US China Trade War–Trump, Weak Strong Free Trade Arguments, Steel, 337

US Treasury Department Albert Gallatin Statue Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR JULY 14, 2016 

Dear Friends,

This blog post is the third and fourth article of a several part series on how weak free trade arguments have led to the sharp rise of protectionism of Donald Trump and Bernie Sanders and the probable demise of the TPP and the strong arguments against protectionism.

The first article outlined the problem and why this is such a sharp attack on the Trans Pacific Partnership and some of the visceral arguments against free trade.  The second article explored in depth the protectionist arguments and the reason for the rise of Donald Trump and Bernie Sanders.

Subsequent articles will discuss why the Commerce Department’s policy has led to increased protectionism, the Probable Demise of the TPP, failure of Congressional Trade Policy and what can be done to provide the safety net that will allow Congress again to vote for free trade agreements so that the United States can return to its leadership in the Free Trade area.  The Congress has to fix the trade situation now before the US and the World return to the Smoot Hawley protectionism of the 1930s.

In addition, set forth are articles on developments involving steel trade litigation, including the suspension of Section 337 Steel Trade Case, antidumping and countervailing duty reviews against Chinese companies, and a new 337 case against Chinese companies.

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

Best regards,

Bill Perry

WEAK FREE TRADE ARGUMENTS AND STRONG FREE TRADE ARGUMENTS

There are two reasons for the sharp rise in protectionism—Weak Free Trade Arguments and the Commerce Department’s methodology in antidumping and countervailing duty cases.

By its own regulation the Commerce Department finds dumping and subsidization in almost every single case, especially against China.  But the problem with the Commerce Department’s methodology, which is not based on reality, it fuels the myth advocated by the Steel industry, the Union and Donald Trump himself that all imports are dumped and all imports are subsidized and the general feeling of global trade victimhood.  We US companies and workers simply cannot compete because all imports are dumped and subsidized so the answer is put up the protectionist walls.

That is simply not true.  The next article will talk about the intricacies of the Commerce Department and why the Commerce Department’s methodology results in its finding dumping and subsidization in more than 95% of the cases and how that has had such a bad impact on the perceptions of the average American.

But before addressing that issue, this post will describe the Weak Free Trade Arguments Against Protectionism and the Strong Arguments against Protectionism.

WEAK FREE TRADE ARGUMENTS

But what are the free trade arguments that can counter the tidal wave of protectionism from Trump and Sanders supporters and the real collateral damage caused by trade agreements, including the 2.4 million jobs connected to granting China most favored nation status.  As the US International Trade Commission (“ITC”) reported in its May report on the Trans Pacific Partnership (“TPP”), if the Trade Agreement is enacted, although agricultural and service companies will benefit, manufacturing will see a net decrease in jobs “by $10.8 billion (0.1 percent) lower with the TPP Agreement” than without the Agreement.

On March 15, 2016 Morton Kondrake and Matthew Slaughter in a Wall Street Journal article made the theoretical economic case for free trade entitled, Making the Case for Trade Reagan’s ‘Protectionism is Destructionism’ Message was True” and spoke about the benefits of trade but then went on to state that the solution is simply “creative destructionism” and more job training and assistance to communities hurt by trade:

Divided though the four leading presidential candidates are on so many topics, united they stand on one: the assertion that trade hurts America.

All four oppose the U.S. ratifying the Trans-Pacific Partnership. All four demonize trade the same way. Donald Trump blasts that “foreigners are killing us on trade,” while Bernie Sanders inveighs against “disastrous trade agreements written by corporate America.” . . .

Where is the leader with the courage to tell the truth? To say that trade made this nation great, and that trade barriers will destroy far more jobs than they can ever “save.” To explain how trade translates into prosperity and new jobs, and how the disruptions inevitable in a trading economy can be managed for the benefit of those who need help. . . .

First, trade has generated substantial gains—not losses—for America overall.  .  . . The overall gains are large. Trade and related activities—spurred by accords such as the North American Free Trade Agreement, or Nafta, have boosted annual U.S. income today by about 10 percentage points of GDP relative to what it would have been otherwise. This translates into an aggregate gain of about $1.8 trillion in 2015—thousands of dollars per U.S. household every year.

Future trade agreements will bring more gains. A 2016 analysis by Peter A. Petri and Michael G. Plummer estimates that the TPP—which will eliminate more than 18,000 tariffs that other countries today impose on U.S. exports—will boost U.S. national income by about $130 billion annually. Part of this gain will be due to the higher average wages Americans earn as a result of more trade.

The second important pro-trade narrative is that creative destruction—the movement of people and capital from weaker businesses to stronger ones and new opportunities—is how many of the gains from trade arise. And because trade is only one of the forces driving this continual churn, the scale of creative destruction is vast. In December, for example, America’s creation of almost 300,000 payroll jobs was the net outcome of 5.4 million new jobs created and 5.1 million old jobs destroyed. Technology innovation and other drivers of long-run economic prosperity also entail more gains to “winners” than costs to “losers.”

This points to the third key theme: The way to support those affected by trade is not with tariffs that will destroy the jobs of other Americans that depend on trade. The solution is to drop trade barriers to maximize trade’s gains—and then design well-targeted supports for workers and communities that need help.  . . .

We need to build a broader, more-responsive safety net to assist workers in transition regardless of the reason. For instance, unemployment insurance and trade-adjustment assistance should become part of an integrated program that offers a menu of options to all displaced workers. . . .

But the problem with the Kondrake/ Slaughter article is that the person who created the term “creative destructionism” would not agree with their central thesis that creative destructionism is such a great benefit that everyone should embrace capitalism and free trade.  Joseph Schumpeter, the famous Harvard Economist,  in his book “Capitalism, Socialism and Democracy” first coined the term “creative destructionism”.  The central thesis of his book, however, was that Schumpeter did not believe that Capitalism could long survive and that is why he was an Austrian socialist.  He did not believe that Capitalism would long survive because of the collateral damage it creates and the gap between the rich and the poor.  Although Capitalism causes all boats to rise, there will always be a gap between the rich and the poor and people will focus on the gap rather than the fact that all boats are rising.

It is very difficult to throw theoretical economic arguments to counter the real loss of jobs in US manufacturing industries.  Will this rosy article of Free Trade truly offset the arguments made by the international trade losers of thousands of closed factories and millions of lost manufacturing jobs?  Don’t think so.  Simple theoretical arguments do not wash in the face of blown up factories and millions of lost jobs.

One economist who agrees with this point is Daniel Altman, an economist, who published in article entitled “Economics Has Failed America” on May 19, 2016 pointing out some real problems with the economic arguments in favor of free trade:

As a recovering economist writing on behalf of my erstwhile field, I would like to apologize to every American who has lost a job or a livelihood because of globalization. Economics has failed you. It has failed you because of ideology, politics, and laziness. It has failed you because its teachings are woefully incomplete, and its greatest exponents have done almost nothing to complete them.

There are “positive” questions in economics that have mathematical answers — things that simply must be true — and then there are “normative” questions that amount to value judgments on points of policy. In economics classes, we teach the former and usually stop short when faced with the latter. This leaves a hole in any discussion of economic policy; students acquire first principles but rarely consider real-world applications, because to do so would presuppose a social or political point of view.

In the case of free trade and globalization, this omission has been disastrous.  . . .

Yet the redistribution required to generate this broad improvement in living standards is hardly addressed, or sometimes even mentioned. To do so would be to step into the muddy mire of normative questions.

Should the government take from some people in order to give to others? Who should give the most, and who should receive? What exactly should they receive? . . .

Tyler Cowen and Alex Tabarrok of George Mason University offer this breezy guidance: “Job destruction is ultimately a healthy part of any growing economy, but that doesn’t mean we have to ignore the costs of transitioning from one job to another. Unemployment insurance, savings, and a strong education system can help workers respond to shocks.” It may be worth noting that Cowen is a frequent critic of unemployment insurance on his blog. . .  .

Finally, R. Glenn Hubbard . . . and Anthony Patrick O’Brien of Lehigh University are the only ones who mention the program designed to accomplish redistribution: “It may be difficult, though, for workers who lose their jobs because of trade to easily find others. That is why in the United States the federal government uses the Trade Adjustment Assistance program to provide funds for workers who have lost their jobs due to international trade. These funds can be used for retraining, for searching for new jobs, or for relocating to areas where new jobs are available. This program — and similar programs in other countries — recognizes that there are losers from international trade as well as winners.”

The Trade Adjustment Assistance (TAA) program has a budget of about $664 million, or roughly 0.004 percent of gross domestic product.

This means one dollar of every $25,000 in income generated by the United States goes to help people here who have been hurt by globalization. They don’t receive the cash directly; they just have to hope that the program — which offers retooling, retraining, and relocation, among other services — will aid their transition to new jobs.

There aren’t many beneficiaries, either.  . . .

The problem with Mr. Altman’s article is that he does not realize that there are two TAA programs and the one that works is the TAA for Companies program.  The funding for that program has been cut to $12.5 million a year.  He also does not realize that the best arguments against protectionism are not economic, they are historical.

Congressman Jim McDermott may have put it the best in a recent article, “Workers do not want a handout, they want jobs”:

Trump, Sanders voters don’t want handouts — they want jobs

A popular knock on voters who support Donald Trump or Bernie Sanders because they have been “left behind” by free trade, globalization and technological progress is that they want a handout from Uncle Sam.

But the truth is the opposite: These voters want to work. They want jobs. And that’s the key to understanding their support for Trump or Sanders. . . .

In this political season, I’ve been asking some of them and their friends, and their now-adult kids, which presidential candidates they find appealing. Only two find support:  Sanders, the Vermont socialist, and Trump, the New York billionaire. Both candidates appeal to a working class that is frustrated, fed up and downright angry.

Neither can be bought.

STRONG HISTORICAL ARGUMENTS IN FAVOR OF FREE TRADE

The strong arguments for Free Trade, however, are not economic.  The best arguments are historical: Japan, China, and the Smoot Hawley Tariff.  Those who do not learn from history are doomed to repeat it.

An even more important argument, however, is that protectionism does not work.  It does not save the companies and the President who understood that point was Ronald Reagan.

But first the historical arguments.

Japan

The recent experience of Japan can show what happens when a country listens to the Siren Calls of protectionism.

In the 1980s, when I joined the US International Trade Commission (“ITC”), the number one target country on the trade hit parade was not China.  It was Japan.  It was exporting numerous products to the United States that caused injury to various US industries.  In fact, I had lived in Japan and studied Japanese and thought after my career in Federal Government at the ITC and Commerce Department I would work on trade cases, including antidumping cases, against Japanese companies.

That did not happen.  Why?  In the early 1990s, after Ezra Vogel published his book “Japan as Number One”, the entire Japanese economy imploded.  Japanese exports dropped like a rock, and Japan entered what is called the lost decade, which now has become lost decades.

In my opinion, Japan’s lost decades have been caused by its trade policy.  Japan did exactly what Donald Trump is advocating, it put Japan first through its mercantilistic trade policy.  While living in Japan and later at the Commerce Department, I discovered numerous non- tariff trade barriers that Japan had put into place to protect its domestic industries.

American skis could not be sold in Japan because as one Japanese government official stated snow is different in Japan than the United States.  American beef could not be sold in Japan because as another Japanese government official stated Japanese intestines were shorter than American intestines.

In fact, in the trade area, there was antidumping case after antidumping case against Japanese companies.  The problem was prices in Japan were multiple times higher than the same product sold by the same company to the US.  In some cases, based on actual price comparisons and actual calculated antidumping rates, Japanese antidumping rates were over 400% because the Japanese company priced the same product in Japan four times higher than the same product sold in the United States.

In effect, the Japanese government’s anti-trade protectionist policy created a very high price market in Japan.  Japanese companies sold at very high prices in the Japanese market, ramped up production to drive down per unit costs and then used high prices in the Japanese market to fuel exported products at very low prices to the US market.  Classic dumping.

The Japanese government also made it very difficult for foreign companies, including US companies, to set up true joint ventures in Japan.  Keep the foreigner out was the motto of Japan.

But what was the ultimate effect of this high priced protectionist trade policy, massive bubbles in the land and stock markets.  At one point the land in the Imperial Palace in Tokyo was worth more than the land in the entire state of Illinois.  Those high land prices were used to fuel a very high stock market in Japan.  The Japanese stock market bubble burst and then land prices fell.  Japan entered a massive recession/depression and it lost decade(s) of economic growth.

Also when doing antidumping cases in other countries and the issue of using third country prices, I noticed that Petitioners always pushed Commerce to Japan because Japanese protected market prices were always higher than US prices.  Japanese raw material prices were higher too.  Because of trade cases in the US and other countries, Japanese production plants left Japan creating hollowed out industries as the companies sought to get around trade rules and also access to lower raw material costs.  After the US FTA with Korea, the best-selling car in Korea is the Toyota produced in the United States.

China

The other historical lesson is China.  In 1949 when Mao Tse Tung won the Chinese revolution, he also wanted to make China great again.  Mao decided that he would make China great by putting up on the protectionist walls and the Chinese themselves would make themselves self -sufficient by producing everything they needed.

