMARTPHONE ZTE

ANTITRUST

VITAMIN C CASE

As mentioned in my last e-mail, the Vitamin C case is wrapping up at the District Court level.  The attached final judgment was revised downward from $153 million to a $147 million judgment against by Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing because of double counting.  VITAMIN C JUDGMENT REVISED 147 MILLION

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

CHINA ANTITRUST CASES

Commentators have observed that governments are increasingly using antitrust and other regulatory powers for broader political and economic purposes.

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from China’s National Development and Reform Commission (NDRC). On February 19th, the head of China’s NDRC confirmed that it was investigating Qualcomm and also Interdigtal for potential antitrust violations.  Both companies were raided by Chinese agents in November and have delivered statements to Chinese investigators.  The NDRC said that Qualcomm Inc. was suspected of overcharging and abusing its market position and could face record fines of more than $1 billion.  Any settlement with InterDigital or Qualcomm is likely to include commitments to lower patent licensing fees for Chinese customers.

The NDRC is also looking at drugmaker GlaxoSmithKline and Apple. Apparently, the Chinese government has decided to use the nation’s antitrust laws to level the playing field for all companies.

SECURITIES

TOM GORMAN, DORSEY SECURITIES/SEC EXPERT, INTERVIEWED ON CHINESE TELEVISION

Recently, Tom Gorman, a partner in our Washington DC, who used to work in the Enforcement Division in the Securities and Exchange Commission, was interviewed by Phoenix Television on the refusal of Chinese Auditors to supply the SEC Accounting Documents from Chinese companies and the problems that have come from IPOs/securities listings of Chinese companies in the US.  The link to the interview is

http://video19.ifeng.com/video07/2014/02/09/1691951-102-007-0040.mp4

 FCPA DIGEST

Dorsey has just published its attached Foreign Corrupt Practices Digest.  FCPA DIGEST  With regards to China, the Digest states:

CHINA

Avon Products

Avon Products Inc. estimates a payment of up to $132 million to settle an ongoing corruption investigation. The US Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) alleged that Avon has paid bribes in China and other countries in exchange for permits to sell its products.

It has been reported that following an internal investigation in 2008, Avon discovered that questionable payments and gifts of millions of dollars have been made to officials in China, Brazil, Mexico, Argentina, India and Japan. In 2011, Avon fired four executives, including the general manager and the finance chief of the company’s China unit.

Since 2008, the company has reportedly spent about $340 million in legal and other costs. The investigation is ongoing.

 JPMorgan

It has been alleged that a top Chinese regulator, Xiang Junbo, with interests in the insurance sector, asked Jamie Dimon, the chief executive of JPMorgan, for a favor to hire a young job applicant.

JPMorgan reportedly secured a number of business deals with Chinese insurance companies following Mr. Dimon’s meeting with Mr. Xiang.

US authorities are investigating whether hiring at JPMorgan and other banks was done for the purposes of securing contracts with Chinese companies.

 Former Minister of Public Security

It is reported that Mr. Zhou Yongkang, former member of the Politburo Standing Committee and Minister of the Public Security, is being investigated for alleged corruption.

The investigation is reportedly part of a wider national anti-corruption campaign particularly targeted at current and former executives of the China National Petroleum Corporation.

It has been reported that Mr. Yongkang is under house arrest. Investigations are still pending.

COMPLAINTS

On February 4, 2014, a class action securities case was filed Rodney Omanoff et al. v. Patrizio & Zhao, Xinggeng John Zhao for misstating the financial information of Keyuan Petrochemicals, Inc.,  a Nevada corporation, headquartered in China.  KEYYUAN PETROCHEMICALS

On February 6, 2014, the US Government, Securities and Exchange Commission/SEC filed an insider trade case against Hao He a/k/a Jimmy He for trading shares of Sina Corporation in Shanghai, China based on inside information.  HAO HE

On February 19, 2014, a class action securities case was filed by Maria Cecilia Ghilardoti against Montaage Technology Group and various Chinese individuals.  Montage Technology is a Caymans Company with substantial semiconductor plants and other operations in China and Hong Kong.  MONTAGE SECURITIES COMPLAINT

On February 20, 2014 Peter Schiff et al filed a class action securities case against China Nutrifruit Group Limited, a Chinese company in Daqing, China.  Schiff v China Nutrifruit Group~

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

Best regards,

Bill Perry

US CHINA TRADE WAR–DEFAULT DANGERS, TRANS PACIFIC PARTNERSHIP IN JEOPARDY, TRADE, CUSTOMS ANTITRUST AND SECURITIES

US Capital Pennsylvania Avenue After the Snow Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER

Dear Friends,

There have been some major developments in litigation, including dangers of default judgments, trade, Solar Cells, Chinese Antidumping, patents, US/Chinese antitrust, and securities areas.

January was a very important month for US Trade Policy because of the problems with the Trade Promotion Authority/Fast Track Trade Bill and the Trans Pacific Partnership (“TPP”) and Trans- Atlantic (“TA”) Trade Agreements in Congress.  Literally there have been day to day developments culminating with President Obama’s January 28th State of the Union address followed by the January 29th decision of Senate Majority leader Harry Reid to oppose the Trade Promotion Authority (“TPA”) Bill and the TPP and TA Negotiations.

As described below, Senator Reid’s decision to not allow the TPA bill to be introduced in the Senate may be the day free trade died.  If Senator Reid’s decision becomes final, this will have a dramatic impact on all trade relations, including trade relations with China, as the United States becomes more and more protectionist.

US LITIGATION AGAINST CHINESE COMPANIES—DANGERS OF DEFAULT

Recently through a Chinese law firm a Chinese company approached us because they were facing a US trademark case brought by a competitor in the United States.  The company’s question, why respond?  We are a Chinese company and you cannot catch us and make us pay damages in the United States.

We pointed out that the trademark case in question is a tough case for the Plaintiffs to prove because the trademarks in question are not registered marks and are common law marks.  If the Chinese company fights the case, it would have a good chance of winning the case.  But if the Chinese company defaults, it loses the right to contest the merits of the case.

In antidumping and countervailing duty cases, Chinese companies with US import operations have also told us, “Don’t worry.  We will never pay antidumping and countervailing duties; they cannot catch us in China.”  The times, however, are changing.

In many US cases against Chinese companies in Federal District Court, Plaintiffs are asking for damages, an injunction and punitive damages.  If the Chinese company wants to sell its products in the United States again, it has to fight.  If it does not fight, when the Chinese company sells its products in the United States, those products, including all inventory and accounts receivable, can be attached to satisfy the judgment.

Moreover, when a default judgment is for money damages, the US company is seeking to collect actual damages, interest from the date of the judgment or before, statutory damages, possibly punitive damages and attorney’s fees, which eventually will total millions of dollars.  If the Chinese company has a strong legal argument against the US Plaintiff, when it defaults, the Chinese company loses the right to make those legal arguments.

Moreover, this is no longer the 1990s or even early 2,000s.  Over the last two decades, Chinese companies have grown up and have bank accounts and assets/money and subsidiaries all over the world.  But that means it is easier for US judgment holders to collect money on their default judgments against Chinese companies.

If the Chinese company continues to do business in the US in the face of a default judgment, Plaintiffs can attach the company’s assets.  U.S. Marshalls can show up at a U.S. trade show and take all the company’s trade show materials to satisfy the judgment.  US Marshalls can go to warehouses where the company stores its products and take them.  US plaintiffs can go after the Chinese company’s accounts receivable.  The US Plaintiffs and their US lawyers can attach or garnish the Chinese company’s bank accounts–in the U.S., Hong Kong, the EC, Taiwan and countries all over the World where US judgments are enforceable and also now in China itself.

If the Chinese company banks with a Chinese bank that has a branch in the U.S., such as New York, Plaintiffs will garnish that branch bank and go after the China company’s  assets/bank accounts located in any of the bank’s other branches, wherever located, including China.

In 2010 a US inventor sued Chinese tire companies in Shandong Province for patent infringement and unfair competition in a Federal District Court in Virginia.  The Chinese companies did not fight the case and the Federal District Court entered a default judgment for $26 million.

