POLITICS OF CHINA TRADE AND DEVELOPMENTS IN TRADE, IP, AND SECURITIES

US Capital Pennsylvania Avenue After the Snow Washington DCTHE POLITICS OF CHINA TRADE–OVERVIEW

As mentioned in several posts on this blog and newsletters that have been sent out, the political situation with regard to China trade in Washington DC is the worst I have ever seen it.  As an example, in December 2011, the Court of Appeals for the Federal Circuit in the GPX case determined that the Commerce Department did not have Congressional authority to conduct countervailing duty/anti-subsidy cases against China.  In March 2012, President Obama signs the bill into law giving Commerce the authority. The Bill passes the Senate 100 to 0 and the House of Representatives with more than 380 votes.  With Democrats and Republicans fighting each other, they can agree on nothing in the US Congress, except to bash China.

Because of the serious political situation regarding China Trade in Washington DC, I have asked former Congressmen Don Bonker to author a series of articles on the political situation in Washington DC and what can be done to change the discussion.  Don is the Executive Director of APCO, a global public affairs firm that has considerable influence on Capitol Hill, particularly on trade and foreign investment issues.  Don formerly served as Chairman of the House Foreign Affairs Subcommittee on International Trade, chaired the House of Representatives Speaker’s Task Force on Trade and was author of a number of pro trade bills, including the U. S. Trade and Competitiveness Act of 1986. He currently represents some of China’s largest companies and his articles regularly appear in major Chinese publications.

Before discussing the political situation, certain legal points need to be made.

First and foremost, a provision in the U. S. Constitution clearly states that Congress shall regulate interstate and foreign commerce, which means the Congress has the final word on important trade issues involving China.  Senators and Congressmen not only take this mandate literally but they apply it liberally, particularly as it relates to the US-China Trade Relationship.  So whenever the Commerce Department issues an antidumping order or the President and the US Trade Representative (“USTR”) negotiate a trade deal, they are operating based on delegated authority, which has been given to them by the Congress.

For our Chinese readers, Congress is composed of two Chambers—the Senate and the House of Representatives.  Each state of the 50 United States has two senators.  The House of Representatives is composed of 435 members, which have been delegated to the States based on a population basis.  So States with more population have more representatives.

Both Senators and Representatives are elected to represent their constituents, the voters, in their State or District.  In the trade area, there is a famous story of a Japanese Diet/Congressman visiting a Representative from Pennsylvania.  The Japanese Diet Representative told the Pennsylvania Congressman, “You do not understand Mr. Congressman the Japanese steel industry has lost 10,000 jobs”.  The Pennsylvania Congressman got redder and angrier and yelled back at the Japanese Diet member, “10,000 jobs, 10,000 jobs you say.  I lost 10,000 jobs in my district in Pennsylvania from steel imports.”

Thus, the Senator or Congressman’s responsibility is to protect his constituents and the jobs created by companies in his state or district.  This comment is typical of the protectionist sentiment on Capitol Hill, which fuels the anti-trade actions, because some Senators and Congressmen believe that the way to protect jobs in their districts is to erect walls to shut out imports.  But there are also pro-trade Congressmen who recognize we are in a global economy and have to minimize government interfering in the market place.  Moreover, the more trade the United States has with other countries the more jobs that are created.

Some U. S. Congressmen already appreciate and others need to be persuaded as to the importance of the China trade relationship and the economic benefits it brings to their home districts.  With a market of 1.6 million people, China is now the largest market in the World, not the United States.  Thus, when the GM auto disaster hit four years ago what helped to make the government bailout succeed was China, given that GM became the number one selling car in that country.  It is yet another example of how trade brings mutual benefits to both countries.

Congress also has a direct impact on the readers of this blog and newsletter.  As mentioned before, most US companies, politicians and individuals do not realize that the real target of US trade laws is not the Chinese companies, but American companies that import products from China.