In the Great Leap Forward in the early 1950s, Mao declared that the Chinese people would create backyard steel industries and Chinese peasants melted down cooking pots into raw steel to show that they could produce steel.  The Great Leap Forward led to one of greatest famines in World history and millions died.

When Deng Xiaoping came into power he immediately opened up the country.  Because of the Mao protectionist policies, China had fallen behind the World in technology.  Deng Xiaoping looked for ways to bring technology to China and develop their own.

Premier Zhu Rongyi, China’s great economic reformer, refused to follow the Japanese model and invited Western companies to set up joint ventures in China.

Thus, during the Obama Administration, when GM was having problems with its US manufacturing operations and facing bankruptcy, the one part of the company it was especially trying to save was its China operations.  The Buick had become the bestselling car in China.

As one Chinese individual remarked to me, why when China and many other countries have rejected the Socialist model is the United States moving towards the Socialist model and putting up protectionist walls.

Smoot Hawley

On April 25, 2016, former Congressman Don Bonker in an article entitled “Presidential Election Politics and Perils of Protectionism” warned that the anti- trade rhetoric in the Presidential election could lead to the return of the Smoot Hawley tariffs, stating:

This year’s presidential election is not lacking in absurdity, another example being a Republican billionaire and a socialist Democrat in sync on what has become a contentious issue, attacking trade agreements by declaring they are “disastrous” or being negotiated by “stupid people”.  . . .

What they have tapped into is the viral protectionism spreading across the country, embedded in Midwestern states that suffered job losses as American companies shifted their manufacturing operations to low-wage countries like Mexico and China.

Both Trump and Sanders are clueless or blatantly dismissive of the consequences of such actions, but their insane rhetoric could lead to a trade war, even a collapse of the world trading system, should either ever make it to the White House. . . .

In this raucous presidential campaign, both sides slamming America’s trade policy could put our country on the perilous path of protectionism, thus undermining America’s presumed role as the leader in today’s global economy. Someone should remind both Trump, if ever he listens, and Sanders, ever the demagogue, that we’ve been down that path before, and it proved devastating.

In the 1928 presidential election, the Republican candidate Herbert Hoover campaigned on the populist anti-trade issue, pledging to restrict foreign imports if elected, a message that resonated with the commodity producers and manufacturers who felt betrayed in an emerging global economy, which set the stage for a Republican Congress poised to run amok on limiting imports.

Indeed, shortly after the elections, newly formed trade associations mobilized 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, some up to 100 percent, on over 20,000 foreign products. . . .

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

The Smoot Hawley tariff turned the Depression into the Great Depression.

PROTECTIONISM DOES NOT WORK—COMPANIES ARE NOT SAVED

The most important lesson, however, is that protectionism does not work.  The US Steel industry is a case study of this point.  After receiving 40 years of protectionism from steel imports, where are Bethlehem Steel, Jones and Loughlin and Lone Star Steel today—Green Fields.

Despite the antidumping order against Wooden Bedroom Furniture from China, that did not save the US furniture industry as many US factories and Chinese factories moved to Vietnam.  In fact, the Furniture case illustrates another point—the Whack a Mole problem in antidumping (“AD”) and countervailing duty (“CVD”) Trade cases.

Recently, the US Washing Machine industry dominated by Whirlpool screamed because after bringing AD and CVD cases against Samsung, Daewoo and LG in Korea, the companies moved to China so Whirlpool filed another case against China.  After AD and CVD orders are issued, multinationals and many other companies can move their production facilities to new countries which are not covered by US AD and CVD orders.  AD and CVD cases are meant to be rifle shots to stop unfair trade practices from a specific country, but US companies cannot bring AD and CVD cases against the World, although the US Steel Industry has tried.

In January 2008, Superior Graphite and SGL Carbon LLC filed an antidumping case against graphite electrodes from China, which lead to an antidumping order against China.  On July 13, 2016, after 8 years of protection, Superior announced the closing of its Russellville, Arkansas plant.  One reason was intense domestic competition and another reason imports from India.

The President that understood that protectionism does not work was Ronald Reagan.  Contrary to the implication in Donald Trump’s June 28, 2016 speech, entitled “Declaring American Economic Independence”, Reagan was not a protectionist.  He was very much a free trader, who specifically stated that protectionism does not work.

In his attached June 28, 2016speech, DJT_DeclaringAmericanEconomicIndependence, Donald Trump stated in part:

President Reagan deployed similar trade measures when motorcycle and semiconductor imports threatened U.S. industry. His tariff on Japanese motorcycles was 45% and his tariff to shield America’s semiconductor industry was 100%.

On June 28, 1986, 40 years to the day before, however, Ronald Reagan gave the attached speech BETTER COPY REAGAN IT SPEECH, about international trade and against protectionism, stating in part:

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

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

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

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

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

So, the danger is approaching. Should this bill become law, foreign governments would respond, and soon a vicious cycle of trade barriers would be jeopardizing our hard-won economic prosperity.

The first part of Reagan’s speech almost sounds like a point by point rebuttal of Donald Trump’s June 2016 speech.  The last part of the speech specifically points out the perils of protectionism.  Ronald Reagan lived through the Great Depression and learned from history.  He did not want to repeat the Smoot Hawley Tariff Act mistake again.

Donald Trump points at two cases during the Reagan administration—Motorcycles and Semiconductor Chips.  The interesting point is that I was at the ITC and Commerce Department in the Reagan Revolution in the 1980s when the Motorcycles and Semiconductor Chips cases took place and have personal knowledge about what happened.  Those cases and the reason for them are very different from the trade actions that Donald Trump is talking about.

In the Motorcycles 201 case, in the early 1980s Harley Davidson sought temporary relief under the Escape Clause to help it adjust to import competition, especially from Japan.  It won the case and received a three-year tariff rate quota on imports of certain subassemblies from Japan.  The noteworthy point is that after two years in the mid- 1980s, Harley told the US government to lift the quota/tariff because it no longer needed the protection from imports.  The 201 case gave Harley the short term protection it needed to adjust to import competition.

Contrast that temporary relief with antidumping and countervailing duty orders against steel, chemicals and metals, some of which have been in place for 20 to 30 years.

In the 1980s Semiconductors cases, the Commerce Department was very tough in those case and even initiated its own 256K DRAM case.  The Semiconductor cases resulted in a Semiconductors agreement with Japan.  But while at the Commerce Department in the 1980s, the Secretary of Commerce was Malcolm Baldrige, a brilliant secretary.  Baldridge believe that his job was to protect the crown jewels of American manufacturing—the High Tech industry.

What Donald Trump is proposing is protecting the low tech manufacturing industries, such as the Steel industry.  Ronald Reagan did not fall into that trap.

If Donald Trump goes forward with his plans to use protectionist tariffs to protect the low tech industry, we can expect countries, such as China, Korea, Canada, Mexico and other countries, to retaliate against the US high tech industry. In February 2015, China fined Qualcomm, a US company, $1 billion for violations of the Chinese antimonopoly law.  That is $1 billion of the $10 billion Qualcomm had earned during 2014 selling computer chips to China.

In fact, the employment in the entire US steel industry is less than one high tech company.  So Trump’s idea is to protect the Steel Industry, but the sacrifice is the US High Tech industry with 100s of thousands of high paying jobs.

One of the problems in international trade is what the Chinese call the Frog in the Well syndrome.  The Frog lives inside the Well and thinks that is the World.  As House Speaker Paul Ryan has said many times, the vast majority of consumers live outside of the United States.  When I lived in Beijing during 2005-2007, the US Commercial Attaché gave a speech and mentioned that 75% of all Chinese have a color television set. That is now probably close to 95% of 1.6 billion people, a larger market than the US market.

But all this does not mean that nothing can be done to save US manufacturing companies that have been battered by imports.  As explained in past and subsequent articles, something can be done and it does not have any protectionist effect—The Trade Assistance for Firms/Companies program.  Although it receives only $12.5 million annually in support, the program saves US companies and the jobs that go with them but without putting any protectionist barriers in place.

STEEL TRADE CASES

ITC SUSPENDS STEEL 337 CASE

On May 26, 2016, the US International Trade Commission (“ITC”) initiated the section 337 case against Chinese steel import on the basis of three primary counts:

(1) a conspiracy to fix prices and control output and export volumes, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; (2) the misappropriation and use of U.S. Steel’s trade secrets; and (3) the false designation of origin or manufacturer, in violation of the Lanham Act, 15 U.S.C. § 1125(a).

On July 8, 2016, the ITC, in the attached order, ITC STEEL ORDER, temporarily suspended the Section 337 against steel imports brought by US on the grounds that the issues it raises fall within the Commerce Department’s jurisdiction in antidumping and countervailing duty cases.

The Commission’s order specifically states, in part:

U.S. Steel’s antitrust claims explicitly rely upon determinations by the Commission and the Commerce Department that the Chinese government subsidizes the Chinese steel industry, and that Chinese steel manufacturers sell their products at less than fair value. . . .

U.S. Steel’s false designation of origin claims are based explicitly upon Respondents’ alleged evasion of antidumping and countervailing duty orders issued by the Commerce Department. . . .

As discussed above, the Complaint identifies several ongoing Commerce Department investigations .  . . and the Commerce Department recently issued final determinations in these investigations finding countervailing duties and sales at less than fair value.

The record thus shows that the present matter comes at least “in part” within the purview of the antidumping and countervailing duty laws, and Section 337(b)(3) therefore requires that the Commission notify the Secretary of Commerce. . . .

The ITC’s suspension stays all discovery and motions in its investigation of U.S. Steel’s claims of an alleged price-fixing conspiracy involving misappropriation of trade secrets and false manufacturing designations in the importation of carbon and alloy steel products.

The suspension followed seven responses from a number of Chinese steel companies to U.S. Steel’s complaint arguing that the claims were based explicitly upon respondents’ alleged evasion of AD and CVD orders and identified several ongoing Commerce Department investigations into steel products.

STAINLESS STEEL SHEET AND STRIP FROM CHINA

On July 12, 2016, in the attached factsheet, factsheet-prc-stainless-steel-sheet-strip-cvd-prelim-071216, Commerce announced its affirmative preliminary determination in the countervailing duty (“CVD”) investigation of imports of stainless steel sheet and strip from China.  Since many Chinese companies refused to cooperate because of China’s nonmarket economy status, Chinese companies received CVD rates ranging from 57.3% to 193.12%

JULY ANTIDUMPING ADMINISTRATIVE REVIEWS

On July 5, 2016, Commerce published the attached Federal Register notice, OPPORTUNITY JULY 2016, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of July. The specific antidumping cases against China are:   Carbon Steel Butt-Weld Pipe Fittings, Certain Potassium Phosphate Salts, Certain Steel Grating, Circular Welded Carbon Quality Steel Pipe, Persulfates, and Xanthan Gum

The specific countervailing duty cases are: Circular Welded Carbon Quality Steel Pipe, Potassium Phosphate Salts, Prestressed Concrete Steel Wire Strand, and Steel Grating.

For those US import companies that imported : Butt-Weld Pipe Fittings, Potassium Phosphate Salts, Steel Grating, Circular Welded Carbon Steel Pipe, Persulfates, Steel Wire Strand and Xanthan Gum during the antidumping period July 1, 2015-June 30, 2016 or the countervailing duty period of review, calendar year 2015, the end of this month is a very important deadline. Requests have to be filed at the Commerce Department by the Chinese suppliers, the US importers and US industry by the end of this month to participate in the administrative review.

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

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

While in China recently, 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 2015.

NEW SECTION 337 INTELLECTUAL PROPERTY CASE FILED AT ITC AGAINST CHINA

On July 11, 2016, Cambria Company LLC filed section 337 case at the ITC against Quartz Slabs and Portions.  The proposed respondents, including a Chinese company, are: Stylen Quaza LLC DBA Vicostone USA, Dallas, Texas; Vicostone Joint Stock Company, Vietnam; Building Plastics Inc., Memphis, Tennessee; Fasa Industrial Corporation, Ltd, China; Foshan FASA Building Material Co., Ltd., China; Solidtops LLC, Oxford, Maryland; Dorado Soapstone LLC, Denver, Colorado; and Pental Granite and Marble Inc., Seattle, Washington.

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

Best regards,

Bill Perry

US CHINA TRADE WAR–WEAK FREE TRADE ARGUMENTS CREATE PROTECTIONISM AND PROBABLE DEMISE OF TPP, STEEL, ANTIDUMPING REVIEWS AND NEW 337 CASE

White House Night Pennsylvania Ave Washington DCTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR MAY 19, 2016 UPDATE

Dear Friends,

The ITC has released its report on the Trans Pacific Partnership and a new 337 cases have been filed against US importers and Chinese companies on inflatable devices.

Best regards,

Bill Perry

ITC RELEASES TPP REPORT

On May 18, 2016, The US International Trade Commission (“ITC”) released its attached report on the Trans Pacific Partnership Agreement (“TPP”), ITC TPP REPORT.  The Main Findings of the ITC Report are set forth below.  The Report was a mixed bag finding that the overall US economy would grow by 0.23% by $57.23 billion by year 15 of the Agreement (2032) with agriculture being the biggest winner followed by services with a modest increase in employment.  But the ITC report also found that manufacturing, natural resources and the energy sectors would lose business by $10.8 billion (0.1 percent) lower with the TPP Agreement than it would be compared with baseline estimates without the agreement.