In September 2013, in the attached complaint TIRES COLLECTION CASE the US law firm and inventor sued the Chinese Industrial and Commercial Bank Branch in New York City, saying give the US Plaintiffs the records and assets of these companies in China to satisfy the US $26 million judgment.  If the Chinese bank branch refuses to pay, the Bank could face fines of $100,000 a day, as an example.

Under the Single Entity Doctrine, US Federal Courts have held that if the Court has jurisdiction over the Chinese bank branch, it has jurisdiction over the bank worldwide.  If a Chinese company has any bank accounts in Chinese banks, such as the Bank of China or the Industrial and Commerce Bank, those banks have branches in New York City and the Chinese company can be attacked through its bank.  We are presently representing a Chinese Bank in a similar case and have 30 lawyers working full time on the case in Guangzhou on discovery.

The point is that Chinese companies can run, but they cannot hide.  If a Chinese company defaults in US litigation, it can be attacked in the US, Hong Kong, Taiwan, EC, Canada and many other countries, and now China through Chinese bank branches in the US.  So when a Chinese company defaults in US litigation, it puts the entire company at risk.

On the other hand, if the Chinese company decides to fight the case and hire a US lawyer, it may be able to pay a small amount of money as compensation or simply change its product or trade dress slightly and settle the entire case.  In many cases, if the Chinese company fights, it may be able to win the entire case and in certain situations get money from the US company bringing the case.

Ignoring US litigation is like picking up the sesame and losing the watermelon.  If the Chinese company does business in the United States and intends to continue to do business in the United States, trying to avoid service or defaulting after service may materially damage its business.  It will certainly materially damage its ability to do business in the United States.  The costs of default may be significant and far greater than that which would be necessary to defend against the US lawsuit.

TRADE

TRADE NEGOTIATIONS—TPP AND BALI/DOHA ROUND

As mentioned in my past newsletter, in the trade world, the most important developments may be the WTO negotiations in Bali and the Trans Pacific Partnership (TPP) and Trans-Atlantic (TA) negotiations with the EC.  Experts have estimated that TPP and TA Agreements could increase global business by several trillion dollars, if they can be concluded and implemented. These trade negotiations could have a major impact on China trade, as trade issues becomes a focal point in Congress and many Senators and Congressmen become more and more protectionist.

This is particularly a problem because the protectionism is coming from the Democratic side of the aisle.  Democratic Senators and Congressmen are supported by labor unions.  Although companies see the substantial increase in business from the TPP and TA Trade Agreements, unions only see a loss of US manufacturing jobs.  To date, President Obama cannot get one Democratic Congressman to support Trade Promotion Authority (“TPA”) in Congress.  Without bipartisan/Democratic support for these Trade Agreements, Republicans will not go out on a limb to support President Obama and risk being shot at by the Democrats during the mid-term elections as soft on trade.

This rising protectionism in Congress directly threatens the TPP and all future trade deals with China and many other countries.

TPP NEGOTIATIONS MAY END AS SENATOR MAJORITY LEADER HARRY REID REFUSES TO LET THE TPA BILL GET TO THE SENATE FLOOR

As the Doha Round chances went up, the chance of TPP and TA Agreements fell down and may have fallen down completely.  As mentioned in my last post, USTR and US government officials were predicting that the TPP negotiations would conclude at the end of the year with an Agreement.  That is not going to happen.  The Congressional problems regarding the TPP have grown larger and larger and, in fact, may now be insurmountable.

Although the TPP does not include China, China is the elephant in the room and so its presence is very much in the mind of all the negotiators and the political powers in the United States.  The public reaction to TPP and the TPA, which is needed to conclude the TPP agreement, in part, is a reaction to trade with China and is a reflection of public and political attitudes in the United States to trade with China.

In January the TPP and Trans-Atlantic Agreements have created high drama on Capitol Hill as there have been literally day to day developments.

TRADE PROMOTION AUTHORITY (“TPA”)

On January 9, 2014, Senator Max Baucus, Democrat, Senator Orrin Hatch, Republican, of the Senate Finance Committee and Representative Dave Camp, Republican, Chairman of the House Ways and Means Committee, introduced the attached Bipartisan Congressional Trade Priorities Act of 2014. HOUSE FAST TRACK BILL The TPA bill gives the Administration, USTR and the President, Trade Promotion Authority or Fast Track Authority so that if and when USTR negotiates a trade deal in the TPP or the Trans-Atlantic negotiations, the Agreement will get an up or down vote in the US Congress with no amendments.

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

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

In introducing the new Trade Priorities Act, Senator Baucus stated that “This is our opportunity to tell the Administration – and our trading partners – what Congress’ negotiating priorities are.  TPA legislation is critical to a successful trade agenda. It is critical to boosting U.S. exports and creating jobs. And it’s critical to fueling America’s growing economy.”

According to Senator Hatch, “Every President since FDR has sought trade promotion authority from Congress because of the job-creating benefits of trade. Renewing TPA will help advance a robust trade agenda that will help American businesses, workers, farmers and ranchers by giving them greater access to overseas markets.”

The TPA Bill set out a clear directive on currency manipulation, provided greater transparency and gave Congress greater oversight of the Administration’s trade negotiations.

Both Senators Baucus and Hatch and Congressman Camp called TPA a “vital tool” as the U.S. continues TPP negotiations as well as free trade TA agreement talks with the European Union (EU).   The National Association of Manufacturers and the National Retail Federation quickly got behind the proposal and urged Congress to quickly pass it

As mentioned in past posts, however, the Administration considers the TPP negotiations to be secret and has not released any official negotiating texts.  Thus opposition is growing in Congress.  In November 2013, a group of over 170 lawmakers in the House sent letters to the President saying they opposed fast-track authority because modern trade agreements affect so many policies under Congress’ purview, and it should have much larger role in shaping the terms of the Agreements.

Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, stated that he was developing alternative legislation

On January 10th, it was reported that with opposition growing in Congress and the upcoming midterm elections, President Obama was going to have to mount a very serious lobbying effort to move the TPA legislation through Congress.  The proposed TPA legislation has drawn strong opposition from labor unions, including the AFL-CIO, which vowed to “actively work to block its passage,” and also environmental groups like the Sierra Club and consumer advocacy groups like Public Citizen.  Many Congressmen and Senators, especially on the Republican side of the aisle, stated that moving the TPA bill through Congress would require a strong lobbying effort on the part of the Obama administration, possibly even including remarks about TPA in the 2014 State of the Union address.

Prospects for a fast-track bill moving forward in 2014 are further complicated by the Congressional elections in November.  The TPA Bill is a test of the administration’s influence and clout on Capitol Hill and right now the Administration’s clout on Capitol Hill is very weak.  The TPA fight is a fight over a number of different issues and the extent to which Congress can influence the negotiating process.

Typically multi-national corporations strongly back free-trade agreements. The Chamber of Commerce, which sometimes spends more than $100 million lobbying a year, and the Business Roundtable, were quick to put out statements supporting the legislation. Also weighing in was a coalition called Trade Benefits America, which includes companies ranging from General Electric Corp. to Wal-Mart Stores Inc.

On January 15th it was reported that President Obama could not find one Democratic Congressman in the House of Representatives to co-sponsor the TPA bill. Meanwhile, the bill’s main Democratic backer in the Senate, Finance Committee Chairman Max Baucus, is retiring from the Senate and on his way out to be Ambassador to China, and key senior Democratic Senators on the committee, including Senator Wyden, its incoming chairman, say they either don’t support the bill or want to change it.

Democratic Reps. George Miller of California, Louise Slaughter of New York and Rosa DeLauro of Connecticut said of the proposed TPA Bill: “Our constituents did not send us to Washington to ship their jobs overseas, and Congress will not be a rubber stamp for another flawed trade deal that will hang the middle class out to dry.”

The free-trade push joins a growing list of policies Obama has championed that are unpopular with Democrats.  Both Republican and Democratic Members complained that the Obama administration’s outreach on trade has been disorganized.

Another Democratic complaint is that the negotiations for both trade deals are confidential and too far along for Congress to play a meaningful role in their outcome. Five influential Senate Democrats told U.S. Trade Representative Michael Froman that they won’t support the trade promotion authority bill without assurances that Congress can hold U.S. trade negotiators “more accountable” during the talks, rather than after a deal is finished and lawmakers can only cast up-or-down votes.