Another target of trade actions are the companies that use products, including raw materials from China, in their US manufacturing operations.  In 2010, in a Commodity Steel Pipes and Tubes Case from China antidumping and countervailing duty case, Commerce on its own in the preliminary determination decided to expand the scope to cover mechanical tubing.  Mechanical Tubing, however, is a made to order product produced to very strict tolerances.  On behalf of my client, a US mechanical tubing importer, and various US producers/customers, we went to the Commerce Department with the Petitioner, US Steel Corp., to tell Commerce that the US industry did not intend to cover mechanical tubing in the antidumping and countervailing duty case.  During the conversations at Commerce, US auto parts/end user producers told Commerce that the effect of this order raising tariffs on imports of Chinese mechanical tubing could well be to close down certain auto parts manufacturing operations in the United States.  Commerce changed the scope.

What Congress does on China trade effects US importers and US end users, including producers, retailers and consumers.

Congress can also affect Chinese exporters and producers shutting their exports out of the US market through trade laws and stopping their investments in the US.

Congress matters and my hope is that this series will enlighten our readers about the political situation in Washington and what can be done to make the situation better.

 How Politicizing Trade is Harmful to America’s Economic Interest

Don Bonker

There is no question that U. S.-China trade policy is being politicized often working against America’s best interest.  In the recent presidential election both candidates wrapped their campaign themes around jobs and economic nationalism, mostly aimed at China bashing, but sound economic policy it is not.

Much of it is rooted in traditional protectionism but often it is about competing interests in a global economy and how companies are using government regulations to insure their competitive advantage, especially when it involves foreign imports and acquisitions.

To be sure, there are legitimate concerns, particularly about China, that need to be addressed.  While U.S. laws are necessarily written to address unfair trade practices and security-related issues, they are also intended to apply equally to all foreign entities.  Yet there is little doubt that China is being treated in a discriminatory way.  Indeed, government officials that implement these laws adhere to professional and fairness standards, but it is Congress that can play the role of villain or the savior, depending on the competing forces in the nation’s capitol.

For foreign companies entering the U. S. market and American importers, it is important to know how Congress gets involved and how best to avoid the head winds that distort the customary norms of international trade.

While Congress enacts laws that govern U.S. trade and investment policies, their involvement does not stop there.  Congressional committees indeed have oversight on legislation that is passed, but individual Senators and House Members often interfere when it comes to trade and foreign acquisition issues, and they do so for political reasons, or, in some cases, fronting for companies or lobbyists that have little to do with the merits of a trade case or particular transaction.

Today’s global economy presents challenges for both U. S. businesses and the policy-makers in Washington, D. C.  The goal is to have a level-playing field and whatever regulations or rules exist they should be applied equally and fairly, but that is not always the case.  As it relates to Capitol Hill, China has both opponents and potential supporters.

As to the former, there are, first, the China-bashers who relentlessly oppose anything with a China label, similar to the McCarthyism of earlier times, which is based more on ideology than facts.  These China-bashers characterize the Chinese government as “Chicoms”.  They believe that the Chinese Communist Party that rules China is the same Communist party of Mao Tse Tung, ignoring the evolution of political thought in China.

Second, are those who have legitimate concerns and do not hesitate to speak out.  This is particularly true when it comes to China, whether its allegations of cyber-attacks, espionage, or unfair trade practices, they are posed to join any effort to oppose China.

Third, and most revealing are Senators and Congressmen who represent the economic forces at work on Capitol Hill.  These are U. S. domestic companies who are either threatened by foreign imports or seek a competitive advantage by getting Senators or Congressman to object to certain transactions or pressure the relevant agencies to impose punitive tariffs.

It is this latter group that poses the biggest problem to those affected by the imposition of unwarranted tariffs.  U. S. companies who are threatened by foreign imports engage high powered lobbying firms that enlist the support of U. S. Senators and House Members in an assertive strategy to pressure the agencies involved.  If this effort is not countered by those American companies who endure the injury, it gives the government officials safe passage in their rulings.

The potential definitely exists to counter efforts by those who press for higher tariffs and punitive actions against China.  Indeed the free-trade Senators and Congressmen who chair the committees of jurisdiction over U. S. trade policy are known to be free-traders.  One of the most notable acts of bipartisanship occurred when the Republicans took control of the House of Representatives and united with President Obama to approve five pending free trade agreements.