But the major gains with the TPP are in the other areas with the ITC finding that “the two new electronic commerce provisions that protect cross-border data flows and prohibit data localization requirements to be crucial to the development of cross-border trade in services.  . . .”

Outside Parties emphasized:

“the importance of TPP chapters addressing intellectual property rights, customs and trade facilitation, investment, technical barriers to trade, sanitary and phytosanitary standards, and state-owned enterprises.”

With the release of the ITC TPP Report, the Congress is free to take up the passage of the TPP.  U.S. Trade Representative Michael Froman stated that the ITC’s report will be just one of the arguments the Administration will use to push Congress to vote on the ratification of the agreement before President Barack Obama leaves office.  Froman specifically stated:

“The ITC report provides another strong argument for why TPP should be passed this year. It is part of a growing body of evidence that shows that TPP will benefit our economy at home and allow the U.S. to help set the rules of the road for trade in the Asia Pacific.”

Although Congressional experts originally indicated a possibility of taking the TPP up during the summer, the strong protectionist tide in the Presidential Election has prompted many experts both in and out of Congress to predict that the lame-duck session of Congress following the November elections as the first real opportunity for Congress to consider the TPP.

In a conference call with reporters, however, Froman revealed that USTR is moving forward with an expedited implementation of the TPP to make sure that the 11 other nations in the agreement are ready to comply with its terms as soon as the Agreement takes effect.  Usually the implementation process does not begin until the deal is ratified, but as USTR Froman states:

“We’ve begun an accelerated implementation process to be sure that we can give members of Congress the confidence they need that by the time the agreement enters into force that our trading partners will have fully complied with the terms of the agreement and that their constituents will get the full benefit of the deal.”

The ITC’s Report Main Findings are:

“The Commission used a dynamic computable general equilibrium model to determine the impact of TPP relative to a baseline projection that does not include TPP. The model estimated that TPP would have positive effects, albeit small as a percentage of the overall size of the U.S. economy. By year 15 (2032), U.S. annual real income would be $57.3 billion (0.23 percent) higher than the baseline projections, real GDP would be $42.7 billion (0.15 percent) higher, and employment would be 0.07 percent higher (128,000 full-time equivalents). U.S. exports and U.S. imports would be $27.2 billion (1.0 percent) and $48.9 billion (1.1 percent) higher, respectively, relative to baseline projections. U.S. exports to new FTA partners would grow by $34.6 billion (18.7 percent); U.S. imports from those countries would grow by $23.4 billion (10.4 percent).

Among broad sectors of the U.S. economy, agriculture and food would see the greatest percentage gain relative to the baseline projections; output would be $10.0 billion, or 0.5 percent, higher by year 15. The services sector would benefit, with a gain of $42.3 billion (0.1 percent) in output. Output in manufacturing, natural resources, and energy would be $10.8 billion (0.1 percent) lower with the TPP Agreement than it would be compared with baseline estimates without the agreement.

Many stakeholders consider two new electronic commerce provisions that protect cross-border data flows and prohibit data localization requirements to be crucial to the development of cross-border trade in services, and vital to optimizing the global operations of large and small U.S. companies in all sectors.

TPP would generally establish trade-related disciplines that strengthen and harmonize regulations, increase certainty, and decrease trade costs for firms that trade and invest in the TPP region. Interested parties particularly emphasized the importance of TPP chapters addressing intellectual property rights, customs and trade facilitation, investment, technical barriers to trade, sanitary and phytosanitary standards, and state-owned enterprises.

NEW SECTION 337 CASE FILED AGAINST CHINA

On May 19, 2016, Intex Recreation Corp. and Intex Marketing Ltd. filed a new section 337 case against imports of Inflatable Products and Processes for Making the Same from China.  The respondent companies are in China and Hong Kong.  Please see relevant notice below:

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 Inflatable Products and Processes for Making the Same. The proposed respondents are: Bestway (USA) Inc., Phoenix, Arizona; Bestway Global Holdings Inc., China; Bestway (Hong Kong) International Ltd., Hong Kong; Bestway Inflatables & Materials Corporation, China; and Bestway (Nantong) Recreation Corp., China.

If anyone wants a copy of the complaint, please feel free to contact me.

US CHINA TRADE WAR MAY 12, 2016 BLOG POST

Dear Friends,

As mentioned in my last blog post, as of May 1, 2016, I am no longer at the Dorsey law firm.  The transition is complete and 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 are now coming from Harris Moure.

As also mentioned, Dan Harris, my partner, has a very famous blog, www.chinalawblog.com, which is followed by many companies that are interested in doing business in and with China.  Dan is determined to enlarge my readership so he is pushing me to write more smaller articles and take long articles, such as those on the TPP and the rise of protectionism in the US, and make them a series.

In that light, set forth below is the first of a several part series on how weak free trade arguments have led to the sharp rise of protectionism of Donald Trump and Bernie Sanders and the probable demise of the TPP.  The first article will outline the problem and why this is such a sharp attack on the Trans Pacific Partnership and some of the visceral arguments against free trade.  The second article will explore in depth the protectionist arguments and the reason for the rise of Donald Trump and Bernie Sanders and the weak free trade arguments to counter the protectionism.  The final article will focus on the Probable Demise of the TPP, failure of Congressional Trade Policy and what can be done to provide the safety net that will allow Congress again to vote for free trade agreements so that the United States can return to its leadership in the Free Trade area.

The Congress has to fix the trade situation now before the US and the World return to the Smoot Hawley protectionism of the 1930s.

In addition, set forth are several developments involving steel trade litigation, antidumping and countervailing duty reviews against Chinese companies and a new 337 patent case against Chinese companies.

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

Best regards,

Bill Perry

WEAK FREE TRADE ARGUMENTS CREATE THE RISE OF TRUMP/SANDERS PROTECTIONISM AND PROBABLE DEMISE OF TRANS PACIFIC PARTNERSHIP (“TPP”)

Three weeks ago former Democratic Congressman Don Bonker, a good friend, told me “The TPP is dead”.  Don has always been very skeptical that the Trans Pacific Partnership (“TPP”) would pass Congress.

Don also believes Hilary Clinton will beat Trump in a landslide, and the Democrats will take both the Senate and the House.  Although Clinton may win, I do not believe that it will be a blowout and do not believe the Republicans will lose both the Senate and especially the House.

Don told me he did not know one person voting for Trump.  My 95 old mother voted for Trump in the Massachusetts primary because as a former Republican state committeewomen, she saw a groundswell of Trump support from Democrats, with many, such as her hairdresser, asking “how do I become a Republican to vote for Trump”.  The last time she saw that was 1980 when Reagan won the Presidency and took Massachusetts.  In fact, the Massachusetts Registry of Voters has reported 100s of thousands of Democrats switching parties to vote for Trump.  Massachusetts is a very, very Blue Democratic state.

Another good friend, a Oregon factory owner, told me he is voting for Trump and all of his friends are voting for Trump.  A recent Quinnipac poll has Trump and Clinton in a dead heat in the three crucial swing states—Florida, Ohio and Pennsylvania.

This is momentum and the momentum at the present time is with Trump.  With momentum Trump will be able to expand his base, but it is questionable whether Clinton can do so.

But it is the second point of Don’s argument that is of interest to this audience.  If the Democrats take the Congress, he firmly believes the US will become much more protectionist because of the Democratic relationship to the labor unions.  All the labor unions are opposed to the TPP.

So the Democrats are becoming even more protectionist as well as the Republicans under Donald Trump.  This is a huge groundswell of US protectionism on both sides of the political equation, which could very well kill the TPP and move the United States down a very protectionist path.

On the Republican side, Trump himself has condemned the TPP and in Cosa Mesa, California and subsequent speeches stated that in a Trump Administration there will be no free trade agreements.  In fact, in an April 28, 2016 editorial on Trump’s recent Foreign Policy speech, the Wall Street Journal’s one sharp disagreement with Trump is his trade policy:

“Mr. Trump’s threats of trade wars with China, Mexico and Japan may please nationalists, but such brinkmanship could well provoke another global recession.  American interests must come first but the trade-offs are inevitably complex Republican and Democratic Presidents since the 1930s have concluded that trade is a net benefit to the economy. . . .”

In an April 27, 2016 article in the Wall Street Journal entitled “How Trump Killed Reaganism”, William Galston states:

Economic issues were secondary, which permitted business-oriented Republican elites to dominate their party’s economic agenda with free trade, a welcoming immigration policy and efforts to “reform”—that is, cut—major entitlement programs. As late as George W. Bush’s second term, these concerns remained paramount.

With the onset of the Great Recession, however, the alliance between the white working class and business elites began to fray. Workers blamed trade for the loss of millions of manufacturing jobs, and blamed immigrants for declining wages as well as for rising welfare expenditures and social disorder. Amid rising economic uncertainty, these voters were in no mood to put their remaining sources of economic reassurance—Social Security and Medicare—on the chopping block. “Limited government” meant cutting programs for the undeserving poor, not for working- and middle-class households.

Enter Donald Trump, who proposes to turn Reaganism on its head.  . . . Mr. Trump rejects current trade treaties as bad bargains struck by inept U.S. negotiators and paints immigration as an assault on American workers and society itself.

So it has come to this: A mercantilist isolationist is the odds-on favorite to win the Republican presidential nomination. Whether or not he goes on to win the general election, the Republican Party cannot return to what it once was.

The Reagan era has ended, and what comes next is anyone’s guess.

With the Indiana primary, Trump consolidated his position as the nominee for the Republican party, but what about Bernie Sanders on the Democratic side?  He won the Indiana primary and recently the West Virginia primary.  In response to my last article on the Trump Impact on Trade Policy, one Canadian exporter/US importer contacted me to say that Trump’s position on international trade is why it is better to support Senator Bernie Sanders:

I read your interview on LinkedIn about the Trump effect on International trade if he becomes President.  It was short, and sweet and pretty well summed up most people’s feelings who are in business.  We debate both him and Bernie Sanders up here in Canada and find it all fascinating.  The people who are supporting Trump would actually be better served supporting Sanders for his beliefs, with his policies better serving the “less” educated.  Trumps policies will bury his followers and they don’t seem to grasp it at all.  Protectionism is SO PASSE it’s scary they are even discussing it.

The e-mail illustrates an important problem with the Bernie Sanders alternative.  When it comes to international trade, Donald Trump and Bernie Sanders are two peas in a pod.  Frankly, on trade Bernie Sanders may be more protectionist than Donald Trump.  Why??

Trump has said that when he talks about high tariffs on Chinese imports, that is only a threat, a bargaining ploy to get better leverage in any negotiation with China and other countries.  Thus during the Florida debate Donald Trump clarified his stance on increased tariffs for foreign goods, stating that he would consider massive hikes as “threats” designed to force China and other countries to “behave.”

In the Florida debate, Trump specifically called the 45 percent “tax” on Chinese imports a threat:

It was not a tax, it was a threat. It will be a tax if they don’t behave. Take China as an example. I have many friends, great manufacturers, they want to go into China. They can’t. China won’t let them. We talk about free trade. It’s not true free trade, it’s stupid trade.

Trump went on to state that China is dumping its goods into the US market with “no tax, no nothing, no problems.” Trump further argued that U.S. manufacturers cannot get into the Chinese market:

I have the best people, manufacturers, they can’t get in. When they get in, they have to pay a tremendous tax.  If [China and other countries] don’t follow the rules and regulations so that we can have it equal on both sides, we will tax you. It doesn’t have to be 45, it could be less. But it has to be something because our country and our trade and our deals and most importantly our jobs are going to hell.

On the Democratic side, Bernie, who wants to keep labor union support, is not making threats.  In fact, Bernie Sanders on trade is just as protectionist, if not more protectionist than Donald Trump as illustrated on his Presidential website, which states, in part:

Bernie Sanders believes that the top priority of any trade deal should be to help American workers. Unfortunately, as Bernie has warned year after year, American trade policy over the last 30 years has done just the opposite. Multinational corporations – who have helped to write most of these trade deals – have benefited greatly while millions of American jobs have been shipped overseas.

American trade policy should place the needs of American workers and small businesses first.

Bernie’s strong opposition to destructive “free trade” deals began with NAFTA in 1993. . . .    As with NAFTA, Bernie warned in 2000 that Permanent Normal Trade Relations with China would help multinational corporations at the expense of workers and the environment. ….

The TPP follows in the footsteps of the previous pro-corporate trade deals. It lacks safeguards to protect American jobs and the environment while giving massive benefits to large multinational corporations. . . .

Bernie has stated repeatedly that his top priority is making sure that all Americans have access to good paying jobs. For this reason he has been a leader in Congress in the fight against the free trade agreements that have been negotiated over the past three decades. Bernie’s passionate warnings against these deals have, unfortunately for American workers, all been proven right as these trade deals have offshored a massive amount of decent paying jobs and have closed tens of thousands of factories across our country. . . .