For Republicans, Democrats used pro-trade votes to blast GOP presidential candidate Mitt Romney and House Republicans in the Midwest states and elsewhere as supporters of outsourcing jobs.  According to one GOP leader in the House, given Obama’s political problems within his own party, House Republicans are insisting that Democrats deliver at least 50 votes in support of the bill, including at least one from the party’s leadership, before they’ll bring it to the floor.

On January 16, 2013, the Senate Finance Committee held a hearing on the TPA Bill and the TPP and TA negotiations, but USTR refused to send a witness.  Many industry witnesses did appear, however.  See http://www.finance.senate.gov/hearings/hearing/?id=bd99ab08-5056-a032-523f-27ddae65e3d0 for a video of the hearing.  The failure of USTR to show up at the hearing illustrated the difficulty ahead for the TPP.

At the hearing in the attached statement LARRY COHEN TESTIMONY TPP DIFFICULTY Labor Leader Larry Cohen, President of the Communications Workers of America, a union, spoke against the TPP, stating:

 

“Free trade agreements have been devastating for our balance of trade. In 1993, the year before the North American Free Trade Agreement (“NAFTA”), our trade deficit in goods was -$132 billion or -1.9 percent of our GDP. By 2012, our trade deficit ballooned to -$741 billion or -4.6 percent of our GDP. The growth of our trade deficit to such levels has been a strong drag on our economy and especially in terms of jobs and wages.

And specific trade deals have been most at fault for the increased trade deficit. Here are three examples. In 1993, the U.S. had a trade surplus in goods with Mexico of $1.66 billion. By 1995, just one year after NAFTA, this had changed to a $15.8 billion deficit and by 2012 the deficit with Mexico had increased even further to $62 billion.

Allowing China into the WTO also has been disastrous. The U.S. had a trade deficit in goods with China of $83 billion in 2001 when China was admitted to the WTO. This deficit has ballooned to $315 billion in 2012. And for a most recent example, in just one year after the U.S.-Korea trade agreement took effect, our trade deficit in goods with South Korea increased by $5.5 billion or 46%.

Last year, our federal budget deficit was more than $680 billion. But our trade deficit in goods for 2012 was $741 billion. While a lot of attention in Congress and in Washington, DC has focused on the federal deficit, little attention has been focused on our trade deficit and its negative impact on our economy, jobs and wages. If we had trade deals that actually led to balanced trade, our economy would generate more than 3 million more jobs. Unfortunately, our current model for free trade agreements increases our trade deficits and reduces our employment. . . .

In the economy as a whole, average real weekly take home pay for a U.S. worker today is $637 compared to where it was 40 years ago at $731 a week — $100 less.  . . .

Trade agreements have become the new tool in the arsenal for the unfettered corporate attack on collective bargaining rights. With trade agreements, threats to offshore work and actually offshoring the work in highly unionized industries has increased. The result — the share of the private sector workforce protected by a collective bargaining agreement has declined from a high of 35.7 percent to just 6.6 percent today. This is another direct link cited by most economists as a factor in the rising inequality in our country today.  . . .

In telecommunications, we have seen the virtual elimination of telecom manufacturing equipment in the US, the elimination of a U.S. national company, and hundreds of thousands of lost jobs in that supply chain.  . . .

Many groups representing U.S. consumers are especially concerned with how trade agreements can be used to degrade our food safety protections. Allowing for Fast Track consideration of TPP would further jeopardize the safety of the food consumed in the U.S. Seafood standards in particular could be challenged through the TPP. The FDA has detained hundreds of seafood exports from TPP countries because they were contaminated. For example in Fiscal Year 2012, the FDA detained 206 imported seafood products from Vietnam alone because of concerns including salmonella, e-coli, methyl mercury, filth and residues from drugs that are banned in the U.S.  Currently the FDA is only able to inspect between 1-2 percent of our food imports.  The TPP, by greatly expanding our food imports (especially seafood) would result in an even lower percentage of inspections.  . . . .

Trade agreements are no longer just about tariffs and quotas – they are about the food we eat, the air we breathe, the jobs we hold. Congress needs to have an enhanced and enforceable role in this new era when massive trade agreements can cover so many policy issues. We cannot abdicate the legislative and policy formation process to the USTR and non-elected representatives. Or, we would argue that trade policy should commence with the Congress adopting policy priorities and the countries with whom we will negotiate. It’s clear that this is not what has happened.  . . .

For example, we are concerned that Vietnam has been chosen as a trade partner. In Vietnam which has a population of 90 million people, the minimum wage is $0.28 per hour and the average wage is $0.75 an hour. There is no right to free association or expression. Our own Department of Labor has placed garments made in Vietnam on the federal “Do Not Procure” list for documented use of forced child labor in apparel production.  Vietnam’s extremely low wages, non-existent workers’ rights, and extensive roster of human rights violations will only further exacerbate the already strong downward pressure on U.S. wages.  We should not enter into trade agreements with countries with such records. . . .

Shouldn’t this proposition of including countries with such abysmal records like Vietnams be debated? Shouldn’t the U.S. Congress determine if that approach is appropriate? Shouldn’t the US Trade Representative further consult with Congress as negotiations progress?  . . . .”

 

For more details, see also video on CWA website http://action.cwa-union.org/c/1372/p/dia/action3/common/public/?action_KEY=7357

Yet at the same time, Senator Portman of Ohio, who was formerly USTR under President Bush, noted at the Senate Finance hearing that in terms of exports, in ranking of countries the US rates just above Ethiopia and that 40% of US exports were to countries that had signed trade agreements with the US.

After the hearing, Republicans, including House Speaker Boehner, and free trade Democrats urged President Obama to get more involved saying that the President has to become personally involved in pushing the TPA or the new Bill will simply not pass Congress.  As mentioned, in the House, President Obama faces the problem that not one Democratic Congressman is willing to co-sponsor a TPA Bill.

On January 16th, there were also reports that Congressional Democrats were very upset about the draft environmental provisions of the TPP that had been leaked by Wikileaks.  The draft environmental chapter of the TPP agreement and a report by negotiators from the 12 countries involved in the talks, show that the pact would fall short in enforcing the higher environmental standards of other recent U.S. trade deals. Those pacts threaten sanctions against trading partners that violate international agreements to protect endangered species, prevent overfishing and regulate chemicals that deplete the ozone layer.

Immediately, Sen. Bob Casey (D-Pa.), a member of the Senate Finance Committee, which oversees Trade, stated ““It’s of grave concern. It’s as if our negotiators, decade after decade, have to walk into the door and … say, ‘Yes, we have concerns about leveling the playing field on labor and environment protections,’ but by the end of it, we say, don’t worry about it.”

Although the United States is pushing for robust environmental provisions, apparently the 11 other countries are all opposed to more strict environmental standards.  The inability of the U.S. to secure its key environmental demands made it even more difficult for the TPA bill.

According to Rep. Rosa DeLauro (D-Conn.),” As more information about the Trans-Pacific Partnership being negotiated in secret is revealed, the more the public can see how clearly this potential agreement, which is unprecedented in scope, would not only lead to the outsourcing of jobs, but also harm American consumers and the environment.”   All of this did little to help Obama persuade liberal Democrats on the TPA Bill

On January 17, 2013, it was reported that progressive advocacy groups were ramping up efforts to oppose the TPP and TPA legislation urging their members to push their representatives in Congress to fight the trade policies.

The progressive-leaning Democracy for America sent an email to its members saying they should call their local congressional representatives and urge them to vote down a proposal that would grant trade promotion, or “fast-track,” authority to the Obama administration.

On Monday, January 27th, 550 labor, environmental and consumer advocacy groups, including the United Autoworkers, which provided President Obama critical support on previous trade pacts, such as the South Korea FTA, sent a letter to Congress urging them to reject the fast-track bill.

The email campaign comes two days after a dozen Senators, comprised of 11 Democrats and Sen. Bernie Sanders, an independent from Vermont, wrote to Senate Majority Leader Harry Reid, D-Nev., expressing “deep concern” over the chance that trade promotion authority would be renewed.