The Congressional China Working Group consists of 80 Congressmen, Democrats and Republicans, who are actively committed to strengthening the U. S. China relationship, particularly removing trade barriers and encouraging more economic cooperation between the two countries.

There are also states and local governments anxious to bring Chinese investments and needed opportunities to their areas by organizing trade missions and establishing offices in China, recognizing the value that China now brings to growing the U. S. economy.

Rallying these pro-trade forces is essential to insuring an objective and fair outcome on the multiple cases that come before government agencies in trade actions, the CFIUS process and general legislation in Congress. Otherwise, those who press for higher tariffs, particularly in the renewable energy sector, and form coalitions to leverage their positions before the various agencies will likely prevail.

If the afflicted U. S. companies remain passive about the political side of these cases, their situation will not likely improve.  A compelling case can and should be made that imposing tariffs or blocking investments can be more harmful to U. S. economic interest rather than protecting a few companies.

This is the way our US political system works.  Everyone can petition the government, making known their complaints and positions.  If both sides are represented in the US political process, it helps to keep the decision-makers upright.

 

TRADE WAR DEVELOPMENTS

Even during this Christmas New Year’s week, there have been developments in the US China Trade War in the Trade, 337 IP, Patent and Securities areas.

TRADE

WIND TOWERS

Attached are the December 26th Federal Register notices of the Commerce Department’s final determinations in the antidumping and countervailing duty case on Wind Towers.  DOC AD WIND TOWER FINAL  DOC CVD WIND TOWER FINAL

USTR

Attached is the December 2012 USTR report to Congress on China’s WTO Compliance.   CHINA WTO REPORT  In the report, USTR is very critical of China in a number of different areas, including the trade area.  Regarding Chinese antidumping and countervailing duty cases, USTR is particularly critical of the lack of transparency and fairness in Chinese cases.  USTR points to the Polysilicon and other Chinese cases and the appearance of retaliation by the Chinese government in response to US cases, such as the Solar Cells case, filed against China.

This is a trade war and in a trade war both sides are hurt.

337/IP

A new 337 case has been filed on Cases for Portable Electronic Devices.  The target companies are the Chinese company, Global Digital Star Industry, and the Taiwan company, Jie Sheng Technology.
 
The ITC notice is below:
 
Docket No: 2927
 
Document Type: 337 Complaint
 
Filed By: Mark L. Hogge
 
Firm/Org: SNR Denton
 
Behalf Of: Spaculative Product Design, LLC
 
Date Received: December 26, 2012
 
Commodity: Cases for Portable Electronic Devices
 
Description: Letter to Lisa R. Barton, Acting Secretary, USITC; requesting that the Commission conduct an investigation under section 337 of the Tariff Act of 1930, as amended regarding CertainCases for Portable Electronic Devices . The proposed respondents are Global Digital Star Industry, Ltd., China; JWIN Electronic Corp., dba iLuv, Port Washington, New York; Project Horizon, Inc., Jacksonville, FL; Superior Communications, Inc., Irwindale, California; and Jie Sheng Technology, Taiwan.
 
If anyone wants a copy of the complaint, please feel free to contact me.

PATENT

Attached is a patent complaint filed in Federal District Court in California on December 21, 2012 by Masimo Corporation against Shenzhen Mindray Bio-Medical Electronics Co., Ltd.  for imports of monitoring devices that allegedly infringe Masimo’s patent.   SHENZHEN MINDRAY COMPLAINT  This complaint could be an indication that a 337/patent case is coming against the Shenzhen company.

SECURITIES

Attached is a class action Securities complaint filed December 26, 2012 against several Chinese individuals, Linkwell Corporation, CD International Enterprises, China Direct Investments, Capital One Resource Co. and Metamining Inc.  LINKWELL COMPLAINT  This company was taken public through a reverse merger.

If you have any questions about trade politics, these cases or the trade, 337/IP , patent or Securites law in general, please feel free to contact me.

Happy Holidays,

Bill Perry

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