Why is Bernie against most trade agreements?

He believes that free trade agreements like NAFTA, Permanent Normal Trade Relations with China, and the U.S.-Korea Free Trade Agreement have allowed too many American jobs to move overseas. . . .

As he said in 1993 on the House floor before voting against it, “NAFTA may be a good deal for the people who own our corporations, but it is a bad deal for American workers, for our family farmers, and it is bad for the environment.”

And Bernie is nothing if not consistent. Here he is over 20 years later warning against the Trans-Pacific Partnership:

“Let’s be clear: the TPP is much more than a “free trade” agreement. It is part of a global race to the bottom to boost the profits of large corporations and Wall Street by outsourcing jobs; undercutting worker rights; dismantling labor, environmental, health, food safety and financial laws; and allowing corporations to challenge our laws in international tribunals rather than our own court system.

With regard to trade with China, Bernie Sanders states on his Presidential website:

Bernie firmly believes that current trade relations with China are detrimental to job growth and wealth equality in the United States. Referring specifically to the 2015 Trans-Pacific Partnership [which does not include China], Bernie has decried trade deals with China as being “designed to protect the interests of the largest multi-national corporations at the expense of workers, consumers, the environment and the foundations of American democracy.” . . .

Time and time again, Bernie has voted against free trade deals with China. In 1999, Bernie voted in the House against granting China “Most Favored Nation” status. In 2000, Bernie voted against Permanent Normal Trade Relations with China which aimed to create jobs, but instead lead to the loss of more than 3 million jobs for Americans.

“Let’s be clear: one of the major reasons that the middle class in America is disappearing, poverty is increasing and the gap between the rich and everyone else is growing wider and wider is due to our disastrous unfettered free trade policy.” . . .

With these statements, Bernie Sanders sounds just like Donald Trump.  To see Bernie Sanders in action on trade, see his statements on the Senate floor against the Trans Pacific Partnership and China.  See http://feelthebern.org/bernie-sanders-on-trade/ and http://feelthebern.org/bernie-sanders-on-china/.

In his China speech, just like Senator Sessions, who advises Donald Trump on trade, Sanders confuses normal trade relations with China with a Free Trade Agreement, stating that PNTR was a free trade agreement with China.  When the US gave normal trade relations with China, it did not set up a Free Trade Agreement with China.  Permanent Normal Trade Relations (“PNTR”) only means that China is treated like all other countries, such as Iran, Syria, Russia, Ukraine and many other countries.  There is no unfettered free trade agreement with China.

Both the Democrats and the Republicans have now made international trade and free trade agreements one of the burning issues in the Presidential election.  On March 10, 2016, CNN Reporter Stephen Collinson in an article entitled, “How Trump and Sanders tapped America’s Economic Rage” stated:

Finally, somebody is listening. Donald Trump and Bernie Sanders might be poles apart in their politics and temperament, but they are voicing visceral feelings of economic disenfranchisement and alienation among pessimistic voters who feel they’ve been ignored for years.

The billionaire and the democratic socialist are in different ways speaking for vast populations of Americans who feel threatened by globalization, who question the benefits of “free trade” that political leaders have peddled for decades and who believe distant elites control the economy in ways detrimental to their lives and prospects.

It is turning out to be a potent electoral brew –which has lifted insurgent candidates like Trump and Sanders throughout the 2016 cycle and challenged foes like Hillary Clinton and establishment Republicans who have found it tougher to reconcile the grass-roots anger. . . .

Trump’s message is explosive, identifying culprits in what he sees as the corrupt cabal of Washington politicians and supposedly sinister outsiders, like illegal immigrants, job-stealing Chinese firms or tough negotiators who run rings around effete U.S. officials in places like Vietnam and Japan. To his backers, he is the fiercest shark in a global pool who, if nothing else, will have the rest of the world again fearing America’s bite. . . .

The story was similar on the Democratic side, where 57% of Democratic voters in Michigan said trade takes away U.S. jobs. Among people who thought so, Sanders was the most popular candidate.

“I think the key to him winning in Michigan was his clear message on the trade policies,” Sanders campaign manager Jeff Weaver told CNN . . . . “Michigan is a state that has been devastated by bad trade deals. He has opposed every one and Secretary Clinton has supported almost every one. People in Michigan know what the real impact of that is.”

But Sanders has established a narrative difficult to counter. His approach to Americans’ anxieties is to offer a “political revolution,” one that would rewrite the rules of the American economy — and the global one — according to a much more progressive blueprint.

His denunciations of Wall Street “oligarchs” and complaints of a “rigged” economy and a “corrupt” campaign finance system play into the feelings of his supporters that they are powerless to address the worsening conditions of their lives.

He hammers NAFTA and pacts with China, that have boosted global trade flows, fed America’s addiction for cheap goods from abroad, but also left a trail of victims in industrial states where the manufacturing base just could not compete with the low-wage rising economies of Asia and elsewhere.

And Clinton has also yet to come up with an effective riposte to assaults by Sanders on her paid speeches to Wall Street firms after she stepped down as secretary of state.

The Sanders win in Michigan has some of his supporters sensing that a campaign that seems inexorably trending away from him may at least thrive through the journey through primaries in Rust Belt states like Pennsylvania, Illinois and Wisconsin that often turn on blue-collar issues.

And even if he cannot catch Clinton, Sanders can take credit for dragging her to her left on economic questions, as she now speaks in her stump speech about the need to make hollowed out American communities “whole” again. . . .

To see the entire article, see http://www.cnn.com/2016/03/09/politics/sanders-trump-econom… 3/11/2016

Although it is certain that Hilary Clinton will win the Democratic nomination, Bernie Sanders has forced Clinton to move to the left and take a much tougher stance on international trade.  There is talk that Hilary may take Senator Sherrod Brown of Ohio, as her Vice President, a  very strong protectionist, who is viscerally opposed to the TPP.

The hot protectionist rhetoric of Donald Trump and Bernie Sanders have made international trade one of the center points of the election.  The simple truth is that when weak academic, theoretical economic arguments for free trade meet the hard visceral arguments of bombed out US factories and the loss of millions of manufacturing jobs, the free trade arguments melt away.

On March 15, 2016, the New York Times in an article entitled, “On Trade, Angry Voters Have a Point” stated:

Were the experts wrong about the benefits of trade for the American economy? . . .

Voters’ anger and frustration, driven in part by relentless globalization and technological change, may not propel either candidate to the presidency. But it is already having a big impact on America’s future, shaking a once-solid consensus that freer trade is, necessarily, a good thing.

“The economic populism of the presidential campaign has forced the recognition that expanded trade is a double-edged sword,” wrote Jared Bernstein, former economic adviser to Vice President Joseph R. Biden Jr.

What seems most striking is that the angry working class — dismissed so often as myopic, unable to understand the economic trade-offs presented by trade — appears to have understood what the experts are only belatedly finding to be true:  The benefits from trade to the American economy may not always justify its costs. . . .

In another study they wrote with Daron Acemoglu and Brendan Price from M.I.T., they estimated that rising Chinese imports from 1999 to 2011 cost up to 2.4 million American jobs. . . .

The Chinese export onslaught, however, left a scar on the American working class that has not healed. That disproportionate impact suggests Washington officialdom might do well to reassess its approach to future trade liberalization. . . .

Perhaps most important, the new evidence from trade suggests American policy makers cannot continue to impose all the pain on the nation’s blue-collar workers if they are not going to provide a stronger safety net.

That might have been justified if the distributional costs of trade were indeed small and short-lived. But now that we know they are big and persistent, it looks unconscionable.  (emphasis added.)

One of the reasons for the sharp rise in protectionism is the weak safety net, trade adjustment assistance, especially trade adjustment assistance for companies, which will be discussed in follow-up articles on this topic,

On March 15, 2016, Phyllis Schafly, a well-known Republican pundit, stated on Invstors.com that the Republican candidates are turning against trade deals, stating:

The first question asked of the presidential candidates at the most recent Republican debate, hosted by CNN in Miami on March 10, was “whether trade deals have been good for the American workers.”

Moderator Jake Tapper observed that one of Donald Trump’s “signature issues” has been his criticism of “disastrous trade deals” that have destroyed many good middle-class jobs that existed a generation ago. . . .

Ohio Gov. John Kasich likes to remind everyone that he “grew up in a blue collar family,” but votes he cast during his 18 years in Congress helped to decimate the manufacturing base of his home state. Kasich voted for the North American Free Trade Agreement in 1994, and in 2000 he voted to grant the “normal” trading privileges, which allowed China to enter the World Trade Organization. . . .

Sen. Ted Cruz once voted in favor of presidential trade authority before reversing himself on the subsequent vote last year. Cruz now says he opposes the TPP, but Congress has never rejected a trade deal after giving the president the authority to negotiate it.

“I am different in one primary respect, and that’s trade,” Trump insisted in the debate, explaining that “trade deals are absolutely killing our country.” He has proposed tariffs to offset abusive practices such as currency devaluation by “certain countries that are taking advantage of the United States and laughing at our stupidity.” . . . .

According to the 200-year-old theory of free trade, workers who lose manufacturing jobs to China should be able to find new jobs in other industries that benefit from a trade surplus, such as the pharmaceutical industry, or in non-tradable industries such as medicine and legal services. But millions of these workers, many of whom are men struggling to support their families, have not found adequate replacement jobs.

Some settle for lower-paying jobs, while others give up entirely, creating a social issue as well as an economic one. The percentage of men between 25 and 54 years old who are not employed has tripled in the last half century, and many who had been working at $40-per-hour manufacturing jobs are now receiving only $10-per-hour jobs at Wal-Mart or fast-food joints. . . .

In the general election in November, there will be millions of voters ready to cast their ballots for a candidate who stands up for American workers rather than catering to lobbyists who seek free-trade deals.

Pat Buchanan, a well-known Republican conservative, who also ran for the Presidency, stated in an April 4, 2016 commentary entitled  “What Trump has Wrought,” states:

But this city of self-delusion should realize there is no going back for America. For, whatever his stumbles of the last two weeks, Trump has helped to unleash the mightiest force of the 21st century: nationalism. Transnationalism and globalism are moribund.

Buchanan further states that Trump’s first issue is illegal immigration and building a wall along the Southern border to keep illegal immigrants out, but then goes on to state:

If immigration is the first issue where Trump connected with the people, the second is trade.  Republicans are at last learning that trade deficits do matter, that free trade is not free. The cost comes in dead factories, lost jobs, dying towns and the rising rage of an abandoned Middle America whose country this is and whose wages have stagnated for decades.

Economists who swoon over figures on consumption forget what America’s 19th-century meteoric rise to self-sufficiency teaches, and what all four presidents on Mount Rushmore understood.

Production comes before consumption. Who owns the orchard is more essential than who eats the apples. We have exported the economic independence Hamilton taught was indispensable to our political independence. We have forgotten what made us great.

China, Japan, Germany – the second, third and fourth largest economies on earth – all owe their prosperity to trade surpluses run for decades at the expense of the Americans. . . .

Patriotism, preserving and protecting the unique character of our nation and people, economic nationalism, America First, staying out of other nation’s wars – these are as much the propellants of Trumpism as is the decline of the American working and middle class.

Trump’s presence in the race has produced the largest turnout ever in the primaries of either party. He has won the most votes, most delegates, most states. Wisconsin aside, he will likely come to Cleveland in that position.

If, through rules changes, subterfuge and faithless delegates, party elites swindle him out of the nomination, do they think that the millions who came out to vote for Trump will go home and say: We lost it fair and square?

Do they think they can then go back to open borders, amnesty, a path to citizenship, the Trans-Pacific Partnership and nation building?

Whatever happens to Trump, the country has spoken. And if the establishment refuses to heed its voice, and returns to the policies the people have repudiated, it should take heed of John F. Kennedy’s warning: “Those who make peaceful revolution impossible, make violent revolution inevitable.”

For full article, see http://www.wnd.com/2016/04/what-trump-has-wrought/

The point is that both political wings of the the United States are becoming very protectionist in response to strong pressure from US voters.  On the right, Donald Trump, who is now the presumptive nominee of the Republican party, is firmly against all trade agreements, including the TPP.  On the left, Bernie Sanders in many ways is more protectionist than Trump and has succeeded in pulling Clinton to a much more protectionist position.

Understand that one reason newspapers, such as the Wall Street Journal, are attacking Trump on trade is that the Republican party traditionally has been very free trade, while the Democratic party, which relies on labor union support, has been much more protectionist.  The only reason that the TPP was completed is because Trade Promotion Authority was enacted into law last summer in 2015.  The only reason TPA passed the Congress is that the Republicans won both the Senate and the House.

Prior to the election, Senator Harry Reid, who heads the Democrats in the Senate, blocked all the trade bills, including the TPA, from coming to the Floor of Congress.

So to my liberal friends who think that Bernie Sanders would be more free trade than Donald Trump and the Republicans, that is simply not the fact.

Sanders has succeeded in pushing Hilary to be more protectionist and that is not good for the passage of the TPP. As John Brinkely of Forbes predicted several months ago, in a Presidential year with regards to the TPP, anything can happen and it has.  The United States is becoming much more protectionist.