JANUARY 28 — STATE OF THE UNION

In response to the Republicans call in Congress for the Administration to do more regarding the TPA bill, President Obama responded in his State of the Union pushing the TPA bill and TPP and the TA Agreements.  President Obama stated:

“We need to work together on tools like bipartisan trade promotion authority to protect our workers, protect our environment, and open new markets to new goods stamped “Made in the USA”.  Look China and Europe aren’t standing on the sidelines.  Neither should we.”

What was very interesting about this point is that in contrast to almost every other point made in the State of the Union, when President Obama spoke about Trade, the Republicans cheered, but the Democrats in President Obama’s own party were silent.

JANUARY 29TH—THE DAY FREE TRADE MAY HAVE DIED

But the next day, Senator Harry Reid, the Senate Majority Leader, the head Democrat in the Senate, came out against TPA, stating:

“Everyone knows how I feel about this.  Senator Baucus knows.  Senator Wyden knows.  The White House knows.  Everyone would be well-advised to not push this right now.”

As Majority Leader, Senator Harry Reid controls the bills that are allowed on the Senate Floor.  With Senator Harry Reid’s opposition, the TPA bill is dead in the Congress, which means that the President’s trade agenda and his push for these agreements are also dead.  In an ironic point, this situation will probably only change if the Republicans take over the Senate in 2014.

The lawmakers opposed to the TPA Bill argue that in light of the top secret nature of the negotiations, multiparty trade deals go far beyond the scope of the smaller, typically single-nation trade accords that were done in the past.  These new multinational deals affect larger portions of the U.S. and global economies and touch on many policies under Congressional jurisdiction.  Congress, therefore, should have a greater say on trade deals beyond the ability to accept or reject them.

On January 29, 2014, David Bonior, a former Michigan Congressman, who voted for NAFTA, in an article entitled Obama’s Free-Trade Conundrum stated:

 

“But Mr. Obama’s desire for fast-track authority on the T.P.P. and other agreements clashes with another priority in his speech: reducing income inequality.

This month is the 20th anniversary of the North American Free Trade Agreement, which significantly eliminated tariffs and other trade barriers across the continent and has been used as a model for the T.P.P.  Anyone looking for evidence on what this new agreement will do to income inequality in America needs to consider Nafta’s 20-year record. . . .

The result is downward pressure on middle-class wages as manufacturing workers are forced to compete with imports made by poorly paid workers abroad. . . .The shift in employment from high-paying manufacturing jobs to low paying service jobs has contributed to overall wage stagnation. The average American wage has grown less than 1 percent annually in real terms since Nafta, even as productivity grew three times faster. . . .

The Nafta data poses a significant challenge for President Obama. As he said on Tuesday, he wants to battle the plague of income inequality and he wants to expand the Nafta model with T.P.P.  But he cannot have it both ways.”

 

In response to Senator Reid’s statement, it was reported that Sen. John Cornyn  (R., Texas.) stated “You can kiss any new trade deals goodbye. . . I think the majority leader’s focus is on the November elections and he doesn’t want to expose his vulnerable members to controversial votes.”

The latest developments come amid growing skepticism in Japan about the U.S.’s commitment to free trade. “It’s up to the resolve of the U.S. government,” Japan’s economy minister, Akira Amari, told reporters in Tokyo. “If the president comes to the negotiating table with a strong enough determination to wrap it up by spring, other countries will follow suit.”

Sen. Chuck Schumer (D., N.Y.) stated “I think there’s a lot of dubiousness in our caucus to fast track, given that every time we sign a free-trade agreement it seems other countries violate the rules and we don’t”.

Unions opposing the trade deals were happy with the outcome.   According to Larry Cohen, head of the Communications Workers of America, “For those of us who want to have a progressive trade agenda, it means that we’re encouraged.”

On January 30th, House Speaker John Boehner spoke out against President Obama suggesting that he needs to push Senate Majority Leader Harry Reid to get the TPA bill through Congress.

On February 3rd, President Obama met with Senate Majority Leader Harry Reid but the President did not bring up the trade issue and made no effort at the meeting to change Senator Reid’s mind on the TPA bill.

On February 4th, it was reported that StopFastTrack.com, a new coalition opposed to the TPA bill and the TPP and TA Trade Agreements is building grassroots support, gathering more than a half a million signatures and making tens of thousands of calls to Senators and Congressmen lawmakers to argue against trade legislation in Congress.

According to the report, unions, environmental groups, and political organizations—working under the umbrella site —have nearly 600,000 supporters  and made more than 40,000 phone calls to Congress, opposing the trade measures.

Another political organization, Democracy for America, has obtained 125,000 electronic signatures on a petition requesting that Nancy Pelosi, top House Democrat, follow Senator Reid’s lead and stop the TPA bill in the House.

Many trade experts believe that Senate Majority Leader Harry Reid’s decision not to bring the TPA bill to the Senate Floor casts substantial doubt over the negotiations for the TPP and the TA deals.  Most commentators are stating that all these Agreements are at risk right now.

White House press secretary Jay Carney stated on Wednesday, January 29th,

“Leader Reid has always been clear on his position on this particular issue.  As the President said in the State of the Union address, he will continue to work to enact bipartisan trade promotion authority to protect our workers and environment and to open markets to new goods stamped ‘Made in the U.S.A.’ And we will not cede this important opportunity for American workers and businesses to our competitors.”

Harry Reid’s decision could be a critical tipping point in US trade policy as the US becomes more and more protectionist.  It took a President Bill Clinton with his tremendous political ability to persuade Democratic Senators and Congressmen “to do the right thing” on NAFTA and enact it into law.  But President Obama is not Bill Clinton.

DOHA ROUND-BALI

As mentioned in the last newsletter, much to the surprise of many Government officials and companies, in December the WTO round in Bali resulted in all the WTO countries agreeing to Trade Facilitation Agreement to modernize customs procedures, as well as provisions on agriculture and economic development.  If there had been no Agreement in Bali, it could very well have meant the end of the multilateral effort to lower trade barriers through negotiations.

On January 7, 2014 WTO Director-General Roberto Azevedo stated:

“Just six weeks ago, the fate of the multilateral trading system hung in the balance. Today, we can talk with confidence about how we can continue to develop and strengthen the system for the future.”

According to Azevedo, the Bali Trade Facilitation Agreement could possibly add as much as $1 trillion to the world’s economy each year.

The question now is what happens in the future.  Most experts believe that the WTO members will in the short term pursue agreements that affect only certain sectors or include only some countries.  Thus, there will probably be sector-by-sector trade negotiations at the WTO.

Agreements affecting trade of environmental goods and services might be one of the likely near-term targets.  But the Trade Facilitation Agreement still must be implemented as the details have to be ironed out, including Customs procedures in developing countries and other issues.  Implementation also means the Agreement must go through Congress and without TPA, it will be difficult for Bali Agreement to get through Congress.

Azevedo himself realizes the problems stating, “The task of strengthening the multilateral system and moving towards delivering on the[Doha Development Agenda] will be difficult, but it is not impossible.”

SOLAR PRODUCTS—NEW ANTIDUMPING AND COUNTERVAILING DUTY CASE TO CLOSE THIRD COUNTRY LOOPHOLE AND AGAINST CHINA AND TAIWAN–QUANTITY AND VALUE QUESTIONNAIRE DUE FEBRUARY 13TH AT COMMERCE

Commerce has issued a quantity and value questionnaire in the new Solar Products/Modules/Panels antidumping case/initial investigation against China.  The deadline for the response to the Quantity and Value Questionnaire is February 13, 2014.

Attached are the quantity and value questionnaire and the fact sheet that was issued by Commerce. factsheet-multiple-solar-products-initiation-012313   prc-qv-solar-products-012714

The quantity and value questionnaire requires the Chinese exporter to report all sales during the period April 1, 2013 to September 30, 2013.  Specifically, Commerce is requiring the Chinese exporter to report the total number of modules, panels or laminates during that period, the total number of megawatts, the terms of sale and the total value of sales.

A Chinese exporter/producer must submit a response to this quantity and value questionnaire by February 13th.  If not, it will receive the highest dumping rate of 165%.

SOLAR CELLS REVIEW INVESTIGATION

To further complicate the Solar case, on February 3rd Commerce published in the attached Federal Register notice initiating the first Solar Cells review investigation.  This case will cover imports of Chinese solar cells during the review period.

