US CHINA TRADE WAR–Trump, Trade Policy, NME, TPP, Trade, Customs, False Claims, Products Liability, Antitrust and Securities

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MARCH 11, 2016

MOVING TO NEW LAW FIRM, HARRIS MOURE

Dear Friends,

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

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

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

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

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

Bill Perry

TRADE UPDATES

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

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

The petition alleges that the Chinese companies:

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

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

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

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

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

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

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

The ITC notice is as follows:

Tuesday, April 26, 2016

Commodity: Carbon and Alloy Steel Products

Pending Institution

Filed By: Paul F. Brinkman

Firm/Organization: Quinn Emanuel Urrquhart & Sullivan LLP

Behalf Of: United States Steel Corporation

Letter to Lisa R. Barton, Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended, regarding Certain Carbon and Alloy Steel Products. The proposed respondents are: Hebei Iron and Steel Co., Ltd., China; Hebei Iron & Steel Group Hengshui Strip Rolling Co., Ltd., China; Hebei Iron & Steel (Hong Kong) International Trade Co., Ltd., China; Shanghai Baosteel Group Corporation,China; Baoshan Iron & Steel Co., Ltd., China; Baosteel America Inc., Montvale, New Jersey; Jiangsu Shagang Group, China; Jiangsu Shagang International Trade Co, Ltd., China; Anshan Iron and Steel Group, China; Angang Group International Trade Corporation, China; Angang Group Hong Kong Co., Ltd., China; Wuhan Iron and Steel Group Corp., China; Wuhan Iron and Steel Co., Ltd., China; WISCO America Co., Ltd., Newport Beach, California; Shougang Group, China; China Shougang International Trade & Engineering Corporation, China; Shandong Iron and Steel Group Co., Ltd, China; Shandong Iron and Steel Co., Ltd., China; Jigang Hong Kong Holdings Co., Ltd., China; Jinan Steel International Trade Co., Ltd., China; Magang Group Holding Co. Ltd, China; Maanshan Iron and Steel Co., Ltd., China; Bohai Iron and Steel Group, China; Tianjin Pipe (Group) Corporation, China; Tianjin Pipe International Economic & Trading Corporation, China; TPCO Enterprise Inc., Houston, Texas; TPCO America Corporation, Gregory, Texas; Benxi Steel (Group) Co., Ltd., China; Benxi Iron and Steel (Group) International Economic and Trading Co., Ltd., China; Hunan Valin Steel Co., Ltd., China; Hunan Valin Xiangtan Iron and Steel Co., Ltd., China; Tianjin Tiangang Guanye Co., Ltd., China; Wuxi Sunny Xin Rui Science and Technology Co., Ltd., China; Taian JNC Industrial Co., Ltd., China; EQ Metal (Shanghai) Co., Ltd., China; Kunshan Xinbei International Trade Co., Ltd, China; Tianjin Xinhai Trade Co., Ltd., China; Tianjin Xinlianxin Steel Pipe Co. Ltd, China; Tianjin Xinyue Industrial and Trade Co., Ltd., China; and Xian Linkun Materials (Steel Pipe Supplies) Co., Ltd., China.

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

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

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

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

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

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

Best regards,

Bill Perry

Dear Friends,

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

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

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

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

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

March 11 Blog Post

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

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

Best regards,

Bill Perry

THE TRUMP IMPACT ON US TRADE POLICY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Why is trade such a volatile issue this year?

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

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

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

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

For the full article, see

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

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

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

Disney employees being fired and forced to retrain foreign replacements;

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

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

In two word, this is economic nationalism.

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

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

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

Reason 5:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

But cliches and demagoguery aside, the truth is these trade restrictions badly hurt economic growth. You see, trade barriers and protectionism only put off the inevitable.

Sooner or later, economic reality intrudes, and industries protected by the Government face a new and unexpected form of competition. It may be a better product, a more efficient manufacturing technique, or a new foreign or domestic competitor.

By this time, of course, the protected industry is so listless and its competitive instincts so atrophied that it can’t stand up to the competition. And that, my friends, is when the factories shut down and the unemployment lines start. We had an excellent example of this in our own history during the Great Depression. Most of you are too young to remember this, but not long after the stock market crash of 1929, the Congress passed something called the Smoot-Hawley tariff.

Many economists believe it was one of the worst blows ever to our economy. By crippling free and fair trade with other nations, it internationalized the Depression. It also helped shut off America’s export market, eliminating many jobs here at home and driving the Depression even deeper.

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

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

Trans Pacific Partnership (“TPP”)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CHINA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE REASON

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

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

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

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

CURRENCY MANIPULATION

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

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

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

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

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

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

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

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

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

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

CYBER HACKING

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

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

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

DUMPING

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

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

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

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

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

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

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

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

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

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

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

THE ANSWER

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

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

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

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

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

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

TPP TEXT AND TRADE ADVISORY REPORTS

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

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

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

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

NEW TRADE AND CUSTOMS ENFORCEMENT BILL

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

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

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

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

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

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

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

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

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

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

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

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

The Federal Register notice states:

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

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

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

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

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

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

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

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

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

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

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

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

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

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

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

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

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

  • Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRADE

RAW ALUMINUM PROBLEMS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE ONGOING STEEL CASES

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

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

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

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

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

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

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

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

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

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

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

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

Antidumping and countervailing duty cases do not save US industries.