Bill Reinsch, president of the National Foreign Trade Council, which has been a driving force for trade liberalization for over 100 years, recently stated:

There are always winners and losers in trade deals, but the losses tend to be short-term and specific while the gains are usually long-term and diffuse.  So you’ve got a growing mass of cranky, alienated voters.

Daniel Ikenson, director of the free market oriented Cato Institute’s Center for Trade Studies, recently stated:

It’s almost like there’s a reckoning coming due here.  The base of the Republican party is really growing increasingly skeptical of trade and Trump is the perfect demagogue to tap into that sentiment and magnify the concerns.

The next article in this series will deal first with the visceral gut wrenching arguments against free trade and the weak free trade arguments in response.  The article after that will deal with the probable demise of the TPP and finally the solution to the trade crisis, truly creating a safety net to help companies and workers adjust to import competition.  Only when there is a true safety net will the dialogue on free trade change.

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.

NEW STEEL ANTIDUMPING AND COUNTERVAILING DUTY CASE

On April 8, 2016 Arcelormittal USA LLC, Nucor Corp., and SSAB Enterprises LLC filed a new antidumping and countervailing duty case against imports of Certain Carbon and Alloy Steel-Cut-To-Length Plate from Austria, Belgium, Brazil, China, France, Germany, Italy, Japan, Korea, South Africa, Taiwan and Turkey.

APRIL 12 AND 13 USTR COMMERCE HEARINGS ON STEEL

On April 12, 2016, at a hearing in Washington DC members of Congress, union representatives and steel executives pushed the United States Trade Representative (“USTR”) to initiate antidumping proceedings at the Commerce Department against huge imports of subsidized and antidumping Chinese steel imports arguing that the administration needs to step in to protect domestic industry.

At the present time, however, there are very few major Chinese steel products not blocked by US antidumping and countervailing duty measures.  Preliminary determinations have been issued against galvanized and cold-rolled steel from China with very high antidumping and countervailing duty rates against both products, wiping them out of the US market.  Many, many Chinese steel products from China are currently covered by an antidumping (“AD”) order and often also a countervailing duty (“CVD”) order, including carbon steel plate, hot rolled carbon steel flat products, circular welded carbon quality steel pipe, light walled rectangular pipe and tube, circular welded carbon quality steel line pipe, circular welded austenitic stainless pressure pipe, steel threaded rod, oil country tubular goods, prestressed concrete steel wire strand, seamless carbon and alloy steel standard line and pressure pipe, high pressure steel cylinders, prestreessed concrete steel rail tire wire, non-oriented electrical steel, and carbon and certain alloy steel wire rod.

Despite 100s of outstanding AD and CVD orders against steel imports from China and other countries, the American steel market has shrunk to 86 million tons of production, competing against the more than 100 million tons China exports, out of 1.2 billion tons of total production.  But most of that Chinese steel was exported to other countries and third country imports from countries, such as Korea, Taiwan, India, and other countries, with low if not 0%, antidumping and countervailing duty rates are entering the United States.

Leo Gerard, president of the United Steelworkers, said the best way to save the American steel industry is for the Obama administration to step out publicly and get involved in initiating antidumping proceedings.

Although transshipment has been a substantial problem, if legitimate importers are involved, they expose themselves to criminal prosecution for Customs fraud.  US Customs law is certainly not a toothless as it is portrayed.

Sen. Amy Klobuchar, D-Minn., also urged the Commerce Department and Department of Homeland Security to step up enforcement at the nation’s ports, including increased inspections and possibly turning away ships carrying illegally subsidized steel.

U.S. Trade Representative Michael Froman, in opening statements as well as questions to the panelists, pointed to more than $1 billion in recent U.S. exports of steel products and touted the 149 current AD and CVD orders against imported steel, $900,000 in seizures for flouting those duty orders and a 10 percent increase in Commerce Department staff to work on unfair trade practice proceedings.

Democratic Senator Sherrod Brown of Ohio, Hilary Clinton’s possible running mate, urged the administration to support a section 201 petition if brought by a segment of the steel industry, which he said should lead to quick imposition of “appropriate” tariffs.  Steel pipe and tube producers seem to be most interested in the section 201 option. Other steel industry segments see it as too uncertain, given that the World Trade Organization has overturned all but one global safeguard the U.S. imposed in the past, including the 2001 section 201 steel case.

Senator Brown raised another option: WTO cases against China’s overcapacity, which appears to refer to a challenge claiming that the exports of its excess capacity driven by subsidies are undercutting or depressing the price of steel in the World market. “The only way to address this is with a WTO case,” Brown said. “China is in violation of its WTO obligations.”

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

As mentioned in the last newsletter, 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.

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 excluding all the Chinese steel from the US market and also cease and desist orders prohibiting importers from selling any imported steel that has already been imported into the United States.

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.

On April 27, 2016, the Chinese Ministry of Commerce (“MOFCOM”) urged the ITC and US government to reject U.S. Steel’s request to ban all imports from China’s biggest steel mills over allegations of price-fixing and trade-secret theft.

MOFCOM stated that U.S. Steel’s request for an investigation under Section 337 of the Tariff Act was better suited for intellectual property disputes than for commodities like steel. The country said the complaint should be dismissed in favor of “dialogue, communication and joint efforts to address the problem of excess capacity” in the steel market.

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

As mentioned in my last blog post, on April 18, 2016 the United Steelworkers Union filed a section 201 safeguard case against aluminum imports from all countries at the US International Trade Commission (“ITC”).

But after intense pressure from the US Aluminum producers, on April 22nd 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.

MAY ANTIDUMPING ADMINISTRATIVE REVIEWS

On May 2, 2016, Commerce published the attached Federal Register notice, REVIEWS MAY 2016, regarding antidumping and countervailing duty cases for which reviews can be requested in the month of May. The specific antidumping cases against China are:  Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Citrate Salt, Iron Construction Castings, Oil Country Tubular Goods, Pure Magnesium, and Stilbenic Optical Brightening Agents.

The specific countervailing duty cases are: Aluminum Extrusions and Citric Acid and Citrate Salt.

For those US import companies that imported :  Aluminum Extrusions, Circular Welded Carbon Quality Steel Line Pipe, Citric Acid and Citrate Salt, Iron Construction Castings, Oil Country Tubular Goods, Pure Magnesium, and Stilbenic Optical Brightening Agents during the antidumping period May 1, 2015-April 30, 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.

Recently, there are 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 2015.

NEW 337 CASE AGAINST CHINA

On May 5, 2016, Aspen Aerogels Inc. filed a 337 patent case at the ITC against imports of Composite Aerogel Insulation Materials and Methods for Manufacturing from China against Nano Tech Co., Ltd. and Guangdong Alison Hi-Tech Co., Ltd. In China.

If anyone wants a copy of the complaint, please feel free to contact me.

If anyone has 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

William E. Perry

Attorney

600 Stewart Street, Suite 1200
Seattle, Washington  98101
tel: 206.224.5657 – fax: 206.224.5659
cell: 206.235.4175
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US CHINA TRADE WAR–DUELING US CHINA ANTIDUMPING CASES, CHINA’S NME STATUS, TPP, ALUMINUM AND CONGRESS FAILURE TO LET TAAF FIX THE TRADE PROBLEM

Jackson Statue Canons Lafayette Park White House After Snow PennTRADE IS A TWO WAY STREET

“PROTECTIONISM BECOMES DESTRUCTIONISM; IT COSTS JOBS”

PRESIDENT RONALD REAGAN, JUNE 28, 1986

US CHINA TRADE WAR NEWSLETTER FEBRUARY 21, 2016

Dear Friends,

I have been in China for two weeks working on the Solar Cells and Steel Sinks cases.  This is an abbreviated February newsletter, which will cover trade and trade policy, including the new trade cases filed in the United States and China, the TPP, the New Trade Legislation, the China Nonmarket Economy Issue, plus developments in the Aluminum Extrusions and other cases.

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

Best regards,

Bill Perry

US CHINA TRADE WAR CONTINUES WITH FOUR NEW US CASES AGAINST CHINA AND ONE BIG NEW CHINA CASE AGAINST THE US

As stated at the top of this blog post, trade is a two way street, and the recent US antidumping and countervailing duty cases filed against China with the corresponding Chinese antidumping and countervailing duty case against the US illustrates that the trade war continues. The recent US cases target more than $1.2 billion of Chinese imports into the US, but the Chinese case targets about $1.5 billion of US exports, imports into China.  In trade what goes around comes around.

FOUR US CASES AGAINST CHINA

GEOGRID PRODUCTS

On January 13, 2016, in the attached complaint, AD PETITION Biaxial Integral Geogrid Products, Tensar Crop filed an antidumping and countervailing duty petition against about $10 to $20 million in imports of Certain Biaxial Integral Geogrid Products from the People‘s Republic of China alleging a dumping margin of over 200%. These Geogrid products are useful in earthwork construction, such as in roadways.

Conventional methods of road construction have been to use stone and, sometimes, a geotextile for drainage, underneath the paved or unpaved road. Geotextiles, however do not provide any structural benefit to a roadway. There is a market for geosynthetics, such as the Geogrid products,  that allow a contractor to improve not just the drainage, but also the structure and performance of a road, while using less stone.

AMORPHOUS SILICA FABRIC

On January 20, 2016, in the attached complaint, AD PETITION Amorphous Silica Fabric Scope Importers Exporters, Auburn Manufacturing filed an antidumping and countervailing duty petition alleging antidumping rates of more than 160% against more than $10 million of imports of amorphous silica fabric from China.

Auburn supplies this amorphous silica fabric to the US Navy and is competing against Chinese shipments of a high-performance fabric used to insulate and resist extreme heat in industrial applications

Because Auburn is the Navy’s leading supplier of ASF, it alleges the uptick in competing imports from China suggests violations of the Buy American Act, which requires 50 percent U.S. content for government purchases, and the Berry Amendment, which has a 100 percent domestic content requirement for textiles procured by the U.S. Defense Department.

BUS AND TRUCK TIRES

On January 29, 2016, in the attached complaint, AD PETITION Truck Bus Tires China 701-731 (3), the United Steelworkers union and Titan International Corp., a US tire manufacturer, filed an antidumping and countervailing duty case against imports of more than $1 billion truck and bus tires from China, and also India and Sri Lanka.

STAINLESS STEEL PETITION

On February 12, 2016, in the attached complaint, STAINLESS STEEL PETITION, a new antidumping and countervailing duty case was filed against Stainless Steel Sheet and Strip from China. The rumor in China is that because Commerce recently is refusing to give State Owned Companies their own dumping margin and since Commerce uses fake prices and costs based on surrogate values, Chinese stainless steel companies have decided not to fight the case because they believe the entire case is rigged and they cannot get a fair result.  When one understands the surrogate value methodology, which Commerce has used for 40 years to deny Chinese companies fair treatment in antidumping cases, one can understand why the companies would take such a position.

MAJOR CHINESE CASE AGAINST THE US–DISTILLER DRIED GRAINS

Meanwhile, the Chinese Government’s Ministry of Commerce (“MOFCOM”) filed its own antidumping and countervailing duty case against imports of $1.5 billion of distiller’s dried grains (DDGs), an animal feed product, from the United States.  By the way, it should be noted that in Chinese antidumping cases against the US, the Chinese government does use actual prices and costs in the United States to calculate antidumping rates for Chinese companies.  In the past, Commerce and the US government in one WTO case objected that the Chinese government used average US costs rather than the specific cost for the specific product in question.  At least the Chinese government uses real US costs.

According to the MOFCOM notices, the petitioner requesting the trade remedy probe is the China Alcoholic Drinks Association. DDGs are a byproduct of the production of ethanol and alcohol products that involve corn as a raw material.

After the last Chinese investigation against the US, US exports of DDGs dropped by 50%. The Chinese government later dropped the investigation in 2012 and US exports/Chinese imports neared pre-investigation levels, reaching roughly 2.1 million tons and subsequently experienced sharp growth in 2013, hitting 4.4 million tons.

Up to Nov. 2015, the U.S. exported roughly $1.5 billion worth of DDGs to China. That is about five times as much as the second-most valued export market, Mexico, which according to USDA data received about $315 million in DDG exports during the same time.

The Chinese Countervailing Duty notice alleges that U.S. DDG exporters received 10 types of countervailable subsidies, including several farm bill programs, such as Price Loss Coverage and Agriculture Risk Coverage, and also federally subsidized crop insurance and export credit guarantees. Additionally, the Chinese CVD notice also states that 42 state programs that provide benefits for biofuel production also constitute countervailable subsidies.  The AD duties on the US imports are alleged to be “significant.”

Growth Energy, a US ethanol trade group, in the attached announcement, GROWTH ENERGY CHINA ANTIDUMPING DISTILLER GRAINS, announced:

“We are disappointed to see the initiation of anti-dumping and countervailing duties cases against U.S. DDGS exports to China. The false allegations by the Chinese petitioners have the potential to seriously threaten our largest overseas market for DDGS and could have a significant impact on the supply, demand and price for DDGS in the U.S. and other foreign markets. We are working closely with our members and the U.S. Grains Council as it coordinates an industry response.”