So to be clear, the Solar Cells Review Investigation covers Chinese solar cells.  The Solar Products new investigation covers imports of Chinese modules and panels with Taiwan and other solar cells in them.

For the first Solar Cells Review Investigation, attached are the notice, in which many Chinese companies are named, and the Quantity and Value questionnaire.  Solar Cells AD CVD Initiation Notice 1st Review (2) SOLAR CELLS REVIEW QV Chinese companies named in the Solar Cells Review investigation need to file the QV questionnaire response on February 19th .   Chinese companies also need to file separate rate applications or certifications on or before April 4, 2014 at Commerce in first review investigation to keep their separate rate from the Solar Cells initial investigation.  Failure to file these documents meand that imports of Chinese solar cells will be assessed a rate of 250%.

Solar Trade problems with China are getting complicated.

SOLAR PRODUCTS INITIAL INVESTIGATION

As mentioned in my last post, on December 31, 2013, Solar World filed another antidumping and countervailing duty petition to close the third country loophole against China and Taiwan.

On January 23rd, the Commerce Department initiated the Solar Products cases against China and Taiwan, but it made some changes.  The Scope of the Merchandise, the specific products covered by the new antidumping and countervailing duty investigations, are described in the attached notice and petition:

“The merchandise covered by this investigation is crystalline silicon photovoltaic cells, and modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells, whether or not partially or fully assembled into other products, including building integrated materials. For purposes of this investigation, subject merchandise also includes modules, laminates and/or panels consisting of crystalline silicon photovoltaic cells completed or partially manufactured within a customs territory other than that subject country, using ingots, wafers, or partially manufactured cells sourced from the subject country. . . .”

See the injury petition in my last post on this blog.

In the subsequent Commerce Department initiation notice, which is attached, however, in contrast to the petition, solar consumer products are specifically excluded:

“Also excluded from the scope of this investigation are crystalline silicon photovoltaic cells, not exceeding 10,000mm2 in surface area, that are permanently integrated into a consumer good whose function is other than power generation and that consumes the electricity generated by the integrated crystalline silicon photovoltaic cell. Where more than one cell is permanently integrated into a consumer good, the surface area for purposes of this exclusion shall be the total combined surface area of all cells that are integrated into the consumer good.”

Initiation Notice – Certain Crystalline Silicon Photovoltaic Products 1-24-14

In addition, Commerce reduced the All Others/Facts available rate in the China case from 298% to 165%, but raised the antidumping rate for Taiwan to 75.68% from 39%.  The trade volume is large.  According to Commerce, imports of the subject merchandise from China and Taiwan were valued at $2.1 billion and $513.5 million, respectively.

If Chinese companies are exporting and US importers are importing Chinese modules and panels with Taiwan or other solar cells in them, this option will be closed in 150 to 210 days, when the Commerce Department’s preliminary determinations are due on May 30, 2014 (CVD) and July 29, 2014 (AD).  Commerce Department investigations almost always are extended out to the full time.

Chinese companies also must submit their response to the quantity and value questionnaire by February 13th and be prepared to submit separate rate applications in this new antidumping case to get the average rate.

On January 22nd, the day after the Government was closed, the ITC held a preliminary conference.  The Commission’s preliminary injury determination is due February 14th.

Meanwhile, many trade lawyers have come to the same conclusion that when the scope in the past case and the present case are combined, the only way for US importers to escape liability is to have the underlying solar cells, modules and panels all made outside of China and Taiwan.  In effect, the entire chain of production would have to occur outside of China and Taiwan, which will have the effect of driving up the cost of business for major segments of the U.S. solar industry that need solar components, such as utility-scale solar project developers, rooftop solar companies and public utilities.

The Solar Energy Industries Association (SEIA) has announced that it is opposed to the case, calling it an “escalation” of the U.S.-China solar trade conflict.  Experts also stated that the duties could cripple the end user portion of the solar Industry, which is far larger than the domestic production industry.  As the SEIA stated, “From past experiences, we have learned that a conflict within one segment of the solar industry ripples across the entire solar supply chain.”

The market pressure driving solar prices downward is not caused by dumping, but the industry’s efforts to achieve so-called grid parity, where the price for solar power is comparable to that for traditional-source power.  But prices for US oil and natural gas are falling fast.  With falling costs for traditional forms of energy, it is very difficult for solar energy to be competitive.

The effect of this case, however, will be to drive up the costs of solar products,

Although the SEIA and some members of Congress have called for a settlement of the solar trade dispute, Solar World has expressed skepticism about such a deal, making it more difficult to conclude a government to government deal settling the case.  As mentioned in a prior post, there is no public interest standard in US antidumping and countervailing duty law, as compared to EC, Canada and China.  Also End Users have no standing in US antidumping and countervailing duty cases.  Thus it is difficult for the US Government to pressure Solar World to drop its case.

Meanwhile, as indicated below, the Chinese government has retaliated by finalizing antidumping and countervailing duties on imports of polysilicon from the US, shutting all US produced polysilicon, close to $2 billion, out of China.  Since last year U.S. polysilicon exporters have faced preliminary CVD duties in China of 6.5 percent, and AD duties of 53.3 to 57 percent and those duties are now final.

On January 26th, MOFCOM announced that it was delaying these duties for the moment and on January 30th called for negotiations over the Solar Cells/Products Antidumping and Countervailing duty cases stating:

 

“The two parties should follow the trend and make efforts to promote cooperation proceeding from the overall interests of clean energy development, so as to ensure the steady development, rather than restricting competition and cooperation by frequently taking trade remedy measures. It is proved that, that U.S. initiated investigations and levy high anti-dumping and countervailing duties in 2011 not only failed to change the situation of poor operation and lacking of competitiveness of its domestic industries, resulting in significant negative impacts on downstream industries including the assembly industry and services sector, but also triggered a worldwide chain reaction of trade disputes on PV products, which caused chaos in the whole industry.  . . .”

 

See attached statement MOFCOM STATEMENT

CURTAIN WALL UNITS ARE COVERED BY THE ALUMINUM EXTRUSIONS CASE

On January 30, 2014, in Shenyang Yuanda Aluminum Industry Engineering Co. v. United States, Judge Eaton in the Court of International Trade affirmed the Commerce Department’s determination that Curtain Wall Units, the sides of buildings, are with the scope of the AD and CVD orders on aluminum extrusions from China.  The Court stated in part;

“Because curtain wall units are “parts for” a finished curtain wall, the court’s primary holding is that curtain wall units and other parts of curtain wall systems fall within the scope of the Orders.”

See the attached decision.  SHENYANG YUANDA

As a result of the Court’s and the Commerce Department’s determination, the sides of buildings from China are now covered by US antidumping and countervailing duty orders with duties as high as over 100 to 300% for certain imports.

NEW ANTIDUMPING AND COUNTERVAILING DUTY CASES AGAINST CHINA

WIRE ROD

On January 31, 2014, a new antidumping and countervailing duty case was filed against carbon steel wire rod from China.  See notice below.

Docket No: 3000

Document Type: 701 & 731 Petition

Filed By: Kathleen Cannon

Firm/Org: Kelley Drye & Warren LLP

Behalf Of: ArceloMittal USA LLC, Charter Steel, Evraz Rocky Mountain Steel, Gerdau Ameristeel US Inc., and Keystone Consolidated Industries Inc, and Nucor Corporation.

Date Received: January 31, 2014

Confidential: Yes

Commodity: Carbon and Certain Alloy Steel Wire Rod

Country: People’s Republic of China

Description: Letter to Lisa R. Barton, Secretary, USITC; requesting the Commission to conduct an investigation under sections 701 and 731 of the Tariff Act of 1930 regarding the imposition of countervailing and antidumping duties on Carbon and Certain Alloy Steel Wire Rod from the People’s Republic of China.