CUSTOMS NEW “LIVE ENTRY” PROCEDURES FOR STEEL IMPORTS

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

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

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

SOLAR CELLS REVIEW DETERMINATION

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

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

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

MARCH ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

For those US import companies that imported : Chloropicrin, Circular Welded Austenitic Stainless Pressure Pipe, Glycine, Sodium Hexametaphosphate, or Tissue Paper Products during the antidumping period March 1, 2015-February28, 2016 or the countervailing duty period of review, calendar year 2015, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

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

CUSTOMS

RICO ACTION AGAINST CHINESE GARLIC EXPORTERS

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

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

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

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

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

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

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

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

CUSTOMS PROTEST RULE APPEALED TO SUPREME COURT

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

FALSE CLAIMS ACT

GRAPHITE ELECTRODES

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

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

IP/PATENT AND 337 CASES

NEW 337 CASES

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

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

CRIMINAL PATENT CASES

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

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

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

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

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

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

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

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

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

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

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

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

PRODUCTS LIABILITY CASES AND LACY ACT VIOLATIONS

THE RISE OF CHINESE PRODUCTS LIABILITY INSURANCE

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

PRODUCT LIABILITY COMPLAINTS

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

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

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

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

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

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

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

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

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

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

ANTITRUST

There have been developments in the antitrust area.

CHINESE BAUXITE EXPORTERS WIN ANTITRUST CASE

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

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

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

The Judge went on to state:

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

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

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

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

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

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

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

CHINESE COMPANIES SETTLE SOLYNDRA SOLAR CASE

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

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

CHINA ANTI-MONOPOLY CASES

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

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

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

SECURITIES

US LISTED CHINESE COMPANIES MOVING BACK TO CHINA TO RAISE MONEY

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

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

FOREIGN CORRUPT PRACTICES ACT

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

China

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

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

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

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

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

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

China

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

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

SECURITIES COMPLAINTS.

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

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

Best regards,

Bill Perry

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

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

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR AUGUST 28, 2015

 

Dear Friends,

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

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

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

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

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

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

Best regards,

Bill Perry

CHINA STOCK MARKET CRASH

CHINA STOCK MARKET CRASH—STAGE 2 WORLD MARKETS CRASH

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On the same day, the Washington Post reported:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As another Chinese analyst stated:

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

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

Counting the Cost of Gov’t Intervention in Stock Market

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The truly scary thing about Black Monday

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

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

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

Wait. What?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Chanos told me the other day.

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

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

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

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

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

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

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

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

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

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

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

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

China Falters, and the Global Economy Is Forced to Adapt

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

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

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

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

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

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

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

 TRADE POLICY

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

At the conclusion, trade ministers spoke optimistically:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

EXIM BANK PROBLEMS

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

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

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

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

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

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

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

EXIM Bank argues that it:

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

EXIM Bank further states:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CUSTOMS AND TRADE ENFORCEMENT BILL

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

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

TRADE

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

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

TIRES AD AND CVD ORDERS

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

BOLTLESS STEEL SHELVES

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

UNCOATED PAPER

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

MORE STEEL CASES AND STAINLESS STEEL CASES COMING

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

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

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

SOLAR CELLS

CIT AFFIRMS ITC

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

SOLAR CELLS—EUROPE

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

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

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

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

COMMERCE REVOKES ANTIDUMPING ORDER ON WOVEN ELECTRIC BLANKETS FROM CHINA

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

AUGUST ANTIDUMPING ADMINISTRATIVE REVIEWS

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

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

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

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

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

IMPORT ALLIANCE FOR AMERICA

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

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

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

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

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

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

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

RUSSIA—US SANCTIONS AS A RESULT OF UKRAINE CRISIS

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

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

Commerce stated:

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

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

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

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

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

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

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

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

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

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

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

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

The facilitation of any such transactions.

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

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

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

CUSTOMS

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

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

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

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

PRODUCTS LIABILITY

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

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

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

PRODUCTS LIABILITY COMPLAINTS AGAINST CHINESE PRODUCTS AND COMPANIES

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

IP/PATENT AND 337 CASES

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

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

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

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

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

As the CAFC majority stated:

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

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

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

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

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

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

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

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

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

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

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

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

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

CHINA IP AND PATENT LAW

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

ANTITRUST

There have been major developments in the antitrust area.

VITAMIN C CASE—COLLECTIONS PROBLEMS

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

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

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

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

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

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

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

CHINA ANTI-MONOPOLY CASES

T&D JANUARY REPORT

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

SECURITIES

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

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

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

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

FOREIGN CORRUPT PRACTICES ACT

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

With regards to China, the August Digest states:

Mead Johnson Nutrition Co. Settles FCPA Charges with SEC

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

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

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

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

Plaintiffs Request $62 million Avon Settlement

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

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

China

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

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

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

HIRING RELATIVES OF FOREIGN GOVERNMENT OFFICIALS BECOMES AN FCPA ISSUE

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

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

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

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

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

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

SECURITIES COMPLAINTS

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

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

Best regards,

Bill Perry

 

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