The Us Grains Council in the attached announcement, US GRAINS COUNSEL CHINA AD, stated:

“We are disappointed to see today the initiation of antidumping and countervailing duties investigations of U.S. DDGS exports to China. We believe the allegations by the Chinese petitioners are unwarranted and unhelpful. They could have negative effects on U.S. ethanol and DDGS producers, as well as on Chinese consumers, potentially over a period of many years. We are also confident that our trading practices for DDGS, ethanol and all coarse grains and related products are fair throughout the world. We stand ready to cooperate fully with these investigations and will be working closely with our members to coordinate the U.S. industry response.”

Although many US unions and manufacturers scream that the Chinese government is retaliating against the US trade cases, one should keep in mind that in contrast to the United States, but like Canada, the EU and many other countries, China has a public interest test. Thus, when antidumping and countervailing duty complaints are filed in China, the Chinese government may not initiate them right away because of complaints by the downstream industry.  That is not true in the United States where downstream industries have no standing and there is no public interest test.

TRADE POLICY

TRANS PACIFIC PARTNERSHIP (“TPP”) CONTINUES TO RUN INTO PROBLEMS

There are ratification problems for the TPP all over the world, including the US, where election politics and other specific problems make it difficult for the TPP to pass the US Congress.

On January 21, 2016, the New Zealand government announced it would hold a ceremony on February 4th to sign the 12-nation Trans-Pacific Partnership in Auckland.  The ceremony officially gave the 12 nations a green light to begin pushing the agreement through their legislatures.  In a brief statement, New Zealand Trade Minister Todd McClay extended a formal invitation to top trade officials from each TPP country to ink the agreement, which will cover 40 percent of the global economy once it is in effect. Mr. McClay stated:

“Signature will mark the end of the TPP negotiating process. Following signature, all 12 countries will be able to begin their respective domestic ratification processes and will have up to two years to complete that before the agreement enters into force.”

McClay added that once the agreement has been signed, the New Zealand government will begin a series of “roadshows” to promote the TPP and win over public support.

A similar process is already underway in the U.S.  The U.S., however, cannot hold a vote on the agreement until the U.S. International Trade Commission (“ITC”) has issued a report on the economic effects of the TPP, which it is expected to do by the middle of May.  Around the time that report is released, the Obama administration is expected to present Congress with legislation to formally implement the TPP.

Once the TPP was signed on February 3rd by the trade ministers for the 12 TPP countries, the trade ministers all pledged to throw their weight into passing the trade deal through their legislatures.  In a Joint Statement, the 12 trade ministers stated:

“Our goal is to enhance shared prosperity, create jobs and promote sustainable economic development for all of our nations. The signing of the agreement signals an important milestone and the beginning of the next phase for TPP. Our focus now turns to the completion of our respective domestic processes.”

USTR Michael Froman, who is in a battle to sell the agreement to the U.S. Congress, stated before the signing that his office would continue to intensify its efforts to engage with lawmakers, many of whom have raised concerns about various aspects of the deal, ranging from its intellectual property rules to cross-border data flow provisions.  Although it looks that there will be no TPP vote on Capitol Hill until after the November elections, Froman stated:

“We are working with our stakeholders. … We are working with the leadership of Congress, educating everybody as to what’s in the agreements, addressing their questions and concerns. And I’m confident at the end of the day, because of the strong benefits to the U.S. economy, … that [the TPP] will have the necessary bipartisan support to be approved.”

Before the signing, USTR Froman outlined the plans to sell the TPP to the lawmakers on Capitol Hill. Froman stated that the signing in New Zealand comes at a time when “momentum for passage is growing” and reiterated his office’s commitment to smoothing out the many TPP concerns that have been voiced by the U.S. Congress.  The USTR stated:

“In the months ahead, in addition to the work that we are doing to ensure that members understand what’s in the agreement, understand the economic benefits on a state-by-state or district-by-district basis, we are going to be focusing congressional engagement in four key areas.”

The first concern, however, is the deal’s level of market exclusivity for biologic drugs, which are high-value medicines used to treat diseases like cancer and rheumatoid arthritis. While U.S. law offers 12 years of exclusivity for biologics before generics enter the market, the TPP offers between five and eight years.

Another point of contention has been the exemption of financial service providers from TPP rules barring the forced localization of data servers, a decision that came straight from the U.S. Treasury Department.  Treasury Secretary has testified in Congress that the US Treasury does not want the financial services provides covered by the TPP because of the concerns of US regulators.  Thus the US government itself is the one that exempted the financial service providers from the TPP.  This move has upset providers of the banking, insurance and electronic payment industries and their Congressional champions, who have argued that those industries are just as reliant on the free flow of data across borders as any other industry covered by the agreement.

Republicans, especially those from the South, have also taken issue with the TPP’s removal of tobacco control rules from the list of measures that can be challenged under the agreement’s investor-state dispute settlement mechanism.  The so-called tobacco carve out was meant as a gesture to public health advocates that did not want to see trade agreements used to undermine tobacco regulations. But this has faced criticism from experts who fear it could lead to a troubling trend of U.S. negotiators dropping items from trade deals if the public sentiment against them is strong enough.

At the February 3rd signing, none of the TPP trade ministers made it seem passage of the deal was imminent in their countries.  On February 3, 2016 John Brinkley of Forbes had this to say about the next steps after the TPP signing:

After Signing, TPP’s Future Is Hard To Gauge . . . .

You may ask what that means and what happens now. Probably, the agreement will fade from public view until the 12 signatories submit it to their legislatures for ratification. That could take years.

In order for the TPP to take effect, at least six of the 12 signatories, representing at least 85 percent of their combined gross domestic product, have to ratify it. They would have to include the United States, because the GDPs of the 11 other countries don’t add up to 85 percent of the total.

The Obama administration has some hope that Congress will vote on the TPP this spring. But that looks exceedingly unlikely. Senate Majority Leader Mitch McConnell, R-Ky., has told Obama that he doesn’t want to bring it up for a vote until after the November elections.

That can only mean a lame duck congressional session in November and/or December, because the next President might not submit it to Congress. All the candidates, Democratic and Republican, have said they oppose the TPP. But that doesn’t mean that whoever gets elected won’t change his or her mind after taking office. It’s happened before. . . .

The TPP is the largest free trade agreement ever negotiated. The 12 parties to it represent 40 percent of global GDP. Opposition to the deal has been intense in several of them.

In Australia, about 305,000 people have signed a petition demanding an independent assessment of the agreement before Parliament votes on it.

In Auckland, New Zealand, about 1,000 protestors Wednesday tried to block access to the Sky City Convention Centre, where the signing took place. There have also been sizeable protests in Japan, Chile and Malaysia.

A TPP without Malaysia or Vietnam or Chile or Peru would still be viable,especially considering the list of countries that hope join it after it takes effect – South Korea, Indonesia, Colombia, the Philippines and others.  But a TPP without the United States? Not possible. And the country where it faces the toughest sledding is the United States of America.

A Pew survey last June found that only 49 percent of Americans saw the agreement as “a good thing for our country.” Pew surveyed people in all 12 TPP countries and found more negativity in only one, Malaysia.

Given the enormity of the TPP, it has generated more controversy here than has any previous free trade agreement. Interest groups representing everything from gay rights to Tea Party hostility to government have taken up arms against it.  There is also a great deal of ambivalence, or downright hostility, to the deal in Congress. It’s not certain that there is enough support in the House and Senate to ratify it. . . .

Republicans, who historically have supported free trade agreements, will probably do what the president-elect wants them to do, if he or she is a Republican. At this point, that means voting no on the TPP.

That is no doubt what McConnell is hoping for. He doesn’t like the TPP’s treatment of the tobacco industry and he doesn’t like Obama. You’ll remember his famous pronouncement of 2009: he said his mission in life was to make sure Obama was a one-term president. Having failed at that, he’s determined not to give the president anything he wants during his last year in office. That could put off a ratification vote until 2017 or later.

Brinkley’s full article can be found at this link http://www.forbes.com/sites/johnbrinkley/2016/02/04/399/#110757c32c7d

The Presidential primary is also a major obstacle to the passage of the TPP. Mirroring statements by the Presidential candidates about the TPP, there is substantial divisiveness among lawmakers in Congress, even among party-line Republicans who have historically supported new trade agreements.  The combination of an unexpected level of Republican opposition and the traditional resistance from core Democrats because of union opposition suggests a substantial lag between Froman signing the TPP next month and getting the agreement approved on Capitol Hill.

But Presidential politics have substantially raised concerns that the US is entering a new protectionist era.   On January 28, 2016, the Wall Street Journal in an editorial entitled, ”The Leap of Trump As the GOP nominee or President, he would be a political ‘black swan.“ The Journal stated:

We’ve been critical of Mr. Trump on many grounds and our views have not changed. But we also respect the American public, and the brash New Yorker hasn’t stayed atop the GOP polls for six months because of his charm. Democracies sometimes elect poor leaders—see the last eight years—but their choices can’t be dismissed as mindless unless you want to give up on democracy itself. . . .

The problem is that Mr. Trump is an imperfect vessel for this populism, to say the least.

On politics and policy he is a leap into the known unknown. That so many voters seem willing to take this leap suggests how far confidence in American political leaders has fallen.

We can debate another day how the U.S. got here, but with the voting nigh it’s important to address what a Trump nomination could mean for the GOP and the country. . . .

All of which means that Mr. Trump has the widest electoral variability as a candidate. He could win, but he also could lose 60% to 40%, taking the GOP’s Senate majority down and threatening House control. A Clinton Presidency with Speaker Nancy Pelosi would usher in an era of antigrowth policies worse than even 2009-2010. This is the killer black swan.

And how would Mr. Trump govern as President? Flip a coin. . . .

But history teaches that Presidents try to do what they say they will during a campaign, and Mr. Trump is threatening a trade war with China, Mexico and Japan, among others.

He sometimes says he merely wants to start a negotiation with China that will end happily when it bows to his wishes. China may have other ideas. A bad sign is that Mr. Trump has hired as his campaign policy adviser Stephen Miller, who worked for Jeff Sessions (R., Ala.), the most antitrade, anti-immigration Senator. . . .

Republicans should look closely before they leap.

Prior to this Article on January 20, 2016, John Brinkley of Forbes wrote an article entitled, “Trump On Trade: Does He Really Believe This Stuff? Oh, Donald, what are we going to do with you?” The Article states:

During last week’s GOP presidential candidates’ debate, the front-runner Donald Trump said again that the way for the United States to end China’s treachery with regard to trade was to slap a significant tariff on it.

Earlier, he told the New York Times that the tariff rate should be 45 percent.

When Fox Business anchor Neil Cavuto asked him about this during the debate, he said, “That’s wrong. They were wrong. It’s the New York Times, they’re always wrong.

Then the Times produced a recording of Trump saying exactly what he said he didn’t say. Busted! . . .

“They (the Chinese) can’t believe how stupid the American leadership is,” he said during the debate. “I’m totally open to a tariff. If they don’t treat us fairly —hey, their whole trade thing is tariff. You can’t deal with China without tariff. They do it to us. We don’t do it. It’s not fair trade.”

He also said, “I know so much about trade with China.”

For the record, WTO members are required to give each other Most Favored Nation status. That means that member countries have to charge the same tariff rate on a particular product on all imports from other members. If China levies a 2 percent tariff on cars from Japan, it has to give the United States and all other WTO members the same treatment. China does not impose anything close to a blanket 45 percent tariff on all U.S. imports.

If the U.S. government were to do as Trump suggests, it would violate a fundamental WTO rule, lead to retaliatory tariffs by China, close the Chinese market to American exporters and start a trade war. That’ll teach ‘em!

If Trump knew as much about trade with China as he claims, he’d know that tariffs aren’t the issue. Of greater concern is China’s proclivity for breaking the rules, such as by dumping products at below cost in the U.S. market.

In addition to dumping, Brinkley went on to complain about various China problems, including counterfeiting and illegal transshipment and then went on to state:

Does Trump know about any of these things? If so, he’s never mentioned it.

Trump made another laughable trade-related vow in a speech Monday at Liberty University. He said that, as president, he would force Apple to make all its products in the U.S.

“We’re going to get Apple (NASDAQ:AAPL) to build their damn computers and things in this country instead of in other countries,” he said.

He didn’t say how he would do this, but it doesn’t matter, because he couldn’t. It isn’t possible. “There’s no legal way he could do that,” said Chris Cloutier, a trade lawyer with Schagrin Associates in Washington.

I know, I know, refuting Trump’s claims about trade (or about pretty much anything) is like shooting fish in a barrel. So why bother?

(A) Because he claims to know a lot about trade, (B) because his followers take everything he says as fact and (C) because political pundits and prognosticators have begun saying the Trump train has gathered so much speed it may be unstoppable. . . .

Stranger things than a Donald Trump presidency have happened. But I don’t know what they are.

For the full article, see http://www.forbes.com/sites/johnbrinkley/2016/01/20/trump-on-trade-does-he-believe-what-he-says/#4508a7055247.