Status: 701-TA-512 & 731-TA-1248

ANTIDUMPING AND COUNTERVAILING DUTY REVIEW INVESTIGATIONS

In February Chinese producers and exporters, US importers and US producers have the opportunity to request an antidumping and/or countervailing duty review investigation of certain outstanding AD and CVD orders by filing a review request at Commerce by the last day of February for the following cases against China :

Period of review ————————————————————————              Antidumping Duty Proceedings

The People’s Republic of China:

Certain Preserved Mushrooms, A-570-851………..     2/1/13-1/31/14

Folding Metal Tables and Chairs \2\, A-570-868…     6/1/12-11/5/12

Frozen Warmwater Shrimp, A-570-893……………     2/1/13-1/31/14

Heavy Forged Hand Tools, With or Without Handles,     2/1/13-1/31/14      A-570-803…………………………………

Small Diameter Graphite Electrodes, A-570-929….     2/1/13-1/31/14

Uncovered Innerspring Units, A-570-928………..     2/1/13-1/31/14

Utility Scale Wind Towers, A-570-981………….    2/13/13-1/31/13

Countervailing Duty Proceedings

The People’s Republic of China:

Utility Scale Wind      2/13/13-12/31/13  Towers, C-570-982.

IMPORT ALLIANCE FOR AMERICA/IMPORTERS’ LOBBYING COALITION

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

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

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

The key point of our arguments is that these changes in the US antidumping and countervailing duty laws are to help US companies, especially US importers and downstream industries. We will also be advocating for a public interest test in antidumping and countervailing duty cases and standing for US end user companies.

We are now contacting many US importers and also Chinese companies to ask them to contact their US import companies to see if they interested in participating in the Alliance. Changes to the US antidumping and countervailing duty law against China can only happen because of a push by US importers and end user companies. In US politics, only squeaky wheels get the grease.

In forthcoming posts we will provide additional information about the Alliance and specific meeting days in different areas of the United States.

CHINESE ANTIDUMPING CASE

POLYSILICON

On January 20, 2014, China issued final antidumping and countervailing duties against solar-grade polysilicon imported from the U.S.  Under the Chinese polysilicon antidumping duty order, US companies face dumping rates ranging from 53% to 57%.  On the Countervailing Duty side, US companies face rates from 0 to 2.1%.

On January 26, 2014, MOFCOM announced that given “the special market conditions” it has decided not to carry out antidumping and anti-subsidy measures for the moment.  Apparently, MOFCOM is hoping for a negotiated suspension agreement in the new Solar Products case.

FDA—FOOD PROBLEMS

CHINESE CHICKEN

On December 19, 2013, fourteen Congressmen circulated a letter in Congress asking their Congressional colleagues to ensure Chinese-processed chicken is kept out of the school lunch and other child nutrition programs. The letter also states that chicken slaughtered in China should be banned from the US market.  The letter states:

“It is because we are deeply concerned about the safety of the food served to the American people, especially our children, that we write to express our serious apprehension about the Food Safety and Inspection Service (FSIS) recent decision to allow China to process chicken raised in the United States, as well as Canada and Chile, to then export to the United States. Furthermore, we believe FSIS is likely to eventually allow China to export its own raw poultry to the United States.”

CHINA CHICKEN PROBLEM CONG LETTER

WASHINGTON/PACIFIC COAST SHELLFISH BANNED FROM CHINA

On December 5th, the Washington State Government reported that on December 3rd the Chinese government announced that it was banning all imports of molluscan shellfish from North America area #67, which includes all harvest areas in Alaska, Washington, Oregon, and northern California. China reported a shipment of geoduck clams tested high in paralytic shellfish poison (PSP) and arsenic.  See my past post on this blog for more on this fight and the attached announcement.

The ban has already devastated shellfish growers in Washington, Alaska, Oregon and Northern California.  It also affects clams, oysters and other shellfish from U.S. waters.

China is the world’s largest importer of geoducks (pronounced “gooey duck”), with more than half of all the harvest from Washington, British Columbia and Alaska getting shipped to China. With China cut off, there are few places for the harvest to go.

Test results showed that, on average, arsenic was present in the geoduck bodies at a level of 0.327 parts per million (ppm), which falls below China’s legal limit of 0.5 ppm. Arsenic in the actual meat of the geoducks registered at 0.063 ppm, eight times lower than the limit.

On January 9th it was reported that Laboratory tests on Washington State’s exports of geoduck clams, found no evidence of unsafe or excessive levels of arsenic.  Although the test results have been sent to China, to date they have not yet received a response, and the ban remains in place.

The problem, however, arises from US export forms for the geoduck shipment.  The form does not allow for more specificity in identifying the source from which the shellfish were harvested.  While the problem shipments of shellfish came from isolated areas in Washington and Alaska, “Area 67″ encompasses all the coastal regions from Northern California through Alaska’s Pacific Coast. As a result, Chinese authorities were forced to ban shellfish from all of Area 67.

National shellfish programs provide forms that set forth specific shippers and harvest locations, which allow the governmental authorities to easily trace shipments back to specific shippers and harvest locations. If there’s a contamination problem domestically, shellfish growers can easily isolate the problem instead of shutting down the entire industry.

The World Health Organization is said to be considering setting safe levels for
inorganic arsenic in food in the .2-.3 ppm range in 2014. The Washington geoduck claims that tested high for inorganic arsenic in China, however, were harvested from a tract of land managed by the Department of Natural Resources that has since been closed. The tract is within the shadow of a copper smelter that was operated near Tacoma for 100 years.   According to Marian Abbett, manager of the Tacoma smelter clean up for the Washington Department of Ecology, “Well we know that arsenic levels are elevated in the surface soils in that area.  Soil samples from the surrounding land show levels of arsenic between 40 and 200 ppm, though that number does not directly equate to levels of arsenic that will end up in the water, or in shellfish.”

The area was closed to all shellfish harvest until 2007, when the Puyallup Tribe petitioned state agencies to reopen the tract for geoduck harvest. At that time the Department of Health conducted tests on geoduck in the area and found levels of .05 ppm. That’s an order of magnitude below the amount found by the Chinese in October of 2013 and well within the safety parameters set by the Chinese.

However, state agencies have not tested for inorganic arsenic or other metals in shellfish from the area since it was reopened in 2007.

Arsenic is a carcinogen that has also been associated with long-term respiratory effects, disruption of immune system function, cardiovascular effects, diabetes and neurodevelopmental problems in kids.

“There’s no safe level, but at some point you’ve crossed the threshold to being really dangerous and we don’t quite know where that threshold is at this point,” Cottingham said.

But the ban is having a real effect on fishermen in Washington State.  Ninety percent of the geoduck harvested in Washington is sold to China and Hong Kong.

The clams can fetch up to $150 per pound in China, but today the Suquamish tribe is losing $20,000 each day that the ban is in place, but the impacts of the ban are being felt well beyond the reservation. John Jones, another Suquamish diver, stated, “My brothers are from Port Gamble and they’re out of work.  They shut down diving everywhere, not just for us but for the state.”

Although British Columbia in Canada is not affected, the Chinese ban impacts all shellfish throughout Puget Sound, Alaska, Oregon and Northern California.  The shellfish industry in Washington is worth $270 million annually, and China is the biggest market for exports.

This is the broadest shellfish ban China has ever put in place, but it’s not the first time China has banned a major import from the U.S.  Beef imports from the U.S. have been banned for the past ten years. More recently, China rejected about half a million tons of U.S. corn because it contained a genetically modified strain.

Chinese officials have been slow to reveal details of their shellfish testing methods. That’s prompted some to raise concerns about political motivations behind the shellfish ban.

Although there is a possibility that the Chinese are retaliating for past problems with food imports in the US, there is strong evidence that the Chinese have a legitimate problem.  The contaminated geoduck clams were harvested near the former site of a copper smelter in Tacoma, which had leached arsenic into the surrounding area.

Again Chinese problems with US shellfish must be kept in context.  As indicated above, US Congressmen want to ban all chicken processed in China.  Because of US antidumping laws, all Chinese imports of honey, garlic, mushrooms, crawfish and shrimp have been greatly curtailed.  Some of the antidumping orders against Chinese agricultural products have been in place for more than 10 to 20 years.

In addition, the US government has been particularly tough on imports of Chinese honey, mushrooms, garlic and other agricultural products because of pesticide contamination, banning all imports of certain products during specific periods of time.

With the US government so tough on imports of agricultural and seafood products from China, US exporters of agricultural and seafood products should expect the Chinese government to be just as tough on US exports to China.