In commenting on this Article to Mr. Brinkley, I made the point that all the arguments he throws at China, in fact, are the reason for Trump’s argument.   Brinkley never mentions that US antidumping cases against China are based on fake numbers and that the game the Commerce Department has created, in fact, has created another game—illegal transshipment. To be clear, Commerce uses fake numbers because dumping is defined as selling at the United States below prices in the home market or below the fully allocated cost of production. Commerce, however, refuses to look at actual prices and costs in China and has refused to do so for close to 40 years.

Commerce instead calculates a cost of production for Chinese companies using consumption factors in China valued by surrogate values from import statistics in 5 to 10 different countries and those countries can change from a preliminary to a final determination and from initial investigation to review after review investigation. These surrogate values have no relationship to the actual prices and costs in China, and, therefore, are fake numbers.  No rational person when he sees dumping rates go from 0 to 57 to over 400% using different surrogate values from different countries could truly believe that the nonmarket economy methodology actually reflects the cost of production in China.  See my last post and the Court of International Trade’s recent decision in the Baoding Glycine case.

On the Democratic side of the Presidential primary, however, there was a small ray of hope. On February 5, 2016, in the Democratic debate, Hillary Clinton stated that she could support the TPP if the deal is changed. Senator Bernie Sanders, however, remains adamantly opposed to the deal.

Hilary Clinton stated: that

“I waited until it had actually been negotiated because I did want to give the benefit of the doubt to the administration. Once I saw what the outcome was, I opposed it.”

But Clinton also made clear that her opposition is not set in stone. She indicated that she might support the TPP if it were to undergo certain amendments or alterations, “There are changes that I believe would make a real difference if they could be achieved, but I do not currently support it as it is written.”

Bernie Sanders, however expressed his total contempt for US trade policy, stating:

“We heard all of the people tell us how many great jobs would be created. I didn’t believe that for a second because I understood what the function of NAFTA, CAFTA, PNTR with China and the TPP is. It’s to say to American workers, ‘Hey, you are now competing against people in Vietnam who make 56 cents an hour minimum wage.’”

Meanwhile, Canada was having the same problem with the Canadian press reporting on January 25, 2016, that International Trade Minister Chrystia Freeland stated that Canada would sign on to the TPP deal at a ceremony in New Zealand on Feb. 4, but ratification is a matter for Parliament. Apparently, the Liberals in Parliament are still on the fence as to whether or not they support it.  In an open letter posted on the Department’s website, the Trade minister stated:

“Just as it is too soon to endorse the TPP, it is also too soon to close the door.  Signing does not equal ratifying…. Signing is simply a technical step in the process, allowing the TPP text to be tabled in Parliament for consideration and debate before any final decision is made.”

Canada requires a majority vote in the House of Commons to seal the deal. Freeland further stated:

“It is clear that many feel the TPP presents significant opportunities, while others have concerns. Many Canadians still have not made up their minds and many more still have questions.”

Each country, including the United States and Canada, have up to two years to ratify the TPP. Although Conservative Prime Minister Stephen Harper said he was in favor the deal, now a new government is in power in Canada.  Freeland further stated, “We are strongly in favor of free trade. Having said that, we’re not the government that negotiated the TPP.”

Meanwhile on January 14, 2015, in the attached submission, RANCHERS SUBMISSION ITC TPP, R-CALF USA, the largest trade organization exclusively representing cattle producers within the multi-segmented beef supply chain, in a submission to the ITC announced their opposition to the TPP because it will harm U.S. cattle and sheep industries.

On February 2, 2015, the American Apparel & Footwear Association announced their support of the TPP, but criticized the length of time it will take for the deal to eliminate certain tariff lines. AAFA stated:

“With the TPP covering 40 percent of the world’s GDP and reaching approximately 800 million consumers, the trade pact represents significant opportunities for the clothing, shoe, and accessories industry. For this reason, and after consultation with our members, we are expressing our strong support for the TPP.”

But the AAFA went on to express some concerns that the Agreement was not ambitious enough, stating:

“While there are some immediate opportunities for apparel, most apparel articles are constrained by extremely restrictive rules of origin and long duty phase-outs, meaning benefits will take longer to realize.”

Among the products receiving immediate tariff relief under the TPP are footwear and travel goods, such as handbags, backpacks, and laptop cases, but AAFA stated that “a more accelerated and flexible approach” for apparel and legwear would have created more immediate benefits for producers of those items.

CHINA IS NOT HAPPY WITH THE TPP RHETORIC

While ratification is a problem in the United States Congress, China is not happy with the US government arguments in favor of the TPP that it allows the U.S. to “write the rules of trade” in the Asia-Pacific region offsetting Beijing’s policies.  On February 5, 2015, Chinese Foreign Ministry Spokesman Lu Kang, speaking at his daily press briefing, in response to a question about the TPP’s role as a China containment device, sharply responded:

“We never believe that world trade rules can be made by any specific country alone. We always maintain that the World Trade Organization play a leading role in making global trade rules, and hope that major trading powers and economies would stay committed to upholding the role of the WTO.”

“There is no need to politicize the economic issue. Don’t make people feel that the U.S. is pursuing some political ends throughout the process of promoting the TPP. Remarks as such will mislead the public and do harm to state-to-state relations.”

Most recently, President Barack Obama himself declared in his State of the Union address that with the agreement in place, “China does not set the rules in that region; we do.”

The ironic point is that the Doha Round WTO negotiations collapsed in large part because of the intransigence of the developing countries, led by India, and yes China. Killing the WTO round when there is a TPP alternative was not a good strategy for the developing countries, and yet that is just what they did.  Many scholars have argued that the biggest winners in trade deals are developing countries, and yet India in particular is the country with China’s help that stopped the Doha Round in its tracks.

TPP TEXT AND TRADE ADVISORY REPORTS

As stated in prior blog posts, 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 blog posts on www.uschinatradewar.com.

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

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 many of the reports can be found here. ITAC-3-Chemicals-Pharmaceuticals-Health-Science-Products-and-Services ITAC-2-Automobile-Equipment-and-Capital-Goods ITAC-5-Distribution-Services ITAC-8-Information-and-Communication-Technologies-Services-and-Electronic-Commerce ITAC-6-Energy-and-Energy-Services ITAC-9-Building-Materials-Construction-and-Non-Ferrous-Metals ITAC-10-Services-and-Finance-Industries ITAC-12-Steel ITAC-11-Small-and-Minority-Business ITAC-14-Customs-Matters-and-Trade-Facilitation ITAC-15-Intellectual-Property ITAC-16-Standards-and-Technical-Barriers-to-Trade Labor-Advisory-Committee-for-Trade-Negotiations-and-Trade-Policy JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE. 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

On February 11, 2016, the new trade and customs enforcement bill passed the Senate and is on its way to the President for signature. In an announcement, House Ways and Means Chairman Kevin Brady (R-TX) praised the Senate for passing the Trade Facilitation and Trade Enforcement Act of 2015, stating:

“We are now sending to the President a bipartisan bill to establish a 21st century customs and border protection system that facilitates trade and strengthens enforcement. This pro-growth bill will make it easier for our workers to compete in global marketplaces and level the playing field.

“By using a Conference Committee to reconcile our differences, this bill also marks a return to regular order. I congratulate the Senate, especially my partners Chairman Hatch and Ranking Member Wyden, and I urge President Obama to sign this bill into law as soon as
possible.”

On December 9, 2015, in an announcement, House Ways and Means Chairman Kevin Brady and Senate Finance Committee Ranking Member, Ron Wyden, announced a final agreement on the Trade Facilitation and Trade Enforcement Act of 2015.  A copy of the bill, the conference report and summary of the bill are attached, Trade-and-Environment-Policy-Advisory-Committee.pdf Summary of TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 2015 CONFERENCE REPORT TRADE FACILITATION AND TRADE ENFORCEMENT ACT OF 20152 JOINT EXPLANATORY STATEMENT OF THE COMMITTEE OF CONFERENCE.

CHINA’S NME STATUS—ANOTHER HOT TOPIC FOR 2016

As mentioned in the prior blog postlast newsletter, interest groups on both sides of the issue have increased their political attacks in the debate over China’s market economy status in US antidumping and countervailing duty cases. On December 11, 2016, pursuant to the China – World Trade Organization (“WTO”) Accession Agreement, the 15 year provision, expires.

More specifically, with regards to the application of the US antidumping non-market methodology to the Chinese imports, the United States faces a looming deadline under the WTO Agreement. Section 15 of the China WTO Accession Agreement, which originated from the US China WTO Accession Agreement, provides:

  1. Price Comparability in Determining Subsidies and Dumping . . .

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

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

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

In other words, pursuant to the China WTO Accession Agreement, Commerce’s right to us a nonmarket economy methodology “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.

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.

If the Commerce Department is the decision maker, nothing would happen on December 11, 2016, but as USTR Froman states below, the US government has not yet made a determination.

As also mentioned in previous blog posts, the Europeans appear to be leaning to giving China market economy status in December 2016, but the US government is opposed.

On January 21, 2016, the US China Business Council (“USCBC”), which represents many companies doing business in China, such as Boeing, called on the United States to grant China market economy status under the antidumping law as required by the WTO. In its 2016 Board of Directors’ Statement of Priorities in the U.S.-China Commercial Relationship, the USCBC stated that the U.S. should take this step as a way of building “confidence in the bilateral relationship” with China, and solidify the foundation for “mutually beneficial commercial relations.” The USCBC is the first major U.S. business group to weigh in on the issue.

In a conference call with reporters on Jan. 19, USCBC President John Frisbie stated that while the issue is “not on the radar” for a lot of companies because it deals with the minutiae of trade remedy law, there is the potential for a “big problem” in U.S.-China relations if Washington does not grant market economy status to Beijing.  He argued that the U.S. is obligated to automatically grant market economy to China under the terms of the WTO accession protocol and that “attempts to find legal wiggle room in this are pretty thinly supported at best.”

Although the Commerce Department’s position of opposing market economy for China is clear, the USTR has stated that it still has not made a decision on the matter. In Jan. 13 comments at the Wilson Center, USTR Michael Froman said the U.S. government has “not made any decision” with regard to whether the United States should grant market economy status to China.  Froman also denied reports that the U.S. has pushed the European Commission not to grant China market economy status. “We are not encouraging the EU to take any particular position.”

On January 29th, however, it was reported that the European Parliament’s International Trade Committee, known as INTA, stated that economic leaders in Brussels should not recognize China as a market economy under the World Trade Organization’s rules, as Beijing has not taken the necessary steps to curtail the government’s influence on commercial activities.  INTA stated:

“It should be clear that EU should speak with a single voice stating that China is not fulfilling, for the time being, the EU five technical criteria for defining a market economy, and the importance to define a common strategy to reinvigorate and apply our anti-dumping procedures on various products suffering from the strong trade distortion caused by Chinese exporting companies.”

On January 29, 2016, European Union Trade Commissioner Cecilia Malmstrom stated that the Commission plans to conduct an impact assessment on granting China market economy status (MES) in antidumping cases that will weigh not only the legal and economic implications, but any potential geopolitical fallout as well.

In a Jan. 28 speech in Brussels to the European Chamber Of Commerce In China (ECCC), and in a Jan. 27 letter to members of the European Parliament, Malmstrom left no doubt that a major part of this analysis will involve an assessment of how failing to grant MES to China might impact relations with Beijing stating, “The Commission is now examining the implications of this [expiration], including the economic impact of any change to our anti-dumping rules,”  Malmstrom further stated in her ECCC prepared remarks. “But let me be clear that the overall economic importance of our close relationship with China is also an important part of our analysis.”

In response to a December letter from two members of the center-right European People’s Party, Malmstrom stated:

“I take good note of the concerns you express in your letter and I appreciate the points you raise, given in particular that this is a very complex issue and one which demands that we take full account of all the legal, economic and political ramifications. The Commission is carefully analyzing the legal implications of the expiry of certain provisions of China’s WTO accession protocol and carrying out an impact assessment.”

Several sources said Malmstrom is personally in favor of granting China MES, and one insisted this view is shared by the commission’s director-general for trade, Jean-Luc Demarty.

On February 5, 2016, it was reported that the European Commission is considering at least four changes to the way it enforces its trade remedy law that it believes would blunt the impact of extending market economy status to China in antidumping cases and thereby make that change more politically palatable to affected domestic industries.

The first of these measures is the so-called “cost adjustment” methodology, which the EU has previously used in AD cases to offset what it considers to be the artificially low price of Russian gas. But the cost adjustment methodology has been challenged at the WTO by Russia and Argentina, and its legal soundness is therefore in question.

Second, sources say the commission has suggested it could eliminate the EU’s “lesser duty rule,” which generally imposes AD duties only in the amount necessary to offset the injury to the domestic industry.

A third mitigating measure the Commission has floated is “strengthening” the antisubsidy enforcement, most likely by devoting greater resources to investigating the web of subsidy programs provided at different levels of government in China.

Fourth, it has proposed “grandfathering” in the dozens of existing AD orders against Chinese imports that are already on the books in the EU.

EU Trade Commissioner Cecilia Malmstrom this week said that it would be “politically unrealistic” to simply grant MES to China in the context of AD cases without taking some form of mitigating steps. She spoke on Feb. 1 at the European Parliament’s plenary session in Strasbourg, France.