Trade is a two way street and what goes around comes around.

PATENT/IP AND 337 CASES

INTERDIGITAL SETTLES 337 PATENT CASE WITH HUAWEI

On January 2, 2014, InterDigital Communications Inc. and Huawei Technologies filed a confidential settlement of their 337 patent case over 3G and 4G wireless devices.  Huawei’s antitrust strategy seems to have worked.

CHINESE COMPANY LOOSES 337 RESINS TRADE SECRET CASE

On January 15, 2014, in Certain Rubber Resins and Processes for Manufacturing Same, Investigation No. 337-TA-849, the U.S. International Trade Commission (“ITC”) determined that there was a violation of section 337, 19 USC 1337, because a Chinese chemical maker and other companies had stolen trade secrets covering the recipe for rubber resins held by New York company, Sl Group Inc.  The Commission issued a limited exclusion order for 10-years excluding infringing imports of the Chinese resins into the United States from Sino Legend (Zhangjiagang) Chemical Co. Ltd. and the other named respondent companies in the case.

According to the 337 complaint, although SL Group had closely guarded the formula and the equipment used to create the resin, the manager of Sl Group’s Shanghai chemical plant defected to Sino Legend in 2007 and took the design with him.

The ITC’s ruling is directly contrary to the ruling of a Chinese court, which reached the opposite conclusion and found that there was no misappropriation.  After acquiring the trade secret, Sino Legend has been able to take over about 70% of the Chinese market for the rubber resins in question, which are used in tire production.

In response to the ruling, Sino Legend has stated that the Commission’s ruling will not substantially affect its business because the ITC’s ruling will allow its customers to use all Sino Legend resins in any of their non-U.S. production facilities, and then import those products into the U.S. without restriction.

DUPONT TRADE SECRETS CASE — TITANIUM DIOXIDE

In an ongoing criminal trial in California this month, prosecutors described how an ex-DuPont engineer and two conspirators stole DuPont trade secrets regarding a specific process to produce very high quality titanium dioxide, and sold the designs to Chinese state owned companies earning $28 million.

Chinese-American Walter Liew and his wife, Christina, founded multiple companies in Northern California and hired as a consultant ex-DuPont engineer Robert Maegerle, who knew the process of safely producing massive amounts of titanium dioxide.  Maegerle allegedly shared what he learned building plants for DuPont with the Liews, who used the information to negotiate contracts with Chinese companies, including Pangang Group Co., to build titanium-dioxide-making factories in China. However, both Maegerle and Walter Liew knew Dupont had patented that information and it was confidential.

Titanium dioxide is a white pigment used in everything from iPhone cases to toothpaste.  But it is hot, dirty and dangerous and DuPont figured out a way to make the product commercially viable.  According to the prosecutor, that process is what the Chinese companies wanted.

Maegerle is charged with trade-secrets theft, conspiracy and obstruction of justice.  Christina Liew faces charges of economic espionage, trade-secret theft, and tampering with witnesses and evidence in a separate trial.

Lawyers for the defendants argued that they did not copy DuPont’s factory plans verbatim, but used them as the basis to design around and develop their own production techniques for producing titanium dioxide.

Later in the trial, however, a government expert testified that Dupont fiercely guarded its trade secrets for making high-quality titanium dioxide and that the trade secrets made Dupont the envy of the industry.

NEW PATENT AND TRADEMARK CASES AGAINST CHINESE COMPANIES, INCLUDING HUAWEI, ZTE, AND OTHER COMPANIES

On December 31, 2013, Laserdynamics filed a patent case against Haier. HAIER PATENT CASE

On January 7, 2014, Bluebonnet Telecommunications filed patent cases against ZTE and Huawei. BLUEBONNETZTE HUAWEI BLUEBONNET

On January 7, 2014, Toyo Tire and Rubber filed a patent case against South China Tire and Rubber Co. TOYO TIRE CASE

On January 10, 2014, Personal Audio filed a patent case against Huawei and ZTE. PERSONAL AUDIO HUAWEI ZTE

On January 10, 2014, Thomas & Betts filed a trademark, unfair competition, case against Zhejiang Shengyu City Fengfan Electrical Fittings Co. TRADEMARK WRENCH ZHEJIANG

On January 13, 2014, Laerdahl Medical filed a patent case against Shanghai Honglian Medical Instrument Development Co. SHANGHAI MEDICAL

On January 13, 2014, ICON Health and Fitness filed a trademark case against Zhongshan Camry Electronics Co. ZHONGSHAN TRADEMARK

On January 14, 2014, Kee Action Sports filed a patent case against Shyang Huei Industrial Co., a Taiwan company. TAIWAN SUN

On January 14, 2014 Toyo Tire and Rubber filed a patent case against Hong Kong Tri-Ace Tire Co and Doublestar Dong Feng Tyre Co. TOYO DONG FENG

On January 16, 2014, Touchscreen Gestures filed patent cases against Huawei and ZTE. TOUCHSCREEN ZTE TOUCHSCREEN HUAWEI

On January 29, 2014, Standard Fiber filed a trade secret case against Shanghai Tianan Home Co, Teetex, LLC, and Anwen “Alvin” Li. SHANGHAI TRADE SECRET

Complaints are posted above.

ANTITRUST

VITAMIN C CASE

As mentioned in my last post, the Vitamin C antitrust case against Chinese Vitamin C companies is wrapping up at the District Court level.  Attached is the final judgment with a $153 million judgment against Hebei Welcome Pharmaceutical Co., Ltd. (“Hebei”) and North China Pharmaceutical Group Corp. (“NCPGC”) for price fixing.  In addition, the judgment has increased by $4 million, specifically $4,093,163.35, to $158 million, specifically $158,203,163.35, to pay the Plaintiffs’ legal fees. FINAL AMENDED JUDGMENT VITAMIN C CASE

Hebei Welcome has announced that it is appealing the Court’s final judgment and has also switched US law firms and hired new counsel.

JUSTICE IS GETTING TOUGHER ON INTERNATIONAL CARTELS DEMANDING JAIL TIME FOR FOREIGN EXECUTIVES

There are reports that in 2013 and now 2014 the Justice Department has ramped up its enforcement in international cartels/price fixing antitrust cases looking for more prison sentences for foreign executives involved in these cartels.

On January 30th, Bill Baer, the Assistant Attorney General for the Antitrust Division gave the attached speech to the New York State Bar Association in which he described in detail international antitrust enforcement, including increased enforcement of antitrust cases against international cartels, and the DOJ’s increased cooperation with Chinese antitrust authorities.  BILL BAER DOJ STATEMENT ANTITRUST ENFORCEMENT The Assistant Attorney General stated:

 

“With those preliminary observations in mind, let me focus on the progress antitrust enforcement has made these last five years. President Obama promised during his first campaign that his administration would vigorously enforce the antitrust laws.  He pledged to “step up review of merger activity,” “take aggressive action to curb the growth of international cartels,” and ‘ensure that the benefits of competition are fully realized by consumers.’

“I think the record shows the Antitrust Division has followed through on the President’s pledge. Criminal enforcement provides an excellent starting point. We continue to vigorously pursue and prosecute international and domestic cartels. Since January 2009, we have filed 339 criminal cases, a more than 60 percent increase over the prior five years. We secured $4.2 billion in criminal fines in that period. . . .

Effective cartel enforcement requires holding accountable both corporations and the senior executives who orchestrate their unlawful conduct. We have charged 109 corporations with criminal antitrust violations since 2009. We have ensured that those corporations have paid appropriate—and stiff—criminal fines, and those 109 corporations together have paid the highest five-year fine total in division history. The division also charged 311 individuals with antitrust crimes during the past five years.

Experience teaches that the threat of prison time is the most effective deterrent against criminal antitrust violations. We seek sentences commensurate with the economic harm caused by the perpetrators. The statistics show that the courts are embracing the effort to hold company executives accountable for their bad behavior. The average prison sentence in our cases has increased from 20 months in the period 2000-09 to 25 months during the years 2010-2013. Of course, we can never know for certain the full deterrent effect of our enforcement efforts. But we do know that self-reporting under our leniency program remains at high levels and that, increasingly, non-U.S. companies are reporting anticompetitive behavior. They are responding to the fact we are prosecuting off-shore conduct with a U.S. impact. In recent years the number of foreign nationals sentenced to U.S. incarceration has increased threefold. The message should be clear: the division will vigorously and successfully prosecute international cartel behavior that harms U.S. consumers regardless of where that conduct takes place. . . .

The division has brought criminal cases in a range of industries over the past several years. One of our most significant ongoing investigations involves the auto parts industry. We are prosecuting price fixing and bid rigging involving a number of parts that were installed in cars sold in the U.S., including wire harnesses, instrument panel clusters, and seatbelts.  . . .

To date, we have charged 24 companies and 26 executives with participating in multiple international conspiracies, and those numbers are sure to grow as the investigation continues.   These charges have resulted in $1.8 billion in criminal fines, including the third-largest criminal antitrust fine ever.   Of the 26 executives charged so far, 20 have been sentenced to serve time in U.S. prisons or have entered into plea agreements requiring significant sentences.

During the past several years, the division also prosecuted international price-fixing conspiracies involving liquid crystal display panels. These conspiracies hurt U.S. consumers by dramatically inflating prices for computer monitors, notebook computers, and televisions, among other products. In 2012, the division secured convictions of Taiwan-based AU Optronics, its subsidiary, AU Optronics Corp. America, and three former top executives for their participation in such a conspiracy.   The trial against AU Optronics was the first time the division proceeded under the alternative fine statute, 18 U.S.C. § 1571, which allows for fines up to two times the gain or loss resulting from the conduct. The division proved beyond a reasonable doubt to the jury that the combined gains to the participants in the conspiracy were $500 million or more and that the defendants’ conduct accordingly merited a fine exceeding the Sherman Act’s $100 million maximum.   . . .

There is more to come.  . . . There can be little doubt that the division vigorously prosecutes wrongdoers. . . .

During the Obama administration U.S. enforcers have broken new ground in relations with China and India. In the past few years, the division and the FTC have entered into Memoranda of Understanding (MOU) with the Chinese and Indian enforcement agencies.  These MOUs have led to annual bi-lateral meetings between the U.S. antitrust enforcement agencies and agencies from these nations.  Indeed, earlier this month, I attended with Chairwoman Ramirez a bi-lateral meeting with the Chinese authorities in Beijing. We see candid engagement with the Chinese and Indian agencies as important, and we look forward to increased cooperation in the coming years.

Cooperation also plays an important role in our international criminal cartel investigations. Working with competition enforcers in non-U.S. jurisdictions, we share information where we are able; and we can plan coordinated raids around the world, reducing the opportunity for key evidence to go missing or be destroyed. . . .”

 

When foreign corporate executives are found to be guilty of engaging in a cartel to set prices, this is considered a crime of moral turpitude and the foreign executive is barred from entering the US for a minimum of 15 years.  Under a memorandum of understanding between Justice and Immigration and Naturalization Services (“INS”), now Immigration and Customs Enforcement (“ICE”), if the foreign executive pleads guilty and cooperates with authorities, that executive can be exempted from the 15 year exclusion and continue to enter the US.  Antitrust criminal defense attorneys have argued that this exemption is unfair because it places unfair pressure on the foreign executive to forgo their right to trial.

On January 24, 2014, in response to questions from Congress on this issue, Assistant Attorney General Baer stated in the attached response:

 

“In general, moral turpitude has been held to be conduct that is inherently dishonest and contrary to accepted rules of morality and the duties owed between persons or to society in general. Tax fraud, mail fraud, securities fraud, and theft offenses, for example, have been held to be crimes of moral turpitude. Similarly, price-fixing, bid-rigging, and market allocation agreements among companies that hold themselves out to the public as competitors are inherently deceptive and defraud consumers who expect the benefits of competition. Thus, the division’s Memorandum of Understanding (“MOU”) with INS states that INS, now the Department of Homeland Security as successor to INS, considers criminal antitrust offenses to be crimes involving moral turpitude, which may subject an alien defendant to exclusion or deportation.

However, an alien defendant who is convicted of an antitrust offense at trial retains the ability to contest his removability from the United States.

In today’s global marketplace, many culpable executives involved in international cartels affecting U.S. consumers and commerce are foreign nationals. They may live and work outside the U.S., but their cartel conduct affects billions of dollars of U.S. commerce yearly and takes money out of consumers’ pockets. The MOU was drafted in order to allow the Antitrust Division to secure jurisdiction over and cooperation of these foreign nationals in the division’s investigations and prosecutions of international cartels and to hold these foreign nationals accountable for antitrust crimes, just as domestic defendants are held accountable.

The cooperation of defendants receiving immigration relief under the MOU is critical to the division’s ability to investigate and prosecute international cartel activity. A foreign defendant’s willingness to cooperate with the division provides the basis for the waiver of inadmissibility under the MOU, and fulfilling the continuing cooperation requirements with the division is a condition of a defendant’s retention of the waiver. Having cooperating witnesses from multiple companies is essential to fully investigate cartels and to hold responsible individuals at each corporate conspirator accountable.

Moreover, having defendants who have pleaded guilty is important at Antitrust Division trials. Extending the MOU waiver to noncooperating defendants would undermine the incentives provided by the MOU and be unjust to those foreign nationals who are willing to accept responsibility for their criminal conduct, submit to U.S. jurisdiction, cooperate with the division, and serve time in U.S. prison. It would also be unworkable to require pleading foreign defendants to continue their cooperation to maintain the waiver while at the same time giving the MOU waiver to non-pleading defendants who have not accepted responsibility and fully cooperated with the division.”

BAER STATEMENTS TO CONGRESS

CHINA ANTITRUST CASES

On January 28, 2014, there was a report out of China that Qualcomm is facing a record antitrust fine of $1 billion in an antitrust case from the NDRC.  China’s National Development and Reform Commission (NDRC) is becoming an increasingly aggressive regulator and is focusing on information technology providers, especially companies that license patent technology for mobile devices and networks.

Apparently, the NDRC is trying to lower domestic costs as China rolls out its faster 4G mobile networks this year.  US -based Qualcomm is scheduled to obtain the vast majority of licensing fees for the chip sets used by handsets in China, the world’s biggest smartphone market in the World.

Under the Chinese antimonopoly law, the NDRC can impose fines of between 1 and 10 percent of a company’s revenues for the previous year.  Qualcomm reportedly earned $12.3 billion in China for its fiscal year ended September 29, or nearly half of its global sales.

Qualcomm is no stranger to substantial fines.  In 2009, South Korea’s Fair Trade Commission fined the company 273 billion won ($252 million), the highest Korean penalty ever against a single company, for abusing its dominant position in CDMA modem chips which were then used in handsets manufactured in Korea.

SECURITIES

SEC DROPS CHINESE AUDIT CASE AGAINST DELOITTE

On January 27th the SEC told the Federal Court that it was dropping its case against Deloitte for failure to turn over audit documents of a Chinese technology company.  The SEC stated that Deloitte was supplying the audit papers to the China Securities Regulatory Commission, which, in turn, was supplying the records to the SEC.

The dismissal of the case, however, will not affect a separate SEC action against the Chinese offices of the Big Four accounting firms for refusing to reveal client documents to the SEC.  An SEC administrative law judge recently ruled that the China based offices are barred from auditing companies that do business in the U.S.

JURY CLEARS CHINESE INVESTMENT ADVISOR SIMING YANG

On January 13th, a jury in the Federal District Court found Chinese investment adviser Siming Yang not guilty on insider trading claims brought by the U.S. Securities and Exchange Commission (“SEC”), but did find Yang guilty for other violations, including making false disclosures to the regulator.

FOREIGN CORRUPT PRACTICE ACT–CORRUPTION ISSUES IN CHINA FOR FOREIGN COMPANIES

On February 4th, Carl Hinze in Dorsey’s Shanghai office published the attached article “Doing business in and with China: Battling a corruption culture by building a compliance culture”.

HINZE ARTICLE FCPA

COMPLAINTS

On January 10, 2014, Deborah Donoghue filed the attached securities case against Secure alert, Short Swing Profits, which are all owned by Sapinda Asia and Lars Windhorst, a Hong Kong Company, for short swing profits. SAPINDA HK

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

Best regards,

Bill Perry

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