Both Lange and Malmstrom said they would be discussing the issue with Beijing, and the commissioner underscored that not granting China MES at all “might have an impact on our trade and investment relations” with China, which could have a cost for EU business. “These effects are very difficult, if not impossible, to estimate in advance,” she warned.

But it was also reported on February 5th, that a European Commission analysis projects that granting market economy status (MES) to China in antidumping (AD) cases without mitigating measures could directly cost as much as 188,300 jobs in affected European Union industries.

On February 10, 2016, the European Commission issued a notice requesting public comment by April 20 on whether the Commission should make China a market economy pursuant to the WTO Agreement. In the Notice the European Commission stated:

“This public consultation is part of an in-depth impact assessment that will include a careful study of the economic effects of any potential change broken down by member states, with a particular focus on jobs”

While the Commerce Department may make its decision within the context of a specific case, an EU policy shift would require a change to the law. The European Commission was very clear about the impact of the legal change in the notice:

“Should an amendment of the anti-dumping legislation be deemed necessary, this may result in lower anti-dumping duties which may not offset the negative effects of dumping and may further increase dumped imports causing further injury to the EU industries concerned.  This in turn may result in putting a number of jobs in the EU at risk.”

CRISIS IN US TRADE POLICY WITH ALUMINUM FACTORIES CLOSING, NEW RAW ALUMINUM TRADE CASES COMING, AND THE FAILURE OF TAA FOR COMPANIES TO HELP LARGER COMPANIES

As indicated in my last blog post, 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.   But the aluminum story will probably parallel the steel story over the last 40 years.

The US Aluminum Industry will probably bring many antidumping and countervailing duty cases against China aimed at Chinese aluminum imports based on nonmarket economy methodology with fake numbers resulting in high antidumping rates shutting out the Chinese product.  But the Chinese imports will be simply replaced by imports from other countries, such as Korea, where the Commerce Department will use normal market economy antidumping methodology resulting in low, if not 0%, antidumping rates against those countries.  So in the long run antidumping and countervailing duty cases cannot save the US manufacturing companies, only slow the decline.

On February 6, 2016, in an e-mail to his constituents, however, Congressman Dave Reichert, Chairman of the Subcommittee on Trade, House Ways and Means, illustrated the real human costs of the trade war. In the attached e-mail he mentioned the impact of aluminum imports on aluminum manufacturing companies in Washington State and the loss of jobs in his district, stating:

Support for Local Workers

In November of last year, the aluminum manufacturing company, Alcoa, announced its plans to idle its smelting operations in Ferndale and Malaga, Washington, resulting in the loss of 880 local jobs. Many of these employees had worked at the plant for years and depended on that employment to provide for their families.

I am pleased to say that the U.S. Department of Labor (DOL) approved assistance for these workers in the form of Trade Adjustment Assistance (TAA) after several members of the Washington Delegation and I requested support for them.

Now these workers will have the opportunity to receive job training, assistance in finding new employment, and aid as they reenter the workforce.

Retraining under the TAA for Workers program may be a nice idea for the aluminum workers from these factories, but retraining means nothing if the jobs do not exist. That is why the labor unions are so adamantly opposed to Trade Agreements, such as the Trans Pacific Partnership, and at least on the face opposed to TAA for Workers because the retraining does not result in employment at comparable wages. Thus when it comes to the Trans Pacific Partnership (“TPP”), the labor unions have been very clear that they want to “kill the rotten” and that is why so many Democratic Congressmen and Senators oppose the TPP and other Trade Agreements.

But there is now a much bigger problem created by this trade crisis, which could result in the United States moving into a much more protectionist era with high tariffs on imports from many different countries, including China and Mexico. The loss of jobs by manufacturing industries and for the lower middle class, in truth, is a major reason for the rise of Donald Trump and Senator Bernie Saunders in the Presidential primary.  The outsiders are the ones surging in the Presidential primary in New Hampshire because many of their supporters are blue collar workers in the lower middle class, who strongly believe that the US Government has forgotten about them and simply does not care about them.  If Donald Trump or Bernie Saunders becomes President, based on their statements in the primaries, they would reject the Trans Pacific Partnership and could literally tear up past trade agreements, such as NAFTA.  US Trade Policy is facing a crisis and the possible move into a much more protectionist era created by a major failure in Trade Policy.

On February 11, Dan Henniger for the Wall Street Journal in an article entitled “Donald Trump Among the Canaries” compared Trump to the canary in the Coal Mine that warns miners if there are toxic gases in the mine stating:

Just as dying canaries warned coal workers that the shaft was filling with toxic gases, New Hampshire’s voters have told the political status quo, to coin a phrase, you are killing us.

As Henniger goes on to state, however, the core of Trump’s argument is his attack on Trade:

At the core of the Trump campaign is one policy idea: imposing a 45% tariff on goods imported from China. In his shouted, red-faced victory speech Tuesday, he extended the trade offensive to Japan and Mexico.

Some detail: Combining the value of goods we sell to them and they to us, China, Mexico and Japan are the U.S’s Nos. 1, 3 and 4 trading partners (Canada is No. 2). They are 35% of the U.S.’s trade activity with the world. The total annual value of what U.S. producers—and of course the workers they employ—sell to those three countries is $415 billion. . . .

Mr. Trump says the threat alone of a tariff will cause China to cave. Someone should ask: What happens if they don’t cave? Incidentally, unlike Mexico, China has between 200 and 300 nuclear warheads and 2.4 million active-duty forces. Irrelevant?

In contrast to Japan and Taiwan, which are dependent upon the United States for their national security, what these nuclear warheads mean is that if the United States throws a trade rock at China, China will throw a trade rock back. That is just what is happening in the US China Trade War today.

That failure in US Trade Policy, however, is the US failure of Congress to support the only trade program that works and saves import injured manufacturing companies—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 $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 makes it impossible for the TAA for Companies program to work with larger US companies, which have been injured by imports. The TAA for Companies program simply does not have the resources to do the job, and hard right conservatives see any Government support as anathema to their ideology of no interference in the marketplace.  Their position is no government help despite the fact that government actions, the trade agreements, have caused the problem.

Thus a large Alcoa Aluminum factory is not a company that can take advantage of the program. Alcoa would not submit themselves to a petition process for a mere $75,000.   TAA for Companies simply cannot do much when a factory closes.  Working with a factory the size of Alcoa’s, however, would be working with an entity that vastly exceeds anything in the $12.5 million TAA for Companies program.

TAA for Companies is hamstrung by neglect with a maximum technical assistance per firm level that has not changed in at least 30 years. This forces the TAA Centers in the United States to focus on small and medium size enterprises (under $50M in sales) while the big job creators are the larger Medium Size Enterprise, which account for most of the sector’s well-known job creation performance.

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.

The program is amazingly effective.   Between 2010 and 2014, 896 companies with more than 90,000 employees in the program increased average sales by 40% and employment by 20%, achieving impressive double-digit productivity gains.   Essentially, all of the 15,090 jobs lost to imports before company participation in the TAAF program were regained.

To put that in context, the very much larger TAA for Worker Program’s appropriation for FY 2015 was $711 million. The TAA for Worker (TAAW) Program spends roughly $53,000 per year to retrain a single employee AFTER a job has been lost due to trade.   The mission for each program is very different – TAAF’s primary mission is to save the company AND the jobs, while TAAW’s mission is to retrain workers after the jobs have already been lost.   Now you should ask which is the smarter investment?

Moreover, when the company is saved, it and its workers pay Federal and State taxes so the program essentially pays for itself. The more stunning fact – if the TAAF program saves just 300 jobs per year on a national basis for which TAA for Worker resources of $53,000 aren’t required for retraining efforts, the program easily pays for itself up to its $16 million authorization level.

Global trade has evolved over the past 40 years and perhaps it’s time for trade policy to adapt to those changes.   The original mission for TAA was more concerned with the impact of increased imports on US workers, and the vast majority of funds have been dedicated to the TAA for Workers program.   The landscape has changed as more than 5 million manufacturing jobs have been lost in the last 40 years, and the mission for TAA must now shift to maintaining a robust core of manufacturing companies and jobs. Without a vibrant core of manufacturing firms, the US won’t have the capacity or capabilities to achieve growth through export expansion no matter how many free trade agreements are passed, and all the training in the world is not going to bring back those manufacturing jobs.

TRADE

ALUMINUM EXTRUSIONS – THE COURT OF INTERNATIONAL TRADE STRIKES BACK

On November 20, 2015, the Commerce Department issued its final determination in the 2013-2014 antidumping review investigation of aluminum extrusions from China.  Based on surrogate values, Commerce issued antidumping rates of 86.01%, but for companies that did not cooperate, Commerce issued antidumping rates of only 33.28%.

In addition, in the Countervailing Final Determination for 2013, Commerce issued a countervailing duty rate ranging from 3.59% to 222.82% with most companies receiving a rate of 61.36% rate.  See CVD Aluminum Extrusions 2013 Final Review Notice.3424528-01 CVD Aluminum Extrusions 2013 Decision Memo.3424530-01 CVD FINAL DECISION MEMO

As mentioned in prior blog posts, the Commerce Department has been expanding the scope of the antidumping and countervailing duty orders to include multiple products, such as curtain walls, the sides of buildings, auto parts, refrigerator handles, geodesic domes and multiple other products. In two recent decisions, the Court of International Trade has struck back.

But on February 10th in the Court of International Trade case, Shenyang Yuanda Aluminum Industry Engineering Co. Ltd., Jango Curtain Wall Americas Co. and Permasteelisa North America Corp. v. United States case, SHENYANG CURTAIN WALL CASEJudge Pogue reversed and remanded the Commerce Department/s determination that curtain wall units are covered the aluminum extrusions from China antidumping order.  In that decision, Senior Judge Pogue stated:

Because Commerce’s scope ruling redefines key terms contrary to the plain language of the AD&CVD Orders, it is not in accordance with law; because it does not reasonably consider the characteristics of Plaintiffs’ merchandise and the evidence that weighs against the agency’s determination, it is unsupported by substantial evidence; because it offers insufficient reasons for treating similar products differently, it is arbitrary and capricious. Accordingly, the court remands to Commerce for further consideration in accordance with this opinion.

Judge Pogue then describes the Curtain Wall Units in question:

Because “complete curtain wall units form part of a larger curtain wall system specifically designed for a building,” unassembled curtain wall units “are sold and delivered to the job site in segments pursuant to the schedule stipulated in the contract to supply the larger system. If that system is “for a multi-story skyscraper,” then it may require shipments of curtain wall units and installation hardware “over a period of months,” with “[e]ach entry dovetail[ing] with the contractor’s construction schedule so that complete curtain wall units can be immediately installed onto the building when the container arrives at the job site.”

Judge Pogue pointed to subassemblies stating:

While Commerce “enjoys substantial freedom to interpret and clarify its antidumping duty orders, it can neither change them, nor interpret them in a way contrary to their terms.” Here, Commerce has changed and expanded the terms of the AD&CVD Orders by redefining “subassembly” and ignoring the scope language that limits products covered.

Accordingly, Commerce’s Redetermination is not in accordance with law. . . .

In contrast, Commerce does not consider the ample evidence on the administrative record defining and explaining the product at issue here. Commerce does not consider whether a single-entry, unitized curtain wall is a real product, outside the realm of its own ungainly semantic gymnastics, that is imported with any regularity into the United States.

On February 1, 2016, in Whirlpool Corp. v. United States, WHIRLPOOL ALUMINUM EXTRUSIONS SCOPE, the CIT ruled that certain refrigerator door handles should not be included in the Aluminum Extrusions case, while also ruling that other handles should have been included in the case.

THE ONGOING STEEL CASES

On February 9, 2016, the US Steel Companies urged the Obama Administration to use all channels to obtain details from China regarding its promise to cut steel production capacity.  Thomas Gibson, the president and CEO of the American Iron and Steel Institute (AISI), stated in a press conference made clear that there has been no official information on China’s promised capacity cuts, just Chinese press reports stating that the State Council has announced it will begin this year to cut 100-150 million tons of overcapacity over five years.

Many pundits, however, are questioning the Chinese government’s economic data making it hard to discern what’s really happening in the economy. China has a glut of old-line factories that make products like steel, glass and cement. That industrial overcapacity stems from years of debt financed investment in industries that now show little sign that they can repay those loans.

According to Chinese statistics, China produced 804 million tons of steel last year, even as demand faltered. Over all, China’s steel-making capacity was set to reach 1.17 billion tons last year.

The Chinese government’s State Council, or cabinet recently announced that it would close 100 million to 150 million tons of steel-making capacity. That would mean cutting capacity by an amount similar to the total annual steel output of Japan, the world’s No. 2 steel maker.

But it is a balancing act for the Chinese authorities. Li Xinchuang, the head of the China Metallurgical Industry Planning and Research Institute, recently told the official Xinhua news agency that the planned steel mill closings could cost 400,000 jobs. “Large-scale redundancies in the steel sector could threaten social stability,” he warned.

If you have any questions about these cases or about the US trade policy, 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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